Allegheny Technologies Inc. reported net income of $26.6 million on sales of $646.5 million for the second quarter, and a net loss of $23.8 million on sales of $1,224.3 million for the six months ended June 30, 2004.

Second Quarter Results—Net income of $26.6 million ($0.31 per share) compares to net loss of $26.0 million ($0.32 per share) for the second quarter of 2003. Sales, $646.5 million, compare to sales of $489.9 million in the second quarter of 2003.

Current results included a net special gain of $40.4 million ($0.48 per share) related to actions taken to control salaried retiree medical costs, net of costs associated with Allegheny Ludlum's new labor agreement and the acquisition of the J&L Specialty Steel assets. Results also included a LIFO inventory valuation reserve charge of $26.1 million, primarily due to continued increases in raw material costs. Retirement benefit expense, primarily non-cash, was $34.0 million ($0.40 per share). Second quarter 2004 results do not include an income tax provision or benefit as a result of a deferred tax valuation allowance recorded in the fourth quarter 2003. Second quarter 2003 results included retirement benefit expense of $33.4 million ($0.26 per share).

Six Month Results—Net loss of $23.8 million ($0.30 per share) compares to a net loss of $53.1 million ($0.66 per share) for the first six months of 2003. Sales, $1,224.3 million, compare to sales of $970.4 million for the first six months of 2003. Current results include a LIFO inventory valuation reserve charge of $74.2 million and retirement benefit expense, primarily non-cash, of $70.0 million ($0.87 per share). Six months 2003 results included an income tax benefit of $29.0 million ($0.36 per share); a $1.3 million ($0.02 per share) charge for the cumulative effect of change in accounting principle; and retirement benefit expense of $68.2 million ($0.54 per share).

Comments—"During the second quarter 2004, we made substantial progress toward transforming our stainless steel business and delivering on-going positive earnings per share," said Pat Hassey, ATI's Chairman, President and CEO. "A new progressive labor agreement covering represented employees at ATI Allegheny Ludlum was reached with the United Steelworkers of America (USWA). We completed the J&L asset acquisition and are making good progress integrating our new facilities.

"In addition, we reduced our Other Post Retirement Benefit (OPEB) liability by approximately $331 million, reflecting actions taken in the second quarter to control our retiree medical costs and the favorable impact of the new Federal Medicare prescription drug program.

"Demand for our products continues to be strong. Compared to the second quarter 2003, sales increased significantly in all three of our business segments. Operating profit also increased across all of our segments.

"The effects of the ATI Business System and our ongoing cost reductions were apparent in the second quarter. Operating profit as a percentage of sales improved to nearly 6%, which is the highest level since the 2000 third quarter. This was achieved even with the negative impact of significant LIFO inventory valuation reserve charges. Managed working capital as a percent of annualized sales improved to approximately 27% at the end of the quarter compared to nearly 31% at the end of 2003, excluding the effect of the J&L asset acquisition. We also achieved $63 million of cost reductions, before the effects of inflation, in the first half of 2004. We are running well ahead of our initial $104 million cost reduction goal for 2004. This does not include the previously announced $200 million of cost structure improvements and synergies from the J&L asset acquisition and new labor agreement.

"Cash generation over the first six months has been strong. Cash on hand was $64 million, only $16 million less than at year-end 2003, even though managed working capital increased by $111 million in the first six months of 2004. In addition, cash outlays for net capital investments, acquisitions and debt repayments totaled over $40 million in the first half of 2004. We continued to have no cash borrowings under our secured credit facility.

"As the third quarter 2004 begins, we expect sales to continue to grow. We also expect cost reductions and cost structure improvements to further improve operating margins. Retirement benefit expense will be further reduced by $9 million in the third quarter 2004. We expect to see continued improvement in our operating results and are targeting to achieve positive earnings per share in the second half 2004 without the benefit of special items."

Allegheny Technologies Inc. is one of the largest and most diversified specialty materials producers in the world, with revenues of approximately $1.9 billion in 2003. High-value products include nickel-based and cobalt-based alloys and superalloys, titanium and titanium alloys, specialty steels, super stainless steel, exotic alloys, which include zirconium, hafnium and niobium, tungsten materials, and highly engineered strip and Precision Rolled Strip^® products. Commodity specialty materials include stainless steel sheet and plate, silicon and tool steels, and forgings and castings.