UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] 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) Delaware 25-1792394 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 394-2800 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: ================================================================================ Title of each class Name of each exchange on which registered -------------------------------------------------------------------------------- Common Stock, $0.10 Par Value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange ================================================================================ SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 X No --- --- 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. [X] At March 15, 2000, the Registrant had outstanding 85,061,059 shares of its Common Stock. The aggregate market value of the Registrant's voting stock held by non-affiliates at this date was approximately $1.3 billion, based on the closing price per share of Common Stock on this date of $17-15/16 as reported on the New York Stock Exchange. Shares of Common Stock known by the Registrant to be beneficially owned by directors of the Registrant 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 Securities Exchange Act of 1934. Documents Incorporated By Reference Selected portions of the 1999 Annual Report to Stockholders - Part I, Part II and Part IV of this Report. Selected portions of the Proxy Statement for 2000 Annual Meeting of Stockholders - Part III of this Report. The information included in the Proxy Statement as required by paragraphs (k) and (l) of Item 402 of Regulation S-K is not incorporated by reference in this Form 10-K. ================================================================================ 2 INDEX PAGE NUMBER ------ PART I.................................................................................................. 3 Item 1. Business.......................................................................... 3 Item 2. Properties........................................................................ 19 Item 3. Legal Proceedings................................................................. 21 Item 4. Submission of Matters to a Vote of Security Holders............................... 21 PART II ................................................................................................ 22 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................................... 22 Item 6. Selected Financial Data........................................................... 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................ 22 Item 8. Financial Statements and Supplementary Data....................................... 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 22 PART III ............................................................................................... 22 Item 10. Directors and Executive Officers of the Registrant................................ 22 Item 11. Executive Compensation............................................................ 23 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................................... 23 Item 13. Certain Relationships and Related Transactions.................................... 23 PART IV ................................................................................................ 23 Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K................... 23 SIGNATURES.............................................................................................. 25 EXHIBIT INDEX........................................................................................... 26 2 3 PART I ITEM 1. BUSINESS THE COMPANY Allegheny Technologies is one of the largest and most diversified producers of specialty materials in the world. We offer to global markets a wide range of specialty materials which include stainless steel, nickel- and cobalt-based alloys and superalloys, titanium and titanium alloys, specialty steel alloys, zirconium and related alloys, and tungsten-based specialty materials, as well as precision forgings and large grey and ductile iron castings. The Company operates in the following three business segments, which accounted for the following percentages of total revenues of $2.3 billion, $2.4 billion and $2.5 billion for each of the three years ended December 31, 1999: 1999 1998 1997 ---- ---- ---- Flat-Rolled Products 56% 49% 51% High Performance Metals 32% 36% 35% Industrial Products 12% 15% 14% Business segment information presented for 1998 and 1997 has been restated to conform with the 1999 presentation. Additional financial information with respect to the Company's business segments, including their contributions to operating profit and their identifiable assets, for the three years ended December 31, 1999, is presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations" on pages 20 through 23 of the 1999 Annual Report to Stockholders (the "1999 Annual Report") and in Note 12 of Notes to Consolidated Financial Statements on pages 46 through 47 of the 1999 Annual Report and is incorporated herein by reference. Allegheny Technologies Incorporated is a Delaware corporation with its principal executive offices located at 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479, telephone number (412) 394-2800. Allegheny Technologies, which changed its name from Allegheny Teledyne Incorporated effective November 29, 1999, was formed on August 15, 1996 in the combination of Allegheny Ludlum Corporation ("Allegheny Ludlum") and Teledyne, Inc., which became wholly owned subsidiaries of Allegheny Technologies. References to "Allegheny Technologies," the "Company" or the "Registrant" mean Allegheny Technologies Incorporated and its subsidiaries, unless the context otherwise requires. COMPLETION OF STRATEGIC TRANSFORMATION In 1999, the Company completed a major transformation, announced in January 1999, that included the spin-offs of Teledyne Technologies Incorporated ("Teledyne"), which was comprised of certain businesses in the Company's former Aerospace and Electronics segment, and Water Pik Technologies, Inc. ("Water Pik"), which was comprised of businesses in the Company's former Consumer segment. The spin-offs were completed on November 29, 1999, when the Company distributed all of the stock of Teledyne (NYSE:TDY) and Water Pik (NYSE:PIK) to the Company's stockholders of record on November 22, 1999. Prior to the spin- 3 4 offs, the Company received a ruling from the Internal Revenue Service that the spin-offs would be tax-free to the Company and its stockholders. Immediately following the spin-offs, the Company effected a one-for-two reverse split of its common stock and changed its name from Allegheny Teledyne Incorporated to Allegheny Technologies Incorporated. Additionally, as part of this strategic transformation, the Company sold several businesses, including the following: o Teledyne Specialty Equipment -- an assembler of hydraulic attachments for mining and construction equipment, and a manufacturer of transportable forklifts. o Teledyne Fluid Systems -- a manufacturer of nitrogen gas springs, pressure relief valves and vehicle control valves. o Teledyne Ryan Aeronautical -- a manufacturer of unmanned aerial vehicles and target drones. o McCormick Selph Ordnance -- a manufacturer of advanced controlled pyrotechnic components and systems for the aerospace industry and automotive safety products. ACQUISITIONS The Company has recently made several strategic acquisitions: Flat-Roll Finishing Facility. On December 22, 1999, the Company acquired the Washington, Pennsylvania stainless steel sheet and strip finishing plant of Bethlehem Steel Corporation ("Bethlehem") for $20.5 million in cash. The plant's Sendzimir mills and anneal and pickle lines provide incremental production capacity for our flat-rolled sheet and strip products. Company production at this plant began in the first quarter of 2000. Melting and Hot Rolling Facilities. In the fourth quarter of 1998, the Company acquired melting and hot rolling facilities in Houston, Pennsylvania and a wide anneal and pickle line in Massillon, Ohio from Bethlehem, and entered into a 20-year conversion services agreement with Bethlehem to provide for the melting, casting and rolling of the Company's wide stainless steel continuous mill plate products and nickel-based alloys, for $105 million in cash and $70 million in a promissory note that was paid in 1999. These transactions provide the Company with additional melting capacity and enable the Company to produce wide continuous mill plate. Titanium Production Facilities. In March 1998, the Company acquired the stock of Oregon Metallurgical Corporation ("Oremet"), an integrated producer and distributor of titanium sponge, ingot, mill products and castings, in exchange for Company stock, which expanded the capabilities of our High Performance Metals segment and also enabled Allegheny Ludlum to enter the titanium flat-rolled business. Oremet's operations have been integrated into our High Performance Metals segment. United Kingdom Specialty Steel, Nickel-Based Alloy and Titanium Production Facilities. In February 1998, the Company acquired assets in the United Kingdom, for $110 million in cash, that provide significant support for and additional capacities in the Company's High 4 5 Performance Metals segment and enhance the sales and distribution network for the Company's nickel-based alloy, specialty steel and titanium products in Europe. The acquisition also provides additional vacuum melting, vacuum consumable remelting, electroslag remelting, and forging capacity. Strategic Capital Investments. During 1998 and 1999, the Company completed the installation of and began production on a new vacuum induction melt furnace capable of producing 50,000 pound heats. This state-of-the-art furnace provides additional capacity to meet the growing demands for nickel-based superalloys from several markets, including large land-based turbines for power generation. The Company also installed and began production on a new electron beam melt facility for titanium slabs. This new facility contains one of the largest and most advanced electron beam melt furnaces in the world and has enhanced the Company's position as a low cost producer of high quality titanium ingots and slabs. During this same time frame, the Company installed and began production on a new 60" Sendzimir mill which provides additional capacity primarily for stainless steel sheet and strip products. Additional Information. Additional information about recent acquisitions is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Strategic Acquisitions" on page 20 of the 1999 Annual Report and in Notes 3 and 11 to the Notes to Consolidated Financial Statements on pages 37 and 45 of the 1999 Annual Report, which information is incorporated herein by reference. Also see "Forward Looking and Other Statements - Uncertainties Relating to Synergies" herein. OUR BUSINESS Specialty materials play a significant role in our lives. Allegheny Technologies is a world leader in the manufacture of specialty materials, including stainless steel, nickel- and cobalt-based alloys and superalloys, titanium and titanium alloys, specialty steel alloys, zirconium and related alloys, and also produces tungsten-based specialty materials, precision forgings and large grey and ductile iron castings. Specialty materials are produced in a variety of forms, including sheet, strip, foil, plate, slab, ingot, billet, bar, rod, wire, coil, tubing, and shapes, and are selected for use in environments that demand materials having exceptional hardness, toughness, strength, resistance to heat, corrosion or abrasion, or a combination of these characteristics. Common end uses of our products include jet engines, air frames, electrical energy, automotive, chemical processing, oil and gas, construction and mining, machine and cutting tools, appliances and food equipment, transportation and medical. Flat-Rolled Products Segment The Company produces, converts and distributes stainless steel, nickel-based alloys and superalloys, titanium and titanium-based alloys in sheet, strip, plate and foil, and Precision Rolled Strip(R) products, as well as silicon electric steels and tool steels. Our Flat-Rolled Products segment consists of Allegheny Ludlum and its 60% interest in the Chinese joint venture company known as Shanghai Precision Stainless Steel Company Limited ("STAL"), which began limited commercial production in 1999. 5 6 As compared with carbon steel, stainless steel and nickel-based alloys contain elements such as chromium, nickel and molybdenum to make them corrosion- and heat-resistant; titanium and titanium-based alloys provide higher strength-to-weight ratios and are corrosion-resistant; tool steel alloys, which contain more carbon than stainless steel, include tungsten, molybdenum and other metals to make them both hard and malleable; and electrical steel contains silicon to minimize electrical energy loss when in use. We offer these flat-rolled products in a broad selection of grades, sizes and finishes designed to meet international specifications. Finishing capabilities include plasma arc cutting, shearing, abrasive cutting, sawing and machining. We provide technical support for material selection and our market basket of alloys and product forms provides customers with choices to select the optimum alloy for their application. Sheet. Stainless steel, nickel-based alloy and titanium alloy sheet products (24-inches and wider and less than 0.1875-inch thick) are used in a wide variety of consumer and industrial applications such as food preparation, appliance, automotive and medical applications that require cleanability, fabricability and corrosion resistance. Approximately 60% of the Company's flat-rolled sheet products are sold to service centers, which have slitting, cutting or other processing facilities, with the remainder sold directly to end-use customers. Strip. Stainless steel, nickel-based alloy and titanium alloy strip products (less than 24-inches wide and less than 0.1875-inch thick) are used in a variety of consumer products and a wide range of automotive components. We also offer very thin Precision Rolled Strip(R) products which range in thinness from 0.015 inch to less than 0.0015 inch (0.038 - 0.003 mm). Our Precision Rolled Strip(R) products include stainless steel, nickel-based alloys, titanium and titanium alloys, and carbon and coated-carbon steel which are used by customers to fabricate a variety of different products ranging from automobile components to photographic, personal computer, building and construction and consumer products. Approximately 50% of the Company's flat-rolled strip products are sold directly to end-use customers, with the remainder sold to service centers, including the Company's own distribution network for flat-rolled strip materials which is known as the Allegheny Rodney Strip Service Center Division of Allegheny Ludlum. Plate. Stainless steel, nickel-based alloy and titanium alloy plate products (0.1875-inch and thicker and 10-inches wide) are primarily used in industrial equipment that requires cleanability or corrosion-resistant capabilities such as pollution control scrubbers, food processing equipment, pulp and paper equipment, chemical processing equipment and power generation equipment. With our flat-roll capabilities, we process and distribute stainless steel and nickel alloy plate and titanium and titanium alloy plate products in a wide variety of grades and gauges. Approximately 80% of our flat-rolled plate products are sold directly to service centers, with the remainder sold to end-use customers. Silicon Electric Steel. The Company's grain-oriented silicon electrical steel products are used generally in applications in which electrical conductivity and magnetic properties are important. These products are sold directly to end-use customers, including manufacturers of transformers and communications equipment. STAL. In February 1996, the Company established a joint venture company in the People's Republic of China with Shanghai No. 10 Steel Company Limited for the production and 6 7 sale of Precision Rolled Strip(R) products. The joint venture, 60% of which is owned by Allegheny Ludlum, is known as STAL. In 1999, the joint venture began limited commercial production. The new plant is a fully integrated finishing facility equipped with two Sendzimir mills, a bright anneal line, slitters, a tension leveler and roll grinders. It is expected to produce and sell up to 15,000 metric tonnes of Precision Rolled Strip(R) products. This venture is expected to enhance Allegheny Technologies' participation in the Asian market and other highly competitive global markets. High Performance Metals The Company's 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, zirconium and related alloys, hafnium, niobium, tantalum, and other specialty materials, primarily in slab, ingot, billet, bar, rod, wire and coil forms, and zirconium chemicals. Generally, high performance metals have high strength, withstand high temperatures, are corrosion resistant or have a combination of these properties. Our High Performance Metals segment consists of Allvac, Allvac Ltd, Wah Chang, Titanium Industries, and Rome Metals. The Company is one of two fully integrated U.S. producers of titanium. Nickel-, Cobalt- and Titanium-Based Alloys and Superalloys. Our nickel-, iron-, cobalt- and titanium-based alloys and superalloys are engineered to retain exceptional strength and corrosion resistance at temperatures through 2,000 degrees Fahrenheit and are used in critical, high-stress applications. These products are designed for the high performance requirements of aerospace, oil and gas, chemical processing, transportation, power generation, biomedical, marine and nuclear industries. Two major capital investments were completed in 1998-1999 which increase the production capabilities of the Company's High Performance Metals businesses. A new vacuum induction furnace capable of producing 50,000-pound heats provides additional capacity for our nickel-based superalloys capacity. A new electron beam melt facility located in Richland, Washington produces titanium ingots and slabs. Zirconium and Hafnium. We are also a leading U.S. producer of zirconium, a highly corrosion-resistant metal that is transparent to neutrons. It is used for fuel tubes and structural parts in nuclear power reactors and for corrosion-resistant chemical industry applications. Other users of zirconium include the jewelry and personal hygiene industries. Hafnium, derived as a by-product of zirconium, is used for control rods in nuclear reactors due to its ability to absorb neutrons. Niobium and Tantalum. The Company produces niobium, also known as columbium, in various forms and alloys. Niobium, a high-technology metal, is used as an alloying element in the manufacture of many steels. The higher quality grades the Company produces are used as an alloying addition in superalloys for jet engines and other specialty alloys for aerospace applications such as rocket nozzles. When alloyed with titanium, niobium is used in applications requiring superconducting characteristics for high-strength magnets. Niobium-titanium alloys 7 8 are also used in medical devices for body-scanning, accelerators for high-energy physics, and fusion energy projects for the generation of electricity. The Company also produces tantalum, one of the most corrosion-resistant metals, for medical implants, chemical process equipment and aerospace engine components. Industrial Segment The Industrial Products segment's principal business produces tungsten powder, tungsten carbide materials and carbide cutting tools. The segment also produces large grey and ductile iron castings and carbon, alloy steel and non-ferrous forgings. The companies in this segment are Metalworking Products, Casting Service and Portland Forge. Cutting Tools and Tungsten Products. For the metalworking, mining and other industries requiring tools with extra hardness, the Company produces a line of sintered tungsten carbide products, made under heat, to produce a material that approaches diamond hardness. Cemented carbide products, which may be coated or uncoated, are used as super-hard cutters in the high-speed machining and cutting of steel and other applications where hardness and wear resistance are important. Technical developments related to ceramics, coatings, and other disciplines are incorporated in these products. The Company also produces tungsten for the worldwide market, starting with numerous and varied tungsten-bearing raw materials and resulting in tungsten and tungsten carbide powders. Previously used cemented carbide parts are also recycled into tungsten carbide powder. Molybdenum, a sister metal to tungsten, which also has a very high melting point, is produced by Metalworking Products in powder form and then shaped into solid forms through powder metallurgy techniques. It is an important alloying element for steels and is used for plasma arc spraying of piston rings, for electrodes in glass melting, and for structural parts in high temperature furnaces. Forgings and Castings. The Company forges carbon and alloy steel into finished forms that are used in a diverse number of industries. With the latest screw-type forging presses, Portland Forge produces carbon and alloy steel forgings in sizes ranging from one pound to more than 200 pounds. We also cast a variety of metals in sizes ranging from 1,000 pounds to 160,000 pounds and forms ranging from diesel locomotive engine blocks to housings and parts for power generation equipment, tools, and automobiles. COMPETITION Markets for the Company's products and services in each of its principal business segments are highly competitive. The Company competes with many manufacturers which, depending on the product involved, range from large diversified enterprises to smaller companies specializing in particular products. Factors that affect the Company's competitive posture are the 8 9 quality of its products, services and delivery capabilities, its research and development efforts, its marketing strategies and price. Our companies face competition from domestic and foreign competitors, a number of which are government subsidized. By July 1999, the United States had imposed antidumping and countervailing duties ranging up to 60% 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. Allegheny Ludlum and other domestic producers of flat-rolled stainless steel sheet and strip products in coils and stainless steel plate in coils and several unions had filed petitions with the International Trade Commission and the Department of Commerce in 1998 charging companies in these ten countries with violations of U.S. trade laws. RAW MATERIALS AND SUPPLIES Substantially all parts and materials required in the manufacture of the Company's products are available from more than one supplier and the sources and availability of raw materials essential to its businesses are adequate. The principal materials used by the Company in the production of its specialty materials are scrap (including nickel-, chromium-, titanium- and molybdenum-bearing scrap), nickel, titanium sponge, zirconium, ferrochromium, ferrosilicon, molybdenum and molybdenum alloys, manganese and manganese alloys, cobalt, niobium and other alloying materials. Purchase prices of certain critical raw materials are volatile. As a result, the Company's operating results could be subject to significant fluctuation. For example, since the Company generally uses in excess of 47,500 tons of nickel each year, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $95 million. In addition, certain of these raw materials, such as nickel, cobalt and ferrochromium, can be acquired by the Company and its specialty materials industry competitors, in large part, only 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. The Company purchases its 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. Titanium tetrachloride, the principal raw material required for the production of titanium sponge, is supplied to the Company under a long-term contract with a U.S. source. We also use large amounts of electricity and natural gas in the manufacture of our products. See "Forward Looking and Other Statements - Volatility of Prices of Critical Raw Materials; Unavailability of Raw Materials." 9 10 GOVERNMENT CONTRACTS For the year ended December 31, 1999, approximately 2% of the Company's total sales were attributable to sales under contracts with the U.S. Government. Sales to the Department of Defense accounted for approximately 1% of total sales in 1999. Most of the Company's contracts with the U.S. Government are terminable at the convenience of the government. See the discussion of related matters under the caption "Forward Looking and Other Statements - Risks Associated with Government Contracts." Additional related information is presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters - Government Contracts" on page 26 of the 1999 Annual Report and in Note 15 of Notes to Consolidated Financial Statements on pages 49 to 50 of the 1999 Annual Report. EXPORT SALES AND FOREIGN OPERATIONS International sales represented approximately 20%, 19%, and 16% of the Company's total sales in 1999, 1998, and 1997 respectively. These figures include export sales by U.S. operations to customers in foreign countries, which accounted for approximately 13%, 11%, and 12% of the Company's total sales in each of 1999, 1998 and 1997, respectively. See "Forward Looking and Other Statements - Risks of Export Sales." The Company's overseas sales, marketing and distribution efforts are aided by international marketing offices or representatives located in Europe, Asia, South America, and the Middle East. In December 1995, the Company acquired the Stellram group, manufacturers of high precision threading, milling, boring and drilling systems for the European market. In 1998, the Company expanded its presence internationally and expects to continue such expansion. In February 1998, the Company acquired manufacturing capabilities in the United Kingdom. This acquisition has enhanced service to customers by improving the sales and distribution network for the Company's nickel-based alloys, specialty steel and titanium in Europe. In 1999, the STAL joint venture in the People's Republic of China, which was established in 1996, completed plant construction and began limited commercial production of Precision Rolled Strip(R) products. This venture should enable the Company to offer its Precision Rolled Strip(R) products more effectively to the Asian markets. BACKLOG, SEASONALITY AND CYCLICALITY The Company's backlog of confirmed orders was approximately $595.8 million at December 31, 1999 and $697.2 million at December 31, 1998. During the year ending December 31, 2000, it is anticipated that approximately 87% of confirmed orders on hand at December 31, 1999 will be filled. Backlog of confirmed orders of the Flat-Rolled Products segment was $138.4 million at December 31, 1999 and $186.0 million at December 31, 1998. During the year ending December 31, 2000, it is anticipated that approximately 100% of the confirmed orders on hand at December 31, 1999 for this segment will be filled. Backlog of confirmed orders of the High Performance Metals segment was $395.8 million at December 31, 1999 and $432.6 million at December 31, 1998. During the year ending December 31, 2000, it is anticipated that approximately 80% of the confirmed orders on hand at December 31, 1999 for this segment will be filled. 10 11 Generally, sales and operations of the Company's businesses are not seasonal. However, demand for products of the Company's businesses are cyclical over longer periods because specialty materials customers operate in cyclical industries and are subject to changes in general economic conditions. See "Forward Looking and Other Statements - Cyclical Demand for Products." RESEARCH, DEVELOPMENT AND TECHNICAL SERVICES The Company's management believes that the Company's research and development capabilities give it an edge in developing new products with profitable growth potential on a long-term basis. The Company conducts research and development at its various operating locations both for its own account and, on a limited basis, for customers on a contract basis. Estimates of the components of research and development for each of the Company's segments, including bid and proposal costs, for the years ended December 31, 1999, 1998, and 1997 included the following: (In millions) 1999 1998 1997 ---- ---- ---- Customer-Sponsored: High Performance Metals $1.1 $ 0.8 $ 2.5 Company-Sponsored: Flat-Rolled Products 7.3 7.4 8.3 High Performance Metals 5.7 8.3 9.2 Industrial Products 2.2 2.4 1.7 ----- ----- ----- 15.2 18.1 19.2 Total Research and Development $16.3 $18.9 $21.7 ===== ===== ===== With respect to the Flat-Rolled Products and High Performance Metals segments, the Company's research, development and technical service activities are closely interrelated and are directed toward cost reduction, 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. The Company owns several hundred United States patents, many of which are also filed under the patent laws of other nations. Although these patents, as well as the Company's numerous trademarks, technical information license agreements, and other intellectual property, have been and are expected to be of value, management believes that the loss of any single such item or technically related group of such items would not materially affect the conduct of its business. 11 12 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS The Company is subject to various domestic and international environmental laws and regulations which require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under these laws. The Company's reserves for environmental remediation totaled approximately $58.1 million at December 31, 1999. Based on currently available information, management does not believe that future environmental costs in excess of those accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the Company's financial condition or liquidity. The resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. In addition, there can be no assurance that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on the Company's financial condition or results of operation. With respect to proceedings brought under the federal Superfund laws, or similar state statutes, the Company has been identified as a potentially responsible party at approximately 32 of such sites, excluding those at which it believes it has no future liability. The Company's involvement is very limited or de minimis at approximately 14 of these sites, and the potential loss exposure with respect to any of the remaining 18 individual sites is not considered to be material. See the discussion of related matters herein under the caption "Forward Looking and Other Statements - Risks Associated with Environmental Matters" and in Item 3. Legal Proceedings. Additional related information is presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters -Environmental" on page 26 of the 1999 Annual Report and in Notes 1 and 15 of Notes to Consolidated Financial Statements on pages 35 and 49-50 of the 1999 Annual Report. EMPLOYEES The Company has approximately 11,500 employees. Approximately 48% of the Company's workforce is covered by various collective bargaining agreements, principally with the United Steelworkers of America ("USWA"), including: approximately 400 Oremet employees covered by a collective bargaining agreement with the USWA, which is effective through July 31, 2000; approximately 600 Wah Chang employees covered by a collective bargaining agreement with the USWA, which is effective through October 1, 2000; and approximately 3,900 Allegheny Ludlum production and maintenance employees covered by collective bargaining agreements between Allegheny Ludlum and the USWA, which are effective through June 30, 2001. In 1994, following the expiration of a prior collective bargaining agreement between Allegheny Ludlum and the USWA, the USWA authorized a strike by its members that lasted 12 13 10 weeks and materially adversely affected Allegheny Ludlum's operating results. There can be no assurance that the Company will succeed in concluding collective bargaining agreements with the USWA or other unions to replace those that expire. PRINCIPAL OFFICERS OF THE REGISTRANT Principal officers of the Company as of March 15, 2000 are as follows: NAME AGE TITLE ---- --- ----- Thomas A. Corcoran 55 President and Chief Executive Officer* James L. Murdy 61 Executive Vice President, Finance and Administration and Chief Financial Officer* Judd R. Cool 64 Senior Vice President, Human Relations* Jon D. Walton 57 Senior Vice President, General Counsel & Secretary* Terry L. Dunlap 40 Vice President, e-Business Richard J. Harshman 43 Vice President, Investor Relations and Corporate Communications Robert S. Park 55 Vice President, Treasurer Dale G. Reid 44 Vice President, Controller and Chief Accounting Officer* Set forth below are descriptions of the business background for the past five years of the principal officers of the Company. Thomas A. Corcoran has been President and Chief Executive Officer since October 1999. Mr. Corcoran also serves as a director of the Company. Prior to joining the Company, Mr. Corcoran served as the President and Chief Operating Officer of the Electronics Sector of Lockheed Martin Corporation from March 1995 through October 1998, and he was President and Chief Operating Officer of the Lockheed Martin Space Sector from October 1998 through September 1999. Mr. Corcoran will become Chairman of the Company's Board of Directors following the retirement of Richard P. Simmons as Chairman on May 11, 2000. James L. Murdy has been Chief Financial Officer and a Senior Vice President of the Company since August 1996 and Executive Vice President, Finance and Administration since December 1996. Mr. Murdy previously served as the Senior Vice President-Finance and Chief Financial Officer of Allegheny Ludlum. Mr. Murdy also serves as a director of the Company. Judd R. Cool has been Senior Vice President, Human Resources since September 1997. Prior to joining the Company, Mr. Cool served as Vice President for Human Resources for Inland Steel Industries, Inc. Jon D. Walton has been Senior Vice President, General Counsel and Secretary of the Company since August 1997 and served as Vice President, General Counsel and Secretary of the -------------- * Such officers are subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended. 13 14 Company from August 1996 to August 1997, having previously served in the same capacity as an officer of Allegheny Ludlum. Terry L. Dunlap will serve as Vice President, e-Business effective April 1, 2000. He has served as General Manager, Sheet Products for Allegheny Ludlum since 1998. Mr. Dunlap previously served in a number of management positions with Allegheny Ludlum. Richard J. Harshman has served as Vice President, Investor Relations and Corporate Communications since July 1998. He had been Senior Vice President, Finance and Administration, at Allvac since 1995. Prior thereto, he served in a number of financial and management corporate and operating positions with Teledyne, Inc. Robert S. Park has served as Vice President, Treasurer of the Company since August 1996. From May 1994 to August 1996, Mr. Park served as Vice President, Treasurer of Allegheny Ludlum. Previously, he served as Treasurer of Allegheny Ludlum. Dale G. Reid has served as a Vice President of the Company since May 1997 and Controller since August 1996. Mr. Reid previously served as Chief Accounting Officer and Controller of Teledyne. Messrs. Corcoran, Murdy and Walton have employment agreements with the Company. Copies of the employment agreements are filed as Exhibits 10.19, 10.17, and 10.18 to this Form 10-K. Other employment related agreements with Mr. Corcoran are filed as Exhibits 10.20 and 10.21 to this Form 10-K. The Company has executed change in control agreements with certain key employees, including all of our principal officers listed above, a form of which is filed as Exhibit 10.22 to this Form 10-K. FORWARD LOOKING AND OTHER STATEMENTS From time to time, the Company has made and may continue to make "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. This annual report contains many forward looking statements. These statements, which represent the Company's expectations or beliefs concerning various future events, include statements concerning: product demand, including projected growth in stainless steel consumption; prices; raw material costs; anticipated effects of acquisitions on earnings, cost savings and operations of the Company; cash flow; anticipated business and economic conditions; aerospace industry trends; cost reductions; certain expected capital expenditures; impact of Year 2000 issues; effects of the euro currency conversion; the outcome of any government inquiries, litigation or other proceedings related to government contracts or other matters; and future environmental costs. These statements are based on current expectations that involve a number of risks and uncertainties, including those described under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operation - Other Matters - Environmental" and "Management's Discussion and Analysis of Financial Condition and Results of Operation - Other Matters - Government Contracts" on page 26 of the 1999 Annual Report. Actual results 14 15 may differ materially from results anticipated in forward looking statements. The Company assumes no duty to update its forward-looking statements. Other important factors that could cause actual results to differ from those in such forward-looking statements include the following: Cyclical Demand for Products. Demand for the Company's products is cyclical because the industries in which customers of such businesses operate are cyclical. Various changes in general economic conditions affect these industries, including decreases in the rate of consumption or use of their products due to economic recessions. Significant downturns in the domestic economy are believed to have adversely affected the Company's results of operations from time to time. Other factors causing fluctuation in market demand and volatile pricing include national and international overcapacity, currency fluctuations, lower priced imports and increases in use or decreases in prices of substitute materials. The current trend of price deflation for many commodity products may also adversely affect prices for commodity grades of specialty materials and industrial products. As a result of these factors, the Company's operating results could be subject to significant fluctuation. For example, in recent years, adverse pricing environments for commodity grades of stainless steel, titanium and tungsten products have negatively affected the Company's sales and operating profit. Volatility of Prices of Critical Raw Materials; Unavailability of Raw Materials. Purchase prices of certain critical raw materials are volatile. As a result, the Company's operating results could be subject to significant fluctuation. For example, since the Company generally uses in excess of 47,500 tons of nickel each year, a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $95 million. While nickel surcharges are intended to offset the impact of increased nickel costs, competitive factors in the marketplace can limit the Company's ability to institute surcharges and there can be a delay between the increase in the price of nickel and the realization of the benefit of the surcharges. The Company enters into raw material future contracts from time to time to hedge its exposure to price fluctuation. The Company believes that it has adequate controls to monitor these contracts, which are not financially material. Certain important raw materials used to produce specialty materials must be acquired 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. Risks of Export Sales. The Company believes that export sales will account for an increasing percentage of the Company's sales. 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 the Company's products; changes in tax laws and tariffs; and exchange rate fluctuations (which may affect sales to international customers and the value of and profits earned on export sales when converted into dollars). Any of these factors could materially adversely effect the Company's results. 15 16 Risks Associated with Acquisition and Disposition Strategies. The Company intends to continue to strategically position its businesses in order to improve its ability to compete. The Company plans to do this by seeking specialty niches, expanding its global presence, acquiring businesses complementary to existing strengths and continually evaluating the performance and strategic fit of existing business units. The Company regularly considers acquisition and business combination opportunities as well as possible business unit dispositions. Its management from time to time holds discussions with management of other companies to explore such opportunities. As a result, the relative makeup of the businesses comprising the Company is subject to change. Acquisitions involve various inherent risks, such as: assessing accurately the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates; the potential loss of key personnel of an acquired business; the Company's ability to achieve identified financial and operating synergies anticipated to result from an acquisition; and unanticipated changes in business and economic conditions affecting an acquired business. International acquisitions could be affected by export controls, exchange rate fluctuations, the euro conversion, domestic and foreign political conditions and a deterioration in domestic and foreign economic conditions. Uncertainties Relating to Synergies. There can be no assurance that the Company will be able to realize, or do so within any particular time frame, the cost reductions, cash flow increases or other synergies expected to result from acquisitions and other transactions the Company may undertake or be able to generate additional revenue to offset any unanticipated inability to realize such expected synergies. Realization of the anticipated benefits of acquisitions and other transactions could take longer than expected and implementation difficulties, market factors and a deterioration in domestic or global economic conditions could alter the anticipated benefits. Uncertainties Relating to Spin-Offs - General. In the spin-offs of Teledyne and Water Pik, completed in November 1999, the new companies agreed to assume and to defend and hold the Company harmless against all liabilities (other than certain income tax liabilities) associated with the historical operations of their businesses, including all government contracting, environmental, product liability and other claims and demands, whenever any such claims or demands might arise or be made. If the new companies were unable or otherwise fail to satisfy these assumed liabilities, the Company could be required to satisfy them, which could have a material adverse effect on the Company's results of operations and financial condition. Uncertainties Relating to Spin-Offs - Tax Ruling. While the tax ruling relating to the qualification of the spin-offs of Teledyne and Water Pik as tax-free distributions within the meaning of the Internal Revenue Code generally is binding on the Internal Revenue Service, the continuing validity of the tax ruling is subject to certain factual representations and uncertainties that, among other things, require the new companies to take or refrain from taking certain actions. If a spin-off were not to qualify as a tax-free distribution within the meaning of the Internal Revenue Code, the Company would recognize taxable gain generally equal to the amount by which the fair market value of the common stock distributed to the Company's stockholders in the spin-off exceeded the Company's basis in the new company's assets. In addition, the distribution of the new company's common stock to Company stockholders would generally be treated as taxable to the Company's stockholders in an amount equal to the fair market value of the common stock they received. If a spin-off qualified as a distribution within the meaning of the Internal Revenue Code but was disqualified as tax-free to the Company 16 17 because of certain post-spin-off circumstances, the Company would recognize taxable gain as described in the preceding sentence, but the distribution of the new company's common stock to the Company's stockholders in the spin-off would generally be tax-free to each Company stockholder. In the spin-offs, the new companies executed tax sharing and indemnification agreements in which each agreed to be responsible for any taxes imposed on and other amounts paid by the Company, its agents and representatives and its stockholders as a result of the failure of the spin-off to qualify as a tax-free distribution within the meaning of the Internal Revenue Code if the failure or disqualification is caused by post-spin-off actions by or with respect to that company or its stockholders. Potential liabilities under these agreements could exceed the respective new company's net worth by a substantial amount. If either or both of the spin-offs were not to qualify as tax-free distributions to the Company or its stockholders, and either or both of the new companies were unable to or otherwise failed to satisfy the liabilities they assumed under the tax sharing and indemnification agreements, the Company could be required to satisfy them without full recourse against the new companies. This could have a material adverse effect on the Company's results of operations and financial condition. Risks Associated with Environmental Matters. The Company is subject to various domestic and international environmental laws and regulations. These laws have changed in recent years, and the Company expects to face increasingly stringent environmental standards in the future. The Company believes that it operates its businesses in compliance in all material respects with applicable environmental laws and regulations. However, the Company is a party to lawsuits and other proceedings involving alleged violations of environmental laws. When the Company's liability is probable and it can reasonably estimate its costs, the Company records environmental liabilities on its financial statements. However, some of these environmental investigations are not at a stage where the Company has been able to determine liability, or if liability is probable, to reasonably estimate the loss or range of loss. Estimates of the Company's liability remain subject to additional uncertainties regarding: the nature and extent of site contamination; the range of remediation alternatives available; evolving remediation standards; imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost; the extent of corrective actions that may be required; and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these sites proceed and the Company receives new information, the Company expects that it will adjust its accruals to reflect new information. Future adjustments could have a material adverse effect on the Company's results of operations in a given period, but the Company cannot reliably predict the amounts of such future adjustments. Based on currently available information, the Company's management does not believe that future environmental costs, in excess of those already accrued, will materially adversely affect the Company's financial condition or results of operations. However, the Company cannot provide any assurance that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on the Company's financial condition or results of operations. 17 18 Risks Associated with Government Contracts. One of the Company's operating companies directly performs work on contracts with the U.S. Government. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) have been or may be asserted against the Company related to its U.S. Government contract work, principally related to the former operations of Teledyne, Inc., including claims based on business practices and cost classifications and actions under the False Claims Act. Under the False Claims Act, a person may assert the rights of the U.S. Government by initiating a suit under seal against a contractor. For the claim to be successful, the person must have information that the contractor falsely submitted a claim to the U.S. Government for payment. The U.S. Government may choose to intervene and assume control of the case. Government contracting claims may be resolved by detailed fact-finding and negotiation. When they are not resolved in that way, civil or criminal legal or administrative proceedings may ensue. 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. Given the limited extent of the Company's business with the U.S. Government, the Company believes that a suspension or debarment of the Company would not have a material adverse effect on the future operating results and consolidated financial condition of the Company. Although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to have a material adverse effect on the Company's financial condition or liquidity. The resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. Risks Associated with the Year 2000. The Company did not experience any significant malfunctions or errors in its operating or business systems when the year changed from 1999 to 2000. Based on its operational experience since January 1, 2000, the Company does not expect that Year 2000 matters will have a significant adverse effect on its business in the future. The full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, may, however, not yet be fully known. For example, it is possible that Year 2000 or related problems such as those possibly associated with the fact that 2000 is a leap year, could occur with respect to billing, payroll or financial closings at month-, quarter- or year-end. The Company believes that any such problems are not likely to be material. In addition, Year 2000 or similar problems that adversely affect the Company's customers or suppliers could have an impact on the Company. To date, the Company has not experienced significant difficulties resulting from Year 2000 problems of its customers and suppliers. The Company expended $16 million on Year 2000 readiness efforts in 1998 and 1999. These efforts included replacing outdated, noncompliant hardware and noncompliant software as well as identifying and remediating other Year 2000 problems. Substantially all costs related to 18 19 the Company's Year 2000 initiatives were expensed as incurred and funded through operating cash flows. ITEM 2. PROPERTIES The Company's principal domestic facilities as of December 31, 1999 are listed below by segment. Of those facilities listed below which are owned, three are subject to mortgages or similar encumbrances securing borrowings under certain industrial development authority financings. See Note 5 of the Notes to Consolidated Financial Statements beginning on page 38 of the 1999 Annual Report. Although the facilities vary in terms of age and condition, the Company's management believes that these facilities have generally been well-maintained. APPROXIMATE SQUARE FOOTAGE FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) ----------------- ------------- -------------- FLAT-ROLLED PRODUCTS Brackenridge Works Manufacturing of stainless steel and specialty 2,443,000 (owned) Brackenridge and Natrona, PA material strip, sheet, and plate, silicon electrical steel strip and sheet, and other specialty steel strip and sheet. West Leechburg Works Manufacturing of stainless steel and specialty 1,415,000 (owned) West Leechburg and material strip and sheet, silicon electrical steel Bagdad, PA strip and sheet, and other specialty steel strip and sheet. Vandergrift Plant Manufacturing of stainless steel strip and sheet. 966,000 (owned) Vandergrift, PA Washington Plant Manufacturing of stainless steel and tool steel plate 615,000 (owned) Washington, PA products. Washington Flat-Roll Plant Anneal, pickle, roll and finish stainless steel sheet 350,000 (owned) Washington, PA products. Wallingford Plant Manufacturing of stainless steel and specialty 591,000 (owned) Wallingford and material strip and sheet and other specialty strip Waterbury, CT and sheet. Houston Plant Manufacturing of stainless steel and other specialty 298,000 (owned) Houston, PA material products. Lockport Plant Manufacturing of stainless steel and other specialty 282,000 (owned) Lockport, NY material products. New Castle Plant Manufacturing of stainless steel sheet. 178,000 (owned) New Castle, IN Massillon Plant 96-inch wide anneal and pickle line for manufacture 165,000 (owned) Massillon, OH of stainless steel and other specialty material plate. Allegheny Rodney Strip Plant Manufacturing of stainless steel precision rolled and 250,000 (owned) New Bedford, MA coated thin sheet strip and foil, custom roll-formed and stretch-formed shapes. 19 20 APPROXIMATE SQUARE FOOTAGE FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) ----------------- ------------- -------------- HIGH PERFORMANCE METALS Monroe Plant Production of nickel and titanium products and other 640,000 (owned) Monroe, NC specialty steel long products. Latrobe Plant Production of nickel and titanium products, tool and 468,000 (owned) Latrobe, PA high speed steel, and other specialty steel long products. Richburg Plant Production of nickel and titanium products, tool and 221,000 (owned) Richburg, SC high speed steel, and other specialty steel long products. Bakers Plant Production of titanium ingot. 60,000 (owned) Monroe, NC Oremet Facility Production of titanium sponge, ingot, mill products 461,000 (owned) Albany, OR and castings. Wah Chang Facility Production of zirconium, hafnium, niobium, titanium 1,215,000 (owned) Albany, OR and tantalum. Richland Plant Production of titanium ingots, slabs and electrodes. 103,000 (owned) Richland, WA INDUSTRIAL PRODUCTS Waynesboro, PA Production of thread-cutting and roll-forming 386,000 (owned) equipment and perishable tools. Huntsville, AL Production of molybdenum, tungsten, and tungsten 293,000 (owned) carbide powders. Grant, AL Production of primary tungsten sintered parts. 88,000 (leased) Nashville, TN Production of tungsten carbide and cutting tools. 134,000 (leased) La Porte, IN Manufacturing of large ductile and grey iron castings. 453,000 (owned) Portland, IN Manufacturing of carbon and alloy steel forgings. 215,000 (owned) Lebanon, KY Manufacturing of carbon and alloy steel forgings. 100,000 (owned) The Company also owns or leases facilities in a number of foreign countries, including the United Kingdom, Germany, France, Italy, Spain, and Switzerland. In connection with the Company's February 1998 acquisition of assets in the United Kingdom, the Company acquired 625,000-square foot facilities for melt and remelt, machining and bar mill operations, laboratories and offices located on a 25-acre site in Sheffield, England, and 40,000-square foot leased facility for computer numerically controlled milling and machine operations. 20 21 The Company's executive offices, located at PPG Place in Pittsburgh, Pennsylvania are leased from third parties. These facilities are modern and sufficient for the Company to carry on its current activities. ITEM 3. LEGAL PROCEEDINGS The Company becomes involved from time to time in various lawsuits, claims and proceedings relating to the conduct of its business, including those pertaining to environmental, government contracting, product liability, patent infringement, commercial, employment, employee benefits, and stockholder matters. In June 1995, the U.S. Department of Justice commenced an action against Allegheny Ludlum in the United States District Court for the Western District of Pennsylvania, alleging multiple violations of the federal Clean Water Act. The complaint seeks injunctive relief and assessment of penalties of up to $25,000 per day of violation. Discovery has been completed. The Company believes that a trial of the case would begin no earlier than the first quarter of 2001. As previously announced, the Company has received a subpoena from a federal grand jury investigating possible violations of the federal antitrust laws in the nickel alloys industry. The Company has cooperated with the Department of Justice regarding their investigation. Sales of nickel-based alloys represent less than ten percent of the Company's revenue. The Company has a comprehensive program designed to ensure that the antitrust laws are complied with. The Company believes that its program is effective and well understood by its employees and that its employees would not violate the antitrust laws. While the outcome of litigation, including the matters specified above, cannot be predicted with certainty, and some lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. See the discussion of related matters in Item 1 of Part I of this Form 10-K under the captions "Environmental, Health and Safety Matters." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 11, 1999, the Company held a special meeting of stockholders. At that meeting, an amendment to the Company's Restated Certificate of Incorporation was approved to effect a one-for-two reverse split of the Company's common stock and to reduce the number of authorized shares of common stock. The number of votes cast for the proposal was 144,370,015, against was 19,160,802, and in abstention was 662,341, and there were no broker non-votes. 21 22 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required by this item is incorporated by reference to Note 16 of the Notes to Consolidated Financial Statements on page 51 of the 1999 Annual Report and to "Common Stock Price" on page 52 of the 1999 Annual Report. ITEM 6. SELECTED FINANCIAL DATA Information required by this item is incorporated by reference to "Selected Financial Data" on pages 53 and 54 of the 1999 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is incorporated by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 through 28 of the 1999 Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item is incorporated by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters -Hedging" on pages 25 and 26 of the 1999 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and Notes to Consolidated Financial Statements listed in Item 14(a)(1) are incorporated by reference to pages 29 through 51 of the 1999 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT In addition to the information set forth under the caption "Principal Officers of the Registrant" in Part I of this report, the information concerning the directors of the Company required by this item is incorporated by reference to "Election of Directors" as set forth in the 2000 Proxy Statement filed by the Registrant pursuant to Regulation 14A. 22 23 ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference to "Directors Compensation," "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation" as set forth in the 2000 Proxy Statement filed by the Registrant pursuant to Regulation 14A. The Registrant does not incorporate by reference in this Form 10-K either the "Report on Executive Compensation" or the "Cumulative Total Stockholder Return" section of the 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated by reference to "Stock Ownership Information" as set forth in the 2000 Proxy Statement filed by the Registrant pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is incorporated by reference to "Certain Transactions" as set forth in the 2000 Proxy Statement filed by the Registrant pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES: (1) FINANCIAL STATEMENTS The following consolidated financial statements included on pages 29 through 51 of the 1999 Annual Report are incorporated by reference: Consolidated Statements of Income - Years Ended December 31, 1999, 1998 and 1997 Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Cash Flows - Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1999, 1998 and 1997 Report of Ernst & Young LLP, Independent Auditors Notes to Consolidated Financial Statements (2) FINANCIAL STATEMENT SCHEDULES All schedules set forth in the applicable accounting regulations of the Commission either are not required under the related instructions or are not applicable and, therefore, have been omitted. (3) EXHIBITS A list of exhibits included in this Report or incorporated by reference is found in the Exhibit Index beginning on page 26 of this Report and incorporated by reference. 23 24 (b) REPORT ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1999: The Company filed a current report on Form 8-K on November 29, 1999 regarding the completion of the spin-offs of Teledyne Technologies Incorporated and Water Pik Technologies, Inc. The Company also reported unaudited pro forma financial information to reflect the reclassification of sold and spun-off companies as discontinued operations and to reflect the Company's Flat-Rolled Products, High Performance Metals, and Industrial Products segments. 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLEGHENY TECHNOLOGIES INCORPORATED Date: March 21, 2000 By /s/ Thomas A. Corcoran ----------------------------------------- Thomas A. Corcoran President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and as of the 21st day of March, 2000. /s/ Richard P. Simmons /s/ James L. Murdy -------------------------------------------------- ------------------------------------------------------ Richard P. Simmons James L. Murdy Chairman of the Board Executive Vice President, Finance and Administration and Chief Financial Officer and Director (Principal Financial Officer) /s/ Thomas A. Corcoran /s/ Dale G. Reid -------------------------------------------------- ------------------------------------------------------ Thomas A. Corcoran Dale G. Reid President and Chief Executive Officer Vice President-Controller and Chief Accounting Officer (Principal Accounting Officer) /s/ Robert P. Bozzone /s/ Paul S. Brentlinger -------------------------------------------------- ------------------------------------------------------ Robert P. Bozzone Paul S. Brentlinger Vice Chairman of the Board and Director Director /s/ Frank V. Cahouet /s/ Diane C. Creel -------------------------------------------------- ------------------------------------------------------ Frank V. Cahouet Diane C. Creel Director Director /s/ C. Fred Fetterolf /s/ Ray J. Groves -------------------------------------------------- ------------------------------------------------------ C. Fred Fetterolf Ray J. Groves Director Director /s/ William G. Ouchi /s/ W. Craig McClelland -------------------------------------------------- ------------------------------------------------------ William G. Ouchi W. Craig McClelland Director Director /s/ James E. Rohr /s/ Charles J. Queenan, Jr -------------------------------------------------- ------------------------------------------------------ James E. Rohr Charles J. Queenan, Jr. Director Director 25 26 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 Separation and Distribution Agreement dated November 29, 1999 among Allegheny Teledyne Incorporated (now known as Allegheny Technologies Incorporated), TDY Holdings, LLC, Teledyne Industries, Inc., and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated November 29, 1999 (File No. 1-12001)). 2.2 Separation and Distribution Agreement dated November 29, 1999 among Allegheny Teledyne Incorporated (now known as Allegheny Technologies Incorporated), TDY Holdings, LLC, Teledyne Industries, Inc., and Water Pik Technologies, Inc. (incorporated by reference to Exhibit 2.2 to Registrant's Current Report on Form 8-K dated November 29, 1999 (File No. 1-12001)). 3.1 Certificate of Incorporation of Allegheny Technologies Incorporated, as amended (filed herewith). 3.2 Amended and Restated Bylaws of Allegheny Technologies Incorporated (incorporated by reference to Exhibit 3.2 to the Registrant's Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)). 4.1 Credit Agreement dated as of August 30, 1996 (incorporated by reference to Exhibit 10 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-12001)), Assignment and Assumption Agreements dated as of August 22, 1997 and First Amendment to Credit Agreement dated as of August 31, 1996 (incorporated by reference to Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1997 (File No. 1-12001)), and Second Amendment to Credit Agreement dated as of March 24, 1998 to certain Credit Agreement dated as of August 30, 1996, as amended by First Amendment to Credit Agreement dated as of August 31, 1997 (incorporated by reference to Exhibit 4 to the Registrant's Report on Form 10-K for the quarter ended March 31, 1998 (File No. 1-12001), and Third Amendment to Credit Agreement dated as of March 30, 1999 (incorporated by reference to Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-12001)) and Fourth Amendment to Credit Agreement dated as of August 6, 1999 (incorporated by reference to Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-12001)). 4.2 Indenture dated as of December 15, 1995 between Allegheny Ludlum Corporation and The Chase Manhattan Bank (National Association), as trustee (relating to Allegheny Ludlum Corporation's 6.95% Debentures due 2025) (incorporated by reference to Exhibit 4(a) to Allegheny Ludlum Corporation's Report on Form 10-K for the year ended December 31, 1995 (File No. 1-9498)), and First Supplemental Indenture by and among Allegheny Technologies Incorporated, Allegheny Ludlum Corporation and The Chase Manhattan Bank (National Association), as Trustee, dated as of August 15, 1996 26 27 (incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K dated August 15, 1996 (File No. 1-12001)). 4.3 Rights Agreement dated March 12, 1998, including Certificate of Designation for Series A Junior Participating Preferred Stock as filed with the State of Delaware on March 13, 1998 (incorporated by reference to Exhibit 1 to the Registrant's Current Report on Form 8-K dated March 12, 1998 (File No. 1-12001)). 10.1 Allegheny Technologies Incorporated 1996 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* 10.2 Allegheny Technologies Incorporated Stock Acquisition and Retention Plan effective January 1, 1997 (incorporated by reference to Exhibit 10.2 to the Registrant's Report on Form 10-K for the year ended December 31, 1996 (File No. 1-12001)).* 10.3 Allegheny Technologies Incorporated Stock Acquisition and Retention Program effective January 1, 1998, as amended and restated (incorporated by reference to Exhibit 10.3 to the Registrant's Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)).* 10.4 Allegheny Technologies Incorporated Stock Acquisition Retention Program effective January 1, 2000 (filed herewith).* 10.5 Allegheny Technologies Incorporated 1996 Non-Employee Director Stock Compensation Plan, as amended December 17, 1998 (incorporated by reference to Exhibit 10.4 to the Registrant's Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12001)).* 10.6 Allegheny Technologies Incorporated Fee Continuation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.4 to the Company's Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* 10.7 Supplemental Pension Plan for Certain Key Employees of Allegheny Technologies Incorporated and its subsidiaries (formerly known as the Allegheny Ludlum Corporation Key Man Salary Continuation Plan) (incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* 10.8 Allegheny Technologies Incorporated Benefit Restoration Plan, as amended (filed herewith).* 10.9 Allegheny Ludlum Corporation 1987 Stock Option Incentive Plan (as amended and restated) (incorporated by reference to Exhibit 10(f) to Allegheny Ludlum Corporation's Report on Form 10-K for the year ended December 31, 1995 (File No. 1-9498)).* 27 28 10.10 Allegheny Ludlum Corporation Performance Share Plan (as amended and restated) (incorporated by reference to the Registration Statement on Form S-4 (No. 333-8235) of Allegheny Technologies Incorporated, appears as Appendix F to the Joint Proxy Statement/Prospectus forming part of the Registration Statement).* 10.11 Allegheny Ludlum Corporation Stock Acquisition and Retention Plan, as restated effective as of August 15, 1996 (incorporated by reference to Exhibit 10.10 to the Company's Report on Form 10-K for the year ended December 31, 1997 (File No. 1-12001)).* 10.12 Teledyne, Inc. 1990 Stock Option Plan (incorporated by reference to Exhibit 10 to Teledyne, Inc.'s Report on Form 10-K for the year ended December 31, 1990 (File No. 1-5212)).* 10.13 Teledyne, Inc. 1994 Long-Term Incentive Plan (incorporated by reference to Exhibit A to Teledyne, Inc.'s 1994 proxy statement (File No. 1-5212)).* 10.14 Teledyne, Inc. 1995 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit A to Teledyne, Inc.'s 1995 proxy statement (File No. 1-5212)).* 10.15 Summary of Teledyne, Inc. Executive Deferred Compensation Plan, as restated effective September 1, 1994 (incorporated by reference to Exhibit 10.2 to Teledyne, Inc.'s Report on Form 10-K for the year ended December 31, 1994 (File No. 1-5212)).* 10.16 First Amendment dated as of August 14, 1995 and Second Amendment dated as of December 4, 1995 to the Summary of Teledyne, Inc. Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to Teledyne, Inc.'s Report on Form 10-K for the year ended December 31, 1995 (File No. 1-5212)).* 10.17 Employment Agreement dated July 15, 1996 between Allegheny Technologies Incorporated and James L. Murdy (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 (No. 333-8235)).* 10.18 Employment Agreement dated July 15, 1996 between Allegheny Technologies Incorporated and Jon D. Walton (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-4 (No. 333-8235)).* 10.19 Employment Agreement dated August 17, 1999 between Allegheny Technologies Incorporated and Thomas A. Corcoran (incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q for the period ending September 30, 1999 (File No. 1-12001)).* 10.20 Restricted Stock Agreement dated September 16, 1999 between Allegheny Technologies Incorporated and Thomas A. Corcoran (incorporated by reference to Exhibit 10(b) to the Company's Report on Form 10-Q for the period ending September 30, 1999 (File No. 12001)).* 28 29 10.21 Supplemental Pension Plan Agreement dated September 16, 1999 between Allegheny Technologies Incorporated and Thomas A. Corcoran (incorporated by reference to Exhibit 10(c) to the Company's Report on Form 10-Q for the period ending September 30, 1999 (File No. 1-12001)).* 10.22 Form of Change in Control Severance Agreement (filed herewith).* 10.23 Employee Benefits Agreement dated November 29, 1999 between Allegheny Technologies Incorporated and Teledyne Technologies Incorporated (filed herewith).* 10.24 Employee Benefits Agreement dated November 29, 1999 between Allegheny Technologies Incorporated and Water Pik Technologies, Inc. (filed herewith).* 10.25 Tax Sharing and Indemnification Agreement dated November 29, 1999 between Allegheny Technologies Incorporated and Teledyne Technologies Incorporated (filed herewith). 10.26 Tax Sharing and Indemnification Agreement dated November 29, 1999 between Allegheny Technologies Incorporated and Teledyne Technologies Incorporated (filed herewith). 10.27 Allegheny Technologies Incorporated Executive Deferred Compensation Plan, as amended (filed herewith).* 10.28 Allegheny Technologies Incorporated Performance Share Program (incorporated by reference to Exhibit 10.22 to the Registrant's Report on Form 10-K for 1998 (File 1-12001)). 10.29 Allegheny Technologies Incorporated Annual Incentive Plan (incorporated by reference to Exhibit 10.23 to the Registrant's Report on Form 10-K for the year ended December 31, 1998 (File 1-12001)). 10.30 Allegheny Technologies Incorporated 2000 Incentive Plan (filed herewith).* 13.1 Pages 19 through 54 inclusive of the Annual Report of Allegheny Technologies Incorporated for the year ended December 31, 1999 (filed herewith). 21.1 Subsidiaries of the Registrant (filed herewith). 23.1 Consent of Ernst & Young LLP (filed herewith). 27.1 Financial Data Schedule for 1999 (filed herewith). 27.2 Restated Financial Data Schedule for 1998 (filed herewith). 27.3 Restated Financial Data Schedule for 1997 (filed herewith). 29 30 *Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Report. Certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries have been omitted from the Exhibits in accordance with Item 601(b)(4)(iii) of Regulation S-K. A copy of any omitted document will be furnished to the Commission upon request. 30 EX-3.1 2 CERTIFICATE OF INCORPROATION 1 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF ALLEGHENY TECHNOLOGIES INCORPORATED (as amended) ONE: The name of the corporation is Allegheny Technologies Incorporated (hereinafter referred to as the "Corporation"). TWO: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. THREE: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law. FOUR: The total number of shares of all classes of stock which the Corporation shall have authority to issue is Five Hundred Fifty Million (550,000,000), consisting of Five Hundred Million (500,000.000) shares of Common Stock, par value ten cents ($.l0) per share (the "Common Stock"), and Fifty Million (50,000,000) shares of Preferred Stock, par value ten cents ($.10) per share (the "Preferred Stock"). The term "Voting Stock" shall hereafter refer to all shares of capital stock entitled to vote generally in the election of directors. A. Common Stock 1. Except where otherwise provided by law, by this Restated Certificate of Incorporation, or by resolution of the Board of Directors pursuant to this Article FOUR, the holders of the Common Stock issued and outstanding shall have and possess the exclusive right to notice of stockholders' meetings and the exclusive voting rights and powers of the capital stock. 2. Subject to any preferential rights of the Preferred Stock, dividends may be paid on the Common Stock, as and when declared by the Board of Directors, out of any funds of the Corporation legally available for the payment of such dividends. B. Preferred Stock The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers (including but not limited to voting powers, if any), preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation. 2 FIVE: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Restated Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The Board of Directors may adopt, amend or repeal the Bylaws of the Corporation. The stockholders of the Corporation may not adopt, amend or repeal the Bylaws of the Corporation other than by the affirmative vote of 75% of the combined voting power of all outstanding voting securities of the Corporation entitled to vote generally in the election of directors of the Board of Directors of the Corporation ("Voting Power"), voting together as a single class. C. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. SIX: The Corporation reserves the right to amend and repeal any provision contained in this Restated Certificate of Incorporation in the manner from time to time prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. SEVEN: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which such director derived any improper personal benefit. No amendment to or repeal of this Article SEVEN shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as amended. EIGHT: A. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General 2 3 Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section C of this Article EIGHT with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. B. Right to Advancement of Expenses. The right to indemnification conferred in Section A of this Article EIGHT shall include the right to be paid by the Corporation the expenses (including attorneys' fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section B or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article EIGHT shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. C. Right of Indemnitee to Bring Suit. If a claim under Section A or B of this Article EIGHT is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption 3 4 that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement or expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article EIGHT or otherwise shall be on the Corporation. D. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article EIGHT shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Restated Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. E. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another Corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. F. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. G. Amendment. Any repeal or modification of this Article EIGHT shall not change the rights of any officer or director to indemnification with respect to any action or omission occurring prior to such repeal or modification. NINE: The following provisions are inserted for the definition, limitation and regulation of actions of the stockholders of the Corporation: A. Action to be Taken at Stockholder Meetings Only. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such stockholders and may not be effected by the written consent of such stockholders. B. Calling of Special Meetings. Special meetings of the stockholders, other than those required by statute, may be called only by the Board of Directors pursuant to a resolution approved by a majority of the directors then in office, the Chairman of the Board or the Chief Executive Officer. The Board of Directors may postpone, reschedule or cancel any previously scheduled special meeting. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice as provided in this Article NINE, 4 5 Section B, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Article NINE, Clause (B). Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by Article NINE, Section C shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of the seventy-fifth day prior to such special meeting or the tenth day following the day on which a public announcement (as defined in subparagraph (e) of Article NINE, Section C) is first made of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. C. Notice of Nominations and Action to be Taken at an Annual Meeting. (a) Nominations of persons for election to the board of directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Article NINE, Section C who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Article NINE, Section C. (b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this Article NINE, Section (C), the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must be a proper matter for stockholder action under the Delaware General Corporation Law. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than seventy-five days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary date, or in the case of the first annual meeting of the Corporation's stockholders after the Corporation becomes subject to the reporting requirements of Section 12 of the Securities Exchange Act of 1934, as amended, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of the sixtieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any financial or other interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any on whose behalf the nomination or proposal is made, (1) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (2) the class and 5 6 number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (c) Notwithstanding anything in the second sentence of paragraph (b) of this Article NINE, Section C to the contrary, in the event that the number of directors to be elected to the board of directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased board of directors made by the Corporation at least eighty-five days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Article NINE, Section C shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. (d) Only such persons who are nominated in accordance with the procedures set forth in this Article NINE, Section C shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Article NINE, Section C. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Article NINE, Section C and, if any proposed nomination or business is not in compliance with this Article NINE, Section C, to declare that such defective proposed business or nomination shall be disregarded. (e) For purposes of this Article NINE, Section C, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (f) Notwithstanding the foregoing provisions of this Article NINE, Section C, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article NINE, Section C. Nothing in this Article NINE, Section C shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. (g) The Bylaws of the Corporation may contain additional provisions not inconsistent with this Article NINE, Section C regarding nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be transacted by the stockholders. Without limiting the category of such provisions which would not be inconsistent with this Article NINE, Section C, a provision in the bylaws of the Corporation which sets forth additional information which must be provided by a stockholder in the notice required by this Article NINE, Section C shall not be deemed to be so inconsistent. D. Voting. The stockholders shall not have the right to cumulate their votes in the election of directors. TEN: (A) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof 6 7 relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time by the affirmative vote of a majority of the whole Board of Directors. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes: Class I, Class II and Class III. The terms of office of the initial classes of directors shall be as follows: the Class I Directors shall be elected to hold office for a term to expire at the first annual meeting of stockholders after the initial classification of directors; the Class II Directors shall be elected to hold office for a term to expire at the second annual meeting of stockholders after the initial classification of directors; and the Class III Directors shall be elected to hold office for a term to expire at the third annual meeting of stockholders after the initial classification of directors; and in the case of each class, until their respective successors are duly elected and qualified. At each annual meeting of stockholders the directors elected to succeed those whose terms have expired shall be identified as being of the same class as the directors they succeed and shall be elected to hold office for a term to expire at the third annual meeting of stockholders after their election, or until his or her earlier resignation or removal, and until their respective successors are duly elected and qualified. (B) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors: (a) In case of any increase in the number of directors, the additional director or directors, and in case of any vacancy in the Board of Directors due to death, resignation, removal, disqualification or any other reason, the successors to fill the vacancies, shall be elected only by a majority of the directors then in office, even though less than a quorum, or by a sole remaining director and not by the stockholders, unless otherwise provided by law or by resolution adopted by a majority of the whole Board of Directors. (b) Directors appointed in the manner provided in paragraph (a) to newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or any other cause shall hold office for a term expiring at the next annual meeting of stockholders at which the term of the class to which they have been elected expires. (c) No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (C) Except as otherwise fixed pursuant to the provisions of Article FOUR hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors, any director or directors may be removed from office at any time, but only for cause and only by the affirmative vote of 75% of the Voting Power, voting together as a single class. ELEVEN: In addition to any other considerations which the Board of Directors, any committee thereof or any individual director lawfully may take into account in determining 7 8 whether to take or refrain from taking corporate action on any matter, including making or declining to make any recommendations to the stockholders of the Corporation, the Board of Directors, any committee thereof or any individual director may in its, his or her discretion consider the long term as well as the short term best interests of the Corporation (including the possibility that these interests may best be served by the continued independence of the Corporation), taking into account and weighing as deemed appropriate the effects of such action on employees, suppliers, distributors and customers of the Corporation and its subsidiaries and the effect upon communities in which the offices or facilities of the Corporation and its subsidiaries are located and any other factors considered pertinent. This Article ELEVEN shall be deemed to grant discretionary authority to the Board of Directors, any committee thereof and each individual director, and shall not be deemed to provide to any specific constituency any right to be considered. TWELVE: In addition to the requirements of (i) law and (ii) the other provisions of this Restated Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds of the outstanding shares of Common Stock of the Corporation entitled to vote shall be required for the adoption or authorization of a Fundamental Change unless the Fundamental Change has been approved at a meeting of the Board of Directors by the vote of more than two-thirds of the incumbent members of the Board of Directors. As used in this Article TWELVE, "Fundamental Change" shall mean (1) any merger or consolidation of the Corporation with or into any other corporation, (2) any sale, lease, exchange, transfer or other disposition, but excluding a mortgage or any other security device, of all or substantially all of the assets of the Corporation, (3) any merger or consolidation of a Significant Shareholder with or into the Corporation or a direct or indirect subsidiary of the Corporation, (4) any sale, lease, exchange, transfer or other disposition to the Corporation or to a direct or indirect subsidiary of the Corporation of any Common Stock of the Corporation held by a Significant Shareholder or any other assets of a Significant Shareholder which, if included with all other dispositions consummated during the same fiscal year of the Corporation by the same Significant Shareholder, would result in dispositions of assets having an aggregate fair value in excess of five percent of the total consolidated assets of the Corporation as shown on its certified balance sheet as of the end of the fiscal year preceding the proposed disposition, (5) any reclassification of Common Stock of the Corporation, or any re-capitalization involving Common Stock of the Corporation, consummated within five years after a Significant Shareholder becomes a Significant Shareholder, whereby the number of outstanding shares of Common Stock is reduced or any of such shares are converted into or exchanged for cash or other securities, (6) any dissolution and (7) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Fundamental Change but, notwithstanding anything to the contrary herein, Fundamental Change shall not include any merger pursuant to the Delaware General Corporation Law, as amended from time to time, which does not require a vote of the Corporation's stockholders for approval. As used in this Article TWELVE, "Significant Shareholder" shall mean any person who or which beneficially owns a number of shares of Common Stock of the Corporation, whether or not such number includes shares not then outstanding or entitled to vote, which exceeds a number equal to fifteen percent of the outstanding shares of Common Stock of the Corporation entitled to vote, any and all affiliates of such person and any and all associates and family members of such person or anv such affiliate. 8 9 THIRTEEN: Notwithstanding any other provisions of this Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of Voting Stock required by law or this Restated Certificate of Incorporation, the affirmative vote of the holders or at least 75% of the Voting Power, voting together as a single class, shall be required to alter, amend, supplement or repeal, or to adopt any provision inconsistent with the purpose or intent of, paragraph B of Article FIVE and Articles SEVEN, NINE, TEN, ELEVEN, TWELVE or THIRTEEN; provided, however, that no amendment of Article TWELVE shall apply to any person who is a Significant Shareholder at the time of the adoption of such amendment. 9 EX-10.4 3 STOCK ACQUISITION RETENTION PROGRAM 1 Exhibit 10.4 ALLEGHENY TECHNOLOGIES INCORPORATED 1996 INCENTIVE PLAN ADMINISTRATIVE RULES FOR THE ALLEGHENY TECHNOLOGIES INCORPORATED STOCK ACQUISITION AND RETENTION PROGRAM EFFECTIVE AS OF JANUARY 1, 2000 (AS AMENDED AND RESTATED) ARTICLE I. ADOPTION AND PURPOSE OF THE PROGRAM 1.01 ADOPTION. These rules are adopted by the Personnel and Compensation Committee and the Stock Incentive Award Subcommittee of the Board of Directors pursuant to the authority reserved in Section 3.01 of the Allegheny Technologies Incorporated 1996 Incentive Plan (the "Plan"). Capitalized terms used but not defined in these rules shall have the same meanings as in the Plan. 1.02 PURPOSE. The purpose of the Allegheny Technologies Incorporated Stock Acquisition and Retention Program (the "SARP") is to assist the Corporation and its subsidiaries in retaining and motivating selected key management employees who will contribute to the success of the Corporation and its subsidiaries. The SARP encourages eligible employees to hold a proprietary interest in the Corporation by offering them an opportunity to receive grants of restricted shares of Stock which, in accordance with the terms and conditions set forth below, will vest only if the employees retain, for a specified period of time, ownership of (i) shares of Stock purchased pursuant to the SARP or (ii) already-owned shares of Stock which such employees identify as being subject to the SARP. Awards under the SARP will act as an incentive to participating employees to achieve long-term objectives which will inure to the benefit of all stockholders of the Corporation. ARTICLE II. DEFINITIONS For purposes of these rules, the capitalized terms set forth below shall have the following meanings: 2.01 AWARD AGREEMENT means a written agreement between the Corporation and a Participant or a written acknowledgment from the Corporation specifically setting forth the terms and conditions of an award of Restricted Stock granted to a Participant pursuant to Article VII of these rules. 2.02 BOARD means the Board of Directors of the Corporation. 2.03 BUSINESS DAY means any day on which the New York Stock Exchange shall be open for trading. 2.04 CAUSE means a determination by the Committee that a Participant has engaged in conduct that is dishonest or illegal, involves moral turpitude or jeopardizes the Corporation's right to operate its business in the manner in which it is now operated. 2 2.05 CHANGE IN CONTROL means any of the events set forth below: (a) The acquisition in one or more transactions, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a number of Corporation Voting Securities in excess of 30% of the Corporation Voting Securities unless such acquisition has been approved by the Board; or (b) Any election has occurred of persons to the Board that causes two-thirds of the Board to consist of persons other than (i) persons who were members of the Board on January 1, 1998 and (ii) persons who were nominated for election as members of the Board at a time when two-thirds of the Boar