UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1O-K

(Mark One)

þ		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2007

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                      to                     

Commission file number 1-12001

ALLEGHENY TECHNOLOGIES INCORPORATED

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (412) 394-2800

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark whether the Registrant is well known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes       þ       No      o

     Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes       o       No       þ

     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, and (2) has been subject to such filing requirements for the past 90 days.
Yes       þ       No      o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     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. (Check one):

     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

     On February 14, 2008, the Registrant had outstanding 100,949,485 shares of its Common Stock.

The aggregate market value of the Registrant’s voting stock held by non-affiliates at June 30, 2007 was approximately $10.48 billion, based on the closing price per share of Common Stock on June 29, 2007, the last trading day prior to that date, of $104.88 as reported on the New York Stock Exchange, and at February 14, 2008 was approximately $8.13 billion, based on the closing price per share of Common Stock on that date of $82.49 as reported on the New York Stock Exchange. Shares of Common Stock known by the Registrant to be beneficially owned by directors and officers of the Registrant subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are not included in the computation. The Registrant, however, has made no determination that such persons are “affiliates” within the meaning of Rule 12b-2 under the Exchange Act.

Documents Incorporated By Reference

Selected portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 9, 2008 are incorporated by reference into Part III of this Report.

 

 

INDEX

						Page
						Number
PART I
		Item 1.		Business			3
		Item 1A.		Risk Factors			11
		Item 1B.		Unresolved Staff Comments			15
		Item 2.		Properties			15
		Item 3.		Legal Proceedings			16
		Item 4.		Submission of Matters to a Vote of Security Holders			16
PART II
		Item 5.		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			16
		Item 6.		Selected Financial Data			19
		Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
		Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			48
		Item 8.		Financial Statements and Supplementary Data			49
		Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			82
		Item 9A.		Controls and Procedures			83
		Item 9B.		Other Information			85
PART III
		Item 10.		Directors and Executive Officers of the Registrant			85
		Item 11.		Executive Compensation			85
		Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			85
		Item 13.		Certain Relationships and Related Transactions, and Director Independence			86
		Item 14.		Principal Accountant Fees and Services			86
PART IV
		Item 15.		Exhibits, Financial Statements, Financial Statement Schedules			86
SIGNATURES
EX-12.1
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

PART I

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

We operate in the following three business segments, which accounted for the following percentages of total revenues of $5.5 billion, $4.9 billion, and $3.5 billion for the years ended December 31, 2007, 2006, and 2005, respectively:

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.

     Direct sales by geographic area in 2007, and as a percentage of total sales, were as follows:

($ in millions)
United States		$	3,987.0				73%
Europe			864.7				16%
Far East			382.6				7%
Canada			138.9				3%
South America, Middle East and other			79.3				1%
Total sales		$	5,452.5				100%

     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

     We believe that our research and development capabilities give ATI an advantage in developing new products and manufacturing processes that contribute to the profitable growth potential of our businesses on a long-term basis. We conduct research and development at our various operating locations both for our own account and, on a limited basis, for customers on a contract basis. Research and development expenditures for each of our three segments for the years ended December 31, 2007, 2006, and 2005 included the following:

     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.

Executive Management, Including Executive Officers under Federal Securities Laws

The Company’s executive officers under the federal securities laws and members of the Company’s management executive committee as of February 14, 2008 are as follows:

Set forth below are descriptions of the business background for the past five years of the Company’s executive management.

      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.

Item 1A. Risk Factors

There are inherent risks and uncertainties associated with our business that could adversely affect our operating performance and financial condition. Set forth below are descriptions of those risks and uncertainties that we currently believe to be material, but the risks and uncertainties described are not the only risks and uncertainties that could affect our business. See the discussion under “Forward-Looking Statements” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Annual Report on Form 10-K.

      Cyclical Demand for Products. The cyclical nature of the industries in which our customers operate causes demand for our products to be cyclical, creating potential uncertainty regarding future profitability. Various changes in general economic conditions may affect the industries in which our customers operate. These changes could include decreases in the rate of consumption or use of our customers’ products due to economic downturns. Other factors that may cause fluctuation in our customers’ positions are changes in market demand, lower overall pricing due to domestic and international overcapacity, currency fluctuations, lower priced imports and increases in use or decreases in prices of substitute materials. As a result of these factors, our profitability has been and may in the future be subject to significant fluctuation.

      Product Pricing. From time-to-time, intense competition and excess manufacturing capacity have resulted in reduced prices, excluding raw material surcharges, for many of our products. These factors have had and may have an adverse impact on our revenues, operating results and financial condition.

     Although inflationary trends in recent years have been moderate, during the same period certain critical raw material costs, such as nickel, titanium sponge, chromium, and molybdenum and scrap containing iron, nickel, titanium, chromium, and molybdenum have been volatile and at historically high levels. While we are able to mitigate some of the adverse impact of rising raw material costs through raw material surcharges or indices to customers, rapid increases in raw material costs may adversely affect our results of operations.

     We change prices on certain of our products from time-to-time. The ability to implement price increases is dependent on market conditions, economic factors, raw material costs and availability, competitive factors, operating costs and other factors, some of which are beyond our control. The benefits of any price increases may be delayed due to long manufacturing lead times and the terms of existing contracts.

      Risks Associated with Commercial Aerospace. A significant portion of the sales of our High Performance Metals segment represents products sold to customers in the commercial aerospace industry. The commercial aerospace industry has historically been cyclical due to factors both external and internal to the airline industry. These factors include general economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, price competition, and international and domestic political conditions such as military conflict and the threat of terrorism. The length and degree of cyclical fluctuation are influenced by these factors and therefore are difficult to predict with certainty. Demand for our products in this segment is subject to these cyclical trends. For example, the average price per pound for our titanium mill products was $11.89 for the period 2002 through 2004, was $22.75 in 2005, was $33.83 in 2006 and was $30.14 in 2007, and the average price per pound for our nickel-based and specialty alloys was $7.19 for the period 2002 through 2004, was $11.25 in 2005, was $14.35 in 2006 and was $19.16 in 2007. A downturn in the commercial aerospace industry would adversely affect the prices at which we are able to sell these and other products, and our results of operations, business and financial condition could be materially adversely affected.

      Risks Associated with Strategic Capital Projects. From time-to-time, we undertake strategic capital projects in order to expand and upgrade our facilities and operational capabilities. For instance, in 2005, 2006, and 2007 we announced major expansions of our titanium and premium-melt nickel-based alloy, superalloy and specialty alloy production capabilities. Our ability to achieve the anticipated increased revenues or otherwise realize acceptable returns on these investments or other strategic capital projects that we may undertake is subject to a number of risks, many of which are beyond our control, including a variety of market, operational, permitting, and labor related factors. In addition, the cost to implement any given strategic capital project ultimately may prove to be greater than originally anticipated. If we are not able to achieve the anticipated results from the implementation of any of our strategic capital projects, or if we incur unanticipated implementation costs, our results of operations and financial position may be materially adversely effected.

      Dependence on Critical Raw Materials Subject to Price and Availability Fluctuations. We rely to a substantial extent on third parties to supply certain raw materials that are critical to the manufacture of our products. Purchase prices and availability of these critical raw materials are subject to volatility. At any given time we may be unable to obtain an adequate supply of these critical raw materials on a timely basis, on price and other terms acceptable, or at all.

     If suppliers increase the price of critical raw materials, we may not have alternative sources of supply. In addition, to the extent that we have quoted prices to customers and accepted customer orders for products prior to purchasing necessary raw materials, or have existing contracts, we may be unable to raise the price of products to cover all or part of the increased cost of the raw materials.

     The manufacture of some of our products is a complex process and requires long lead times. As a result, we may experience delays or shortages in the supply of raw materials. If unable to obtain adequate and timely deliveries of required raw materials, we may be unable to timely manufacture sufficient quantities of products. This could cause us to lose sales, incur additional costs, delay new product introductions, or suffer harm to our reputation.

     We acquire certain important raw materials that we use to produce specialty materials, including nickel, chromium, cobalt, and titanium sponge, from foreign sources. Some of these sources operate in countries that may be subject to unstable political and economic conditions. These conditions may disrupt supplies or affect the prices of these materials.

      Volatility of Raw Material Costs. The prices for many of the raw materials we use have been extremely volatile. Since we value most of our inventory utilizing the last-in, first-out (LIFO) inventory costing methodology, a rapid rise in raw material costs has a negative effect on our operating results. Under the LIFO inventory valuation method, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these material and other costs may have been incurred at significantly different values due to the length of time of our production cycle. For example, in 2007, the decrease in raw material costs on the LIFO inventory valuation method resulted in cost of sales which was $92.1 million lower than would have been recognized if we utilized the first-in, first-out (FIFO) methodology to value our inventory. Conversely in 2006, the increase in raw material costs on the LIFO inventory valuation method resulted in cost of sales which was $197.0 million higher than would have been recognized if we utilized the FIFO methodology to value our inventory. In a period of rising raw material prices, cost of sales expense recognized under LIFO is generally higher than the cash costs incurred to acquire the inventory sold. However, in a period of declining raw material prices, cost of sales recognized under LIFO is generally lower than cash costs incurred to acquire the inventory sold.

      Availability of Energy Resources. We rely upon third parties for our supply of energy resources consumed in the manufacture of our products. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Disruptions in the supply of energy resources could temporarily impair the ability to manufacture products for customers. Further, increases in energy costs, or changes in costs relative to energy costs paid by competitors, has and may continue to adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations and financial condition.

      Risks Associated with Environmental 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 and 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.

     With respect to proceedings brought under the federal Superfund laws, or similar state statutes, we have been identified as a potentially responsible party (PRP) at approximately 33 of such sites, excluding those at which we believe we have no future liability. Our involvement is limited or de minimis at approximately 22 of these sites, and the potential loss exposure with respect to any of the remaining 11 individual sites is not considered to be material.

     We are a party to various cost-sharing arrangements with other PRPs at the sites. The terms of the cost-sharing arrangements are subject to non-disclosure agreements as confidential information. Nevertheless, the cost-sharing arrangements generally require all PRPs to post financial assurance of the performance of the obligations or to pre-pay into an escrow or trust account their share of anticipated site-related costs. In addition, the Federal government, through various agencies, is a party to several such arrangements.

     We believe that we operate our businesses in compliance in all material respects with applicable environmental laws and regulations. However, from time-to-time, we are a party to lawsuits and other proceedings involving alleged violations of, or liabilities arising from environmental laws. When our liability is probable and we can reasonably estimate our costs, we record environmental liabilities in our financial statements. In many cases, we are not able to determine whether we are liable, or if liability is probable, to reasonably estimate the loss or range of loss. Estimates of our 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 participation number and financial condition of other PRPs, as well as the extent of their responsibility for the remediation. We intend to adjust our accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on our results of operations in a given period, but we cannot reliably predict the amounts of such future adjustments. At December 31, 2007, our reserves for environmental matters totaled approximately $20 million. Based on currently available information, we do not believe that there is a reasonable possibility that a loss exceeding the amount already accrued for any of the sites with which we are currently associated (either individually or in the aggregate) will be an amount that would be material to a decision to buy or sell our securities. Future developments, administrative actions or liabilities relating to environmental matters, however, could have a material adverse effect on our financial condition or results of operations.

      Risks Associated with Current or Future Litigation and Claims. A number of lawsuits, claims and proceedings have been or may be asserted against us relating to the conduct of our currently and formerly owned businesses, including those pertaining to product liability, patent infringement, commercial, government contracting work, employment, employee benefits, taxes, environmental,

health and safety and occupational disease, and stockholder matters. Due to the uncertainties of litigation, we can give no assurance that we will prevail on all claims made against us in the lawsuits that we currently face or that additional claims will not be made against us in the future. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to us, we do not believe that the disposition of any such pending matters is likely to have a material adverse effect on our financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on our results of operations for that period. Also, we can give no assurance that any other matters brought in the future will not have a material effect on our financial condition, liquidity or results of operations.

      Labor Matters. We have approximately 9,700 full-time employees. A portion of our workforce is covered by various collective bargaining agreements, principally with the USW, including: approximately 2,750 Allegheny Ludlum production, office and maintenance employees covered by collective bargaining agreements, which are effective through June 2011; approximately 325 Allvac Albany, Oregon (Oremet) employees covered by a collective bargaining agreement, which is effective through June 2011; approximately 630 Wah Chang employees covered by a collective bargaining agreement, which continues through March 2008, approximately 280 employees at the Casting Service facility in LaPorte, Indiana, covered by a collective bargaining agreement, which 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.

     Generally, collective bargaining agreements that expire may be terminated after notice by the union. After termination, the union may authorize a strike. A strike by the employees covered by one or more of the collective bargaining agreements could have a materially adverse affect on our operating results. There can be no assurance that we will succeed in concluding collective bargaining agreements with the unions to replace those that expire.

      Export Sales. We believe that export sales will continue to account for a significant percentage of our future revenues. Risks associated with export sales include: political and economic instability, including weak conditions in the world’s economies; accounts receivable collection; export controls; changes in legal and regulatory requirements; policy changes affecting the markets for our products; changes in tax laws and tariffs; and exchange rate fluctuations (which may affect sales to international customers and the value of profits earned on export sales when converted into dollars). Any of these factors could materially adversely effect our results for the period in which they occur.

      Risks Associated with Retirement Benefits. Our U.S. qualified defined benefit pension plan was fully funded in accordance with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), and the Internal Revenue Code, as of December 31, 2007. Based upon current actuarial analyses and forecasts, we do not expect to be required to make contributions to the defined benefit pension plan for at least the next several years. However, a significant decline in the value of plan investments in the future or unfavorable changes in laws or regulations that govern pension plan funding could materially change the timing and amount of required pension funding. Depending on the timing and amount, a requirement that we fund our defined benefit pension plan could have a material adverse effect on our results of operations and financial condition.

      Risks Associated with Acquisition and Disposition Strategies. We intend to continue to strategically position our businesses in order to improve our ability to compete. We plan to do this by seeking specialty niches, expanding our global presence, acquiring businesses complementary to existing strengths and continually evaluating the performance and strategic fit of existing business units. From time-to-time, management holds discussions with management of other companies to explore acquisition, joint ventures, and other business combination opportunities as well as possible business unit dispositions. As a result, the relative makeup of the businesses comprising our Company is subject to change. Acquisitions, joint ventures, and other business combinations involve various inherent risks, such as: assessing accurately the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition or other transaction candidates; the potential loss of key personnel of an acquired business; our ability to achieve identified financial and operating synergies anticipated to result from an acquisition or other transaction; and unanticipated changes in business and economic conditions affecting an acquisition or other transaction. International acquisitions and other transactions could be affected by export controls, exchange rate fluctuations, domestic and foreign political conditions and a deterioration in domestic and foreign economic conditions.

      Internal Controls Over Financial Reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      Insurance. We have maintained various forms of insurance, including insurance covering claims related to our properties and risks associated with our operations. Our existing property and liability insurance coverages contain exclusions and limitations on coverage. From time-to-time, in connection with renewals of insurance, we have experienced additional exclusions and limitations on coverage, larger self-insured retentions and deductibles and significantly higher premiums. As a result, in the future our insurance coverage may not cover claims to the extent that it has in the past and the costs that we incur to procure insurance may increase significantly, either of which could have an adverse effect on our results of operations.

      Political and Social Turmoil. The war on terrorism and recent political and social turmoil, including terrorist and military actions and the implications of the military actions in Iraq, could put pressure on economic conditions in the United States and worldwide. These political, social and economic conditions could make it difficult for us, our suppliers and our customers to forecast accurately and plan future business activities, and could adversely affect the financial condition of our suppliers and customers and affect customer decisions as to the amount and timing of purchases from us. As a result, our business, financial condition and results of operations could be materially adversely affected.

      Risks Associated with Government Contracts. Some of our operating companies directly perform contractual work for the U.S. Government. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) could be asserted against us related to our U.S. Government contract work. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more U.S. Government contracts. Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal domestic melting facilities for our high performance metals are located in Monroe, NC, Bakers, NC, and Lockport, NY (vacuum induction melting, vacuum arc re-melt, electro-slag re-melt, plasma melting); Richland, WA (electron beam melting); and Albany, OR (vacuum arc re-melt). Production of high performance metals, most of which are in long product form, takes place at our domestic facilities in Monroe, NC, Lockport, NY, Richburg, SC, and Albany, OR. In 2006, we announced plans to design and construct a new greenfield titanium sponge facility in Rowley, UT. Construction of this facility began in the first half of 2007 and is expected to be completed in early 2009. Our production of exotic alloys takes place at facilities located in Albany, OR, Huntsville, AL, and Frackville, PA.

     Our principal domestic locations for melting stainless steel and other flat-rolled specialty metals are located in Brackenridge, Midland, Natrona and Latrobe, PA. Hot rolling of material is performed at our domestic facilities in Brackenridge, Washington and Houston, PA. Finishing of our flat-rolled products takes place at our domestic facilities located in Brackenridge, Bagdad, Vandergrift, Midland and Washington, PA, and in Wallingford and Waterbury, CT, New Castle, IN, New Bedford, MA, and Louisville, OH.

     Our principal domestic facilities for the production of our engineered products are located in Nashville, TN, Huntsville, Grant and Gurley, AL, Houston, TX, and Waynesboro, PA (tungsten powder, tungsten carbide materials and carbide cutting tools and threading systems). Other domestic facilities in this segment are located in Portland, IN and Lebanon, KY (carbon alloy steel forgings); LaPorte, IN and Alpena, MI (grey and ductile iron castings); and southwestern Pennsylvania (precision metals conversion services).

     Substantially all of our properties are owned, and four of our properties are subject to mortgages or similar encumbrances securing borrowings under certain industrial development authority financings.

     We also own or lease facilities in a number of foreign countries, including France, Germany, Switzerland, United Kingdom, and the People’s Republic of China. We own and/or lease and operate facilities for melting and re-melting, machining and bar mill operations, laboratories and offices located in Sheffield, England. Through our STAL joint venture, we operate a facility for finishing Precision Rolled Strip® products in the Xin-Zhuang Industrial Zone, Shanghai, China.

     Our executive offices, located in PPG Place in Pittsburgh, PA, are leased.

     Although our facilities vary in terms of age and condition, we believe that they have been well maintained and are in sufficient condition for us to carry on our activities.

Item 3. Legal Proceedings

In a letter dated May 20, 2004, the EPA informed a subsidiary of the Company that it alleges that the company and forty other potentially responsible parties (PRPs) are not in compliance with the Unilateral Administrative Order (UAO) issued to the company and the PRPs for the South El Monte Operable Unit of the San Gabriel Valley (California) Superfund Site, a multi-part area-wide groundwater cleanup. The EPA indicated that it may take action to enforce the UAO and collect penalties, as well as reimbursement of the EPA’s costs associated with the site. The PRPs are in mediation with the EPA to resolve their obligations under the UAO on both technical and legal grounds, and enforcement of the UAO has been stayed.

     By letter dated November 13, 2006, the DEP notified Allegheny Ludlum that it intended to assess a civil penalty of $125,000 for alleged violations of the Clean Streams Law of Pennsylvania. DEP alleges that Allegheny Ludlum discharged oil-bearing wastewaters causing a sheen upon waters of the Commonwealth. Allegheny Ludlum resolved this matter by paying a civil penalty of $65,000 in March 2007.

     We become involved from time-to-time in various lawsuits, claims and proceedings relating to the conduct of our current and formerly owned businesses, including those pertaining to product liability, patent infringement, commercial, employment, employee benefits, taxes, environmental, health and safety and occupational disease, and stockholder matters. While we cannot predict the outcome of any lawsuit, claim or proceeding, our management believes that the disposition of any pending matters is not likely to have a material adverse effect on our financial condition or liquidity. The resolution in any reporting period of one or more of these matters, however, could have a material adverse effect on our results of operations for that period.

     Information relating to legal proceedings is included in Note 13. Commitments and Contingencies of the Notes to Consolidated Financial Statements and incorporated herein by reference.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Set forth below is information regarding the Company’s stock repurchases during the period covered by this report

														Approximate Dollar
										Total Number of				Value of Shares that
										Shares Purchased as Part				May Yet Be
		Total Number of				Average Price				of Publicly Announced				Purchased Under the
Period		Shares Purchased				Paid per Share				Plans or Programs (2)				Plans or Programs (2)
January 1-31, 2007 (1)			500,828			$	98.98				—				—
February 1-28, 2007			—				—				—				—
March 1-31, 2007			—				—				—				—
Quarter ended March 31, 2007 (1)			500,828			$	98.98				—				—
April 1-30, 2007 (1)			4,246			$	115.85				—				—
May 1-31, 2007			—				—				—				—
June 1-30, 2007			—				—				—				—
Quarter ended June 30, 2007 (1)			4,246			$	115.85				—				—
July 1-31, 2007			—				—				—				—
August 1-31, 2007			—				—				—				—
September 1-30, 2007			—				—				—				—
Quarter ended September 30, 2007			—				—				—				—
October 1-31, 2007			—				—				—				—
November 1-30, 2007 (2)			108,600			$	90.44				108,600			$	490,178,000
December 1-31, 2007 (2)			566,200				90.79				566,200				438,773,000
Quarter ended December 31, 2007 (2)			674,800			$	90.73				674,800			$	438,773,000

(1)		Represents shares repurchased by ATI to satisfy employee-owed taxes on share-based payments.
(2)		Includes purchases under ATI’s publicly announced share repurchase program described in (3) below. All purchases were made in the open market.
(3)		ATI’s Board of Directors approved a share repurchase program of $500 million on November 1, 2007. Repurchases of Company stock are expected to be made on the open market or in unsolicited or privately negotiated transactions. Share repurchases are expected to be funded from internal cash flow and cash on hand. The number of shares to be purchased, and the timing of the purchases, will be based on several factors, including the level of cash balances, general business conditions, and other investment opportunities.

Cumulative Total Stockholder Return

The graph set forth below shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) on our Common Stock from December 31, 2002 through December 31, 2007 as compared to the S&P 500 Index, and a Peer Group of companies. We believe the Peer Group of companies, which is defined below, is representative of companies in our industry that serve similar markets. The total stockholder return for the Peer Group is weighted according to the respective issuer’s stock market capitalization at the beginning of each period. The graph assumes that $100 was invested on December 31, 2002.

Source: Standard & Poor’s

Peer Group companies for the cumulative five year total return period ended December 31, 2007 were as follows:

Item 6. Selected Financial Data

The following table sets forth selected volume, price and financial information for ATI. The financial information has been derived from our audited financial statements included elsewhere in this report for the years ended December 31, 2007, 2006 and 2005. The historical selected financial information may not be indicative of our future performance and should be read in conjunction with the information contained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Item 8. Financial Statements and Supplementary Data.

     Net income for 2005 included a $20.9 million net special gain, which included the tax benefit associated with the reversal of the Company’s remaining valuation allowance for U.S. Federal net deferred tax assets of $44.9 million, partially offset by asset impairments and charges related to legal matters of $22.0 million, and a $2.0 million charge, reported as a cumulative effect accounting change for conditional asset retirement obligations. Net income in 2004 was favorably impacted by a curtailment gain, net of restructuring costs, of $40.4 million. We did not recognize an income tax provision or benefit in 2004 primarily as a result of the uncertainty regarding full utilization of the net deferred tax asset and available operating loss carryforwards. Net income (loss) in 2003 was adversely affected by restructuring and litigation charges of $84.9 million and a $138.5 million charge to record a valuation allowance for the majority of the Company’s net deferred tax assets.

     Stockholders’ equity for 2007 included a $71.4 million net increase to adjust pension and other postretirement liabilities in accordance with Statement of Financial Accounting Standards No. 158, “Employers Accounting for Defined Benefit Pension and Other Postretirement Plans” and a $50.7 million increase for the tax benefit on stock-based compensation. In addition, stockholders’ equity for 2007 was reduced by $61.2 million for the repurchases of the Company’s common stock. Stockholders’ equity for 2006 included a $47 million net increase to adjust pension and other postretirement liabilities, and an $81 million increase for the tax benefit on stock-based compensation. Stockholders’ equity for 2005 included a $36 million reduction to adjust the minimum pension liability, and a $25 million increase for the tax benefit on stock-based compensation. Stockholders’ equity for 2004 included $229.7 million in net proceeds from a common stock offering, and a $2 million increase to adjust the minimum pension liability. Stockholders’ equity for 2003 included the effect of recognizing a $138.5 million valuation allowance on net deferred tax assets and a $47 million increase to adjust the minimum pension liability, net of related tax effects.

     For purposes of determining the ratio of earnings to fixed charges, earnings include pre-tax income plus fixed charges (excluding capitalized interest). Fixed charges consist of interest on all indebtedness (including capitalized interest) plus that portion of operating lease rentals representative of the interest factor (deemed to be one-third of operating lease rentals). For the year ended December 31, 2003, fixed charges exceeded earnings by $280.2 million.

     In the 2007 first quarter, as required, the Company adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) titled “Accounting for Planned Major Maintenance Activities” (“FSP PMMA”). The FSP PMMA was effective as of the beginning of ATI’s 2007 fiscal year, with retrospective application to all prior periods presented. The adoption of the FSP PMMA on January 1, 2007 resulted in an increase to retained earnings of $10.3 million, net of related taxes. As required by the FSP PMMA, the Company’s financial statements have been restated to reflect this FSP as if this standard had been applied to the earliest period presented. As a result, net income for 2006, 2005 and 2004 increased $2.2 million, $2.6 million and $1.6 million, respectively.

     In the 2007 first quarter, as required, the Company also adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 was effective for the beginning of ATI’s 2007 fiscal year, with adoption treated as a cumulative-effect type reduction to retained earnings of $5.6 million as of the beginning of 2007.

     In the 2005 fourth quarter, the Company adopted FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”), an interpretation of Statement of Financial Accounting Standards No. 143, “Asset Retirement Obligations” (“FAS 143”). Net income for 2005 included a charge for the cumulative effect of adopting FIN 47 of $2.0 million net of related tax effects. The Company adopted FAS 143 on January 1, 2003. The cumulative effect of adoption of FAS 143 was a $1.3 million charge net of related tax effects. The effects on prior years’ financial information were not material.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. Actual results or performance could differ materially from those encompassed within such forward-looking statements as a result of various factors, including those described below.

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.

     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 years indicated:

     Information with respect to our business segments is presented below and in Note 9 of the Notes to Consolidated Financial Statements.

     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. Our direct international sales increased $94.5 million, or 17%, to $660.8 million, and represented 32% of sales for the High Performance Metals segment. Comparative information on the segment’s products for the years ended December 31, 2007 and 2006 was:

     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.

Airline Miles — Revenue Passenger
(Worldwide, per year)

Source: International Civil Aviation Organization

Airline Miles — Freight
(Worldwide, per year)

Airline Miles — Freight
(Worldwide, per year)

		70				75				80				85				90				95				00				05				07
Freight Ton-Miles (Billions)			8				13				20				27				40				57				81				98				110

Source: International Civil Aviation Organization

     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.

2006 Compared to 2005

Sales for the High Performance Metals segment increased 45% to $1.81 billion in 2006 due primarily to increased volume and higher average selling prices for most of our products driven by strong demand from the aerospace and defense, medical, oil and gas, chemical process industry, and electrical energy markets. Our exotic alloys business continued to benefit from demand from the aerospace, defense, chemical processing, and medical markets. Comparative information on the segment’s products for the years ended December 31, 2006 and 2005 was:

     Segment operating profit for 2006 increased due to higher volume and pricing, and also improved due to product mix. Segment results in 2006 and 2005 was adversely affected by higher raw material costs, which increased significantly in the past several years. These higher costs, while largely recovered in product selling prices through raw material indices, had a negative effect on cost of sales as a result of our LIFO inventory accounting methodology, resulting in LIFO inventory valuation reserve charges of $49.4 million in 2006, and $46.0 million in 2005.

     We continued to aggressively reduce costs in 2006. Gross cost reductions, before the effects of inflation, for 2006 totaled approximately $39 million. Major areas of gross cost reductions included $20 million from procurement, $15 million from operating efficiencies, and $3 million from salaried and hourly labor cost savings.

     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 sheet, and tool steels. The major end markets for our flat-rolled products are electrical energy, oil and gas, chemical processing, automotive, food processing equipment and appliances, construction and mining, electronics,

communication equipment and computers, and aerospace and defense. 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 financial results of STAL are consolidated into the segment’s operating results with the 40% interest of our minority partner recognized in the consolidated statement of income as other income or expense. The remaining 50% interest in Uniti LLC is held by VSMPO, a Russian producer of titanium, aluminum, and specialty steel products. We account for the results of the Uniti joint venture using the equity method since we do not have a controlling interest.

2007 Compared to 2006

Sales for the Flat-Rolled Products segment for 2007 were $2.95 billion, or 9% higher than 2006, due primarily to higher average raw material surcharges and increased average base prices for most products, especially titanium and grain-oriented electrical steel products, and improved product mix, partially offset by a significant reduction in shipments of standard stainless products. Comparative information on the segment’s products for the years ended December 31, 2007 and 2006 was:

     Total shipments in 2007 decreased by 25% to 1,049 million pounds compared to shipments of 1,392 million pounds for 2006. The average transaction prices to customers, which includes the effect of higher average raw material surcharges, increased by 44% to $2.79 per pound in 2007. Our direct international sales increased $192.2 million, or 39%, to $680.4 million, and represented 23% of sales for the Flat-Rolled Products segment. While the majority of direct international sales were for high-value products, sales of standard products, primarily stainless steel cold roll sheet, increased to $145 million dollars.

     Our Flat-Rolled Products segment high-value product shipments, which include engineered strip, Precision Rolled Strip®, super stainless steel, nickel-based alloys, titanium and titanium-based alloys, grain-oriented electrical steel, and tool steel products, decreased 2% while average transaction prices for our high-value products increased 29%. Strong demand for our nickel-based alloy, titanium, and grain-oriented electrical steel products from the chemical process industry, oil and gas, and electrical energy markets was offset by lower demand for our engineered strip, Precision Rolled Strip®, and super stainless steel products. Shipments of titanium and ATI-produced Uniti titanium products grew nearly 25% to approximately 10.4 million pounds, and shipments of our grain-oriented electrical steel grew 5%, both compared to 2006.

     Shipments of our standard products, which primarily include stainless steel hot roll and cold roll sheet, and stainless steel plate, decreased 37% while average transaction prices for these products increased 50%. In 2007, consumption in the U.S. of stainless steel strip, sheet and plate products decreased by more than 17%, compared to 2006 consumption, according to the Specialty Steel Institute of North America (SSINA). The decrease in shipments was primarily attributable to inventory adjustments by service center customers primarily for stainless steel sheet. Our The Switch is On ™ marketing campaign had its best year ever in 2007 as customers in both the U.S. and Europe recognized the value of lean nickel products, such as AL201HP™ stainless, which has approximately one-half the nickel content as the most common Type 304 stainless product with similar corrosion properties and greater strength. In 2007, shipments of AL201HP stainless increased over 57% compared to 2006.

Apparent Domestic Consumption
Stainless Sheet and Strip
(Millions of tons)

*

2007 represents November YTD, annualized

Apparent Domestic Consumption
Stainless Sheet and Strip
(Millions of tons)

			00				01				02				03				04				05				06				07
Millions/Tons			1.88				1.55				1.58				1.57				1.81				1.62				1.84				1.53

Source: SSINA

The majority of our flat-rolled products are sold at prices that include surcharges for raw materials, including purchased scrap, that are required to manufacture our products. These raw materials include nickel, iron, chromium, and molybdenum. Nickel, which comprises a significant percentage of our material costs, continued to be volatile during 2007. The cost of nickel increased 51% during the first five months of 2007 to an average monthly cost of $23.63 per pound in May 2007. However, during the next seven months of 2007, the cost of nickel declined 50% to an average monthly cost of $11.79 per pound in December 2007. While the rapid run-up in nickel costs increased our average transactional selling prices for 2007, we believe the volatility of these costs had a negative effect on our shipment volumes, as customers reduced the amount of material that was held in stock and altered their normal purchasing pattterns.

Iron Scrap Prices
($/Gross Ton)

97			98				99				00				01				02				03				04				05				06				07
144			83				129				85				74				105				173				233				255				229				297

Nickel Prices
($/lb)

97			98				99				00				01				02				03				04				05				06				07
2.70			1.76				3.67				3.32				2.69				3.26				6.43				6.25				6.09				15.68				11.79

Source: London Metals Exchange

97		98				99				00				01				02				03				04				05				06				07
3.69		2.57				2.56				2.23				2.36				3.26				7.26				31.24				26.58				24.78				32.38

Source: Platts Metals Week

     Operating income increased $157.2 million, or 45%, to $505.2 million for 2007, compared to 2006. The benefits of higher average base-selling prices, improved product mix and the benefits from our gross cost reduction initiatives, offset significantly lower shipments. During 2007, the average cost of our raw materials in our Flat-Rolled Products segment increased approximately 6% compared to the 2006 average cost. These increased costs, largely offset by lower inventory quantities, resulted in a LIFO inventory valuation charge of $1.9 million for 2007 compared to a LIFO inventory valuation reserve charge of $147.3 million in 2006.

     We continued to aggressively reduce costs and streamline our operations. In 2007, we achieved gross cost reductions, before the effects of inflation, of approximately $60 million in our Flat-Rolled Products segment. Major areas of gross cost reductions included $28 million from operating efficiencies, $24 million from procurement savings, and $8 million from lower compensation and fringe benefit expenses.

     In the first quarter 2007, we entered into a new labor agreement with the United Steelworkers represented at ATI’s Allegheny Ludlum operations. The new agreement expires on June 30, 2011. The new agreement provides for profit sharing above specified minimum pre-tax profit for the Flat-Rolled Products segment and is capped to provide for no more than $20 million of profit sharing payments under this provision over the four-year life of the contract. Any profit sharing payments under this provision are contributed to an independently administered VEBA (Voluntary Employee Benefit Association) trust. As a result of this new agreement, we recognized a non-recurring pre-tax charge of $4.8 million.

     To support our strategic growth initiatives in the Flat-Rolled Products segment, we committed to significantly expand our manufacturing capabilities in certain areas. In January 2007, we announced the expansion of ATI Allegheny Ludlum’s titanium and specialty plate facility located in Washington, PA. The purpose of this capital investment is to meet growing demand for our products from the aerospace and defense, chemical process industry, oil and gas, and electrical energy markets. This investment benefits both our Flat-Rolled Products and High Performance Metals segments. We expect this investment to be approximately $60 million with completion planned for the end of the second quarter 2008. The titanium and specialty plate capital project includes increasing reheat and annealing furnace, and flattening capacity at the existing plate mill. In addition, our plate size capabilities are being expanded and significant productivity improvements are expected to be realized.

     In 2006, we announced the expansion of our STAL joint venture operations in Shanghai, China. This expansion, which is expected to more than triple STAL’s precision rolling and slitting capacity, is estimated to cost approximately $110 million. The expansion is expected to be fully operational in the 2009 first quarter and is expected to be funded through capital contributions from the joint venture partners, including a $25 million capital contribution which has been made by ATI, bank credit lines of the joint venture, and cash on hand and the internal cash flow of the joint venture.

2006 Compared to 2005

Sales for the Flat-Rolled Products segment for 2006 were $2.70 billion, or 42% higher than 2005, due primarily to increased volume, higher average base-selling prices and higher average raw material surcharges. Comparative information on the segment’s products for the years ended December 31, 2006 and 2005 was:

     Our Flat-Rolled Products segment high-value product shipments, which include engineered strip, Precision Rolled Strip®, super stainless steel, nickel-based alloys, titanium, grain-oriented electrical steel, and tool steel products, increased 1%, with average transaction prices for our high-value products increasing 16%, primarily due to product mix. Demand was strong for our specialty stainless, grain-oriented electrical steel, titanium, and nickel-based alloy products from the chemical process industry, oil and gas, electrical energy, and aerospace and defense markets. Our direct international sales, which were primarily comprised of high value

products, increased $134.7 million, or 38%, to $485.6 million, and represented a record 18.0% of sales for the Flat-Rolled Products segment.

     Shipments of standard products, which primarily include stainless steel hot roll and cold roll sheet, and stainless steel plate, increased 36% and average transaction prices for these products increased 28%. In 2006, consumption in the U.S. of stainless steel strip, sheet and plate products increased approximately 14%, compared to 2005 consumption, according to the Specialty Steel Institute of North America (SSINA). Demand was strong for our standard products from the biofuel (ethanol) and construction markets and was good from the appliance and appliance related markets.

     Operating income increased to $348.0 million for 2006 compared to $154.1 million in 2005. The benefits of increased sales volume, higher average base-selling prices, cost reduction initiatives, and additional surcharges offset a significantly higher LIFO inventory valuation reserve charge due to higher raw material costs. During 2006, the average cost of our raw materials in our Flat-Rolled Products segment increased approximately 49% compared to the 2005 average cost. As a result, for 2006 we recognized a charge of $147.3 million under the LIFO inventory costing methodology. In 2005, we recorded a LIFO inventory valuation reserve benefit of approximately $8.9 million as a result of slightly lower raw material costs compared to 2004.

     We continued to aggressively reduce costs and streamline our operations. In 2006, we achieved gross cost reductions, before the effects of inflation, of approximately $96 million in our Flat-Rolled Products segment. Major areas of gross cost reductions included $75 million from operating efficiencies, $11 million from lower compensation and fringe benefit expenses, and $10 million from procurement savings.

     At the end of 2005, we decided to indefinitely idle the West Leechburg, PA flat-rolled products finishing facility, which occurred in stages during 2006. These restructuring charges of $17.5 million, plus charges of $8.5 million for fair market value adjustments of previously recognized asset impairments, are excluded from 2005 segment operating profit.

     Our Engineered Products segment includes the production of tungsten powder, tungsten heavy alloys, tungsten carbide materials and carbide 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 operations in this segment are ATI Metalworking Products, ATI Portland Forge, ATI Casting Service and ATI Rome Metals.

     The major markets served by our products of the Engineered Products Segment include a wide variety of industrial markets including oil and gas, machine and cutting tools, transportation, construction and mining, electrical energy, aerospace and defense, and automotive.

2007 Compared to 2006

Sales for the Engineered Products segment in 2007 were $433.0 million, comparable to 2006 sales. Demand for our tungsten and tungsten-carbide products improved from the aerospace and defense, and cutting tool markets, but was lower from the oil and gas market for down-hole drilling applications. Demand was strong for our forged products from the construction and mining, and oil and gas markets and demand was soft from the transportation market. Demand for our cast products was strong from the electrical energy market for wind and natural gas power generation applications. Demand remained strong for our titanium precision metal processing conversion services, primarily due to the aerospace market.

     Segment operating profit in 2007 was $32.1 million, or 7.4% of sales, compared to $56.7 million, or 13.1% of sales for 2006. The decline in operating profit was primarily due to higher purchased raw material costs, start-up costs associated with our newly expanded ammonium paratungstate (APT) plant, and the slower than planned ramp-up of this plant. In 2007, we commenced commercial operations at the new APT plant, a $17 million capital investment that began in the 2005 fourth quarter. The new APT plant allows us to expand our production capacity to internally source all of our APT and cobalt requirements at what is expected to be

significantly lower costs than purchased material. Operating profit included a LIFO inventory valuation reserve charge of $2.3 million in 2007, and a charge of $0.3 million in 2006 as a result of higher raw material costs and inventory levels.

     During 2007, in addition to the APT plant expansion, we continued to invest in order to enhance our manufacturing capabilities and reduce costs. In 2007, we invested $6.5 million to expand our titanium precision metal conversion services operation as part of our continuing strategic program to increase our overall titanium production capacity to better meet growing global demand, primarily from the aerospace market. In addition, during the third quarter 2007, we acquired production assets in Alpena, MI to manufacture and machine large iron castings to support our growth in the wind energy market. The cost of acquiring these assets was $9.7 million. It is expected that these assets will be put into service over the first half of 2008.

     In 2007, we achieved gross cost reductions, before the effects of inflation, of approximately $9 million in our Engineered Products segment. Major areas of gross cost reductions included $5 million from operating efficiencies, $3 million from procurement savings, and $1 million from lower compensation and fringe benefit expenses.

2006 Compared to 2005

Sales in 2006 for the Engineered Products segment increased 10%, to $432.7 million, and operating profit increased 19%, to $56.7 million, both compared to 2005. Demand for our tungsten products was strong from the oil and gas, construction and mining, aerospace and defense, and power generation markets. Demand was strong for our forged products from the transportation, construction and mining, and oil and gas markets. Demand for our cast products was strong from the wind energy, and transportation markets. Demand remained very strong for our titanium precision metal processing conversion services.

     The improvement in segment sales was primarily due to higher selling prices and increased volume, including shipments from our U.K.-based ATI Garryson Limited cutting tool operations acquired in April 2005. Segment operating profit improved to $56.7 million in 2006, principally as a result of improved pricing and the benefits of cost reductions, which totaled $8.2 million. This improvement in operating profit was partially offset by the negative impact of higher raw material costs especially in the second half of the 2006 year. Operating profit included a LIFO inventory valuation reserve charge of $0.3 million in 2006 and a charge of $8.7 million in 2005 as a result of higher raw material costs and inventory levels.

Corporate Expenses

Corporate expenses were 1.4% of sales, or $73.8 million, in 2007 compared to 1.4% of sales, or $68.9 million, in 2006 and 1.5% of sales, or $51.7 million, in 2005. The increase in corporate expenses in 2007 and 2006 was primarily the result of expenses associated with annual and long-term performance-based incentive compensation programs, partially offset by cost controls.

Interest Expense, Net

Interest expense, net of interest income and interest capitalization, was $4.8 million for 2007 compared to $23.3 million for 2006, and $38.6 million for 2005. Interest expense is presented net of interest income of $26.0 million for 2007, $15.0 million for 2006, and $8.4 million for 2005. The increase in interest income for 2007 and 2006 primarily results from higher cash balances. Increased capital expenditures associated with strategic investments to expand our production capabilities resulted in higher interest capitalization in 2007 and 2006. Interest expense in 2007, 2006, and 2005 was reduced by $9.8 million, $4.5 million, and $0.2 million, respectively, related to interest capitalization on capital projects.

     In prior years, we entered into “receive fixed, pay floating” interest rate swap contracts related to our $300 million, 8.375% 10-year Notes (“Notes”), which were later settled, resulting in a gain. The settlement gain is being amortized into income as an offset to interest expense over the remaining life of the 10-year Notes. Interest expense decreased by $1.8 million in 2007, $1.7 million in 2006, and $1.5 million in 2005 due to these previously settled interest rate swap agreements.

Restructuring Costs

We had no restructuring costs in 2007 or 2006.

     In 2005, we recorded a restructuring charge of $23.9 million primarily related to recognizing an asset impairment charge for certain long-lived assets in the Flat-Rolled Products segment. At the end of 2005, we decided to indefinitely idle Allegheny Ludlum’s West Leechburg, PA flat-rolled products finishing facility. The cost of indefinitely idling the facility was $17.3 million. The 2005

restructuring charge also included adjustments of previously recognized asset impairment charges for changes in estimated fair market values. We recorded $8.5 million of asset impairment charges associated with previously idled assets in the Flat-Rolled Products segment at the Washington Flat-Roll coil facility located in Washington, PA, and at the stainless steel plate facility located in Massillon, OH, partially offset by a $1.9 million reversal of previously recorded lease termination charges.

     At December 31, 2007, approximately $2 million of prior year workforce reduction and facility closure charges are future cash requirements that will be paid over the next several years. Cash to meet these obligations is expected to be paid from internally generated funds from operations.

Other Expenses, Net of Gains on Asset Sales

Other expenses, net of gains on asset sales, includes charges incurred in connection with closed operations, pretax gains and losses on the sale of surplus real estate, non-strategic investments and other assets, operating results from equity-method investees, minority interest, and other non-operating income or expense. These items are presented primarily in selling and administrative expenses, and in other income (expense) in the consolidated statements of income and resulted in net charges of $10.2 million in 2007 and $15.2 million in 2006, and other income of $33.8 million in 2005.

     Other expenses for 2007 and 2006 primarily related to legal costs associated with closed operations. For 2005, other expenses included $26.8 million for legal matters, which were paid in 2006 and are classified in selling and administrative expenses in the consolidated statement of income, and $7.0 million for environmental and other closed company costs.

Retirement Benefit Expense

Retirement benefit expense, which includes pension and postretirement medical benefits, has declined since 2004 primarily due to actual returns on plan assets exceeding expected returns, and the positive benefits of voluntary pension contributions totaling $350 million over past four years. Retirement benefit expense was $30.3 million for 2007, $81.9 million for 2006, and $77.6 million for 2005. Retirement benefit expenses are included in both cost of sales and selling and administrative expenses. Retirement benefit expense included in cost of sales and selling and administrative expenses for the years ended 2007, 2006 and 2005 was as follows:

     Total retirement benefit expense for 2008 is expected to be approximately $1.0 million, a decline of $29.3 million compared to 2007. This decrease is primarily attributable to the pension component of retirement benefit expense. As a result of higher than expected returns on pension assets in 2007 and the benefits of the $100 million voluntary contribution to the U.S. qualified defined benefit pension plan made in the 2007 fourth quarter, we expect pension income for 2008 to be approximately $13.0 million compared to pension expense of $17.1 million for 2007. Postretirement medical expense, the other component of retirement benefit expense, is expected to increase to approximately $14.0 million in 2008, compared to $13.2 million in 2007, primarily as a result of lower plan assets in 2008 as benefit payments are expected to reduce VEBA trust assets.

Income Taxes

Results of operations for 2007 included a provision for income taxes of $400.2 million, or 34.9% of income before tax, for U.S. Federal, foreign and state income taxes. The results for 2007 benefited from a $23.1 million reduction of a deferred tax valuation allowance with respect to certain state tax credits expected to be realized in future periods. Results of operations for 2006 included a provision for income taxes of $298.5 million, or 34.2% of income before tax, for U.S. Federal, foreign and state income taxes. The results for 2006 benefited from a favorable $8.7 million adjustment of prior years’ taxes. For 2005, results of operations included an income tax benefit of $53.3 million principally related to the reversal of the remaining valuation allowance for our U.S. Federal net deferred tax assets, partially offset by accruals for U.S. Federal, foreign and state income taxes. From the 2003 fourth quarter through the third quarter of 2005, we maintained a valuation allowance for a major portion of our U.S. Federal deferred tax assets and certain state deferred tax assets in accordance with FAS No. 109, “Accounting for Income Taxes”, due to uncertainty regarding full utilization of our net deferred tax asset, including the 2003 and 2004 unutilized net operating losses. In the 2003 fourth quarter we had recorded a $138.5 million valuation allowance for the majority of our net deferred tax asset, based upon the results of our quarterly evaluation concerning the estimated probability that the net deferred tax asset would be realizable in light of our history of annual reported losses

in the years 2001 through 2003. In 2005, we generated taxable income which exceeded the 2003 and 2004 net operating losses allowing us to fully realize these U.S. Federal tax benefits. This realization of tax benefits, together with our improved profitability, required us to eliminate the remaining valuation allowance for U.S. Federal income taxes in the 2005 fourth quarter.

     Deferred taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be recognized when those temporary differences reverse. At December 31, 2007, we had a net deferred tax asset of $60.9 million. A significant portion of our deferred tax assets relates to the postretirement benefit obligations, which have been recorded in the accompanying financial statements but which are not recognized for income tax reporting purposes until the benefits are paid. These benefit payments are expected to occur over an extended period of years.

Financial Condition and Liquidity

We believe that internally generated funds, current cash on hand, and available borrowings under existing credit lines will be adequate to meet foreseeable liquidity needs, including a substantial expansion of our production capabilities over the next few years. We did not borrow funds under our domestic senior unsecured credit facility, or former facility during 2007, 2006 or 2005, although a portion has been utilized to support letters of credit.

     Our ability to access the credit markets in the future to obtain additional financing, if needed, may be influenced by our credit rating. As of December 31, 2007, Moody’s Investor Service’s senior unsecured debt rating for our Company was Baa3 with a stable ratings outlook. On February 11, 2008, Standard & Poor’s Ratings Services raised our corporate credit and senior unsecured debt ratings to BBB- with a stable ratings outlook. Changes in our credit rating do not impact our access to, or the cost of, our existing credit facilities.

     We have no off-balance sheet financing relationships with variable interest or structured finance entities.

Cash Flow and Working Capital

In 2007, cash generated by operations of $809.8 million and the proceeds from the exercises of stock options of $5.5 million were used to invest $457.1 million in capital expenditures and purchases of businesses, fund a $100 million voluntary contribution to our U.S. qualified defined benefit pension plan, purchase $61.2 million of the Company’s common stock, pay dividends of $58.1 million, repay debt of $23.9 million, and increase cash balances by $121.0 million to $623.3 million at December 31, 2007. In 2006, cash generated by operations of $411.6 million, the proceeds from exercises of stock options of $33.1 million, and tax benefits on share-based compensation of $80.9 million were used to invest $238.3 million in capital expenditures, fund a $100 million voluntary contribution to our U.S. qualified defined benefit pension plan, pay dividends of $43.1 million, repay debt of $7.1 million, and increase cash balances by $139.6 million to $502.3 million at December 31, 2006. In 2005, cash generated from operations of $323.8 million, the proceeds from exercises of stock options of $26.1 million, and tax benefits on share-based compensation of $25.2 million were used to invest $91.3 million in capital expenditures, fund a $100 million voluntary contribution to our U.S. defined benefit pension plan, pay $18.3 million for the acquisition of the Garryson Limited operation, repay debt of $25.7 million, pay dividends of $27.1 million, and increase cash balances by $111.9 million to $362.7 million at December 31, 2005. We use cash flow from operations before voluntary pension plan contributions in order to evaluate and compare fiscal periods that do not include these contributions, and to make resource allocation decisions among operational requirements, investing and financing alternatives.

Managed Working Capital
($ Millions)

		03				04				05				06				07
Millions/$			576				853				1,048				1,582				1,627
% of Annualized Revenue			30.7	%			29.5	%			30.3	%			29.0	%			32.2	%

     In 2007 and 2006, the favorable impact of improved operating results on cash flow from operations was offset by continuing investment in managed working capital to support the higher business levels and the effect of higher costs for certain raw materials. As part of managing the liquidity of the business, we focus on controlling inventory, accounts receivable and accounts payable. In measuring performance in controlling this managed working capital, we exclude the effects of the LIFO inventory valuation reserves, excess and obsolete inventory reserves, and reserves for uncollectible accounts receivable which, due to their nature, are managed separately. During 2007, managed working capital, which we define as gross inventory plus accounts receivable less accounts payable, increased $44.3 million. This increase resulted from a $41.1 million increase in accounts receivable due to the timing of sales in the fourth quarter 2007 compared to the fourth quarter 2006, and a $36.2 million increase in inventory, mostly as a result of increased operating volumes particularly for the High Performance Metals segment products, partially offset by a $33.0 million increase in accounts payable. During 2006, managed working capital increased by $534.2 million. This increase resulted from a $166.5 million increase in accounts receivable due to a higher level of sales in the 2006 fourth quarter compared to the fourth quarter of 2005, and a $409.2 million increase in inventory, mostly as a result of increased operating volumes and higher raw materials costs, partially offset by a $41.5 million increase in accounts payable. Managed working capital has increased approximately $1.1 billion over the past five years as our level of business activity and raw material costs have both increased. This increase in managed working capital is expected to represent a future source of cash if the level of business activity were to decline. Managed working capital as a percent of annualized sales increased to 32.2% at the end of 2007, compared to 29.0% at the end of 2006, and 30.3% in 2005. The increase in 2007 of managed working capital as a percentage of sales was primarily due to a shift in mix to more value added products, primarily in the High Performance Metals and Flat-Rolled Products business segments, which have a longer manufacturing process. While accounts receivable balances increased during this three year period, days sales outstanding, which measures actual collection timing for accounts receivable, have improved.

     The components of managed working capital were as follows:

     Capital expenditures for 2007 were $447.4 million, compared to $238.3 million in 2006, and $91.3 million in 2005.

     We are significantly expanding our manufacturing capabilities to meet current and expected demand growth from the aerospace (engine and airframe) and defense, chemical process industry, oil and gas, electrical energy, and medical markets, especially for titanium and titanium-based alloys, nickel-based alloys and superalloys, specialty alloys, and exotic alloys. These self-funded capital investments remain on track to be completed as planned and include:

§		The expansion of ATI’s aerospace quality titanium sponge production capabilities, including our titanium sponge facility in Albany, OR, and our greenfield premium-grade titanium sponge (jet engine rotating parts) facility in Rowley, UT. Twelve titanium sponge reduction furnaces at Albany, OR are now in operation, bringing our current annual titanium sponge capacity at this facility to approximately 16 million pounds. When the full expansion of the Albany facility is completed by mid-2008, we expect that this facility will be capable of producing 22 million pounds annually of aerospace quality titanium sponge and represent a total capital investment of approximately $100 million. The Rowley, UT sponge facility remains on schedule and will represent a total capital investment of approximately $460 million. We expect to begin producing premium-grade titanium sponge at the Utah facility by the end of 2008, with 24 million pounds of annual capacity to be reached by the fourth quarter of 2009. Upon completion of these titanium sponge expansion projects, our annual sponge production capacity is projected to be 46 million pounds. In addition, the Utah facility will have the infrastructure in place to further expand annual capacity by approximately 18 million pounds, bringing the total annual capacity at that facility to 42 million pounds, if needed. We expect to supplement our requirements with titanium sponge and titanium scrap purchases from external sources.
§		The expansion of ATI’s melting capabilities for titanium and titanium-based alloys, nickel-based alloys and superalloys, and specialty alloys. For titanium melting, three new vacuum-arc remelt (VAR) furnaces are on line, and we plan to have two more titanium VAR furnaces customer qualified by the end of the first quarter 2008. VAR melting is a consumable electrode re-melting process that improves the cleanliness and chemical homogeneity of the alloys. Our third Plasma Arc Melt (PAM) premium titanium melt furnace is in production and has completed initial customer qualifications. We expect to have this PAM furnace qualified for all products, including premium grade jet engine rotating quality products, during the second quarter 2008. A fourth PAM furnace to support premium titanium alloy growth requirements is expected to begin production by the third quarter 2009. Plasma arc melting is a superior cold-hearth melting process for making alloyed titanium products for jet engine rotating parts, medical applications, and other critical applications. We also expect one new vacuum-arc remelt (VAR) furnace for nickel-based alloys and superalloys to be qualified and in commercial production by the first quarter of 2008, with up to three more VARs to be added through 2009 based on production requirements to support titanium and titanium-based alloys and premium nickel-based alloys and superalloys growth.
§		The expansion of ATI’s mill products processing and finishing capabilities for titanium and titanium-based alloys, nickel-based alloys and superalloys, and specialty alloys. Announced projects include expanding titanium precision metal processing conversion capacity, which was completed in the third quarter 2007, and a $260 million expansion of our titanium and superalloy forging capacity at our Bakers, NC facility through the addition of an integrated 10,000 ton press forge, 700mm rotary forge, and conditioning, finishing and inspection facilities to support increased forged product requirements, which is expected to be operational by the third quarter 2009. Forging is a hot-forming process that produces wrought forging billet and forged machining bar from an ingot. We also are investing $60 million to expand our titanium and specialty plate facility located in Washington, PA, which is expected to begin production in the second quarter 2008. In addition to titanium and titanium alloys, ATI’s specialty plate products include duplex alloys, superaustenitic alloys, nickel-based alloys, zirconium alloys, armor plate,

		and common austenitic stainless grades. This project includes increasing reheat furnace, annealing, and flattening capacity at the existing plate mill, expanding plate size capabilities, and implementing productivity improvements.
§		We are increasing our zirconium sponge production capacity by approximately 20%. In addition, we have diverted two new VAR furnaces to zirconium melting. These two VARs were originally planned for titanium melting. This new zirconium sponge and melting capacity better positions ATI for the strong nuclear electrical energy and chemical process industry markets.

     The above-described strategic growth capital projects represent approximately $985 million of self-funded capital investments, approximately $435 million of which had already been expended through 2007. We currently expect that our projected 2008 capital expenditures will be approximately $500 million, including expenditures for the completion of the above-mentioned strategic capital projects as well as other potential growth capital projects.

     Additionally, STAL, our Chinese joint venture company in which ATI has a 60% interest, commenced an expansion of its operations in Shanghai, China in late 2006. This expansion, which is expected to more than triple STAL’s rolling and slitting capacity to produce Precision Rolled Strip® products, is estimated to cost approximately $110 million. The expansion is expected to be fully operational in the 2009 first quarter and is expected to be funded through capital contributions from the joint venture partners, bank credit lines of the joint venture, and cash on hand and internal cash flow of the joint venture. Our cash contribution to this expansion was $24.8 million, of which one-half was contributed by ATI in the 2006 third quarter, and the remainder in March 2007. The financial results of STAL are consolidated into our financial statements with the 40% interest of our minority partner recognized as other income or expense in the consolidated statements of income and as a liability in the consolidated statements of financial position.

Debt

Total debt outstanding decreased $25.4 million, to $528.2 million at December 31, 2007, from $553.6 million at December 31, 2006. The decrease was primarily related to reduced net borrowings at our foreign operations and scheduled debt maturity payments. In managing our overall capital structure, some of the measures on which we focus are net debt to total capitalization, which is the percentage of our debt, net of cash that may be available to reduce borrowings, to our total invested and borrowed capital, and total debt to total capitalization, which excludes cash balances. At December 31, 2007, our cash on hand exceeded our total debt. Therefore our net debt to total capitalization was a negative 4.5% compared to a positive 3.3% at December 31, 2006, 19.7% at December 31, 2005, and 43.5% at December 31, 2004. Total debt to total capitalization improved to 19.2% at December 31, 2007 compared to 26.9% at December 31, 2006, 41.0% at December 31, 2005, and 57.5% at December 31, 2004. The continuing improvement in these ratios during 2007 is due primarily from increases in cash on hand and stockholders’ equity resulting from the improvement in results of operations.

     On July 31, 2007, we replaced our then-existing $325 million senior secured domestic revolving credit facility, which was due to expire in August 2010, with a new five-year $400 million senior unsecured domestic revolving credit facility. The unsecured facility includes a $200 million sublimit for the issuance of letters of credit. Under the unsecured facility, the Company may increase the size of the facility by up to $100 million without seeking the further approval of the lending group. The unsecured facility requires us to maintain a leverage ratio (consolidated total indebtedness divided by consolidated earnings before interest, taxes and depreciation and

amortization) of not greater than 3.25, and maintain an interest coverage ratio (consolidated earnings before interest and taxes divided by interest expense) of not less than 2.0. For the year ended December 31, 2007, our leverage ratio was 0.46, and our interest coverage ratio was 37.36. We have not borrowed funds under the senior unsecured domestic facility, or former facility, during 2007, although a portion has been utilized to support the issuance of letters of credit. Outstanding letters of credit issued under the unsecured facility at December 31, 2007, were approximately $43 million, compared to $120 million at the end of 2006.

     The ratio of earnings to fixed charges for the three and twelve month periods ended December 31, 2007 was 20.8 and 25.0, respectively.

     In August 2007, STAL, our Chinese joint venture company in which ATI has a 60% interest, entered into a five year revolving credit facility with a group of banks. Under the credit facility, STAL may borrow up to 741 million renminbi (approximately $99 million at December 2007 exchange rates) at an interest rate equal to 90% of the applicable lending rate published by the People’s Bank of China. The credit facility is supported solely by STAL’s financial capability without any guarantees from the joint venture partners, and is intended to be utilized in the future for the expansion of STAL’s operations, which are located in Shanghai, China. The credit facility requires STAL to maintain a minimum level of shareholders’ equity, and certain financial ratios. As of December 31, 2007, there had been no borrowings made under this credit facility.

     STAL had approximately $20.5 million in letters of credit outstanding as of December 31, 2007. These letters of credit are supported solely by STAL’s financial capability without any guarantees from the joint venture partners.

     Interest rate swap contracts have been used from time-to-time to manage our exposure to interest rate risks. At December 31, 2007, we have no interest rate swap contracts in place. We have deferred gains on settled “receive fixed, pay floating” interest rate swap contracts associated with our $300 million, 8.375% Notes. These gains on settlement, which occurred in 2004 and 2003, remain a component of the reported balance of the Notes, and are ratably recognized as a reduction to interest expense over the remaining life of the Notes, which is approximately four years. At December 31, 2007, the deferred settlement gain was $8.7 million. The result of the “receive fixed, pay floating” arrangements was a decrease in interest expense of $1.8 million, $1.7 million and $1.5 million for the years ended December 31, 2007, 2006 and 2005, respectively, compared to the fixed interest expense of the ten-year Notes.

     A summary of required payments under financial instruments (excluding accrued interest) and other commitments are presented below.