Allegheny Technologies Inc. reported net income of $8.6 million on sales of $730.6 million for the third quarter ended September 30, 2004.

Third Quarter Results—Net income of $8.6 million ($0.09 per share) compare to a net loss of $28.8 million ($(0.36) per share) in the third quarter 2003. Sales of $730.6 million compare to sales of $482.6 million in the third quarter 2003.

Results included a LIFO inventory valuation reserve charge of $8.5 million, primarily due to continued increases in raw material costs. Retirement benefit expense was $24.8 million in the quarter. 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. The comparable (third quarter 2003) results included net non-recurring special charges of $3.0 million, or $(0.04) per share, a LIFO inventory valuation reserve charge of $10.5 million, and retirement benefit expense of $33.5 million.

Nine Month Results—A loss of $15.2 million ($(0.18) per share) compares to a net loss of $81.9 million ($(1.01) per share) in the first nine months of 2003. Sales of $1,954.9 million compare to sales of $1,453.0 million for the first nine months of 2003.

Current year-to-date results include a LIFO inventory valuation reserve charge of $82.7 million, retirement benefit expense of $94.8 million, and a $40.4 million ($0.48 per share) special gain related to actions taken to control certain retiree medical costs, net of costs related to the new ATI Allegheny Ludlum labor agreement and the J&L asset acquisition.

Comparable (nine months 2003) results included an income tax benefit of $48.5 million ($0.60 per share), special charges of $3.0 million ($(0.04) per share), a $1.3 million ($(0.02) per share) charge for the cumulative effect of change in accounting principle, a LIFO inventory valuation reserve charge of $22.8 million, and retirement benefit expense of $101.7 million.

Comments—"We made important strides in the third quarter to transition ATI to profitability," said Pat Hassey, ATI's Chairman, President and CEO. "In our Flat-Rolled Products segment, the integration of our recently acquired stainless steel assets in Midland, Pa., and Louisville, Ohio, is progressing very well and the new capabilities exceed our original expectations. The second new electric arc furnace at our Brackenridge, Pa., meltshop started up ahead of plan. The first group of retirements under the new Allegheny Ludlum labor agreement occurred in the quarter.

"In our High Performance Metals segment, we commissioned our high performance metals long products rolling mill in Richburg, S.C., on October 11th. We believe the timing is right since we see further indications that we are at the beginning of a recovery in the commercial aerospace cycle.

"ATI sales of $731 million increased significantly in all three of our business segments compared to the third quarter 2003. Operating profit also increased in each of our segments.

"During the third quarter, our Flat-Rolled Products segment began to show the benefits of the strategic transformation of our stainless steel business. With our new capabilities, total shipments set an all-time record of over 170,000 tons. Sales increased by 80% compared to the same period last year. More importantly, operating profit exceeded $26 million as a result of increased shipments, improved demand, price restoration actions and cost reductions.

"In our High Performance Metals segment, shipments of our premium titanium alloys increased by 7% compared to last year's third quarter. Demand for our high performance metals remained strong for military and commercial aerospace spare parts. In addition, demand improved from the OEM market and we are encouraged by build forecasts for the next few years in terms of the number and size of aircraft as well as increased high performance metals content. Our exotic alloys business continued to perform well. Demand remained strong from the government and medical markets, and from corrosion markets, particularly in Asia.

"Sales in our Engineered Products segment increased as a result of improved demand from several key markets such as oil and gas, mining, transportation and wind energy, as well as a pickup in overall manufacturing demand.

"The effects of the ATI Business System and our ongoing cost reductions were apparent in the third quarter. Operating profit as a percentage of sales improved to 7%. Managed working capital as a percent of annualized sales improved to just over 26% at the end of the quarter compared to nearly 31% at the end of 2003. We achieved $103 million of cost reductions, before the effects of inflation, in the first nine months of 2004 and have already nearly reached our $104 million cost reduction goal for the full year 2004.

"In addition, we began to make progress toward achieving the previously announced $200 million of cost structure improvements and synergies from the J&L asset acquisition and new labor agreement at ATI Allegheny Ludlum.

"During the third quarter, we improved our balance sheet. We received net cash proceeds of $230 million from our public offering. We made a $50 million voluntary cash contribution to our U.S. pension plan to improve the plan's funded position. Net cash flow from operations for the first nine months of 2004 was $58 million, excluding the voluntary pension contribution. Cash flow from operations is impressive since we invested nearly $148 million in cash for increased managed working capital, excluding the effect of the J&L asset acquisition, as business conditions improved. Cash outlays for net capital investments, acquisitions and debt repayments totaled $52 million in the first nine months of 2004. Cash on hand at the end of the quarter was $263 million and we continued to have no cash borrowings under our secured domestic credit facility.

Outlook—"Looking at the fourth quarter 2004, we expect our operating performance, before any LIFO inventory valuation reserve charge, to be similar to the third quarter 2004, mainly due to seasonal inventory management actions by customers. Current raw materials price volatility makes it difficult to forecast the fourth quarter 2004 LIFO inventory valuation reserve. Iron scrap prices are at an all-time high and nickel prices on the LME have recently been unusually volatile. At recent raw materials prices, our fourth quarter 2004 LIFO inventory valuation reserve charge could be in the range of $15 to $20 million higher than the third quarter 2004. On a cash basis, volatile raw materials costs are mostly neutralized by our raw materials surcharge and index pricing mechanisms.

"We see 2004 as a year in which we accomplish a transition to profitability. We see encouraging signs that the recovery that began earlier this year in most of our capital goods markets, including commercial aerospace, should continue in 2005. We believe the strategies that we put in place in 2004 are working and have positioned ATI for significantly better earnings performance in 2005."

Allegheny Technologies Inc. is one of the largest and most diversified specialty materials producers in the world, with revenues of approximately $2.4 billion during the 12-month period ending September 30, 2004. The company’s 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.