Allegheny Technologies Inc. reported net income of $88.3 million on sales of $861.7 million for the third quarter, and net income of $241.0 million on sales of $2,645.5 million for the first nine months of 2005.

Third Quarter Results—The $88.3 million net income ($0.87 per share) compares with net income of $8.6 million, or $0.09 per share in the third quarter of 2004. Sales of $861.7 million are 18% higher than sales of $730.6 million in the third quarter 2004. Sales increased 69% in the High Performance Metals segment and 35% in the Engineered Products segment, but declined 6% in the Flat-Rolled Products segment.

Segment operating profit was $134.0 million, an increase of $80.7 million compared to the third quarter 2004, as a result of improved profitability across all three business segments. Results included a LIFO inventory valuation reserve charge of $12.1 million (due primarily to higher titanium scrap and tungsten raw material costs), which compares to a third quarter 2004 LIFO inventory valuation reserve charge of $8.5 million. Results were also negatively impacted by approximately $9 million in higher energy costs, net of benefits from natural gas hedges.

Cash flow from operating activities was $135.8 million. Cost reductions, before the effects of inflation, totaled $33.3 million company-wide in the third quarter.

Nine Month Results—Net income of $241.0 million ($2.40 per share) compares to a net loss of $15.2 million (–$0.18 per share)for the first nine months of 2004. Sales of $2,645.5 million compare to sales of $1,954.9 million for the first nine months of 2004.

Cash flow from operating activities was $195.6 million as significantly higher operating results more than offset the further investment of $220.5 million in managed working capital resulting from improved market conditions. Cash on hand increased to $371.7 million at September 30, 2005.

Cost reductions, before the effects of inflation, totaled 100.4 million company-wide for the first nine months of 2005, which compares to a 2005 cost reduction goal of $100 million.

Comments—"Third quarter results demonstrate both the growth potential and transformation of Allegheny Technologies," said L. Patrick Hassey, Chairman, President and CEO. "ATI operating profit reached $134 million, or nearly 16% of sales. In our High Performance Metals segment, sales and operating profit were again at record levels. Although our Flat-Rolled Products segment shipments were the lowest since the first quarter 2004, the segment recorded an operating profit of over $33 million and operating margins were just under 8%, which is the low end of our target range. Our Engineered Products segment had another strong quarter. Third quarter 2005 cash flow from operations was nearly $136 million bringing cash on hand to $372 million.

"Robust demand from the commercial aerospace market drove High Performance Metals segment operating margins to 27% of sales. Growth continued as we benefited from investments made during the past several years. Productivity and throughput significantly improved at our newly upgraded Richburg, S.C., high performance metals long products facility.

"Total flat-rolled shipments were low due to ongoing service center inventory adjustments for certain stainless commodity products. On the other hand, we saw strong demand for our flat-rolled high-value products from the oil and gas, electrical energy, aerospace, and chemical processing markets. Segment operating margins fell to just under 8% due to lower utilization and higher energy costs, net of benefits from natural gas hedges. We maintained our discipline to neither chase commodity tons nor build inventory, and proved that this segment can be profitable in a difficult commodity stainless market.

"Operating profit in our Engineered Products segment was just under 13% of sales, a new all-time high.

Working Capital and Debt—The investment in managed working capital resulted from a $70.7 million increase in accounts receivable, which reflects the significantly higher level of sales in the third quarter 2005 compared to the fourth quarter 2004, a $145.7 million increase in inventory mostly as a result of higher raw material costs and increased business volumes, and a $4.1 million decrease in accounts payable. Most of the increase in raw material costs is expected to be recovered through surcharge and index pricing mechanisms.

At September 30, 2005, managed working capital was 30.9% of annualized sales compared to 29.5% of annualized sales at year-end 2004. ATI defines managed working capital as accounts receivable and gross inventories less accounts payable.

Cash used in investing activities was $62.8 million in the 2005 first nine months, consisting primarily of capital expenditures of $41.2 million and $18.3 million for the acquisition of Garryson Limited. Cash used in financing activities was $11.9 million in the first nine months of 2005, including a decrease in net borrowings of $14.4 million and payment of dividends of $17.4 million, which were partially offset by $19.9 million of proceeds received from the exercise of stock options.

Net debt as a percentage of total capitalization improved to 21.0% at September 30, 2005 from 43.8% at the end of 2004. There were no borrowings outstanding during 2005 or 2004 under ATI's $325 million secured domestic borrowing facility, although a portion of the letters of credit capacity was utilized.

Outlook—"During the fourth quarter 2005, demand for our High Performance Metals segment products is expected to remain robust and demand for our Engineered Products is expected to remain strong,” commented Hassey. “In our Flat-Rolled Products segment, we see continued strength in demand for our high-value products. In addition, we are seeing increased orders as service centers continue to bring their inventories better in line with demand.

"We believe our fourth quarter 2005 operating profit will be similar to third quarter 2005 performance, and we expect good cash flow from operations. We are considering making a voluntary cash contribution to our U.S. defined pension benefit plan of at least $75 million.

"We remain confident about the prospects for ATI and continue to build a foundation for further profitable growth. So far, in 2005 we have announced strategic investments totaling almost $150 million for our titanium, nickel-based alloy, and tungsten products and expect over $300 million in annual sales growth when these investments are fully implemented in 2007.

"In summary, we are on track to meet our strategic objectives. The growth potential and transformation of ATI were demonstrated in the third quarter of 2005. ATI is setting new records for sales and operating profit this year and is generating the cash for profitable growth. This is enabling a self-funded growth strategy for 2006 and beyond with a disciplined plan and vision to build the world's best specialty metals company."

Allegheny Technologies is one of the largest and most diversified specialty materials producers in the world. Major markets are aerospace, construction and mining, chemical processing/oil & gas, food equipment and appliance, automotive, electrical energy, machine and cutting tools, and medical. Products include nickel-based alloys and superalloys, titanium and titanium alloys, stainless and specialty steels, zirconium, hafnium, and niobium, tungsten materials, silicon and tool steels, and forgings and castings.