ALLEGHENY TECHNOLOGIES INC - 10-K Annual Report

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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, 2004

[ ] 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:

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]

Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X]
No [ ]

On February 14, 2005, the Registrant had outstanding 95,892,363 shares
of its Common Stock.

The aggregate market value of the Registrant's voting stock held by
non-affiliates at June 30, 2004 was approximately $1.4 billion, based on the
closing price per share of Common Stock on that date of $18.05 as reported on
the New York Stock Exchange, and at February 14, 2005 was approximately $2.1
billion, based on the closing price per share of Common Stock on that date of
$22.85 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 Exchange Act.

Documents Incorporated By Reference

Selected portions of the Proxy Statement for 2005 Annual Meeting of Stockholders
- - Part III of this Report. The information included in the Proxy Statement as
required by paragraphs (a) and (b) of Item 306 of Regulation S-K and paragraphs
(k) and (l) of Item 402 of Regulation S-K is not incorporated by reference in
this Form 10-K.

================================================================================

INDEX

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PART I

ITEM 1. BUSINESS

THE COMPANY

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 was formed
on August 15, 1996 by the combination of Allegheny Ludlum Corporation and
Teledyne, Inc., which became wholly owned subsidiaries of Allegheny
Technologies. References to "Allegheny Technologies," "ATI," the "Company," the
"Registrant," "we," "our" and "us" and similar terms mean Allegheny Technologies
Incorporated and its subsidiaries, unless the context otherwise requires.

OUR BUSINESS

Allegheny Technologies Incorporated (ATI) uses innovative technologies to
produce a wide range of specialty materials for global markets. Our specialty
materials are produced in a variety of alloys and forms, including sheet, strip,
plate, slab, ingot, billet, bar, rod, wire, seamless 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. Major end markets of our products include
aerospace, construction and mining, chemical processing, oil and gas,
automotive, electrical energy, food processing equipment and appliances, machine
and cutting tools, transportation, medical, and defense industries.

Our high-value products include super stainless steel, nickel-based and
cobalt-based alloys and superalloys, titanium and titanium alloys, specialty
steels, tungsten materials, exotic alloys, which include zirconium, hafnium,
niobium and nickel-titanium alloys, and highly engineered strip and Precision
Rolled Strip(R) products. In addition, we produce commodity specialty materials
such as stainless steel sheet and plate, silicon electrical steel sheet, and
tool steels, and carbon alloy steel impression die forgings and large grey and
ductile iron castings. We operate in the following three business segments,
which accounted for the following percentages of total revenues of $2.7 billion,
$1.9 billion, and $1.9 billion for the years ended December 31, 2004, 2003, and
2002 respectively:

FLAT-ROLLED PRODUCTS SEGMENT

Our Flat-Rolled Products segment produces, converts and distributes stainless
steel, nickel-based alloys, and titanium and titanium-based alloys, in a variety
of product forms, including plate, sheet, strip, engineered strip, and Precision
Rolled Strip(R) products, as well as silicon electrical steel sheet, and tool
steels. The major end markets for our flat-rolled products are construction and
mining, automotive, electrical energy, food processing equipment and appliances,
machine and cutting tools, chemical processing, oil and gas, electronics,
communication equipment and computers. The operations in this segment are
Allegheny Ludlum, our 60% interest in the Chinese joint venture company known as
Shanghai STAL Precision Stainless Steel Company Limited (STAL), and our 50%
interest in the industrial titanium joint venture known as Uniti LLC. The
remaining 40% interest in STAL is owned by the Baosteel Group, a state
authorized investment company whose equity securities are publicly traded in the
People's Republic of China. The remaining 50% interest in Uniti LLC is held by
VSMPO-AVISMA, a Russian producer of titanium, aluminum, and specialty steel
products.

On June 1, 2004, we completed the acquisition of substantially all of the
assets of J&L Specialty Steel, LLC, a producer of flat-rolled stainless steel
products with operations in Midland, Pennsylvania and Louisville, Ohio, for $67
million in total consideration, including the assumption of certain current
liabilities, and which is subject to final adjustment. In connection with the
acquisition we reached a new progressive labor agreement with the United
Steelworkers of America, which represents employees at Allegheny Ludlum and the
former J&L facilities. The new agreement provides for a workforce restructuring,
which includes a reduction in the number of job classifications and the
implementation of flexible work rules. In addition, the number of production and
maintenance employees at the pre-acquisition Allegheny Ludlum facilities is
being reduced. As a result of the acquisition and the new progressive labor
agreement, we believe we now have one of the lowest-cost production paths for
commodity flat-rolled stainless products in North America. We have also created
new capacity for our high-value products and have the opportunity to enhance our
product mix.

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Stainless steel and nickel-based alloys contain elements such as chromium,
nickel and molybdenum for strength and corrosion and heat resistance; titanium
and titanium-based alloys provide higher strength-to-weight ratios and are
corrosion-resistant; tool steel alloys include carbon, 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 a broad
selection of grades, sizes and finishes of these products that are designed to
meet international specifications. Our wide array of alloys and product forms
provides customers with choices from which to select the optimum alloy for their
application. We provide technical support for material selection.

Stainless steel, nickel-based alloy and titanium sheet products are used in
a wide variety of industrial and consumer applications. In 2004, approximately
60% by volume of our sheet products were sold to independent service centers,
which have slitting, cutting or other processing facilities, with the remainder
sold directly to end-use customers.

Engineered strip and very thin Precision Rolled Strip(R) products are used
by customers to fabricate a variety of products primarily in the automotive,
construction and electronics markets. In 2004, approximately 90% by volume of
our engineered strip and Precision Rolled Strip products were sold directly to
end-use customers or through our own distribution network, with the remainder
sold to independent service centers.

Stainless steel, nickel-based alloy and titanium plate products are
primarily used in industrial markets. For 2004, approximately 60% by volume of
our plate products were sold to independent service centers, with the remainder
sold directly to end-use customers.

HIGH PERFORMANCE METALS SEGMENT

Our High Performance Metals segment produces, converts and distributes a wide
range of high performance alloys, including nickel- and cobalt-based alloys and
superalloys, titanium and titanium-based alloys, exotic alloys such as
zirconium, hafnium, niobium, nickel-titanium, tantalum, and their related
alloys, and other specialty materials, primarily in long product forms such as
ingot, billet, bar, rod, wire, and seamless tube. The operations in this segment
are Allvac, Allvac Ltd (U.K.) and Wah Chang.

Our nickel-, iron-, and cobalt-based alloys and superalloys and our
titanium and titanium-based alloys are engineered to retain exceptional strength
and corrosion resistance in critical, high-stress applications. These products
are designed for the high performance requirements of such major markets as
aerospace jet engines and airframes, chemical processing, oil and gas, medical,
power generation, defense, transportation, and marine.

We are a leading global producer of zirconium and zirconium alloys used in
nuclear power generation and for corrosion-resistant applications. Hafnium, a
by-product of producing zirconium, is principally used in nuclear power
applications and as an alloying addition in aerospace applications. We also
produce niobium, also known as columbium, used as an alloying addition in
superalloys for aerospace applications. Niobium and related alloys are also used
in applications requiring superconducting characteristics for high-strength
magnets in both the medical and high-energy physics markets. We also produce
tantalum and tantalum alloys for medical implants, chemical processing equipment
and aerospace engine components.

ENGINEERED PRODUCTS SEGMENT

The principal business of our Engineered Products segment includes the
production of tungsten powder, tungsten heavy alloys, tungsten carbide materials
and carbide cutting tools. The segment also produces carbon alloy steel
impression die forgings, large grey and ductile iron castings, and provides
precision metals processing services. The operations in this segment are
Metalworking Products, Portland Forge, Casting Service and Rome Metals.

We produce a line of sintered tungsten carbide products that approach
diamond hardness for industrial markets including automotive, chemical
processing, oil and gas, machine and cutting tools, construction and mining, and
other markets requiring tools with extra hardness. Technical developments
related to ceramics, coatings and other disciplines are incorporated in these
products. We also produce tungsten and tungsten carbide powders.

We forge carbon alloy steels into finished forms that are used primarily in
the transportation and construction equipment markets. We also cast grey and
ductile iron metals used in the transportation, wind power generation and
automotive markets.

We have precision metals processing capabilities that enable us to provide
process services for most high-value metals from ingots to finished product
forms. Such services include grinding, polishing, blasting, cutting, flattening,
and ultrasonic testing.

COMPETITION

Markets for our high-value and commodity products and services in each of our
three business segments are highly competitive. We compete with many producers
and distributors who, depending on the product involved, range from large
diversified enterprises to smaller companies specializing in particular
products. Factors that affect our competitive position are manufacturing costs,
industry manufacturing capacity, the quality of our products, services and
delivery capabilities, our capabilities to produce a wide range of specialty
materials in various alloys and product forms, our technological capabilities
including our research and development efforts, our marketing strategies and the
prices for our products and services.

4

We face competition from both domestic and foreign companies, some of which
are government subsidized. In 1999, the United States imposed antidumping and
countervailing duties on dumped and subsidized imports of stainless steel sheet
and strip in coils and stainless steel plate in coils from companies in ten
foreign countries. Administrative reviews by the U.S. Commerce Department and
the U.S. International Trade Commission have resulted in lower duty rates. These
duties are currently under review to determine whether they will be continued. A
decision is expected in the second quarter of 2005. We continue to monitor
unfairly traded imports from foreign producers for appropriate action.

FLAT-ROLLED PRODUCTS SEGMENT - MAJOR COMPETITORS

STAINLESS STEEL

o AK Steel Corporation

o North American Stainless (NAS), owned by Acerinox S.A. (Spain)

o Nucor Corporation

o Outokumpu Stainless Plate Products, owned by Outokumpu Oyj (Finland)

o Imports from

- Acesita S.A. (Brazil)

- Arcelor S.A. (France)

- Columbus Stainless (Pty) Ltd (S. Africa), owned by Acerinox S.A.

- ThyssenKrupp Mexinox S.A. de C.V., group member of ThyssenKrupp AG

- ThyssenKrupp AG (Germany)

- Ta Chen International Corporation (Taiwan)

HIGH PERFORMANCE METALS SEGMENT - MAJOR COMPETITORS

NICKEL-BASED ALLOYS AND SUPERALLOYS AND SPECIALTY STEEL ALLOYS

o Carpenter Technology Corporation

o Special Metals Corporation

o ThyssenKrupp VDM GmbH, a company of ThyssenKrupp Stainless (Germany)

TITANIUM AND TITANIUM-BASED ALLOYS

o Titanium Metals Corporation

o RMI Titanium, an RTI International Metals Company

o VSMPO - AVISMA (Russia)

EXOTIC ALLOYS

o Cezus, a group member of AREVA (France)

o HC Stark, a division of the Bayer Group (Germany)

o Western Zirconium Plant of Westinghouse Electric Company, part of the
Nuclear Utilities Business Group of British Nuclear Fuels (BNFL)

ENGINEERED PRODUCTS SEGMENT - MAJOR COMPETITORS

TUNGSTEN AND TUNGSTEN CARBIDE PRODUCTS

o Kennametal Inc.

o Iscar (Israel)

o Sandvik AB (Sweden)

o Seco Tools AB (Sweden), owned by Sandvik A.B.

RAW MATERIALS AND SUPPLIES

Substantially all raw materials and supplies required in the manufacture of our
products are available from more than one supplier and the sources and
availability of raw materials essential to our businesses are adequate. The
principal raw materials we use in the production of our specialty materials are
scrap (including iron-, nickel-, chromium-, titanium- and molybdenum-bearing
scrap), nickel, titanium sponge, zirconium sand and sponge, ferrochromium,
ferrosilicon, molybdenum and molybdenum alloys, ammonium paratungstate,
manganese and manganese alloys, cobalt, niobium, vanadium and other alloying
materials.

Purchase prices of certain principal raw materials have been volatile. As a
result, our operating results may be subject to significant fluctuation. We use
raw materials surcharge and index mechanisms to offset the impact of increased
raw material costs; however, competitive factors in the marketplace can limit
our ability to institute such mechanisms, and there can be a

5

delay between the increase in the price of raw materials and the realization of
the benefit of such mechanisms. For example, since we generally use in excess of
45,000 tons of nickel each year, a hypothetical increase of $1.00 per pound in
nickel prices would result in increased costs of approximately $90 million. We
also use in excess of 340,000 tons of ferrous scrap in the production of our
flat-rolled products so that a hypothetical increase of $10.00 per ton in
ferrous scrap prices would result in increased costs of approximately $3.4
million.

In addition, certain of these raw materials, such as nickel, cobalt,
ferrochromium and titanium sponge, can be acquired by us and our 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.

We purchase our nickel requirements principally from producers in
Australia, Canada, Norway, Russia, and the Dominican Republic. Zirconium sponge
is purchased from a source in France, while zirconium sand is purchased from
both U.S. and Australian sources. Cobalt is purchased primarily from producers
in Canada. More than 80% of the world's reserves of ferrochromium are located in
South Africa, Zimbabwe, Albania, and Kazakhstan. We also purchase titanium
sponge from sources in Kazakhstan, Japan and Russia.

EXPORT SALES AND FOREIGN OPERATIONS

International sales represented approximately 20% of our total annual sales in
2004, and approximately 23% of our total sales in each of 2003 and 2002. These
figures include export sales by our U.S.-based operations to customers in
foreign countries, which accounted for approximately 12%, 14%, and 15%, of our
total sales in 2004, 2003, and 2002, respectively. Our overseas sales, marketing
and distribution efforts are aided by our international marketing offices or by
independent representatives located at various locations throughout the world.

For 2004, our sales in the United States and Canada represented 80% and 2%,
respectively, of total 2004 sales. Within Europe, our sales to the United
Kingdom, Germany, and France represented 4%, 4% and 3%, respectively, of total
2004 sales. Within Asia, our 2004 sales to China and Japan represented 2% and
1%, respectively, of total sales.

Our Allvac Ltd business has manufacturing capabilities in the United
Kingdom and enhances service and responsiveness to customers by providing a
sales and distribution network for our Allvac-US produced nickel-based,
specialty steel and titanium-based alloys. Our Metalworking Products business
manufactures and sells high precision threading, milling, boring and drilling
components for the European market from locations in the United Kingdom,
Switzerland, Germany, France, Italy and Spain. Our STAL joint venture in the
People's Republic of China produces Precision Rolled Strip products, which
enables us to offer these products more effectively to markets in China and
other Asian countries. Our Uniti LLC joint venture allows us to offer titanium
products to industrial markets more effectively worldwide.

BACKLOG, SEASONALITY AND CYCLICALITY

Our backlog of confirmed orders was approximately $556 million at December 31,
2004 and $380 million at December 31, 2003. We expect that approximately 93% of
confirmed orders on hand at December 31, 2004 will be filled during the year
ending December 31, 2005. Backlog of confirmed orders of our Flat-Rolled
Products segment was approximately $70 million at December 31, 2004 and $66
million at December 31, 2003. We expect that all of the confirmed orders on hand
at December 31, 2004 for this segment will be filled during the year ending
December 31, 2005. Backlog of confirmed orders of our High Performance Metals
segment was approximately $380 million at December 31, 2004 and $270 million at
December 31, 2003. We expect that approximately 90% of the confirmed orders on
hand at December 31, 2004 for this segment will be filled during the year ending
December 31, 2005.

Generally, our sales and operations are not seasonal. However, demand for
our products are cyclical over longer periods because specialty materials
customers operate in cyclical industries and are subject to changes in general
economic conditions.

RESEARCH, DEVELOPMENT AND TECHNICAL SERVICES

We believe that our research and development capabilities give ATI an advantage
in developing new products and manufacturing processes that contribute to the
profitable growth potential of our businesses on a long-term basis. We conduct
research and development at our various operating locations both for our own
account and, on a limited basis, for customers on a contract basis. Research and
development expenditures for each of our three segments for the years ended
December 31, 2004, 2003, and 2002 included the following:

6

With respect to our Flat-Rolled Products and High Performance Metals
segments, our 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.

We own several hundred United States patents, many of which are also filed
under the patent laws of other nations. Although these patents, as well as our
numerous trademarks, technical information, license agreements, and other
intellectual property, have been and are expected to be of value, we believe
that the loss of any single such item or technically related group of such items
would not materially affect the conduct of our business.

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

We are subject to various domestic and international environmental laws and
regulations that govern the discharge of pollutants, and disposal of wastes, and
which may require that we investigate and remediate the effects of the release
or disposal of materials at sites associated with past and present operations.
We could incur substantial cleanup costs, fines, and civil or criminal
sanctions, third party property damage or personal injury claims as a result of
violations or liabilities under these laws or non-compliance with environmental
permits required at our facilities. We are currently involved in the
investigation and remediation of a number of our current and former sites as
well as third party locations sites.

EMPLOYEES

We have approximately 9,000 full-time employees. A portion of our workforce is
covered by various collective bargaining agreements, principally with the United
Steelworkers of America ("USWA"), including: approximately 2,950 Allegheny
Ludlum production, office and maintenance employees covered by collective
bargaining agreements that are effective through June 2007; approximately 220
Oremet employees covered by a collective bargaining agreement that is effective
through June 2007; approximately 565 Wah Chang employees covered by a collective
bargaining agreement that continues through March 2008, and approximately 180
employees at our Casting Service facility in LaPorte, Indiana, covered by a
collective bargaining agreement that is effective through December 2007.

AVAILABLE INFORMATION

Our Internet website address is http://www.alleghenytechnologies.com. Our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 are available free of charge
through our Internet website as soon as reasonably practicable after we
electronically file such material with, or furnish such material to, the
Securities and Exchange Commission. Our Internet website and the content
contained therein or connected thereto are not intended to be incorporated into
this Annual Report on Form 10-K.

7

PRINCIPAL OFFICERS OF THE REGISTRANT*

Principal officers of the Company as of February 24, 2005 are as follows:

* Such officers are subject to the reporting and other requirements of Section
16 of the Securities Exchange Act of 1934, as amended.

Set forth below are descriptions of the business background for the past five
years of the principal officers of the Company.

L. Patrick Hassey has been President and Chief Executive Officer since
October 1, 2003 and Chairman since May 2004. Mr. Hassey was Executive Vice
President and a member of the corporate executive committee of Alcoa, Inc. from
November 2002 until his early retirement in February 2003. He had served as
Executive Vice President of Alcoa and Group President of Alcoa Industrial
Components from May 2000 to October 2002. Prior to May 2000, he served as
Executive Vice President of Alcoa and President of Alcoa Europe, Inc.

Richard J. Harshman has served as Executive Vice President, Finance since
October 2003 and Chief Financial Officer since December 2000. Mr. Harshman was
Senior Vice President, Finance from December 2001 to October 2003 and Vice
President, Finance from December 2000 to December 2001. Between September 2000
and December 2000, Mr. Harshman served as Vice President, Controller and Acting
Chief Financial Officer. Previously, he had been Vice President, Investor
Relations and Corporate Communications.

Douglas A. Kittenbrink has served as Executive Vice President, ATI Business
System and Group President, Engineered Products Segment since October 2003. Mr.
Kittenbrink was Executive Vice President and Chief Operating Officer from July
2001 to October 2003 and served as President of Allegheny Ludlum from April 2000
to November 2002. Previously, he served as Senior Vice President Manufacturing,
Engineering, Information Technology and Production Control of Allegheny Ludlum.

Jack W. Shilling has served as Executive Vice President, Corporate
Development and Chief Technical Officer since October 2003. Dr. Shilling was
Executive Vice President, Strategic Initiatives and Technology and Chief
Technology Officer from July 2001 to October 2003. He served as President of the
High Performance Metals Group from April 2000 to July 2001. Previously, he
served as President of Allegheny Ludlum.

Jon D. Walton has been Executive Vice President, Human Resources, Chief
Legal and Compliance Officer, General Counsel and Corporate Secretary since
October 2003. Mr. Walton was Senior Vice President, Chief Legal and
Administrative Officer from July 2001 to October 2003. Previously, he was Senior
Vice President, General Counsel and Secretary.

Dale G. Reid has served as Vice President, Controller, Chief Accounting
Officer and Treasurer since December 2003. Mr. Reid was Vice President,
Controller and Chief Accounting Officer from December 2000 through November
2003, as well as from May 1997 to September 2000. In the interim he served as
Vice President, Finance for Allegheny Ludlum. He had served as Controller of the
Company from August 1996 to September 2000.

ITEM 2. PROPERTIES

Our principal domestic locations for melting stainless steel and other
flat-rolled specialty materials are located in Brackenridge, Midland, Natrona
and Latrobe, PA. In 2004, we completed the installation of the second of two new
high-powered electric arc furnaces in our Brackenridge, PA melt shop, the first
furnace having begun operation in November 2003. Hot rolling of material is
performed at our domestic facilities in Brackenridge and Houston, PA. Finishing
of our flat-rolled products takes place at our domestic facilities located in
Brackenridge, Bagdad, Vandergrift, Midland and Washington, PA, and in
Wallingford and Waterbury, CT, New Castle, IN, New Bedford, MA, and Louisville,
OH. The Midland, PA continuous automated finishing line for flat-rolled products
acquired in the June 2004 J&L asset acquisition, provides significant
productivity improvements by integrating rolling, annealing, pickling and
finishing operations into one continuous production line.

Our principal domestic melting facilities for our high performance metals
are located in Monroe, NC and Lockport, NY (vacuum induction melting, vacuum arc
remelt, electroslag remelt, plasma melting); Richland, WA (electron beam); and
Albany, OR (vacuum arc remelt). Production of high performance metals, most of
which are in long product form, takes place at our domestic facilities in
Monroe, NC, Lockport, NY, Richburg, SC and Albany, OR. In 2004, we completed a
major upgrade and expansion of our long products rolling mill facility located
in Richburg, SC. Our production of exotic alloys takes place at facilities
located in Albany, OR, Huntsville, AL and Frackville, PA.

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

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

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

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

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

ITEM 3. LEGAL PROCEEDINGS

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

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

Information relating to legal proceedings is included in Note 14,
Commitments and Contingencies of the Notes to Consolidated Financial Statements
and incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

COMMON STOCK PRICES

Our common stock is traded on the New York Stock Exchange (symbol ATI). At
February 24, 2005, there were approximately 7,100 record holders of Allegheny
Technologies Incorporated common stock. We paid a quarterly cash dividend of
$0.06 per share on our common stock for each of the four quarters of 2004 and
2003. Our secured credit facility contains a restriction on our ability to pay
cash dividends on our common stock. At December 31, 2004, the amount of
dividends we could pay was $300 million. The ranges of high and low sales prices
for shares of our common stock for the periods indicated were as follows:

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ITEM 6. SELECTED FINANCIAL DATA

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

Net income in 2004 was favorably impacted by a curtailment gain, net of
restructuring costs, of $40.4 million. We did not recognize an income tax
provision or benefit in 2004. Net income (loss) was adversely affected by
restructuring and litigation charges of $84.9 million and a $138.5 million
charge to record a valuation allowance for the majority of the Company's net
deferred tax assets in 2003, and restructuring charges of $42.8 million in 2002
and $74.2 million in 2001.

Stockholders' equity for 2004 includes $229.7 million in net proceeds from
a common stock offering, and a $2 million increase to adjust the minimum pension
liability. Stockholders' equity for 2003 includes the effect of recognizing a
$138.5 million valuation allowance on net deferred tax assets and a $47 million
adjustment to the minimum pension liability, net of related tax effects.
Stockholders' equity for 2002 includes the effect of recognizing a minimum
pension liability of $406 million, net of related tax effects.

Results for 2004 include the additional production capacity related to
acquisition of substantially all of the assets of J&L Specialty Steel, LLC from
June 1, 2004, the date of acquisition.

The Company adopted Statement of Financial Accounting Standards No. 143,
"Asset Retirement Obligations," on January 1, 2003. The cumulative effect of
adoption was $1.3 million net of related tax effects, or $0.02 per share. The
effect on prior years' financial information was not material.

11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Allegheny Technologies Incorporated (ATI) uses innovative technologies to
produce a wide range of specialty materials for global markets. Our specialty
materials are produced in a variety of alloys and forms, 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. Major end markets of our products include aerospace,
construction and mining, chemical processing, oil and gas, automotive,
electrical energy, food processing equipment and appliances, machine and cutting
tools, transportation, medical, and defense industries. Unless the context
requires otherwise, "ATI," "we," "our," "us" and similar terms refer to
Allegheny Technologies Incorporated and its subsidiaries.

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

OVERVIEW

2004 was a year of transition and transformation for ATI. After incurring losses
over the previous three years and the first quarter of 2004, we generated
profits for each of the last three quarters of 2004, and a profit for the full
2004 year of $19.8 million, or $0.22 per share. Sales increased 41% to $2.73
billion for 2004 as higher base-selling prices, the effect of raw material
surcharges, and higher shipments for most of our major products resulted from
improved business conditions in most of the major markets we serve.

Demand for our stainless steel flat-rolled products increased for 2004 due
to the improvement in the U.S. industrial economy, especially in most capital
goods markets. This improvement in demand and higher base-prices for most of the
products of our Flat-Rolled Products segment, along with our acquisition of
certain manufacturing assets of J&L Specialty Steel LLC ("J&L") in mid-2004, and
the benefits of cost reductions, offset the negative effects of rapidly rising
raw material costs on our last-in, first-out ("LIFO") inventory accounting
methodology and higher energy costs, resulting in an operating profit for this
segment of $61.5 million for 2004 compared to an operating loss of $14.1 million
in 2003. Sales for our High Performance Metals segment improved 24% primarily
due to improving demand from the aerospace and medical markets for our
nickel-based alloys and superalloys and titanium alloys, and continued strong
demand for our exotic materials, especially from the government and chemical
processing markets. Operating profit for the High Performance Metals segment
improved 224% to $84.8 million, due primarily to the improved pricing and
increased shipments resulting from the increase in demand and the benefits from
our cost reduction efforts, partially offset by the impact on our LIFO inventory
accounting methodology from rising raw material costs. Results for our
Engineered Products segment also improved, as sales increased 17% and operating
profit increased 168% to $20.8 million due to improved demand from the oil and
gas, construction and transportation markets, plus the benefits from our cost
reduction actions.

While segment profitability improved significantly in 2004, operating
results were negatively impacted by higher raw material costs which resulted in
LIFO inventory valuation reserve charges of $112.2 million, and higher energy
costs of $6.2 million, which partially offset the benefits of $142 million in
cost reductions and $14.6 million of lower retirement benefit expense.

Retirement benefit expenses decreased in 2004 to $119.8 million primarily
as a result of higher than expected returns on pension assets during 2003, and
actions taken in the second quarter 2004 to control retiree medical costs,
partially offset by the use of a lower discount rate assumption for determining
benefit plan liabilities.

During 2004, our goals were to return our stainless steel business to
profitability, and to continue to focus on enhancing our leading market
positions, reducing costs, and improving our balance sheet. We were successful
in each of these areas. Our accomplishments during 2004 from these important
efforts included:

o In June 2004, we acquired substantially all of the stainless steel
manufacturing assets of J&L Specialty Steel LLC for $67 million, which
represented the cost of this business' net working capital, including the
assumption of certain current liabilities, and which is subject to final
adjustment. The acquisition was completed for a $7.5 million cash payment
at closing with the balance financed by the seller. These facilities were
successfully integrated into our Allegheny Ludlum operations in the second
half of 2004. In connection with the acquisition, a new progressive labor
agreement was negotiated with United Steelworkers of America ("USWA"),
which represents employees at our Allegheny Ludlum operations and at the
acquired operations. The new progressive labor agreement significantly
improves the productivity and cost structure of our flat-rolled products
business.

12

o We achieved $142 million in gross cost reductions, before the effects of
inflation, exceeding our 2004 goal of $104 million. A significant portion
of these cost reductions resulted from our continuing efforts to streamline
processes and improve productivity.

o We completed two major strategic capital investments, both of which began
in 2002. The second of two new electric arc furnaces for our flat-rolled
products melt shop located in Brackenridge, PA began operation in September
2004 with the first furnace having begun operation in November 2003. The
second project was a major upgrade and expansion of our High Performance
Metals long products rolling mill facility located in Richburg, SC, which
began production in mid-2004. We believe these projects provide
state-of-the-art operating capabilities, increased efficiencies, lower
operating costs, and expanded capacity.

o We realized continued success in implementing the ATI Business System,
which is driving lean manufacturing throughout our operations. In addition
to the gross cost reductions discussed above and the improved safety
performance discussed below, another result of our ATI Business System
efforts was a significant improvement in managed working capital. We define
managed working capital as accounts receivable and gross inventories less
accounts payable. At December 31, 2004, managed working capital was 29.5%
of annualized sales compared to 30.7% and 32.4% of annualized sales at 2003
and 2002 year-ends, respectively.

o We continued to realize significant improvement in safety. As a result of
our continuing focus on and commitment to safety, in 2004, our OSHA Total
Recordable Incident Rate improved by 33% and our Lost Time Case Rate
improved by 36%, both compared to 2002.

o We have strengthened our balance sheet. In addition to returning ATI to
profitability in 2004, in July 2004 we completed the sale of 13.8 million
shares of our common stock in a public offering and received $229.7 million
in net proceeds. We intend to use a portion of the net proceeds from this
offering to enhance our abilities to make growth-oriented investments,
including capital investments and acquisitions that we believe will offer
attractive returns. We also intend to use a portion of the net proceeds to
strengthen our balance sheet by reducing our outstanding liabilities, which
may include making voluntary contributions to our U.S. defined benefit
trust or the repayment or repurchase of our long-term debt securities. In
September 2004, we executed a portion of our strategy by making a voluntary
contribution of $50 million to our U.S. defined benefit pension plan.

o We reduced our other postretirement benefit liability by approximately $331
million, or 36%, as a result efforts to control costs by capping ATI's
share of retiree medical costs and by capping and eventually eliminating
these benefits for certain non-collectively bargained employees.

As a result of these accomplishments, we believe that ATI should benefit
from improving business conditions in 2005. As we begin the year, most of our
end markets remain strong and we expect 2005 to be a year of revenue growth and
accelerating profitability. Sales are expected to grow in 2005, compared to
2004, due to the full year impact of significantly improved prices and higher
volumes, especially in our Flat-Rolled Products and High Performance Metals
segments. We remain encouraged by the aerospace market build forecasts in terms
of both the number and size of aircraft, as well as increased high performance
metal content. We expect a full year of benefits in 2005 from the strategic
assets added in 2004, principally the stainless steel melt shop and finishing
operations in Midland, PA and Louisville, OH acquired in June 2004, the upgraded
Brackenridge, PA stainless steel melt shop completed in September 2004, and the
expanded high performance metals long-products rolling mill in Richburg, SC,
which began production in mid-2004. For 2005, capital expenditures are expected
to be between $85 and $100 million. We are committed to improving operating
performance through the ATI Business System. We have established a 2005 cost
reduction goal of approximately $100 million, before the effects of inflation.
We also expect to continue to benefit from synergies and cost reductions from
the J&L asset acquisition and the new labor agreement in our flat-rolled
products business. Finally, retirement benefit expense is projected to be
approximately $33 million lower in 2005 than in 2004, primarily as a result of
actions taken in 2004 to control retiree medical costs.

ACQUISITION OF J&L SPECIALTY STEEL LLC ASSETS

On June 1, 2004, we completed the acquisition of substantially all of the assets
of J&L Specialty Steel LLC, a producer of flat-rolled stainless steel products
with operations in Midland, Pennsylvania and Louisville, Ohio, for $67.0 million
in total consideration, including the assumption of certain current liabilities.
The purchase price included $7.5 million cash paid at closing, the issuance to
the seller of a non-interest bearing $7.5 million promissory note payable on
June 1, 2005, and the issuance to the seller of a promissory note in the
principal amount of $52.0 million, which is subject to final adjustment, and

13

secured by the property, plant and equipment acquired, payable in installments
in 2007 through 2011, which bears interest at a London Inter-bank Offered Rate
plus a 1% margin, with a maximum interest rate of 6%.

In connection with the J&L asset acquisition, we reached a new labor
agreement with the USWA, which represents employees at Allegheny Ludlum and at
the former J&L facilities. The new agreement provides for a workforce
restructuring through which we expect to achieve significant productivity
improvements. Through a reduction in the number of job classifications and the
implementation of flexible work rules, employees are being given broader
responsibilities and the opportunity to become more involved in the business.
The number of production and maintenance employees at the pre-acquisition
Allegheny Ludlum facilities is being reduced by 650 employees, or approximately
25%, through an early retirement program over two and a half years pursuant to
which the employees are being offered transition incentives. Approximately 40%
of these retirements occurred in second half of 2004, with over 70% of these
retirements to be effective by the end of 2005, and 100% of these retirements to
be effective by June 2006.

With the addition of the J&L assets, we estimate that our Allegheny Ludlum
operations will be capable of annual shipments in excess of 700,000 tons of
flat-rolled specialty metals with approximately 2,650 production and maintenance
employees. By comparison, Allegheny Ludlum shipped 478,000 tons of these metals
in 2003 with over 3,000 production and maintenance employees.

The acquisition of the J&L assets and the negotiation of the new
progressive labor agreement with the USWA are expected to improve the
performance of our Allegheny Ludlum business. We expect the new labor agreement,
combined with the integration of the former J&L operations, to generate annual
cost structure improvements relative to the combined performance of the former
J&L and pre-acquisition Allegheny Ludlum operations of approximately $200
million when workforce restructuring and synergies are fully implemented in the
second half of 2006. We anticipate these cost structure improvements to come
from reduced labor costs, operating synergies, improved product mix, and reduced
fixed costs. In the aggregate, we expect these initiatives to result in a
competitive cost structure for our flat-rolled stainless steel business. During
the second half of 2004, the former J&L operations were successfully integrated
into Allegheny Ludlum with the improvement in cost structure realized to date
reflected in our operating results. Going forward the cost savings associated
with the former J&L operations that have yet to be realized, such as further
reductions in labor costs associated with the contractual reduction in the size
of the workforce and additional operating and procurement synergies, will be
included as part of our continuing overall cost reduction programs.

RESULTS OF OPERATIONS

Sales were $2.73 billion in 2004, $1.94 billion in 2003 and $1.91 billion in
2002. International sales represented approximately 20% of 2004 total sales and
23% of total sales for each of 2003 and 2002.

Operating profit was $167.1 million in 2004, $19.9 million in 2003, and
$27.3 million in 2002. Our measure of operating profit, which we use to analyze
the performance and results of our business segments, excludes income taxes,
corporate expenses, net interest expense, curtailment gain, management
transition and restructuring costs, other costs net of gains on asset sales, and
retirement benefit expense. We believe operating profit, as defined, provides an
appropriate measure of controllable operating results at the business segment
level.

Income before tax was $19.8 million in 2004 compared to loss before tax of
$280.2 million and $103.8 million for 2003 and 2002, respectively. Income before
income tax for 2004 included a curtailment gain, net of restructuring charges,
of $40.4 million. Loss before tax included restructuring charges and litigation
expense of $84.9 million in 2003, and restructuring charges of $42.8 million in
2002. A severe decline in the equity markets in 2000 through 2002 and lower
discount rate assumptions for determining benefit plan liabilities resulted in
retirement benefit expenses of $119.8 million in 2004, $134.4 million in 2003
and $21.8 million for 2002.

Net income was $19.8 million for 2004 compared to losses, before the
cumulative effect of change in accounting principle, of $313.3 million and $65.8
million for 2003 and 2002, respectively. Results for 2004 do not include an
income tax provision or benefit for current or deferred taxes primarily as a
result of the continuing uncertainty regarding full utilization of our net
deferred tax assets and available operating loss carryforwards. Net income for
2004 included a curtailment gain, net of restructuring costs of $40.4 million,
related to the elimination of retiree medical benefits for certain
non-collectively bargained employees beginning in 2010, and costs associated
with the acquisition of the J&L assets and the new labor agreement. The net loss
for 2003 included a $138.5 million charge for a valuation allowance on the
majority of our

14

net deferred tax assets, pretax restructuring charges of $62.4 million relating
to asset impairments in the Flat-Rolled Products segment and workforce
reductions across all operating segments and the corporate office, and $22.5
million for litigation expense. As a result of recording the deferred tax
valuation allowance, results for 2003 include an income tax provision of $33.1
million, whereas 2002 pretax losses were reduced by income tax benefits of $38.0
million. Results for 2002 included charges of $42.8 million related to the
indefinite idling of our Massillon, OH stainless steel plate facility in the
Flat-Rolled Products segment, and workforce reductions.

We operate in three business segments: Flat-Rolled Products, High
Performance Metals and Engineered Products. These segments represented the
following percentages of our total revenues for the years indicated:

Information with respect to our business segments is presented below and in
Note 10 of the Notes to Consolidated Financial Statements.

FLAT-ROLLED PRODUCTS

n/m: Not meaningful

Our Flat-Rolled Products segment produces, converts and distributes
stainless steel, nickel-based alloys, and titanium and titanium-based alloys, in
a variety of product forms including plate, sheet, strip, engineered strip, and
Precision Rolled Strip(R) products, as well as silicon electrical steel sheet,
and tool steels. The major end markets for our flat-rolled products are
construction and mining, automotive, electrical energy, food processing
equipment and appliances, machine and cutting tools, chemical processing, oil
and gas, electronics, communication equipment and computers. The operations in
this segment are Allegheny Ludlum, our 60% interest in the Chinese joint venture
company known as Shanghai STAL Precision Stainless Steel Company Limited (STAL),
and our 50% interest in the industrial titanium joint venture known as Uniti
LLC. The remaining 40% interest in STAL is owned by the Baosteel Group, a state
authorized investment company whose equity securities are publicly traded in the
People's Republic of China. The financial results of STAL are consolidated into
the segment's operating results with the 40% interest of our minority partner
recognized in the statement of operations as other income or expense. The
remaining 50% interest in Uniti LLC is held by VSMPO-AVISMA, a Russian producer
of titanium, aluminum, and specialty steel products. We account for the results
of the Uniti joint venture using the equity method since we do not have a
controlling interest. On June 1, 2004, we acquired substantially all of the
assets of J&L Specialty Steel LLC, including facilities located in Midland, PA
and Louisville, OH. Operating results include the acquired J&L operations from
the date of acquisition. However since the acquisition was accounted for as a
purchase, 2004 results did not include any operating profit on sales of the
approximately $56 million of the J&L inventory on hand at the acquisition date.

2004 COMPARED TO 2003

Sales for the Flat-Rolled Products segment for 2004 were $1,643.9 million, or
58% higher than 2003, which was due primarily to improved demand, higher
base-selling prices, higher raw material surcharges, and higher shipments
resulting from the Midland, PA and Louisville, OH facilities acquired in June
2004. Comparative information on the segment's products for the years ended
December 31, 2004 and 2003 was:

15

Finished tons shipped in 2004 increased by 23% to 587,753 tons compared to
shipments of 478,353 tons for 2003. The average transaction prices to customers,
which includes the effect of higher raw material surcharges and higher
base-selling prices, increased by 28% to $2,793 per ton in 2004. Shipments of
commodity products (including stainless steel hot roll and cold roll sheet,
stainless steel plate and silicon electrical steel, among other products)
increased 23% and average transaction prices for these products increased 39%.
The increase in shipments was primarily attributable to improving demand from
the residential construction and remodeling markets, and capital goods markets
such as chemical processing, oil and gas, and power generation markets, and the
benefit of additional capacity resulting from the Midland, PA and Louisville, OH
facilities acquired in June 2004. Demand remained good from the automotive and
appliance markets. The increase in average transaction prices was primarily due
to higher base-selling prices and higher raw material surcharges. The majority
of our stainless steel products are sold at prices that include surcharges for
raw materials such as iron, nickel, chromium, and molybdenum, including
purchased scrap, which are required to manufacture our products.

Source: London Metal Exchange

Source: Platts Metals Week

Source: Platts Metals Week

The cost of these raw materials increased significantly in 2004, which
resulted in substantially higher raw material surcharges. In addition, a raw
material surcharge for iron scrap was instituted in the first half of 2004 as a
result of the cost of iron scrap increasing approximately 70% in 2004 compared
to average cost for 2003. The average base-selling price in December 2004 for
Type 304 commodity stainless steel cold-rolled sheet increased approximately 28%
compared to the same period 2003. In 2004, consumption in the U.S. of stainless
steel strip, sheet and plate products increased approximately 15%, compared to
2003 consumption, according to the Specialty Steel Institute of North America
(SSINA). Our high-value product shipments in the segment (including strip,
Precision Rolled Strip, super stainless steel, nickel alloy and titanium
products) increased 21%, and average transaction prices for high-value products
increased 17%. Certain of these high-value products are used in the consumer
durables and capital goods markets, both of which benefited from an improving
U.S. economy in the markets we serve, which positively affected shipments and
base-selling prices. In addition, shipments of Precision Rolled Strip products
increased in Europe and Asia due primarily to strong demand from the automotive
and electronics markets, partially aided by the weaker U.S. currency.

16

[BAR CHART]

(Source: SSINA)

As a result of the improving business conditions, operating income
increased to $61.5 million for 2004 compared to an operating loss of $14.1
million in the 2003 period. The benefits of increased shipment volumes, higher
base-selling prices, and cost reduction initiatives were partially offset by
higher raw material and energy costs. During 2004 the average cost of our raw
materials in our Flat-Rolled products segment increased approximately 50%. For
2004, we incurred approximately $94 million of expense for these cost increases,
including LIFO inventory charges of $86.5 million and cost increases of $7.5
million for certain raw materials which were not subject to surcharges for the
full year. In addition, natural gas and electricity costs for 2004 were
approximately $5 million higher than 2003.

We continued to aggressively reduce costs and streamline our operations. In
2004, we achieved gross cost reductions, before the effects of inflation, of $80
million in our Flat-Rolled Products segment. Major areas of cost reductions,
before the effects of inflation, included $26 million from operating
efficiencies, $28 million from procurement, $24 million from lower compensation
and fringe benefit expenses, and $2 million from other fixed cost savings.
During the second half of 2004, we began reducing our hourly workforce at our
Allegheny Ludlum plants by 650 employees, which represented approximately 25% of
the pre-J&L acquisition hourly workforce, in accordance with the new labor
agreement with the USWA. This agreement resulted in a pension termination
benefits charge of $25.3 million in the second quarter 2004. Under this
agreement, 267 hourly employees retired in 2004 with 383 employees contractually
scheduled to retire in 2005 through the first half of 2006. The pension
termination benefits charge is presented in restructuring costs on the statement
of operations and is not included in the results for the segment.

We continued to invest to enhance our flat-rolled specialty metals
capabilities, increase efficiencies and reduce costs. Our strategic capital
investment to upgrade the Brackenridge, PA melt shop, which commenced in 2002
and cost approximately $40 million, was successfully completed. The first of the
two new electric arc furnaces began operation in November 2003 and the second
furnace began operation in September 2004. Cost savings from this capital
investment are estimated to be over $20 million annually.

2003 COMPARED TO 2002

Sales for the Flat-Rolled Products segment for 2003 were $1,043.5 million,
essentially the same as 2002, which was due primarily to the effect of higher
raw material surcharges offsetting lower volumes and reduced base-selling
prices. Weak demand and base pricing for products of the Flat-Rolled Products
segment, especially commodity stainless steel, which persisted for most of 2003,
plus the negative effects of rapidly rising raw material costs and higher energy
costs resulted in an operating loss of $14.1 million for 2003 compared to an
operating loss of $8.6 million in 2002.

Finished tons shipped in 2003 declined by 2% to 478,353 tons compared to
shipments of 487,335 tons for 2002. The average transaction prices to customers
increased by 2% to $2,179 per ton in 2003 due primarily to higher raw materials
surcharges, which offset a 4% decline in average base-selling prices, which
exclude the effect of surcharges. Shipments of commodity products (including
stainless steel hot roll and cold roll sheet, stainless steel plate and silicon
electrical steel, among other products) decreased 2% while average prices for
these products increased 3%. The decline in shipments was primarily attributable
to continued depressed demand for commodity stainless steel sheet and plate due
to the continued weakness in the U.S. industrial economy, especially in the
non-residential construction and most capital goods markets. The increase in
average transaction prices was primarily due to higher raw material surcharges,
principally for nickel and nickel-bearing scrap. Commodity stainless steel
base-selling prices, which exclude surcharges, declined 4% in 2003 compared to
2002. During the same period, consumption in the U.S. of stainless steel strip,
sheet and plate products was flat according to the Specialty Steel Institute of
North America (SSINA). High-value product shipments in the segment (including
strip, Precision Rolled Strip(R), super stainless steel, nickel alloy and
titanium products) decreased 1%, while average transaction prices for high-value
products were flat. Increased shipments of Precision Rolled Strip(R) products in
Europe and Asia were partially offset by the overall decline in shipments of
other high-value products. Certain of these high-value products are used in the
consumer durables and capital goods markets, both of which continued to be
impacted by the weak U.S. economy in the markets we serve, which negatively
affected shipments.

Operating results for 2003 were adversely affected by higher raw material
costs, which increased significantly in 2003, especially during the second half
of the year. For example, the cost of nickel, a major raw material in the
production of many stainless steel alloys, increased 97% in 2003 from an average
cost of $3.26 per pound for the month of December 2002 to an average cost of
$6.43 per pound for December 2003, as priced on the London Metals Exchange.
While we were able to offset a significant portion of the increase through raw
material surcharges in the pricing of our products, these higher costs had a
negative effect on cost of sales as a result of our LIFO inventory accounting
methodology. For 2003, we incurred approximately $36 million of expense for
these cost increases, including LIFO inventory charges of $27 million and cost
increases of $9 million for certain raw materials which were not subject to our
surcharges. In addition, natural gas and electricity costs for 2003 were
approximately $12 million higher than 2002.

17

In 2003, we achieved gross cost reductions, before the effects of
inflation, of $60 million. Major areas of cost reductions, before the effects of
inflation, included $19 million from operating efficiencies, $18 million from
procurement, $13 million from lower compensation and fringe benefit expenses,
and $10 million from reduced depreciation expense and other fixed cost savings.
During 2003, we implemented workforce reductions of approximately 140 salaried
employees representing approximately 13% of the salaried workforce. These
workforce reductions were substantially complete by the end of 2003 and resulted
in a pretax severance charge of $5 million in 2003. In addition, we indefinitely
idled our Washington Flat-Rolled coil facility located in Washington, PA and
recorded an asset impairment charge related to the remaining assets located at
Houston, PA reflecting projected utilization. These actions resulted in a total
pretax, non-cash asset impairment charge of $47.5 million in the 2003 fourth
quarter. These expenses are presented as restructuring costs on the statement of
operations and are not included in the results for the segment. From 2000 to
2003, the salaried workforce was reduced by approximately 41%.

HIGH PERFORMANCE METALS

Our High Performance Metals segment produces, converts and distributes a
wide range of high performance alloys, including nickel- and cobalt-based alloys
and superalloys, titanium and titanium-based alloys, exotic alloys such as
zirconium, hafnium, niobium, nickel-titanium, tantalum, and their related
alloys, and other specialty materials, primarily in long product forms such as
ingot, billet, bar, rod, wire, and seamless tube. The operations in this segment
are Allvac, Allvac Ltd (U.K.) and Wah Chang.

These products are designed for the high performance requirements of such
major markets as aerospace jet engines and airframes, chemical processing, oil
and gas, medical, energy generation, defense, transportation, nuclear power,
marine, and high-energy physics markets.

2004 COMPARED TO 2003

Sales for the High Performance Metals segment increased 24% to $794.1 million in
2004 primarily due to improved demand from commercial aerospace, biomedical,
defense, chemical processing, and oil and gas markets. Our exotic alloys
business continued to benefit from sustained demand from government and medical
markets, and from corrosion markets particularly in Asia. Operating profit for
the High Performance Metals segment improved significantly to $84.8 million as a
result of increased shipments for most of our products, higher selling prices,
and the benefits of cost reductions. Comparative information on the segment's
products for the years ended December 31, 2004 and 2003 was:

Shipments of nickel-based and specialty steel alloys decreased 2% due
primarily to product mix, while average prices increased 31%. Titanium mill
products shipments increased 19% and average prices increased 7%. Shipments for
exotic alloys increased 2% and average prices increased 9%. Backlog of confirmed
orders for the segment increased 41% to approximately $380 million at December
31, 2004, compared to approximately $270 million at December 31, 2003.

Operating profit for 2004 and 2003 was adversely affected by higher raw
material costs, which increased significantly in the past two years. These
higher costs had a negative effect on cost of sales as a result of our LIFO
inventory accounting methodology, resulting in $16.2 million of expense for
2004, compared to $11.7 million of LIFO expense in 2003.

18

We continued to aggressively reduce costs in 2004. Gross cost
reductions for 2004, before the effects of inflation, totaled approximately $48
million. Major areas of cost reductions, before the effects of inflation,
included $21 million from operating efficiencies, $13 million from procurement,
and $14 million from salaried and hourly labor cost savings.

We continued to invest to enhance our specialty metals capabilities,
increase efficiencies and reduce costs. Our strategic capital investment to
enhance the capabilities of our long products rolling mill facility located in
Richburg, SC, which cost approximately $48 million, began construction in 2002
and commenced production in the second quarter of 2004. The project includes
mutual conversion agreements with Outokumpu Oyj's U.S. subsidiary, Outokumpu
Stainless, giving us access to process our products at Outokumpu Stainless'
facility and Outokumpu Stainless access to process their stainless steel long
products at our Richburg facility.

2003 COMPARED TO 2002

Sales for the High Performance Metals segment increased 2% to $641.7 million in
2003 primarily due to strong demand for our exotic materials, especially for the
government and chemical processing markets, which offset continued weakness in
the commercial aerospace and land-based turbine power generation markets.
However, operating profit for the High Performance Metals segment declined 16%
to $26.2 million because of lower demand and prices for nickel-based alloys and
superalloys, specialty steel alloys and titanium-based alloys, which represent
approximately 70% of the segment's sales. In addition, rising raw material costs
offset cost reduction efforts.

Shipments of nickel-based and specialty steel alloys decreased 2%, while
average prices increased 3% due primarily to product mix. Titanium mill products
shipments decreased 3% and average prices decreased 3%. Shipments for exotic
alloys increased 14% and average prices increased 4%. Backlog of confirmed
orders for the segment was approximately $270 million at December 31, 2003,
compared to approximately $300 million at December 31, 2002.

Operating profit for 2003 was adversely affected by higher raw material
costs, which increased significantly in 2003, especially during the second half
of the year. These higher costs had a negative effect on cost of sales as a
result of our LIFO inventory accounting methodology, resulting in $11.7 million
of expense for 2003, compared to $7.4 million of LIFO income in 2002. Operating
profit in 2002 was adversely impacted by the effects of a seven-month labor
strike settled in March 2002 at our Wah Chang operation, which produces our
exotic alloys.

Gross cost reductions, before the effects of inflation, for 2003 totaled
approximately $45 million. Major areas of cost reductions, before the effects of
inflation, included $23 million from operating efficiencies, $13 million from
procurement, and $9 million from hourly and salary labor cost savings. During
2003, we implemented further workforce reductions, which affected approximately
200 employees, or 19% of the salaried workforce. In connection with these
reductions, which were substantially completed by the end of the year, we
recorded charges of $3 million for the related severance costs. These expenses
are presented as restructuring costs on the statement of operations and are not
included in the results for the segment.

ENGINEERED PRODUCTS

Our Engineered Products segment includes the production of tungsten
powder, tungsten heavy alloys, tungsten carbide materials and carbide cutting
tools. The segment also produces carbon alloy steel impression die forgings, and
large grey and ductile iron castings, and provides precision metals processing
services. The operations in this segment are Metalworking Products, Portland
Forge, Casting Service and Rome Metals.

The major markets served by our products of the Engineered Products
Segment include a wide variety of industrial markets including automotive,
chemical processing, oil and gas, machine and cutting tools, construction and
mining, aerospace, transportation, and wind power generation.

2004 COMPARED TO 2003

Sales for the Engineered Products segment in 2004 increased 17%, to $295.0
million and operating profit increased 168%, to $20.8 million compared to 2003.
Demand for our tungsten products was strong from general manufacturing, and the
oil and gas and medical markets. Demand improved for forgings from the Class 8
truck, and construction and mining markets. Demand for castings was strong from
the transportation and wind energy markets. The improvement in segment operating
profit was primarily due to higher sales volumes, improved pricing, and the
impact of cost reductions, which totaled $9 million in 2004. The improvement in
profitability was partially offset by higher raw material costs, which resulted
in a LIFO inventory valuation reserve charge of $9.5 million in 2004, compared
to a charge of $1.9 million in 2003.

19

2003 COMPARED TO 2002

Sales for the Engineered Products segment increased 6%, to $252.2 million in
2003, compared to 2002, and operating profit increased 66%, to $7.8 million.
Demand for our tungsten products from the oil and gas, medical and automotive
markets improved during 2003. Demand also improved for forgings and castings.
Segment operating profit improved primarily due to higher sales and the impact
of cost reductions, which totaled $9 million in 2003.

In the second half of 2003, we announced an additional restructuring of
the European operations of Metalworking Products. Restructuring charges of
approximately $3 million associated with this consolidation are presented as
restructuring costs on the 2003 statement of operations and are not included in
segment results.

CORPORATE EXPENSES

Corporate expenses were $34.9 million in 2004 compared to $20.5 million in 2003,
and $20.6 million in 2002. Cost controls and reductions in the number of
corporate employees that were implemented over this period were offset in 2004
by increased compensation expense and the costs of complying with Sarbanes-Oxley
regulations. A significant portion of the increase in compensation expense is
non-cash and is associated with our long-term, performance based stock
compensation plans. Achievement under these plans is marked-to-market for stock
price changes, which resulted in substantially higher expense in 2004 due to the
significant increase in our stock price during the year, and our stock
performance relative to a group of our industry peers.

INTEREST EXPENSE, NET

Interest expense, net of interest income, was $35.5 million for 2004 compared to
$27.7 million for 2003 and $34.3 million for 2002. The effect of "receive fixed,
pay floating" interest rate swap contracts of $150 million, related to our $300
million, 8.375% 10-year Notes issued in December 2001, decreased interest
expense by $4.4 million in 2004, $6.7 million in 2003 and $4.9 million in 2002,
compared to the fixed interest expense of the Notes. These swap agreements were
terminated in the third quarter 2004. Interest expense in 2004 and 2003 was
reduced by $0.9 million and $2.1 million, respectively, related to interest
capitalization on capital projects.

Interest expense is presented net of interest income of $2.9 million for
2004, $6.2 million for 2003 and $3.0 million for 2002. The increase in interest
income for 2003 primarily relates to interest on settlements of prior years' tax
liabilities.

CURTAILMENT GAIN AND RESTRUCTURING COSTS

We recorded a curtailment gain, net of restructuring costs, of $40.4 million in
2004 and restructuring costs of $62.4 million, and $42.8 million in 2003 and
2002, respectively.

In 2004, the curtailment gain, net of restructuring costs, of $40.4
million, includes the $71.5 million curtailment and settlement gain and the
$25.3 million pension termination benefit charge discussed in Retirement Benefit
Expense, below, and $5.8 million of restructuring charges. The restructuring
charges related to the new labor agreement at our Allegheny Ludlum operations,
and the J&L asset acquisition, and included labor agreement costs of $4.6
million, severance costs of $0.7 million related to approximately 30 salaried
employees, and $0.5 million for asset impairment charges for redundant equipment
following the J&L asset acquisition.

In 2003, we recorded restructuring charges of $62.4 million, including
$47.5 million for impairment of long-lived assets in the Flat-Rolled Products
segment, $11.1 million for workforce reductions across all business segments and
the corporate office, and $3.8 million for facility closure charges including
present-valued lease termination costs, net of forecasted sublease rental
income, at the corporate office. In the 2003 fourth quarter, based on existing
and projected operating levels at our remaining operations in Houston, PA, and
at our Washington Flat Roll coil facility located in Washington, PA, we
determined that the net book values of these facilities were in excess of their
estimated fair market values based on expected future cash flows. Charges for
the Houston facility and the Washington Flat Roll coil facility were recorded to
write down the net book values of these facilities to their estimated fair
market values. These asset impairment charges did not impact current operations
at these facilities. The workforce reductions affected approximately 375
employees across all segments and the corporate office. Approximately $5 million
of the severance charges was paid from the Company's pension plan, and at
December 31, 2004, approximately $5 million of the workforce reduction and
facility closure charges are future cash costs that will be paid over the next
nine years. Cash to meet these obligations is expected to be generated from one
or more of the following sources: internally generated funds from operations,
current cash on hand, or borrowings under existing credit lines.

In 2002, we recorded total charges of $42.8 million related to the
indefinite idling of our Massillon, OH stainless steel plate facility due to
continuing poor demand for wide continuous mill plate products, and further
workforce reductions across all of our operations. The Massillon, OH stainless
steel plate facility was indefinitely idled in the 2002 fourth quarter, and

20

resulted in a pretax non-cash asset impairment charge of $34.4 million,
representing the excess of the book value of the facility over its estimated
fair market value. In addition, during the second half of 2002, and in light of
the continued weak demand in the markets we serve, we announced workforce
reductions of approximately 665 employees. These workforce reductions were
substantially complete by the end of the first half of 2003, and resulted in a
pretax, primarily cash, severance charge of $8.4 million, net of a retirement
benefits curtailment gain. These expenses were presented as restructuring costs
on the statement of operations and were not included in segment results. Of the
$42.8 million restructuring charge recorded in 2002, $8.4 million resulted in
expenditures of cash.

OTHER EXPENSES, NET OF GAINS ON ASSET SALES

Other expenses, net of gains on asset sales, includes charges incurred in
connection with closed operations, pretax gains and losses on the sale of
surplus real estate, non-strategic investments and other assets, operating
results from equity-method investees, minority interest and other non-operating
income or expense. These items are presented primarily in selling and
administrative expenses, and in other income (expense) in the statement of
operations and resulted in other income of $2.5 million in 2004, and net charges
of $47.7 million and $11.6 million in 2003 and 2002, respectively.

In 2003, charges for closed companies related to legal, environmental,
insurance and other matters were approximately $30 million higher than in 2002.
These charges include $22.5 million related to litigation with the San Diego
Unified Port District, as more fully described in Note 14, "Commitments and
Contingencies," in the Notes to Consolidated Financial Statements, and which is
included in selling and administrative expenses in the consolidated statement of
operations; and changes in our estimates of our liability for environmental
closure costs and for liabilities under retrospectively-rated insurance
programs. In 2002, we recognized a pretax charge of $6.5 million for our
approximate 30% share of the net losses in New Piper Aircraft ("New Piper"), and
for the write-off of the carrying value of this investment.

RETIREMENT BENEFIT EXPENSE

Retirement benefit expenses, which primarily include pension and postretirement
medical benefits, declined $14.6 million in 2004 primarily as a result of higher
than expected returns on pension assets during 2003, and actions taken in the
second quarter 2004 to control retiree medical costs, partially offset by the
use of a lower discount rate assumption for determining benefit plan
liabilities. Retirement benefit expense had increased significantly over the
previous three years principally due to lower pension investments as a result of
severe declines in the equity markets in 2000 through 2002, and higher benefit
liabilities from long-term labor contracts negotiated in 2001. Retirement
benefit expense, excluding the effect of curtailment gains and termination
benefit charges, was $119.8 million for 2004, $134.4 million for 2003 and $21.8
million for 2002. Retirement benefit expenses have adversely affected both cost
of sales and selling and administrative expenses. Retirement benefit expense
included in cost of sales and selling and administrative expenses for the years
ended 2004, 2003 and 2002 was as follows:

The 2004 retirement benefit expense discussed above does not include the
effects of the $71.5 million curtailment and settlement gain related to the
elimination of retiree medical benefits for certain non-collectively bargained
employees beginning in 2010, nor does this expense include the $25.3 million
charge related to the Transition Assistance Program ("TAP") incentives
associated with the new labor agreement at Allegheny Ludlum, which will be paid
from our U.S. defined benefit pension plan. Additionally, the retirement benefit
expense recognized through December 31, 2004 includes approximately $2 million
of the expected $46 million favorable impact on our postretirement medical
expense from the enactment of the Federal Medicare prescription drug benefit
program in December 2003. The reduction in postretirement expense from this
program will be recognized over a number of years.

Retirement benefit expenses for 2005 are expected to be approximately $87
million, with effects on cost of sales and selling and administrative expenses
similar to the percentages in 2004. The pension expense component is expected to
decline to approximately $63 million pretax for 2005 from $74 million for 2004
as actual returns on pension assets in 2004 were higher than expected, partially
offset by a lower assumed discount rate to value pension benefit liabilities.
The postretirement medical expense component is expected to decline to
approximately $24 million for 2005 from $46 million for 2004 primarily as a
result of actions taken in the 2004 second quarter to control certain retiree
medical costs partially offset by a lower assumed discount rate to value benefit
liabilities.

21

INCOME TAXES

Results of operations for 2004 do not include an income tax provision or benefit
for current or deferred taxes primarily as a result of the continuing
uncertainty regarding full utilization of our net deferred tax asset and
available operating loss carryforwards. In the 2003 fourth quarter we recorded a
$138.5 million valuation allowance for the majority of our net deferred tax
asset, based upon the results of our quarterly evaluation concerning the
estimated probability that the net deferred tax asset would be realizable in
light of our recent history of annual reported losses. This charge did not
affect cash and does not affect our ability to utilize any of our deferred tax
assets on future tax returns. Our income tax provision (benefit) for 2003 and
2002 was $33.1 million and $(38.0) million, respectively. In 2004, 2003 and
2002, we received $7.2 million, $65.6 million and $45.6 million, respectively,
in income tax refunds related to carrying back the previous year's taxable loss
to earlier years in which we had paid taxes. Under current tax laws we are
substantially unable to carryback any current year or future tax losses to prior
periods to obtain cash refunds of taxes paid during those periods. Current year
federal tax losses, if any, can be carried forward for up to 20 years and
applied against taxes owed in those future years. As of December 31, 2004, we
had a U.S. Federal income tax net operating loss carryforward of approximately
$140 million, which equates to a U.S. Federal tax benefit of approximately $50
million. This carryforward is available to offset any taxable income in 2005, or
in future periods through 2024.

Deferred taxes result from temporary differences in the recognition of
income and expense for financial and income tax reporting purposes, and
differences between the fair value of assets acquired in business combinations
accounted for as purchases for financial reporting purposes and their
corresponding tax bases. Deferred income taxes represent future tax benefits or
costs to be recognized when those temporary differences reverse. At December 31,
2004, we had a net deferred tax asset of $53.0 million, net of a valuation
allowance of $188.9 million. A significant portion of our deferred tax assets,
prior to the valuation allowance, relates to postretirement employee benefit
obligations, which have been recorded in the accompanying financial statements
but which are not recognized for income tax reporting purposes until the
benefits are paid. These benefit payments are expected to occur over an extended
period of years. No valuation allowance was required on $53.0 million of net
deferred tax assets based upon our ability to utilize these assets within the
carryback, carryforward period, including consideration of tax planning
strategies that we would undertake to prevent an operating loss or tax credit
carryforward from expiring unutilized. We intend to maintain a valuation
allowance on the net deferred tax asset until a realization event occurs to
support the reversal of all or a portion of the reserve. As a result, future tax
provisions or benefits are expected to be recognized only when taxable income
exceeds net operating loss carryforwards resulting in cash tax payments, or when
tax losses are recoverable as cash refunds.

FINANCIAL CONDITION AND LIQUIDITY

We believe that internally generated funds, current cash on hand and available
borrowings under existing secured credit lines will be adequate to meet
foreseeable liquidity needs. We did not borrow funds under our domestic secured
credit facility during 2004 or 2003. However, a portion of this secured credit
facility is utilized to support letters of credit.

Our ability to access the credit markets in the future to obtain
additional financing, if needed, may be influenced by our credit rating. As of
December 31, 2004, Standard & Poor's Ratings Services corporate credit rating
for our Company was BB- with a stable outlook and our senior unsecured debt was
rated B+. As of December 31, 2004, Moody's Investor Service's senior implied
rating for our Company was B1 with a stable outlook, and senior unsecured rating
was B3. Changes in our credit rating do not impact our access to, or cost of,
our existing credit facilities.

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

COMMON STOCK OFFERING

On July 28, 2004, we completed the sale of 13.8 million shares of our common
stock in a public offering, including 1.8 million shares to cover
overallotments, and received $229.7 million in net proceeds. The 13.8 million
shares were reissued from treasury stock. We intend to use a portion of the net
proceeds from the offering to enhance our abilities to make growth-oriented
investments, including capital investments and acquisitions that we believe will
offer attractive returns. We also intend to use a portion of the net proceeds to
strengthen our balance sheet by reducing our outstanding liabilities, which may
include making voluntary contributions to our U.S. defined benefit trust or the
repayment or repurchase of our long-term debt securities. We may also use a
portion of the net proceeds for other general corporate purposes. In September
2004, we executed a portion of our strategy by making a voluntary contribution
of $50 million to our U.S. defined benefit plan to improve the funded position
of our U.S. defined benefit pension plan. Based on current actuarial studies, we
do not expect to be required to make cash contributions to this defined benefit
pension plan during the next several years. However, we may elect, depending
upon the investment performance of the pension plan assets and other factors, to
make additional voluntary cash contributions to this pension plan in the future.

22

CASH FLOW AND WORKING CAPITAL

In 2004, cash generated by operations of $74.1 million, proceeds from sale of
common stock of $229.7 million, proceeds from asset sales of $6.6 million, and
proceeds from exercises of stock options of $7.6 million, were used to invest
$49.9 million in capital equipment, approximately half of which was for two
major capital projects (in the Flat-Rolled Products and High Performance Metals
segments), fund a $50 million voluntary contribution to our U.S. pension plan,
pay $7.5 million of the purchase price for the J&L assets, repay debt of $15.9
million, pay dividends of $21.2 million, and increase cash balances by $171.2
million, to $250.8 million at December 31, 2004. In 2003, cash generated from
operations of $82.0 million, proceeds from asset sales of $9.8 million and
proceeds from financing activities of $27.7 million, were used to invest $74.4
in capital equipment, primarily for two major projects (in the Flat-Rolled
Products and High Performance Metals segments), pay dividends of $19.4 million,
and increase cash balances by $20.2 million, to $79.6 million at December 31,
2003.

The impact of improved operating results in 2004 on cash flow from
operations was offset by continuing investment in managed working capital to
support the higher business levels and the impact of higher raw material costs.
As part of managing the liquidity of the business, we focus on controlling
inventory, accounts receivable and accounts payable. In measuring performance in
controlling this managed working capital, we exclude the effects of the LIFO
inventory valuation reserves, excess and obsolete inventory reserves, and
reserves for uncollectible accounts receivable which, due to their nature, are
managed separately. During 2004, managed working capital, which we define as
gross inventory plus accounts receivable less accounts payable, increased by
$203.3 million, excluding working capital acquired as part of the J&L asset
acquisition. This increase in managed working capital resulted from a $75.8
million increase in accounts receivable due to a higher level of sales in the
2004 fourth quarter compared to the fourth quarter of 2003, and a $210.2 million
increase in inventory mostly as a result of higher raw material costs and
increased business volumes, partially offset by a $82.7 million increase in
accounts payable. Most of the increase in raw materials is expected to be
recovered through surcharge and index pricing mechanisms. While the absolute
amount of managed working capital employed in the business has increased over
the past three years, managed working capital as a percent of annualized sales
has declined to 29.5% in 2004 from 30.7% in 2003, and 32.4% in 2002 as we have
continued to focus on being more efficient in operating our businesses. While
inventory and accounts receivable balances increased during 2004, gross
inventory turns, which exclude the effect of LIFO inventory valuation reserves,
and days sales outstanding, which measures actual collection timing for accounts
receivable both have improved over the past two years.

The components of managed working capital were as follows:

Capital expenditures for 2004 were $49.9 million compared to $74.4 million
in 2003, as we completed our two major strategic capital projects begun in 2002:
two new electric arc furnaces at our flat-rolled products melt shop located in
Brackenridge, PA, and investments to enhance the capabilities at our high
performance metals long products rolling mill facility located in Richburg, SC.
The second electric arc furnace in the Flat-Rolled Products segment commenced
operations in the 2004 third quarter, with the first new furnace having
commenced production in 2003 fourth quarter. The high performance metals long
products facility commenced operations in the 2004 second quarter. Capital
expenditures in 2002 were $48.7 million as we controlled our investment spending
due to the uncertain economy and to preserve liquidity. Capital expenditures for
2005 are expected to be between $85 and $100 million.

23

DEBT

Total debt outstanding increased $50.6 million, to $582.7 million at December
31, 2004, from $532.1 million at December 31, 2003. The increase was primarily
related to $59.5 million in seller financing for the J&L asset acquisition,
partially offset by net debt repayments primarily for industrial revenue bonds.
In managing our overall capital structure, one of the measures on which we focus
is net debt to total capitalization, which is the percentage of our debt to our
total invested and borrowed capital. In determining this measure, debt and total
capitalization are net of cash on hand which may be available to reduce
borrowings. Our net debt to total capitalization ratio improved to 43.8% at
December 31, 2004 from 72.1% at the end of 2003. The lower ratio results
primarily from an increase in cash on hand and stockholders' equity resulting
from the common stock offering and the improvement in results of operations,
partially offset by an increase in outstanding debt due primarily to the seller
financing for the J&L asset acquisition.

Interest rate swap contracts are used from time-to-time to manage our
exposure to interest rate risks. In 2002, we entered into interest rate swap
contracts with respect to a $150 million notional amount related to our 8.375%
Notes due 2011 ("Notes"), which involved the receipt of fixed rate amounts in
exchange for floating rate interest payments over the life of the contracts
without an exchange of the underlying principal amount. These "receive fixed,
pay floating" arrangements were designated as fair value hedges, and effectively
converted $150 million of the Notes to variable rate debt. As a result, changes
in the fair value of the swap contracts and the notional amount of the
underlying fixed rate debt are recognized in the statement of operations. In
2003, we terminated the majority of these interest rate swap contracts and
received $15.3 million in cash. Subsequent to the interest rate swap
terminations, in 2003 we entered into new "receive fixed, pay floating" interest
rate swap arrangements related to the Notes which re-established, in total, a
$150 million notional amount that effectively converted this portion of the
Notes to variable rate debt. In the 2004 third quarter in light of the prospect
of increasing short- term interest rates, we terminated all remaining interest
rate swap contracts still outstanding, and realized net cash proceeds of $1.5
million. These gains on settlement realized in 2004 and 2003 remain a component
of the reported balance of the Notes, and are ratably recognized as a reduction
to interest expense over the remaining life of the Notes, which is approximately
seven years. At December 31, 2004, the deferred settlement gain was $13.7
million. The result of the "receive fixed, pay floating" arrangements was a
decrease in interest expense of $4.4 million, $6.7 million and $4.9 million for
the years ended December 31, 2004, 2003 and 2002, respectively, compared to the
fixed interest expense of the ten-year Notes.

During the 2003 second quarter, we entered into a $325 million four-year
senior secured domestic revolving credit facility ("the secured credit facility"
or "the facility"), which was amended on April 15, 2004. The facility, which
replaced a $250 million unsecured facility, is secured by all accounts
receivable and inventory of our U.S. operations, and includes capacity for up to
$175 million in letters of credit. As of December 31, 2004, there had been no
borrowings made under either the secured credit facility or the former unsecured
credit facility since the beginning of 2002. Outstanding letters of credit
issued under the secured credit facility were approximately $121 million at
December 31, 2004.

The secured credit facility limits capital expenditures, investments and
acquisitions of businesses, new indebtedness, asset divestitures, payment of
dividends, and common stock repurchases which we may incur or undertake during
the term of the facility without obtaining permission of the lending group. At
December 31, 2004, the amount of dividends we could pay without the consent of
the lending group was approximately $300 million. In addition, the secured
credit facility contains a financial covenant, which is not measured unless our
undrawn availability under the facility is less than $150 million. This
financial covenant, when measured, requires us to maintain a ratio of
consolidated earnings before interest, taxes, depreciation and amortization
("EBITDA") to fixed charges of at least 1.0 to 1.0. EBITDA is adjusted for
non-cash items such as income/loss on investments accounted for under the equity
method of accounting, non-cash pension expense/income, and that portion of
retiree medical and life insurance expenses paid from our VEBA trust. EBITDA is
reduced by capital expenditures, as defined in the facility, and cash taxes
paid, and increased for cash tax refunds. Fixed charges include gross interest
expense, dividends paid and scheduled debt payments. At December 31, 2004, our
undrawn availability under the

24

facility, which is calculated including outstanding letters of credit, other
uses of credit and domestic cash on hand, was $325 million, and the amount that
we could borrow at that date prior to requiring the application of a financial
covenant test was $175 million. Changes in our credit rating do not impact our
access to, or cost of, our existing credit facilities.

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

(A) Other long-term liabilities exclude pension liabilities and accrued
postretirement benefits.

(B) We have contracted for physical delivery for certain of our raw
materials to meet a portion of our needs. These contracts are based upon fixed
or variable price provisions. We used current market prices as of December 31,
2004 for raw material obligations with variable pricing.

(C) We have various contractual obligations that extend through 2015 for
services involving production facilities and administrative operations. Our
purchase obligation as disclosed represents the estimated termination fees
payable if we were to exit these contracts.

(D) Drawn amounts are included in total debt. Includes $120.9 million
utilized under the $325 million domestic secured credit facility for standby
letters of credit, which renew annually and are used to support: $48.3 million
of financing outside of the domestic secured credit facility, primarily for our
foreign based operations; $31.4 million in workers compensation and general
insurance arrangements; $39.8 million related to environmental matters; and $1.4
million for other matters.

RETIREMENT BENEFITS

As of November 30, 2004, our measurement date for pension accounting, the value
of the accumulated pension benefit obligation (ABO) for our defined benefit
pension plans exceeded the value of pension investments by approximately $245
million. A minimum pension liability was recognized in 2002 as a result of a
severe decline in the equity markets from 2000 through 2002, higher benefit
liabilities from long-term labor contracts negotiated in 2001, and a lower
assumed discount rate for valuing the pension liabilities. Accounting standards
require that a minimum pension liability be recorded if the value of pension
investments is less than the ABO at the annual measurement date. Accordingly, in
the 2002 fourth quarter, we recorded a charge against stockholders' equity of
$406 million, net of deferred taxes, to write off our prepaid pension cost
representing the previous overfunded portion of the pension plan, and to record
a deferred pension asset for unamortized prior service cost relating to prior
benefit enhancements. In the fourth quarter of 2004 and 2003, our adjustments of
the minimum pension liability resulted in an increase to stockholders' equity of
$2 million for 2004 and $47 million for 2003, presented as other comprehensive
income (loss). The recognition of the minimum pension liability in 2002, and the
adjustments of the minimum pension liability in 2004 and 2003 do not affect our
reported results of operations and do not have a cash impact. In accordance with
accounting standards, the full charge against stockholders' equity would be
reversed in subsequent years if the value of pension plan investments returns to
a level that exceeds the ABO as of a future annual measurement date. As of the
2004 annual measurement date, the value of pension investments was $1.85 billion
and the ABO was $2.08 billion. Based upon current actuarial analyses and
forecasts, the ABO is projected to be approximately $2.08 billion at the 2005
annual measurement date, assuming no changes in the discount rate used to value
benefit obligations.

25

We were not required to make cash contributions to our U.S. defined
benefit pension plan for 2004. During the third quarter 2004, we made a $50
million voluntary contribution to this defined benefit pension plan to improve
the plan's funded position. Based on current actuarial studies, we do not expect
to be required to make cash contributions to our U.S. defined benefit pension
plan during the next several years. However, a significant decline in the value
of plan investments in the future or unfavorable changes in laws or regulations
that govern pension plan funding could materially change the timing and amount
of required pension funding. Depending on the timing and amount, a requirement
that we fund our defined benefit pension plan could have a material adverse
effect on our results of operations and financial condition. In addition, we may
elect, depending upon investment performance of the pension plan assets and
other factors, to make additional voluntary cash contributions to this pension
plan in the future.

We fund certain retiree health care benefits for Allegheny Ludlum using
investments held in a Voluntary Employee Benefit Association (VEBA) trust. This
allows us to recover a portion of the retiree medical costs. In accordance with
our labor agreements, during 2004, 2003 and 2002, we funded $18.2 million, $14.2
million and $12.7 million, respectively, of retiree medical costs using the
investments of the VEBA trust. We may continue to fund certain retiree medical
benefits utilizing the investments held in the VEBA if the value of these
investments exceed $25 million. The value of the investments held in the VEBA
was approximately $100 million as of November 30, 2004.

DIVIDENDS

We paid a quarterly dividend of $0.06 per share of common stock during 2004 and
2003. On February 25, 2005, the Board of Directors declared a regular quarterly
dividend of $0.06 per share of common stock. The dividend will be paid on March
29, 2005, to stockholders of record at the close of business on March 21, 2005.
While we have historically paid cash dividends on our common stock, we cannot
make assurances that in the future we will not reduce the amount of dividends
paid, or stop paying dividends, on our common stock. For example, in the 2002
fourth quarter, our Board of Directors substantially reduced the amount of our
quarterly dividend from the levels we had been paying in previous quarters. The
declaration and payment of dividends, if any, and the amount of such dividends
depends upon matters deemed relevant by our Board of Directors on a quarterly
basis, such as our results of operations, financial condition, cash
requirements, future prospects, and any limitations imposed by law, credit
agreements or senior securities, and other factors deemed relevant and
appropriate.

CRITICAL ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in
conformity with United States generally accepted accounting principles. When
more than one accounting principle, or the method of its application, is
generally accepted, management selects the principle or method that is
appropriate in our specific circumstances. Application of these accounting
principles requires our management to make estimates about the future resolution
of existing uncertainties; as a result, actual results could differ from these
estimates. In preparing these financial statements, management has made its best
estimates and judgments of the amounts and disclosures included in the financial
statements giving due regard to materiality.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

Revenue is recognized when title passes or as services are rendered. We have no
significant unusual sale arrangements with any of our customers.

We market our products to a diverse customer base, principally throughout
the United States. Trade credit is extended based upon evaluations of each
customer's ability to perform its obligations, which are updated periodically.
Accounts receivable reserves are based upon an aging of accounts and a review
for collectibility of specific accounts. Accounts receivable are presented net
of a reserve for doubtful accounts of $8.4 million at December 31, 2004 and
$10.2 million at December 31, 2003, which represented 2.3% and 3.9%,
respectively, of total gross accounts receivable. During 2004, we made no
increases for doubtful accounts and wrote off $1.8 million of uncollectible
accounts, which reduced the reserve. During 2003, we recognized expense of $2.2
million to increase the reserve for doubtful accounts and wrote off $2.1 million
of uncollectible accounts, which reduced the reserve.

INVENTORIES

At December 31, 2004, we had net inventory of $513.0 million. Inventories are
stated at the lower of cost (last-in, first-out (LIFO), first-in, first-out
(FIFO) and average cost methods) or market, less progress payments. Costs
include direct material, direct labor and applicable manufacturing and
engineering overhead, and other direct costs. Most of our inventory is valued
utilizing the LIFO costing methodology. Inventory of our non-U.S. operations is
valued using average cost or FIFO methods. Under the LIFO inventory valuation
method, changes in the cost of raw materials and production activities are
recognized in cost of sales in the current period even though these material and
other costs may have been incurred at significantly different values due to the
length of time of our production cycle. The prices for many of the raw materials
we use have recently been extremely volatile, especially during 2004 when raw
material prices rose rapidly, compared to 2003. Since we value most of our
inventory utilizing the LIFO inventory costing methodology, a rapid rise in raw
material costs has a negative effect on our

26

operating results. For example in 2004, the effect of the increase in raw
material costs on our LIFO inventory valuation method resulted in cost of sales
which was $112.2 million higher than would have been recognized if we utilized
the FIFO methodology to value our inventory. In a period of rising prices, cost
of sales expense recognized under LIFO is generally higher than the cash costs
incurred to acquire the inventory sold. Conversely, in a period of declining raw
material prices, cost of sales recognized under LIFO is generally lower than
cash costs incurred to acquire the inventory sold.

In the 2004 second quarter, we changed our method of calculating LIFO
inventories at our Allegheny Ludlum operations by reducing the overall number of
Company-wide inventory pools from 15 to eight, and by changing its calculation
method for LIFO from the double-extension method to the link-chain method. We
made the change in order to better match costs with revenues, to reflect the
business structure of Allegheny Ludlum following the J&L asset acquisition, to
provide for a LIFO adjustment more representative of Allegheny Ludlum's actual
inflation on its inventories, and to conform LIFO accounting methods with our
other operations that use the LIFO inventory method. The cumulative effect of
the change in methods and the pro forma effects of the change on prior years'
results of operations were not determinable. The effect of the change on the
results of operations for 2004 was not material.

We evaluate product lines on a quarterly basis to identify inventory
values that exceed estimated net realizable value. The calculation of a
resulting reserve, if any, is recognized as an expense in the period that the
need for the reserve is identified. At December 31, 2004, no such reserves were
required. It is our general policy to write-down to scrap value any inventory
that is identified as obsolete and any inventory that has aged or has not moved
in more than twelve months. In some instances this criterion is up to
twenty-four months due to the longer manufacturing and distribution process for
such products.

ASSET IMPAIRMENT

We monitor the recoverability of the carrying value of our long-lived assets. An
impairment charge is recognized when the expected net undiscounted future cash
flows from an asset's use (including any proceeds from disposition) are less
than the asset's carrying value, and the asset's carrying value exceeds its fair
value. Changes in the expected use of a long-lived asset group, and the
financial performance of the long-lived asset group and its operating segment,
are evaluated as indicators of possible impairment. Future cash flow value may
include appraisals for property, plant and equipment, land and improvements,
future cash flow estimates from operating the long-lived assets, and other
operating considerations.

At December 31, 2004, we had $205 million of goodwill on our balance
sheet. Changes in the goodwill balance from 2003 are due to foreign currency
translation. Of the total, $112 million related to the Flat-Rolled Products
segment, $67 million related to the High Performance Metals segment, and $26
million related to the Engineered Products segment. Goodwill is required to be
reviewed annually, or more frequently if impairment indicators arise. The
impairment test for goodwill is a two-step process. The first step is a
comparison of the fair value of the reporting unit with its carrying amount,
including goodwill. If this comparison reflects impairment, then the loss would
be measured as the excess of recorded goodwill over its implied fair value.
Implied fair value is the excess of the fair value of the reporting unit over
the fair value of all recognized and unrecognized assets and liabilities.

We perform our annual evaluation of goodwill for possible impairment
during the fourth quarter. Our evaluation of goodwill for possible impairment
includes estimating the fair market value of each of the reporting units which
have goodwill associated with their operations using discounted cash flow and
multiples of cash earnings valuation techniques, plus valuation comparisons to
recent public sale transactions of similar businesses, if any. These valuation
methods require us to make estimates and assumptions regarding future operating
results, cash flows including changes in working capital and capital
expenditures, selling prices, profitability, and the cost of capital. Although
we believe that the estimates and assumptions used were reasonable, actual
results could differ from those estimates and assumptions. No goodwill
impairment was determined to exist for the years ended December 31, 2004, 2003
or 2002.

INCOME TAXES

Deferred income taxes result from temporary differences in the recognition of
income and expense for financial and income tax reporting purposes, or
differences between the fair value of assets acquired in business combinations
accounted for as purchases for financial reporting purposes and their
corresponding tax bases. Deferred income taxes represent future tax benefits
(assets) or costs (liabilities) to be recognized when those temporary
differences reverse. We evaluate on a quarterly basis whether, based on all
available evidence, we believe that our deferred income tax assets will be
realizable. Valuation allowances are established when it is estimated that it is
probable (more likely than not) that the tax benefit of the deferred tax assets
will not be realized. The evaluation, as prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," includes the
consideration of all available evidence, both positive and negative, regarding
historical operating results including recent years with reported losses, the
estimated timing of future reversals of existing taxable temporary differences,
estimated future taxable income exclusive of reversing temporary differences and
carryforwards, and potential tax planning strategies which may be employed to
prevent an operating loss or tax credit carryforward from expiring unused.
Future realization of deferred income tax assets ultimately depends upon the
existence of sufficient taxable income within the carryback, carryforward period
available under tax law.

27

The recognition of a valuation allowance is recorded as a non-cash charge
to the income tax provision with an offsetting reserve against the deferred
income tax asset. Should we generate pretax losses in future periods, a tax
benefit would not be recorded and the valuation allowance recorded would
increase. Under these circumstances the net loss recognized and net loss per
share for that period would be larger than a comparable period when a favorable
tax benefit was recorded. However, tax provisions or benefits would continue to
be recognized, as appropriate, on state and local taxes, and taxes related to
foreign jurisdictions. The recognition of a valuation allowance, in itself, does
not affect our ability to utilize the deferred tax asset in the future. The
valuation allowance could be reduced or increased in future years if the
estimated realizability of the deferred income tax asset changes, based upon
consideration of all available evidence, including changes in the carryback
period available under tax law.

CONTINGENCIES

When it is probable that a liability has been incurred or an asset has been
impaired, we recognize a loss if the amount of the loss can be reasonably
estimated.

We are subject to various domestic and international environmental laws
and regulations that govern the discharge of pollutants, and disposal of wastes,
and which may require that we investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations. We could incur substantial cleanup costs, fines and civil or
criminal sanctions, third party property damage or personal injury claims as a
result of violations or liabilities under these laws or non-compliance with
environmental permits required at our facilities. We are currently involved in
the investigation and remediation of a number of our current and former sites as
well as third party sites.

With respect to proceedings brought under the Federal Superfund laws, or
similar state statutes, we have been identified as a potentially responsible
party ("PRP") at approximately 33 of such sites, excluding those at which we
believe we have no future liability. Our involvement is limited or de minimis at
approximately 19 of these sites, and the potential loss exposure with respect to
any of the remaining 14 individual sites is not considered to be material.

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

Environmental liabilities are recorded when our liability is probable and
the costs are reasonably estimable. In many cases, we are not able to determine
whether we are liable or, if liability is probable, to reasonably estimate the
loss or range of loss. Estimates of our liability are further subject to
additional uncertainties including the nature and extent of site contamination,
available remediation alternatives, the extent of corrective actions that may be
required, and the participation, number and financial condition of other PRPs.
We expect that we will adjust our accruals to reflect new information as
appropriate. Future adjustments could have a material adverse effect on our
results of operations in a given period, but we cannot reliably predict the
amounts of such future adjustments. At December 31, 2004, our reserves for
environmental matters totaled approximately $29 million.

Accruals for losses from environmental remediation obligations do not take
into account the effects of inflation, and anticipated expenditures are not
discounted to their present value. The accruals are not reduced by possible
recoveries from insurance carriers or other third parties, but do reflect
allocations among PRPs at Federal Superfund sites or similar state-managed
sites after an assessment is made of the likelihood that such parties will
fulfill their obligations at such sites and after appropriate cost-sharing or
other agreements are entered. Our measurement of environmental liabilities is
based on currently available facts, present laws and regulations, and current
technology. Such estimates take into consideration our prior experience in site
investigation and remediation, the data concerning cleanup costs available from
other companies and regulatory authorities, and the professional judgment of our
environmental experts in consultation with outside environmental specialists,
when necessary.

Based on currently available information, we do not believe that there is
a reasonable possibility that a loss exceeding the amount already accrued for
any of the matters with which we are currently associated (either individually
or in the aggregate) will be an amount that would be material to a decision to
buy or sell our securities. Future developments, administrative actions or
liabilities relating to environmental matters, however, could have a material
adverse effect on our financial condition or results of operations.

RETIREMENT BENEFITS

We have defined benefit pension plans and defined contribution plans covering
substantially all of our employees. During the third quarter 2004, we made a $50
million voluntary cash contribution to our U.S. defined pension plan to improve
the plan's funded position. We are not required to make a contribution to the
U.S. defined benefit pension plan for 2005, and, based upon current actuarial
analyses and forecasts, we do not expect to be required to make cash
contributions to the U.S. defined benefit pension plan for at least the next
several years. However, we may elect, depending upon the investment performance
of the pension plan assets and other factors, to make additional voluntary cash
contributions to this pension plan in the future.

28

We account for our defined benefit pension plans in accordance with SFAS
87, which requires that amounts recognized in financial statements be determined
on an actuarial basis, rather than as contributions are made to the plan. A
significant element in determining our pension (expense) income in accordance
with SFAS 87 is the expected investment return on plan assets. In establishing
the expected return on plan investments, which is reviewed annually in the
fourth quarter, we take into consideration input from our third party pension
plan asset managers and actuaries regarding the types of securities the plan
investments are invested in, how those investments have performed historically,
and expectations for how those investments will perform in the future. For 2003,
in light of the declines in the equity markets in 2000 through 2002, which
comprise a significant portion of our pension plan investments, we lowered our
expected return on pension plan investments to 8.75%, from a 9% expected return
on pension plan investments which was used in 2002. This assumed rate is applied
to the market value of plan assets at the end of the previous year. This
produces the expected return on plan assets that is included in annual pension
(expense) income for the current year. While the actual return on pension plan
investments for 2004 was 11.7% and for 2003 was 13.1%, our expected return on
pension plan investments for 2005 remains at 8.75%. The effect of increasing, or
lowering, the expected return on pension plan investments by 0.25% results in
additional annual income, or expense, of approximately $4 million. The
cumulative difference between this expected return and the actual return on plan
assets is deferred and amortized into pension income or expense over future
periods. The amount of expected return on plan assets can vary significantly
from year-to-year since the calculation is dependent on the market value of plan
assets as of the end of the preceding year. U.S. generally accepted accounting
principles allow companies to calculate the expected return on pension assets
using either an average of fair market values of pension assets over a period
not to exceed five years, which reduces the volatility in reported pension
income or expense, or their fair market value at the end of the previous year.
However, the Securities and Exchange Commission currently does not permit
companies to change from the fair market value at the end of the previous year
methodology, which is the methodology that we use, to an averaging of fair
market values of plan assets methodology. As a result, our results of operations
and those of other companies, including companies with which we compete, may not
be comparable due to these different methodologies in calculating the expected
return on pension investments. If the five-year average of the fair market
values of plan assets had been used to calculate retirement benefit costs, we
estimate that retirement benefit expense for 2004 would have been approximately
$65 million less than the $120 million expense recognized using the fair market
value approach.

At the end of November of each year, we determine the discount rate to be
used to value pension plan liabilities. In accordance with SFAS 87, the discount
rate reflects the current rate at which the pension liabilities could be
effectively settled. In estimating this rate, we receive input from our
actuaries regarding the rates of return on high quality, fixed-income
investments with maturities matched to the expected future retirement benefit
payments. Based on this assessment at the end of November 2004, we established a
discount rate of 6.1% for valuing the pension liabilities as of the end of 2004,
and for determining the pension expense for 2005. We had previously assumed a
discount rate of 6.50% for 2003, which determined the 2004 expense, and 6.75%
for 2002, which determined the 2003 expense. The effect of lowering the discount
rate to 6.1% increased pension liabilities by approximately $81 million at 2004
year-end, and is expected to increase pension expense by approximately $6
million in 2005. The effect on pension liabilities for changes to the discount
rate, as well as the net effect of other changes in actuarial assumptions and
experience, are deferred and amortized over future periods in accordance with
SFAS 87.

Accounting standards require a minimum pension liability be recorded when
the value of pension assets is less than the accumulated benefit obligation
("ABO") at the annual measurement date. As of November 30, 2004, our measurement
date for pension accounting, the value of the accumulated pension benefit
obligation (ABO) exceeded the value of pension investments by approximately $245
million. In the 2002 fourth quarter, as a result of a severe decline in the
equity markets in 2000 through 2002, higher benefit liabilities from long-term
labor contracts negotiated in 2001, and a lower assumed discount rate for
valuing the pension liabilities, we recorded a non-cash charge against
stockholders' equity of $406 million, net of deferred taxes, to write off our
prepaid pension cost representing the previous overfunded portion of the pension
plan, and to record a deferred pension asset of $165 million for the unamortized
prior service cost relating to prior benefit enhancements. In the fourth quarter
of 2004 and 2003, our adjustments of the minimum pension liability resulted in
an increase to stockholders' equity of $2 million for 2004 and $47 million for
2003, presented as other comprehensive income (loss). The recognition of the
minimum pension liability in 2002, and the adjustments of minimum pension
liability in 2004 and 2003 do not affect our reported results of operations and
do not have a cash impact. In accordance with accounting standards, the charge
against stockholders' equity will be adjusted in the fourth quarter of
subsequent years to reflect the value of pension assets compared to the ABO as
of the end of November. If the level of pension assets exceeds the ABO as of a
future measurement date, the full charge against stockholders' equity would be
reversed.

We also sponsor several postretirement plans covering certain hourly and
salaried employees and retirees. These plans provide health care and life
insurance benefits for eligible employees. In certain plans, our contributions
towards premiums are capped based upon the cost as of a certain date, thereby
creating a defined contribution. For the non-collectively bargained plans, we
maintain the right to amend or terminate the plans in the future. We account for
these benefits in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"), which requires that
amounts recognized in financial statements be determined on an actuarial basis,
rather than as benefits are paid. We use actuarial assumptions, including the
discount rate and the expected trend in health care costs, to estimate the costs
and benefits obligations for the plans. The discount rate, which is determined
annually at the end of November of each

29

year, is developed based upon rates of return on high quality, fixed-income
investments. At the end of 2004, we determined this rate to be 6.1%, a reduction
from a 6.5% discount rate in 2003 and 6.75% in 2002. The effect of lowering the
discount rate to 6.1% from 6.5% increased 2004 postretirement benefit
liabilities by approximately $20 million, and 2005 expenses are expected to
increase by approximately $1 million. Based upon significant cost increases
quoted by our medical care providers and predictions of continued significant
medical cost inflation in future years, the annual assumed rate of increase in
the per capita cost of covered benefits for health care plans was 10.0% for 2005
and was assumed to gradually decrease to 5.0% in the year 2014 and remain level
thereafter.

The other postretirement benefits obligation at end of year 2003 did not
include the expected favorable impact of the Medicare Prescription Drug,
Improvement and Modernization Act ("Medicare Act"), which was signed into law on
December 8, 2003. The Medicare Act provides for a federal subsidy, with tax-free
payments commencing in 2006, to sponsors of retiree health care benefits plans
that provide a benefit that is at least actuarially equivalent to the benefit
established by the law. Based upon estimates from our actuaries, the federal
subsidy included in the law resulted in a reduction in the other postretirement
benefits obligation during 2004 of $46 million. This reduction is recognized in
the financial statements over a number of years, and is expected to reduce
postretirement benefit expense in 2005 by approximately $3 million.

Certain of these postretirement benefits are funded using plan investments
held in a VEBA trust. The expected return on plan investments is a significant
element in determining postretirement benefits expenses in accordance with SFAS
106. In establishing the expected return on plan investments, which is reviewed
annually in the fourth quarter, we take into consideration the types of
securities the plan investments are invested in, how those investments have
performed historically, and expectations for how those investments will perform
in the future. For 2004, our expected return on investments held in the VEBA
trust was 9%. This assumed long-term rate of return on investments is applied to
the market value of plan investments at the end of the previous year. This
produces the expected return on plan investments that is included in annual
postretirement benefits expenses for the current year. While the actual return
on investments held in the VEBA trust was 11.6% in 2004 and 9.3% for 2003, our
expected return on investments in the VEBA trust remains 9% for 2005. The
expected return on investments held in the VEBA trust is expected to exceed the
return on pension plan investments due to a higher percentage of private equity
investments held by the VEBA trust.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"). Under SFAS 143, obligations associated with the
retirement of tangible long-lived assets, such as landfill and other facility
closure costs, are capitalized and amortized to expense over an asset's useful
life using a systematic and rational allocation method. This standard is
effective for fiscal years beginning after June 15, 2002. The adoption of SFAS
143 on January 1, 2003 resulted in a charge of $1.3 million, net of tax, or
$0.02 per share, which was recognized in our first quarter 2003 statement of
operations as a cumulative change in accounting principle, primarily for asset
retirement obligations related to landfills. Accretion expense and cash flows
associated with ARO obligations have not been material since the adoption of FAS
143.

In December 2003, the Medicare Act was signed into law. The Medicare Act
provides for a Federal subsidy, with tax-free payments commencing in 2006, to
sponsors of retiree health care plans that provide a benefit that is at least
actuarially equivalent to the benefit established by law. In May 2004, the FASB
issued FASB Staff Position 106-2, "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003" ("FSP 106-2"), which provides guidance on the accounting for the effects
of the Medicare Act. Under FSP 106-2, the effect of the Federal subsidy is
accounted for as an actuarial experience gain. In addition, the effect of the
Medicare Act is taken into consideration, as appropriate, in determining an
employer's future per capita claims cost. Based upon estimates from our
actuaries, it is expected that the effect of the Medicare Act will result in a
reduction in the Accumulated Other Postretirement Benefits obligation of $46
million. The benefit will be recognized in our financial statements over
multiple years as a reduction to postretirement benefits expense. We adopted FSP
106-2 in the beginning of the third quarter 2004, resulting in approximately $2
million lower postretirement benefit expense in 2004. For 2005, the reduction in
expense as a result of the Medicare Act is estimated to be approximately $3
million.

In December 2004, the FASB finalized Statement of Financial Accounting
Standards No. 123R, "Share-Based Payment" ("SFAS 123R"). This revised standard
addresses the accounting for share-based payment transactions in which a company
receives employee services in exchange for either equity instruments of the
company or liabilities that are based on the fair value of the company's equity
instruments. Under the revised standard, companies will no longer be able to
account for share-based compensation transactions using the intrinsic value
method in accordance with APB Opinion No. 25. Instead, companies will be
required to account for such transactions using a fair value method and
recognize expense in the consolidated statements of income. SFAS 123R is
effective for interim or annual periods beginning after June 15, 2005. We are
required to adopt SFAS 123R no later than the beginning of our 2005 third
quarter. We will adopt the new standard using the modified prospective method
and reflect compensation expense in accordance with the FAS 123R transition
provisions. Under the modified prospective method, we will not restate prior
periods to reflect the impact of adopting the new standard at earlier dates.

Pro forma disclosures regarding the effect on our 2004 net income and net
income per common share had we applied the fair value method of accounting for
share-based compensation as prescribed by SFAS 123, were $3.8 million of
additional

30

expense, or $0.04 less net income per common share. We have not yet determined
which fair value model we will follow for future grants of share-based
compensation. Based on share-based compensation granted through December 31,
2004 and the fair values previously calculated under SFAS 123, we project that
an immaterial amount of additional compensation expense would be recorded in
2005 related to stock options and nonvested stock upon the adoption of SFAS
123R, compared to the existing accounting method under APB Opinion No. 25. We
are still evaluating the impact this new standard will have on our Total
Shareholder Return share-based compensation plan.

In October 2004, the American Jobs Creation Act of 2004 ("Jobs Creation
Act") was signed into law. The Jobs Creation Act contains a number of provisions
that may affect our future effective income tax rate. The most significant
provisions would allow us to elect to deduct from our taxable income 85% of
certain eligible dividends received by ATI from non-U.S. subsidiaries before the
end of 2005 if those dividends are reinvested in the U.S. for eligible purposes,
and separately, enable ATI to receive a tax deduction of up to 9%, when fully
phased in over several years, to "qualified production activities income," as
defined. In December 2004, the FASB issued FASB Staff Position No. 109-1,
"Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004" ("FSP 109-1"), which requires the qualified production
activities deduction be treated as a special deduction which would therefore be
recognized as earned. FSP 109-1 was effective upon issuance, and required no
adjustment to recorded deferred tax balances, which are determined using
projected future income tax rates. In December 2004, the FASB also issued FASB
Staff Position No. 109-2, "Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of 2004"
("FSP 109-2"), which provided additional time beyond the financial statement
date of the period in which a new tax law is enacted, or December 31, 2004 for
ATI, for a company to evaluate the effect of the Jobs Creation Act. In
accordance with the provisions of FSP 109-2, we continue to evaluate the
repatriation provision, including ongoing clarifications to how the Jobs
Creation Act is to be applied. Based on this evaluation, we are unable to
determine if there will be any material impact to 2005 results from the Jobs
Creation Act Foreign Earnings Repatriation Provision.

BOARD OF DIRECTORS

On May 6, 2004, the Board of Directors named L. Patrick Hassey Chairman, in
addition to his responsibilities as President and Chief Executive Officer, and
H. Kent Bowen and John D. Turner were elected to our Board of Directors.

On July 8, 2004, Frank V. Cahouet resigned from the Company's Board of
Directors.

On September 2, 2004, ATI elected Michael J. Joyce and Louis J. Thomas
to our Board of Directors. Both Mr. Joyce and Mr. Thomas will stand for election
at the 2005 Annual Meeting of Stockholders.

FORWARD-LOOKING 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. Certain statements in this report relate to
future events and expectations and, as such, constitute forward-looking
statements. Forward-looking statements include those containing such words as
"anticipates," "believes," "estimates," "expects," "would," "should," "will,"
"will likely result," "forecast," "outlook," "projects," and similar
expressions. Such forward-looking statements are based on management's current
expectations and include known and unknown risks, uncertainties and other
factors, many of which the Company is unable to predict or control, that may
cause our actual results or performance to materially differ from any future
results or performance expressed or implied by such statements. Various of these
factors are described from time to time in the Company filings with the
Securities and Exchange Commission, including Reports on Form 10-Q. We assume no
duty to update our forward-looking statements.

Factors that could cause actual results to differ from those in such
forward-looking statements include the following:

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

A significant portion of the sales of our High Performance Metals segment
represents products sold to customers in the commercial aerospace industry. From
time-to-time, economic and other factors, including the September 11, 2001
terrorist attacks, have adversely affected the airline industry, resulting in
overall reduced demand for the products that we sell to the commercial aerospace
market. A downturn in the commercial aerospace industry could adversely affect
our results of operations, and our business and financial condition could be
materially adversely affected.

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

Although inflationary trends in recent years have been moderate, during
the same period certain critical raw material costs, such as nickel and scrap
containing iron and nickel, have been volatile. While we are able to mitigate
some of the

31

adverse impact of rising raw material costs through surcharges to customers,
rapid increases in raw material costs may adversely affect our results of
operations.

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

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

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

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

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

Volatility of Raw Material Costs. The prices for many of the raw
materials we use have recently been extremely volatile. Since we value most of
our inventory utilizing the last-in, first-out (LIFO) inventory costing
methodology, a rapid rise in raw material costs has a negative effect on our
operating results. Under the LIFO inventory valuation method, changes in the
cost of raw materials and production activities are recognized in cost of sales
in the current period even though these material and other costs may have been
incurred at significantly different values due to the length of time of our
production cycle. For example, in 2004, the increase in raw material costs on
our LIFO inventory valuation method resulted in cost of sales which was $112.2
million higher than would have been recognized if we utilized the first-in,
first-out (FIFO) methodology to value our inventory. In a period of rising raw
material prices, cost of sales expense recognized under LIFO is generally higher
than the cash costs incurred to acquire the inventory sold. Conversely, in a
period of declining raw material prices, cost of sales recognized under LIFO is
generally lower than cash costs incurred to acquire the inventory sold.

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

Risks Associated with Retirement Benefits. Our U.S. defined benefit
pension plan was funded in accordance with ERISA as of December 31, 2004. Based
upon current actuarial analyses and forecasts, we do not expect to be required
to make contributions to the defined benefit pension plan for at least the next
several years. However, a significant decline in the value of plan investments
in the future or unfavorable changes in laws or regulations that govern pension
plan funding could materially change the timing and amount of required pension
funding. Depending on the timing and amount, a requirement that we fund our
defined benefit pension plan could have a material adverse effect on our results
of operations and financial condition.

Risks Associated with Accessing the Credit Markets. Our ability to access
the credit markets in the future to obtain additional financing, if needed, may
be influenced by the Company's credit rating. However, changes in our credit
rating do not impact our access to our existing credit facilities.

Credit Agreement Covenant. The agreement governing our secured bank
credit facility imposes a number of covenants on us. For example, it contains
covenants that create limitations on our ability to, among other things, effect
acquisitions or dispositions or incur additional debt, and require us to, among
other things, maintain a financial ratio when our available borrowing capacity
measured under the credit agreement decreases below $150 million. Our ability to
comply with the financial covenant may be affected by events beyond our control
and, as a result, we may be unable to comply with the covenant, which may
adversely affect our ability to borrow under our secured credit facility if the
availability level is below $150 million.

Risks Associated with Environmental Matters. We are subject to various
domestic and international environmental laws and regulations that govern the
discharge of pollutants, and disposal of wastes, and which may require that we
investigate and remediate the effects of the release or disposal of materials at
sites associated with past and present operations. We could incur substantial
cleanup costs, fines and civil or criminal sanctions, third party property
damage or personal injury claims as a

32

result of violations or liabilities under these laws or non-compliance with
environmental permits required at our facilities. We are currently involved in
the investigation and remediation of a number of our current and former sites as
well as third party locations sites.

With respect to proceedings brought under the federal Superfund laws, or
similar state statutes, we have been identified as a potentially responsible
party ("PRP") at approximately 33 of such sites, excluding those at which we
believe we have no future liability. Our involvement is limited or de minimis at
approximately 19 of these sites, and the potential loss exposure with respect to
any of the remaining 14 individual sites is not considered to be material.

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

We believe that we operate our businesses in compliance in all material
respects with applicable environmental laws and regulations. However, we are a
party to lawsuits and other proceedings involving alleged violations of, or
liabilities arising from environmental laws. When our liability is probable and
we can reasonably estimate our costs, we record environmental liabilities in our
financial statements. In many cases, we are not able to determine whether we are
liable, or if liability is probable, to reasonably estimate the loss or range of
loss. Estimates of our liability remain subject to additional uncertainties,
including the nature and extent of site contamination, available remediation
alternatives, the extent of corrective actions that may be required, and the
participation number and financial condition of other PRPs, as well as the
extent of their responsibility for the remediation. We expect that we will
adjust our accruals to reflect new information as appropriate. Future
adjustments could have a material adverse effect on our results of operations in
a given period, but we cannot reliably predict the amounts of such future
adjustments. At December 31, 2004, our reserves for environmental matters
totaled approximately $29 million.

Based on currently available information, we do not believe that there is
a reasonable possibility that a loss exceeding the amount already accrued for
any of the sites with which the we are currently associated (either individually
or in the aggregate) will be an amount that would be material to a decision to
buy or sell our securities. Future developments, administrative actions or
liabilities relating to environmental matters, however, could have a material
adverse effect on our financial condition or results of operations.

Risks Associated with Current or Future Litigation and Claims. A number
of lawsuits, claims and proceedings have been or may be asserted against us
relating to the conduct of our currently and formerly owned business, including
those pertaining to product liability, patent infringement, commercial,
employment, employee benefits, taxes, environmental and health and safety, and
stockholder matters. Due to the uncertainties of litigation, we can give no
assurance that we will prevail on all claims made against us in the lawsuits
that we currently face or that additional claims will not be made against us in
the future. While the outcome of litigation cannot be predicted with certainty,
and some of these lawsuits, claims or proceedings may be determined adversely to
us, we do not believe that the disposition of any such pending matters is likely
to have a material adverse effect on our financial condition or liquidity,
although the resolution in any reporting period of one or more of these matters
could have a material adverse effect on our results of operations for that
period. Also, we can give no assurance that any other matters brought in the
future will not have a material effect on our financial condition, liquidity or
results of operations.

Labor Matters. We have approximately 9,000 full-time employees. A portion
of our workforce is covered by various collective bargaining agreements,
principally with the United Steelworkers of America ("USWA"), including:
approximately 2,950 Allegheny Ludlum production, office and maintenance
employees covered by collective bargaining agreements, which are effective
through June 2007; approximately 220 Oremet employees covered by a collective
bargaining agreement, which is effective through June 2007; approximately 565
Wah Chang employees covered by a collective bargaining agreement, which
continues through March 2008, and approximately 180 employees at the Casting
Service facility in LaPorte, Indiana, covered by a collective bargaining
agreement, which is effective through December 2007.

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

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

33

business and economic conditions affecting an acquisition or other transaction.
International acquisitions and other transactions could be affected by export
controls, exchange rate fluctuations, domestic and foreign political conditions
and a deterioration in domestic and foreign economic conditions.

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

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

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND OTHER
MATTERS

Interest Rate Risk. We attempt to maintain a reasonable balance between fixed-
and floating-rate debt to keep financing costs as low as possible. At December
31, 2004, we had approximately $90 million of floating rate debt outstanding
with a weighted average interest rate of approximately 3.8%. Since the interest
rate on this debt floats with the short-term market rate of interest, we are
exposed to the risk that these interest rates may increase. For example, a
hypothetical 1% in rate of interest on $90 million of outstanding floating rate
debt would result in increased annual financing costs of $0.9 million.
Approximately $52 million of this floating rate debt is capped at a 6% maximum
interest rate.

Volatility of Energy Prices. Energy resources markets are subject to
conditions that create uncertainty in the prices and availability of energy
resources. The prices for and availability of electricity, natural gas, oil and
other energy resources are subject to volatile market conditions. These market
conditions often are affected by political and economic factors beyond our
control. Increases in energy costs, or changes in costs relative to energy costs
paid by competitors, has and may continue to adversely affect our profitability.
To the extent that these uncertainties cause suppliers and customers to be more
cost sensitive, increased energy prices may have an adverse effect on our
results of operations and financial condition. We use approximately 10 to 12
million MMBtu's of natural gas annually, depending upon business conditions, in
the manufacture of our products. These purchases of natural gas expose us to
risk of higher gas prices. For example, a hypothetical $1.00 per MMBtu increase
in the price of natural gas would result in increased annual energy costs of
approximately $10 to $12 million.

Volatility of Raw Material Prices. We use raw materials surcharge and
index mechanisms to offset the impact of increased raw material costs; however,
competitive factors in the marketplace can limit our ability to institute such
mechanisms, and there can be a delay between the increase in the price of raw
materials and the realization of the benefit of such mechanisms. For example,
since we generally use in excess of 45,000 tons of nickel each year, a
hypothetical change of $1.00 per pound in nickel prices would result in
increased costs of approximately $90 million. In addition, we also use in excess
of 340,000 tons of ferrous scrap in the production of our products and a
hypothetical change of $10.00 per ton would result in increased costs of
approximately $3.4 million. While we enter into raw materials futures contracts
from time-to-time to hedge exposure to price fluctuations, such as for nickel,
we cannot be certain that our hedge position adequately reduces exposure. We
believe that we have adequate controls to monitor these contracts, but we may
not be able to accurately assess exposure to price volatility in the markets for
critical raw materials.

34

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except per share amounts)

The accompanying notes are an integral part of these statements.

35

ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(In millions except share and per share amounts)

The accompanying notes are an integral part of these statements.

36

ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

(a) 2004 includes $(50.0) million voluntary cash pension contribution

Amounts presented on the Consolidated Statements of Cash Flows may not agree to
the corresponding changes in balance sheet items due to the accounting for
purchases and sales of businesses and the effects of foreign currency
translation.

The accompanying notes are an integral part of these statements.

37

ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions except per share amounts)

The accompanying notes are an integral part of these statements.

38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BOARD OF DIRECTORS
ALLEGHENY TECHNOLOGIES INCORPORATED

We have audited the accompanying consolidated balance sheets of Allegheny
Technologies Incorporated and subsidiaries as of December 31, 2004 and 2003, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2004.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Allegheny
Technologies Incorporated and subsidiaries at December 31, 2004 and 2003, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles.

As discussed in Note 3 to the financial statements, in 2004 the Company
changed its method of accounting for LIFO inventory.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Allegheny
Technologies Incorporated's internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 23, 2005 expressed an
unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

February 23, 2005
Pittsburgh, Pennsylvania

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Allegheny
Technologies Incorporated and its subsidiaries, including the Chinese joint
venture known as Shanghai STAL Precision Stainless Steel Co., Limited ("STAL"),
in which the Company has a 60% interest. The remaining 40% interest in STAL is
owned by Baosteel Group, a state authorized investment company whose equity
securities are publicly traded in the People's Republic of China. The financial
results of STAL are consolidated into the Company's operating results with the
40% interest of the Company's minority partner recognized on the statement of
operations as other income or expense, and on the balance sheet in other
long-term liabilities. Investments in which the Company exercises significant
influence, but which it does not control (generally a 20% to 50% ownership
interest) are accounted for under the equity method of accounting. On June 1,
2004, a subsidiary of the Company acquired substantially all of the assets of
J&L Specialty Steel, LLC ("J&L"), a producer of flat-rolled stainless steel
products with operations in Midland, Pennsylvania and Louisville, Ohio. As
further discussed in Note 2 to the Consolidated Financial Statements, operating
results include those of the J&L assets from the date of acquisition.
Significant intercompany accounts and transactions have been eliminated. Unless
the context requires otherwise, "Allegheny Technologies," "ATI" and the
"Company" refer to Allegheny Technologies Incorporated and its subsidiaries.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
at the date of the financial statements, as well as the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates. Management believes that the estimates are reasonable.

CASH EQUIVALENTS AND INVESTMENTS

Cash equivalents are highly liquid investments valued at cost, which
approximates fair value, acquired with an original maturity of three months or
less.

The Company's investments in debt and equity securities are classified as
available-for-sale and are reported at fair values, with net unrealized
appreciation and depreciation on investments reported as a component of
accumulated other comprehensive income (loss).

ACCOUNTS RECEIVABLE

Accounts receivable are presented net of a reserve for doubtful accounts of $8.4
million at December 31, 2004 and $10.2 million at December 31, 2003. The Company
markets its products to a diverse customer base, principally throughout the
United States. Trade credit is extended based upon evaluations of each
customer's ability to perform its obligations, which are updated periodically.
Accounts receivable reserves are determined based upon an aging of accounts and
a review for collectibility of specific accounts.

INVENTORIES

Inventories are stated at the lower of cost (last-in, first-out (LIFO),
first-in, first-out (FIFO), and average cost methods) or market, less progress
payments. Costs include direct material, direct labor and applicable
manufacturing and engineering overhead, and other direct costs. Most of the
Company's inventory is valued utilizing the LIFO costing methodology. Inventory
of the Company's non-U.S. operations is valued using average cost or FIFO
methods.

The Company evaluates product lines on a quarterly basis to identify
inventory values that exceed estimated net realizable value. The calculation of
a resulting reserve, if any, is recognized as an expense in the period that the
need for the reserve is identified. It is the Company's general policy to
write-down to scrap value any inventory that is identified as obsolete and any
inventory that has aged or has not moved in more than twelve months. In some
instances this criterion is up to twenty-four months.

LONG-LIVED ASSETS

Property, plant and equipment are recorded at cost. The principal method of
depreciation adopted for all property placed into service after July 1, 1996 is
the straight-line method. For buildings and equipment acquired prior to July 1,
1996, depreciation is computed using a combination of accelerated and
straight-line methods. Significant enhancements that extend

40

the lives of property and equipment are capitalized. Costs related to repairs
and maintenance are charged to expense in the year incurred. The cost and
related accumulated depreciation of property and equipment retired or disposed
of are removed from the accounts and any related gains or losses are included in
income.

The Company monitors the recoverability of the carrying value of its
long-lived assets. An impairment charge is recognized when the expected net
undiscounted future cash flows from an asset's use (including any proceeds from
disposition) are less than the asset's carrying value and the asset's carrying
value exceeds its fair value. Assets to be disposed of by sale are stated at the
lower of their fair values or carrying amounts and depreciation is no longer
recognized.

COST IN EXCESS OF NET ASSETS ACQUIRED

At December 31, 2004, the Company had $205.3 million of goodwill on its balance
sheet. Of the total, $112.1 million related to the Flat-Rolled Products segment,
$67.1 million related to the High Performance Metals segment, and $26.1 million
related to the Engineered Products segment. Goodwill increased $6.9 million
during 2004 as a result of the impact of foreign currency translation on
goodwill denominated in functional currencies other than the U.S. dollar. The
Company accounts for goodwill under Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142,
goodwill and indefinite-lived intangible assets are reviewed annually for
impairment, or more frequently if impairment indicators arise. The impairment
test for goodwill requires a comparison of the fair value of each reporting unit
that has goodwill associated with its operations with its carrying amount,
including goodwill. If this comparison reflects impairment, then the loss would
be measured as the excess of recorded goodwill over its implied fair value.
Implied fair value is the excess of the fair value of the reporting unit over
the fair value of all recognized and unrecognized assets and liabilities.

The evaluation of goodwill for possible impairment includes estimating the
fair market value of each of the reporting units which have goodwill associated
with their operations using discounted cash flow and multiples of cash earnings
valuation techniques, plus valuation comparisons to recent public sale
transactions of similar businesses, if any. These valuation methods require the
Company to make estimates and assumptions regarding future operating results,
cash flows, changes in working capital and capital expenditures, selling prices,
profitability, and the cost of capital. Although the Company believes that the
estimates and assumptions used were reasonable, actual results could differ from
those estimates and assumptions. The Company performs the required annual
goodwill impairment evaluation in the fourth quarter of each year. No impairment
of goodwill was determined to exist for the years ended December 31, 2004, 2003
or 2002.

ENVIRONMENTAL

Costs that mitigate or prevent future environmental contamination or extend the
life, increase the capacity or improve the safety or efficiency of property
utilized in current operations are capitalized. Other costs that relate to
current operations or an existing condition caused by past operations are
expensed. Environmental liabilities are recorded when the Company's liability is
probable and the costs are reasonably estimable, but generally not later than
the completion of the feasibility study or the Company's recommendation of a
remedy or commitment to an appropriate plan of action. The accruals are reviewed
periodically and, as investigations and remediations proceed, adjustments of the
accruals are made to reflect new information as appropriate. Accruals for losses
from environmental remediation obligations do not take into account the effects
of inflation, and anticipated expenditures are not discounted to their present
value. The accruals are not reduced by possible recoveries from insurance
carriers or other third parties, but do reflect allocations among potentially
responsible parties ("PRPs") at Federal Superfund sites or similar state-managed
sites after an assessment is made of the likelihood that such parties will
fulfill their obligations at such sites and after appropriate cost-sharing or
other agreements are entered. The measurement of environmental liabilities by
the Company is based on currently available facts, present laws and regulations,
and current technology. Such estimates take into consideration the Company's
prior experience in site investigation and remediation, the data concerning
cleanup costs available from other companies and regulatory authorities, and the
professional judgment of the Company's environmental experts in consultation
with outside environmental specialists, when necessary.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

As part of its risk management strategy the Company, from time-to-time,
purchases futures and swap contracts to manage exposure to changes in nickel
prices, a component of raw material cost for some of its flat-rolled and high
performance metals products, and natural gas, a significant energy cost for all
of the Company's businesses. The contracts obligate the Company to make or
receive a payment equal to the net change in value of the contract at its
maturity. These contracts are designated as hedges of the variability in cash
flows of a portion of the Company's forecasted purchases of nickel and natural
gas payments. The majority of these contracts mature within one year. The
Company accounts for all of these contracts as hedges under Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). Changes in the fair value of these
contracts are recognized as a component of other comprehensive income

41

(loss) in stockholders' equity until the hedged item is recognized in the
statement of operations within cost of sales. If a portion of the contract is
ineffective as a hedge of the underlying exposure, the change in fair value
related to the ineffective portion is immediately recognized as income or
expense in the statement of operations within cost of sales.

Foreign currency exchange contracts are used to limit transactional exposure
to changes in currency exchange rates. The Company sometimes purchases foreign
currency forward contracts that permit it to sell specified amounts of foreign
currencies expected to be received from its export sales for pre-established
U.S. dollar amounts at specified dates. The forward contracts are denominated in
the same foreign currencies in which export sales are denominated. These
contracts are designated as hedges of the variability in cash flows of a portion
of the forecasted future export sales transactions which otherwise would expose
the Company to foreign currency risk. The Company accounts for all of these
contracts as hedges under SFAS 133. Changes in the fair value of these contracts
are recognized as a component of other comprehensive income (loss) in
stockholders' equity until the hedged item is recognized in the statement of
operations. If a portion of the contract is ineffective as a hedge of the
underlying exposure, the change in fair value related to the ineffective portion
is immediately recognized as income or expense in the statement of operations.

Derivative interest rate contracts are used from time-to-time to manage the
Company's exposure to interest rate risks. For example, in 2003 and 2002, the
Company entered into interest rate swap contracts for the receipt of fixed rate
amounts in exchange for floating rate interest payments over the life of the
contracts without an exchange of the underlying principal amount. These
contracts are designated as fair value hedges. As a result, changes in the fair
value of these swap contracts and the underlying fixed rate debt are recognized
in the statement of operations.

In general, hedge effectiveness is determined by examining the relationship
between offsetting changes in fair value or cash flows attributable to the item
being hedged and the financial instrument being used for the hedge.
Effectiveness is measured utilizing regression analysis and other techniques, to
determine whether the change in the fair market value or cash flows of the
derivative exceeds the change in fair value or cash flow of the hedged item.
Calculated ineffectiveness, if any, is immediately recognized on the statement
of operations. For the years ended December 31, 2004, 2003 and 2002, calculated
ineffectiveness was not material to the results of operations.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of international operations are translated into U.S.
dollars using year-end exchange rates, while revenues and expenses are
translated at average exchange rates during the period. The resulting net
translation adjustments are recorded as a component of accumulated other
comprehensive income (loss) in stockholders' equity.

SALES RECOGNITION

Sales are recognized when title passes or as services are rendered.

RESEARCH AND DEVELOPMENT

Company funded research and development costs were $8.2 million in 2004, $11.5
million in 2003 and $12.0 million in 2002 and were expensed as incurred.
Customer funded research and development costs were $1.7 million in 2004, $2.4
million in 2003 and $2.7 million in 2002. Customer funded research and
development costs are recognized in the consolidated statement of operations in
accordance with revenue recognition policies.

INCOME TAXES

The provision for, or benefit from, income taxes includes deferred taxes
resulting from temporary differences in income for financial and tax purposes
using the liability method. Such temporary differences result primarily from
differences in the carrying value of assets and liabilities. Future realization
of deferred income tax assets requires sufficient taxable income within the
carryback, carryforward period available under tax law. The Company evaluates,
on a quarterly basis whether, based on all available evidence, it is probable
that the deferred income tax assets are realizable. Valuation allowances are
established when it is estimated that it is more likely than not that the tax
benefit of the deferred tax asset will not be realized. The evaluation, as
prescribed by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," includes the consideration of all available evidence, both
positive and negative, regarding historical operating results including recent
years with reported losses, the estimated timing of future reversals of existing
taxable temporary differences, estimated future taxable income exclusive of
reversing temporary differences and carryforwards, and potential tax planning
strategies which may be employed to prevent an operating loss or tax credit
carryforward from expiring unused.

NET INCOME (LOSS) PER COMMON SHARE

Basic and diluted net income (loss) per share are calculated by dividing the net
income or loss available to common stockholders by the weighted average number
of common shares outstanding during the year. The calculation of diluted net

42

loss per share excludes the potentially dilutive effect of outstanding stock
options since the inclusion in the calculation of additional shares in the net
loss per share would result in a lower per share loss and therefore be
anti-dilutive.

STOCK-BASED COMPENSATION

The Company accounts for its stock option plans and other stock-based
compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. Under APB Opinion No. 25, for awards
which vest without a performance-based contingency, no compensation expense is
recognized when the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of the grant.
Compensation expense for fixed stock-based awards, generally awards of nonvested
stock, is recognized over the associated employment service period based on the
fair value of the stock at the date of the grant. The Company also has
performance-based stock award programs which are accounted for under the
variable plan rules of APB Opinion No. 25. Compensation expense for these awards
of stock, which are earned based on performance-based criteria, is recognized at
the measurement date based on the stock price at the end of the performance
period, with compensation expense recognized at interim dates based on
performance criteria achieved and the Company's stock price at the interim
dates.

The following table illustrates the effect on net income (loss) and net
income (loss) per share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). For comparative presentation
purposes, the effect of the 2003 deferred tax valuation allowance is excluded
from the 2003 stock-based compensation net of tax amounts.

NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2003, as required, the Company adopted Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"). Under SFAS 143, obligations associated with the
retirement of tangible long-lived assets, such as landfill and other facility
closure costs, are capitalized and amortized to expense over an asset's useful
life using a systematic and rational allocation method. The Company's adoption
of SFAS 143 resulted in recognizing a charge of $1.3 million, net of income
taxes of $0.7 million, or $0.02 per share, principally for asset retirement
obligations related to landfills in the Company's Flat-Rolled Products segment.
This charge is reported in the consolidated statement of operations for the year
ended December 31, 2003 as a cumulative effect of a change in accounting
principle.

In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("Medicare Act") was signed into law. The Medicare Act
provides for a Federal subsidy, with tax-free payments commencing in 2006, to
sponsors of retiree health care plans that provide a benefit that is at least
actuarially equivalent to the benefit established by law. In May 2004, the FASB
issued FASB Staff Position 106-2, "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003" ("FSP 106-2"), which provides guidance on the accounting for the effects
of the Medicare Act. Under FSP 106-2, the effect of the Federal subsidy is
accounted for as an actuarial experience gain. In addition, the effect of the
Medicare Act is taken into consideration, as appropriate, in determining an
employer's future per capita claims cost. Based upon estimates from the
Company's actuaries, it is expected that the effect of the Medicare Act will
result in a reduction in the Accumulated Other Postretirement Benefits
obligation of $46 million. The benefit to the Company will be recognized over
multiple years as a reduction to postretirement benefits expense. The Company
adopted FSP 106-2 in the beginning of the third quarter 2004, resulting in
approximately $2 million lower postretirement benefit expense in 2004. For 2005,
the reduction in expense as a result of the Medicare Act is estimated to be
approximately $3 million.

In December 2004, the FASB finalized Statement of Financial Accounting
Standards No. 123R, "Share-Based Payment" ("SFAS 123R"). This revised standard
addresses the accounting for share-based payment transactions in which a company

43

receives employee services in exchange for either equity instruments of the
company or liabilities that are based on the fair value of the company's equity
instruments. Under the revised standard, companies will no longer be able to
account for share-based compensation transactions using the intrinsic value
method in accordance with APB Opinion No. 25, as described in the "Stock-based
Compensation" section of this Note 1. Instead, companies will be required to
account for such transactions using a fair value method and recognize expense in
the consolidated statements of income. SFAS 123R is effective for interim or
annual periods beginning after June 15, 2005. The Company is required to adopt
SFAS 123R no later than the beginning of the 2005 third quarter. ATI will adopt
SFAS 123R using the modified prospective method and reflect compensation expense
in accordance with the FAS 123R transition provisions. Under the modified
prospective method, prior periods are not restated to reflect the impact of
adopting the new standard at earlier dates.

Pro forma disclosures regarding the effect on the Company's net income
(loss), and net income (loss) per common share in 2004 and prior years, had the
Company applied the fair value method of accounting for share-based compensation
as prescribed by SFAS 123, are contained in the "Stock-based Compensation"
section of this Note 1. The Company has not yet determined which fair value
model it will use for future grants of share-based compensation. Based on
share-based compensation granted through December 31, 2004 and the fair values
previously calculated under SFAS 123, the Company projects it would record an
immaterial amount of additional compensation expense in 2005 related to stock
options and nonvested stock upon the adoption of SFAS 123R compared to the
existing accounting method under APB Opinion No. 25. The Company is still
evaluating the impact this new standard will have on its Total Shareholder
Return share-based compensation plan.

In October 2004, the American Jobs Creation Act of 2004 ("Jobs Creation
Act") was signed into law. The Jobs Creation Act contains a number of provisions
that may affect the Company's future effective income tax rate. The most
significant provisions would allow the Company to elect to deduct from its
taxable income 85% of certain eligible dividends received by the Company from
non-U.S. subsidiaries before the end of 2005 if those dividends are reinvested
in the U.S. for eligible purposes, and separately, enable the Company to receive
a tax deduction of up to 9%, when fully phased in over several years, to
"qualified production activities income", as defined. In December 2004, the FASB
issued FASB Staff Position No. 109-1, "Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004" ("FSP 109-1"),
which requires the qualified production activities deduction to be treated as a
special deduction which would therefore be recognized as earned. FSP 109-1 was
effective upon issuance, and required no adjustment to recorded deferred tax
balances, which are determined using projected future income tax rates. In
December 2004, the FASB also issued FASB Staff Position No. 109-2, "Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004" ("FSP 109-2"), which provided additional
time beyond the financial statement date of the period in which a new tax law is
enacted, or December 31, 2004 for ATI, for a company to evaluate the effect of
the Jobs Creation Act. In accordance with the provisions of FSP 109-2, ATI
continues to evaluate the repatriation provision, including ongoing
clarifications of how the Jobs Creation Act is to be applied. Based on this
evaluation, the Company is unable to determine if there will be any material
impact to 2005 results from the Foreign Earnings Repatriation Provision of the
Jobs Creation Act.

RECLASSIFICATIONS

Certain amounts from prior years have been reclassified to conform with the 2004
presentation.

NOTE 2. ACQUISITION OF J&L SPECIALTY STEEL LLC ASSETS --

On June 1, 2004, a subsidiary of the Company acquired substantially all of the
assets of J&L Specialty Steel LLC, a producer of flat-rolled stainless steel
products with operations in Midland, Pennsylvania and Louisville, Ohio.
Consideration for the acquisition of $67.0 million consisted of a payment of
$7.5 million at closing, the issuance to the seller of a non-interest bearing
$7.5 million promissory note that matures on June 1, 2005, the issuance to the
seller of a promissory note in the principal amount of $52.0 million, which is
secured by the J&L property, plant and equipment acquired, and which is subject
to adjustment on the terms set forth in the asset purchase agreement and has a
final maturity of July 1, 2011, and the assumption of certain current
liabilities. The transaction was accounted for as a purchase business
combination. The acquired operations have been integrated into the Allegheny
Ludlum operations, which are part of the Company's Flat-Rolled Products business
segment.

The closing of the acquisition followed the ratification, on May 28, 2004,
of a new labor agreement with the United Steelworkers of America ("USWA"), which
represents employees at the Company's Allegheny Ludlum operations and at the
former J&L operations. The new labor agreement expires in June 2007, and
provides for a workforce restructuring through the reduction in the number of
production and maintenance job grades from 34 to five, and the implementation of
flexible work rules. The number of production and maintenance employees at the
pre-acquisition Allegheny Ludlum facilities is being reduced by 650 employees
through an early retirement program over two and a half years pursuant to which
the USWA-represented employees are being offered Transition Assistance Program
("TAP") incentives, to be paid from the Company's

44

defined benefit pension trust. The new labor agreement also includes a cap on
the Company's retiree medical costs. In the 2004 second quarter, the Company
recorded charges of $25.3 million for the TAP incentives, and also recorded a
$5.8 million charge as a result of other costs associated with the new labor
agreement and the J&L asset acquisition.

The following is a summary of the preliminary purchase price allocation of
the assets acquired and liabilities assumed or recognized in conjunction with
the acquisition based upon their estimated fair market values.

Under the terms of the asset purchase agreement, the final purchase price of
the J&L assets is subject to adjustment based upon the final value of the net
working capital acquired. This adjustment is expected to be finalized in the
2005 first quarter. The purchase price of the J&L assets is based on the net
working capital acquired, and the fair value of the net assets acquired, which
included substantially all production assets, is in excess of the purchase
price. In accordance with Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("SFAS 141"), the excess of fair value over the purchase
price represents negative goodwill, which has been allocated as a pro rata
reduction to the amounts that would otherwise have been assigned to the acquired
noncurrent assets, principally property, plant and equipment.

The following unaudited pro forma financial information for the Company
includes the results of operations of the J&L asset acquisition as if it had
been consummated as of the beginning of the periods presented, including the
effects of the new labor agreement as it pertains to the former J&L facilities,
the effects of the assigned fair value under SFAS 141 of property, plant and
equipment acquired, and the effects of the indebtedness incurred to fund the
asset acquisition. In addition, the unaudited pro forma financial information is
based on historical information and does not purport to represent what the
actual consolidated results of operations of the Company would have been had
these transactions occurred on the dates assumed, nor is it necessarily
indicative of future consolidated results of operations. The unaudited pro forma
financial information does not give affect to additional cost savings and
synergies that the Company has achieved and anticipates achieving following the
acquisition.

45

NOTE 3. INVENTORIES --

Inventory at December 31, 2004 and 2003 was as follows:

Inventories, before progress payments, determined on the last-in, first-out
("LIFO") method were $413.8 million at December 31, 2004 and $292.4 million at
December 31, 2003. The remainder of the inventory was determined using the
first-in, first-out ("FIFO") and average cost methods. These inventory values do
not differ materially from current cost. The effect of using the LIFO
methodology to value inventory, rather than FIFO, increased (decreased) cost of
sales in 2004, 2003 and 2002 by $112.2 million, $37.0 million and ($2.6)
million, respectively.

In the quarter ended June 30, 2004, the Company changed its method of
calculating LIFO inventories at its Allegheny Ludlum subsidiary by reducing the
overall number of Company-wide inventory pools from 15 to eight, and by changing
its calculation method for LIFO from the double-extension method to the
link-chain method. The Company made the change in order to better match costs
with revenues, to reflect the business structure of Allegheny Ludlum following
the J&L asset acquisition, to provide for a LIFO adjustment more representative
of Allegheny Ludlum's actual inflation on its inventories, and to conform LIFO
accounting methods with other ATI operations that use the LIFO inventory method.
The cumulative effect of the change in methods and the pro forma effects of the
change on prior years' results of operations were not determinable. The effect
of the change on the results of operations for 2004 was not material.

During 2004 and 2003, inventory usage resulted in liquidations of LIFO
inventory quantities. These inventories were carried at the lower costs
prevailing in prior years as compared with the cost of current purchases. The
effect of these LIFO liquidations was to decrease cost of sales by $0.6 million
in 2004 and by $7.9 million in 2003.

NOTE 4. DEBT --

Debt at December 31, 2004 and 2003 was as follows:

(a) Includes fair value adjustments for interest rate swap contracts of
$13.7 million for deferred gains on settled interest rate swap contracts at
December 31, 2004 and $15.2 million (including $1.4 million for interest rate
swap contracts then outstanding and $13.8 million for deferred gains on settled
interest rate swap contracts) at December 31, 2003.

Interest expense was $38.4 million in 2004, $33.9 million in 2003 and $37.3
million in 2002. Interest expense was reduced by $0.9 million in 2004 and $2.1
million in 2003 from interest capitalization on capital projects. Interest and
commitment fees paid were $38.0 million in 2004, $39.2 million in 2003, and
$37.5 million in 2002. Net interest expense includes interest income of $2.9
million in 2004, $6.2 million in 2003, and $3.0 million in 2002. Interest income
in 2003 increased due to $4.0 million related to a Federal income tax refund
associated with prior years.

46

Scheduled maturities of borrowings during the next five years are $29.4
million in 2005, $4.3 million in 2006, $35.4 million in 2007, $14.7 million in
2008 and $11.4 million in 2009.

In December 2001, the Company issued $300 million of 8.375% Notes due
December 15, 2011 which are registered under the Securities Act of 1933.
Interest on the Notes is payable semi-annually, on June 15 and December 15, and
is subject to adjustment under certain circumstances. These Notes contain
default provisions with respect to default for the following, among other
things: nonpayment of interest on the Notes for 30 days, default in payment of
principal when due, or failure to cure the breach of a covenant as provided in
the Notes. Any violation of the default provision could result in the
requirement to immediately repay the borrowings. These Notes are presented on
the balance sheet net of issuance costs of $5.3 million, which are being
amortized over the term of the Notes.

In 2002, the Company entered into interest rate swap contracts with respect
to a $150 million notional amount related to the Notes, which involved the
receipt of fixed rate amounts in exchange for floating rate interest payments
over the life of the contracts without an exchange of the underlying principal
amount. These "receive fixed, pay floating" arrangements were designated as fair
value hedges, and effectively converted $150 million of the Notes to variable
rate debt. As a result, changes in the fair value of the swap contracts and the
notional amount of the underlying fixed rate debt are recognized in the
statement of operations. In 2003, the Company terminated the majority of these
interest rate swap contracts and received $15.3 million in cash. Subsequent to
the interest rate swap terminations, in 2003 the Company entered into new
"receive fixed, pay floating" interest rate swap arrangements related to the
Notes which re-established, in total, a $150 million notional amount that
effectively converted this portion of the Notes to variable rate debt. In the
2004 third quarter, the Company terminated all remaining interest rate swap
contracts still outstanding, and realized net cash proceeds of $1.5 million. The
gains on settlement realized in 2004 and 2003 remain a component of the reported
balance of the Notes, and are ratably recognized as a reduction to interest
expense over the remaining life of the Notes, which is approximately seven
years. At December 31, 2004, the deferred settlement gain was $13.7 million. The
result of the "receive fixed, pay floating" arrangements was a decrease in
interest expense of $4.4 million, $6.7 million and $4.9 million for the years
ended December 31, 2004, 2003 and 2002, respectively, compared to the fixed
interest expense of the ten-year Notes.

During the 2003 second quarter, the Company entered into a $325 million
four-year senior secured domestic revolving credit facility ("the secured credit
facility" or "the facility"). The facility, which replaced a $250 million
unsecured facility, is secured by all accounts receivable and inventory of the
Company's U.S. operations and included capacity for up to $150 million of
letters of credit. On April 15, 2004, the lenders under the secured facility
consented to amend the facility to allow for the acquisition of the J&L assets
by one of the Company's subsidiaries, increase letters of credit capacity by $25
million, to $175 million, allow prepayment of indebtedness in certain
circumstances, and revise certain other provisions including the threshold for
when the financial covenant is measured, as described below. As of December 31,
2004, there had been no borrowings made under either the secured credit facility
or the former unsecured credit facility since the beginning of 2002. The
Company's outstanding letters of credit issued under the secured credit facility
were approximately $121 million at December 31, 2004.

The secured credit facility limits capital expenditures, investments and
acquisitions of businesses, new indebtedness, asset divestitures, payment of
dividends, and common stock repurchases which the Company may incur or undertake
during the term of the facility without obtaining permission of the lending
group. At December 31, 2004, the amount of dividends the Company could pay
without the consent of the lending group was approximately $300 million. In
addition, the secured credit facility contains a financial covenant, which is
not measured if the Company's undrawn availability under the facility is equal
to or more than $150 million. This financial covenant, when measured, requires
the Company to maintain a ratio of consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA") to fixed charges of at least 1.0 to
1.0. EBITDA is adjusted for non-cash items such as income/loss on investments
accounted for under the equity method of accounting, non-cash pension
expense/income, and that portion of retiree medical and life insurance expenses
paid from the Company's VEBA trust. EBITDA is reduced by capital expenditures,
as defined in the facility, and cash taxes paid, and increased for cash tax
refunds. Fixed charges include gross interest expense, dividends paid and
scheduled debt payments. At December 31, 2004, the Company's undrawn
availability under the facility, which is calculated including outstanding
letters of credit, other uses of credit and domestic cash on hand, was $325
million, and the amount that the Company could borrow at that date prior to
requiring the application of a financial covenant test was $175 million.

Borrowings under the secured credit facility bear interest at the Company's
option at either: (1) the one-, two-, three- or six- month LIBOR rate plus a
margin ranging from 2.25% to 3.00% depending upon the level of borrowings; or
(2) a base rate announced from time-to-time by the lending group (i.e. the Prime
lending rate) plus a margin ranging from 0% to 0.75% depending upon the level of
borrowings. In addition, the secured credit facility contains a facility fee of
0.25% to 0.50% depending on the level of undrawn availability. The facility also
contains fees for issuing letters of credit of 0.125% per annum and annualized
fees ranging from 2.25% to 3.00% depending on the level of undrawn availability
under the facility. The Company's overall borrowing costs under the secured
credit facility are not affected by changes in the Company's credit ratings.

47

The Company's subsidiaries also maintain credit agreements with various
foreign banks, which provide for borrowings of up to approximately $63 million.
At December 31, 2004, the Company had approximately $24 million of available
borrowing capacity under these foreign credit agreements. These agreements
provide for annual facility fees of up to 0.20%.

The Company has no off-balance sheet financing relationships with
variable interest entities, structured finance entities, or any other
unconsolidated entities. At December 31, 2004, the Company has not guaranteed
any third-party indebtedness.

NOTE 5. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION --

Cash and cash equivalents at December 31, 2004 and 2003 were as follows:

(In millions) 2004 2003
- -------------------------------------------------------------- ------ -----

Cash $ 43.8 $36.9
Other short-term investments, at cost which approximates market 207.0 42.7
------ -----
Total cash and cash equivalents $250.8 $79.6
====== =====

The estimated fair value of financial instruments at December 31, 2004
and 2003 was as follows:

NOTE 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) --

The components of accumulated other comprehensive income (loss), net of tax, at
December 31, 2004, 2003 and 2002 were as follows:

Total
Foreign Net Unrealized Minimum Accumulated
Currency Gains (Losses) Pension Net Unrealized Other
Translation On Derivative Liability Gains (Losses) Comprehensive
(In millions) Adjustments Instruments Adjustments On Investments Income (Loss)
- ------------------------------ ----------- -------------- ----------- -------------- ---------------

Balance, December 31, 2001 $ (23.2) $ (2.2) $ -- $ (0.3) $ (25.7)
Amounts arising during the year 16.6 7.4 (406.4) 0.4 (382.0)
-------- -------- -------- -------- --------
Balance, December 31, 2002 (6.6) 5.2 (406.4) 0.1 (407.7)
Amounts arising during the year 14.4 4.6 47.0 (0.1) 65.9
-------- -------- -------- -------- --------
Balance, December 31, 2003 7.8 9.8 (359.4) -- (341.8)
Amounts arising during the year 20.8 (12.4) 2.1 -- 10.5
-------- -------- -------- -------- --------
Balance, December 31, 2004 $ 28.6 $ (2.6) $ (357.3) $ -- $ (331.3)
======== ======== ======== ======== ========

Other comprehensive income (loss) amounts are net of income tax expense
(benefit) at the effective tax rate for each year, prior to the recognition of
the 2003 deferred tax valuation allowance. Amounts arising during 2004 include
an income tax valuation allowance equal to the income tax expense (benefit) that
would have been recognized.

49

NOTE 7. STOCKHOLDERS' EQUITY --

PREFERRED STOCK

Authorized preferred stock may be issued in one or more series, with
designations, powers and preferences as shall be designated by the Board of
Directors. At December 31, 2004, there were no shares of preferred stock issued.

COMMON STOCK

On July 28, 2004, the Company completed a public offering of 13.8 million shares
of common stock at $17.50 per share, and received $229.7 million in net proceeds
after underwriting costs and expenses. The 13.8 million shares were re-issued
from treasury stock. Per share amounts for 2004 reflect the effect of the public
offering on a weighted average basis for the periods presented.

During 2000, the Company adopted the Allegheny Technologies
Incorporated 2000 Incentive Plan (the "Incentive Plan"). Options granted under
the Incentive Plan, and predecessor plans, have been granted at not less than
market prices on the dates of grant. Options granted under the Incentive Plan
have a maximum term of 10 years. Vesting of stock options granted under the
Incentive Plan generally occurs in three annual increments, beginning on the
first anniversary of the grant date.

The Company accounts for its stock option plans in accordance with APB
Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Under APB Opinion 25, for awards that vest without a
performance-based contingency, no compensation expense for stock option plans is
recognized because the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of the grant. If
compensation cost for these stock option awards had been determined using the
fair-value method prescribed by FASB Statement No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") net income would have been reduced by
$3.8 million (or $0.04 per diluted share) for the year ended December 31, 2004,
and net loss would have increased by $3.3 million (or $0.04 per diluted share),
and $3.8 million (or $0.04 per diluted share) for the years ended December 31,
2003, and 2002, respectively. Under SFAS 123, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:

2004 2003 2002
-------- -------- --------

Expected dividend yield 2.3% 7.4% 4.4%
Expected volatility 59% 51% 35%
Risk-free interest rate 4.2% 3.5% 4.0%
Expected lives (in years) 8.0 8.0 8.0
Weighted average fair value of options granted during year $ 6.94 $ 1.05 $ 2.95
-------- -------- --------

Stock option transactions under the Company's plans for the years ended
December 31, 2004, 2003, and 2002 are summarized as follows:

50

Options outstanding at December 31, 2004 were as follows:

(shares in thousands) OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------- --------------------------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number of Remaining Exercise Number of Exercise
Exercise Prices Shares Contractual Life Price Shares Price
----------------- ---------- ---------------- --------- --------- ---------

$ 3.63-$7.00 1,750 8.1 $ 4.33 452 $ 4.87
7.01-10.00 1,702 7.8 7.25 951 7.25
10.01-15.00 467 7.0 12.90 375 13.46
15.01-20.00 1,217 6.5 17.43 1,050 17.66
20.01-30.00 352 4.7 21.96 352 21.96
30.01-40.00 147 3.4 35.96 147 35.96
40.01-50.00 298 2.3 44.01 298 44.01
----- ----- ------- ------ -------
5,933 7.0 $ 12.35 3,625 $ 16.23
===== ===== ======= ====== =======

The Company sponsors other share-based compensation programs, which
resulted in compensation expense of $20.6 million in 2004, $12.6 million in
2003, and $0.8 million in 2002. These recognized amounts included reversals of
$1.9 million in 2002 for adjustments to prior years' incentive compensation
expenses based on changes to estimates of compensation made at interim
measurement dates.

In 2004, the Company granted 289,560 shares of nonvested stock under a
new stock incentive plan, with an aggregate grant date fair value of
$3.3 million. Under the terms of this grant, one-half of the nonvested stock
("performance shares") vests only on the attainment of an income statement
metric, measured over a cumulative three-year period comprising fiscal years
2004, 2005 and 2006. The remaining nonvested stock vests over a service period
of five years, with accelerated vesting to three years if the performance
shares' vesting criterion is attained. Under the requirements of APB Opinion
No. 25, the performance shares are marked-to-market, with ratable expense
recognition based on estimates of whether the performance criterion will be
attained, and the measurement date stock price equal to the current market price
of the Company's stock. As of December 31, 2004, the income statement metric was
presently being attained, and one-third of the expense was recognized based on
the December 31, 2004 stock price.

In 2003, the Company granted 547,290 shares of nonvested stock with an
aggregate grant date fair value of $2.3 million. The shares vest over service
periods ranging from three to five years. For the year ended December 31, 2004,
175,505 shares of nonvested stock relating to the 2003 grants had vesting
accelerated due to the achievement of the performance target in accordance with
the provisions of the Incentive Plan. Compensation expense recognized for this
vesting acceleration was $0.3 million. For the year ended December 31, 2003,
176,399 shares of nonvested stock relating to the 2003 grants and other prior
grants had vesting accelerate due to participant retirements, in accordance with
retirement provisions in the Incentive Plan. Compensation expense recognized for
this vesting acceleration was $0.5 million. There were 532,369 and 422,800
shares of nonvested stock outstanding under all stock plans at December 31, 2004
and 2003, respectively.

In prior years, the Company maintained a Stock Acquisition and
Retention Program ("SARP"). Under the SARP, certain executives could purchase
shares of the Company's common stock in exchange for a promissory note payable
to the Company, and the Company would match the purchase with a grant of a
certain number of shares of non-vested common stock. After the enactment of the
Sarbanes-Oxley Act of 2002, the Board of Directors effectively terminated the
SARP and no further loans or purchases were permitted. As a net result of the
termination of the SARP in September 2003, the Company received approximately
$0.5 million in cash and recorded $5.6 million of expenses, which is included in
selling and administrative expenses in the statement of operations.

In the 2003 third quarter, the Company initiated a stock option
repurchase program whereby stock option plan participants, not including
statutory insiders and certain other executives, could elect to sell to the
Company, for $0.10 per option share, certain vested stock options. Approximately
1.8 million stock option shares were repurchased by the Company under this
program, which expired in October 2003.

The Company sponsors a Total Shareholder Return Plan ("TSRP"), which
measures the Company's stock price performance over cumulative three-year
periods compared to a peer group. Compensation to participants is payable in the
form of stock. Interim measures of stock price performance are recorded
quarterly. Based on the Company's 2004 stock price performance, $18.1 million of
compensation expense for the TSRP was recognized for the year ended December 31,
2004. An award was earned for the 2002 - 2004 TSRP performance period based on
the Company's stock price performance for the three-year period ending
December 31, 2004, which resulted in the issuance of 100,792 shares of stock to
participants in the 2005 first quarter.

At December 31, 2004, approximately 3.5 million shares of common stock
were available for future awards under the Incentive Plan.

51

UNDISTRIBUTED EARNINGS OF INVESTEES

Stockholders' equity includes undistributed earnings of investees accounted for
under the equity method of accounting of approximately $2.1 million at December
31, 2004.

STOCKHOLDERS' RIGHTS PLAN

Under the Company's stockholder rights plan, each share of Allegheny
Technologies common stock is accompanied by one right to purchase two
one-hundredths of a share of preferred stock for $100. Each two hundredths of a
share of preferred stock would be entitled to dividends and to vote on an
equivalent basis with one share of common stock. The rights are neither
exercisable nor separately transferable from shares of common stock unless a
party acquires or effects a tender offer for more than 15% of Allegheny
Technologies common stock. If a party acquired more than 15% of the Allegheny
Technologies common stock or acquired the Company in a business combination,
each right (other than those held by the acquiring party) would entitle the
holder to purchase common stock or preferred stock at a substantial discount.
The rights expire on March 12, 2008, and the Company's Board of Directors can
amend certain provisions of the plan or redeem the rights at any time prior to
their becoming exercisable.

NOTE 8. INCOME TAXES --

In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), in the 2003 fourth quarter, the
Company recorded a $138.5 million charge as part of its income tax provision to
establish a valuation allowance for the majority of its Federal net deferred tax
assets in recognition of uncertainty regarding full realization. In 2004, the
Company provided an additional $10.1 million valuation allowance to reflect the
continued uncertainty regarding full realization of these tax attributes, which
was included in determining the 2004 effective tax rate. No valuation allowance
was required on $53.0 million of net deferred tax assets based upon the
Company's ability to utilize these assets within the carryback, carryforward
period, including consideration of tax planning strategies that the Company
would undertake to prevent an operating loss or tax credit carryforward from
expiring unutilized. The Company intends to maintain a valuation allowance on
the net deferred tax assets until a realization event occurs to support reversal
of all or a portion of the reserve.

Income tax provision (benefit) was as follows:

(In millions) 2004 2003 2002
- ------------------------------ -------- -------- --------

Current:
Federal $ (0.9) $ (36.6) $ (64.1)
State (4.2) 2.8 0.1
Foreign 5.5 2.6 0.4
-------- -------- --------
Total 0.4 (31.2) (63.6)
-------- -------- --------
Deferred:
Federal -- 67.5 21.0
State -- (2.6) 4.6
Foreign (0.4) (0.6) --
-------- -------- --------
Total (0.4) 64.3 25.6
-------- -------- --------
Income tax provision (benefit) $ -- $ (33.1) $ (38.0)
======== ======== ========

In general, the Company is responsible for filing consolidated U.S.,
foreign and combined, unitary or separate state income tax returns. The Company
is responsible for paying the taxes relating to such returns, including any
subsequent adjustments resulting from the redetermination of such tax liability
by the applicable taxing authorities. Income taxes paid were $11.2 million in
2004, substantially all relating to foreign operations. Income taxes paid in
prior years were $3.9 million in 2003, and $2.0 million in 2002. The Company
received $7.2 million in federal income tax refunds and $0.2 million in state
income tax refunds in 2004. No provision has been made for U.S., state or
additional foreign taxes related to undistributed earnings of foreign
subsidiaries which have been or are intended to be permanently re-invested.

Income (loss) before income taxes included income (loss) from domestic
operations of $1.8 million in 2004, $(279.1) million in 2003, and
$(99.8) million in 2002.

52

The following is a reconciliation of income taxes computed at the
statutory federal income tax rate to the actual effective income tax provision
(benefit):

Income Tax Provision (Benefit)
(In millions) 2004 2003 2002
- -------------------------------------------------------- -------- -------- --------

Taxes computed at federal tax rate $ 6.9 $ (98.1) $ (36.3)
State and local income taxes, net of federal tax benefit 0.7 (3.4) (0.8)
Net operating loss tax credit carryforward (11.6) -- --
Valuation allowance 10.1 138.5 --
Adjustment to prior years' taxes (4.3) -- --
Other (1.8) (3.9) (0.9)
-------- -------- --------
Income tax provision (benefit) $ -- $ 33.1 $ (38.0)
======== ======== ========

For 2004, the Company recorded a tax loss, which was available to offset
taxes computed at statutory rates. The 2003 effective tax rate includes the
effect of establishing a valuation allowance for a majority of the Company's net
deferred tax assets. The effective tax rate for 2003, absent the deferred tax
valuation allowance, would have been 37.6%. The effective tax rate for 2002 was
36.6%.

Deferred income taxes result from temporary differences in the recognition
of income and expense for financial and income tax reporting purposes, and
differences between the fair value of assets acquired in business combinations
accounted for as purchases for financial reporting purposes and their
corresponding tax bases. Deferred income taxes represent future tax benefits or
costs to be recognized when those temporary differences reverse. The categories
of assets and liabilities that have resulted in differences in the timing of the
recognition of income and expense at December 31, 2004 and 2003 were as follows:

The Company has $188.9 million and $178.8 million in deferred tax asset
valuation allowances at December 31, 2004 and 2003, respectively. Based on
current tax law, the Company has federal net operating loss tax carryforwards
which will expire as follows: $42.5 million will expire in 2023 and $4.7 million
will expire in 2024. The Company also had state net operating loss tax
carryforwards of approximately $40 million at both December 31, 2004 and 2003.
For most of these state net operating loss tax carryforwards, expiration will
occur in 20 years and utilization of the tax benefit is limited to $2 million
per year. A valuation allowance has been established for the full value of these
state net operating loss carryforwards since the Company has concluded that it
is more likely than not that these tax benefits would not be realized prior to
expiration.

53

NOTE 9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS --

The Company has defined benefit pension plans and defined contribution plans
covering substantially all employees. Benefits under the defined benefit pension
plans are generally based on years of service and/or final average pay. The
Company funds the U.S. pension plans in accordance with the requirements of the
Employee Retirement Income Security Act of 1974, as amended, and the Internal
Revenue Code.

The Company also sponsors several postretirement plans covering certain
salaried and hourly employees. The plans provide health care and life insurance
benefits for eligible retirees. In certain plans, Company contributions towards
premiums are capped based on the cost as of a certain date, thereby creating a
defined contribution. For the non-collectively bargained plans, the Company
maintains the right to amend or terminate the plans at its discretion.

Components of pension expense (income) for the Company's defined
benefit plans and components of other postretirement benefit expense included
the following:

In 2004, in conjunction with the new labor agreement at the Company's
Allegheny Ludlum operations, a $25.3 million charge for pension termination
benefits was recognized for a Transition Assistance Program ("TAP"). The TAP
incentive is being paid from the Company's U.S. defined benefit pension fund
through 2006 to a total of 650 employees. The new labor contract, described in
Note 2. Acquisitions, also includes caps on the Company's retiree medical
benefit costs. Also in 2004, the Company modified retiree medical benefits for
certain non-collectively bargained current and former employees to cap the
Company's cost of benefits, beginning in 2005, and then eliminate the benefits
in 2010. As a result of these actions, a $71.5 million curtailment and
settlement gain was recognized in the 2004 second quarter, comprised of a
one-time reduction of postretirement benefit expense, net of a $0.5 million
charge to pension expense.

In 2003, the Company recorded termination benefits expense of
$7.4 million related to workforce reductions which is included in restructuring
costs in the statement of operations.

In 2002, the Company recorded $1.7 million of non-cash income on the
curtailment of postretirement benefits for terminated employees related to work
force reductions in the Flat-Rolled Products segment. This amount is included in
restructuring costs in the statement of operations.

Actuarial assumptions used to develop the components of pension expense
(income) and other postretirement benefit expense were as follows:

Actuarial assumptions used for the valuation of pension and
postretirement obligations at the end of the respective periods were as follows:

54

For 2005, the expected long-term rate of returns on pension and other
postretirement benefits assets will be 8.75% and 9.0%, respectively, and the
discount rate used to develop pension and postretirement benefit expense will be
6.1%. In developing the expected long-term rate of return assumptions, the
Company evaluated input from its third party pension plan asset managers and
actuaries, including reviews of their asset class return expectations and
long-term inflation assumptions.

A reconciliation of funded status for the Company's pension and
postretirement benefit plans at December 31, 2004 and 2003 was as follows:

PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
------------------------- -----------------------------
(In millions) 2004 2003 2004 2003
- ------------------------------------------------------ -------- -------- ---------- ----------

CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $2,018.6 $1,945.5 $ 881.6 $ 711.3
Service cost 27.1 28.6 5.1 6.3
Interest cost 126.6 126.4 45.5 44.9
Benefits paid (166.4) (143.2) (46.0) (45.2)
Participant contributions 0.8 0.8 -- --
Acquisition -- -- 18.6 --
Effect of currency rates 4.6 3.2 -- --
Plan amendments 4.2 4.0 (264.0) --
Net actuarial (gains) losses -- discount rate change 81.4 62.0 19.5 21.8
-- other 23.9 (16.1) (32.2) 142.5
Effect of curtailment and special termination benefits -- 7.4 (33.2) --
-------- -------- -------- --------
Benefit obligation at end of year $2,120.8 $2,018.6 $ 594.9 $ 881.6(A)
-------- -------- -------- --------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $1,762.1 $1,678.7 $ 107.0 $ 111.5
Actual returns on plan assets and plan expenses 193.9 219.6 11.4 9.7
Employer contributions 51.4 -- -- --
Participant contributions 0.8 0.8 -- --
Effect of currency rates 3.9 2.8 -- --
Benefits paid (163.0) (139.8) (18.2) (14.2)
-------- -------- -------- --------
Fair value of plan assets at end of year $1,849.1 $1,762.1 $ 100.2 $ 107.0
-------- -------- -------- --------

Underfunded status of the plan $ (271.7) $ (256.5) $ (494.7) $ (774.6)
Unrecognized net actuarial loss 614.4 624.1 247.1 292.0
Net minimum pension liability (587.3) (588.2) -- --
Unrecognized prior service cost 122.3 144.0 (225.1) (24.6)
-------- -------- -------- --------
ACCRUED BENEFIT COST $ (122.3) $ (76.6) $ (472.7) $ (507.2)
======== ======== ======== ========

Amounts recognized in the balance sheet consist of:

(A) The other postretirement benefits obligation at end of 2003 did not
include the expected favorable impact of the Medicare Act, which was signed into
law on December 8, 2003. The Medicare Act provides for a federal subsidy, with
tax-free

55

payments commencing in 2006, to sponsors of retiree health care benefits plans
that provide a benefit that is at least actuarially equivalent to the benefit
established by the law. Based upon estimates from the Company's actuaries, the
federal subsidy included in the law reduced the other postretirement benefits
obligation in 2004 by $46 million. This reduction is recognized in the financial
statements over a number of years as an actuarial experience gain, which is
expected to reduce other postretirement benefit expense by approximately $3
million in 2005.

The accumulated benefit obligation for all defined benefit pension
plans was $2,093.6 million and $1,972.3 million at December 31, 2004 and 2003,
respectively.

The pension plan asset allocations for the years ended 2004 and 2003,
and the target allocation for 2005 are:

The postretirement plan obligation asset allocations for the years
ended 2004 and 2003, and the target allocation for 2005 are:

The plan invests in a diversified portfolio consisting of an array of
asset classes that attempts to maximize returns while minimizing volatility.
These asset classes include U.S. domestic equities, developed market equities,
emerging market equities, private equity, global high quality and high yield
fixed income. The Company continually monitors the investment results of these
asset classes and its fund managers, and explores other potential asset classes
for possible future investment. During 2003, the Company entered into a risk
reduction program with respect to the pension fund investments in U.S. domestic
equities. The goal of the program was to reduce the potential impact to the
plan's funded status of a further decline in the U.S. equity markets.

The plan assets for the defined benefit pension plan at December 31,
2004 and 2003 include 1.3 million shares of Allegheny Technologies common stock
with a fair value of $28.2 million and $17.2 million, respectively. Dividends of
$0.3 million were received by the plan in both 2004 and 2003 on the Allegheny
Technologies common stock held by the plan.

The Company is not required to make cash contributions to its U.S.
defined benefit pension plan for 2005 and, based upon current actuarial studies,
does not expect to be required to make cash contributions to its U.S. defined
benefit pension plan for at least the next several years. However, ATI may
elect, depending upon the investment performance of the pension plan assets and
other factors, to make voluntary cash contributions to this pension plan in the
future. The Company expects to contribute approximately $5 million to its
nonqualified benefit pension plans in 2005, equal to the amount of expected
benefit payments for these plans. The Company contributes on behalf of its union
employees at its Oremet facility to a pension plan, which is administered by the
USWA and funded pursuant to a collective bargaining agreement. Pension expense
and contributions to this plan were $0.7 million in 2004, and $0.6 million in
2003 and in 2002.

In accordance with labor contracts, the Company funds certain retiree
health care benefits for Allegheny Ludlum using plan assets held in a Voluntary
Employee Benefit Association (VEBA) trust. During 2004, 2003 and 2002, the
Company was able to fund $18.2 million, $14.2 million, and $12.7 million,
respectively, of retiree medical costs using the assets of the VEBA trust. The
Company may continue to fund certain retiree medical benefits utilizing the plan
assets held in the VEBA if the value of these plan assets exceed $25 million.
The value of the assets held in the VEBA was approximately $100 million as of
December 31, 2004. The Company expects to contribute between $30 and $35 million
to its other postretirement benefit plans in 2005, representing the non-VEBA
funded portion of expected benefit payments.

Pension costs for defined contribution plans were $13.2 million in
2004, $10.5 million in 2003, and $12.1 million in 2002. Company contributions to
the defined contribution plans are funded with cash.

The following table summarizes expected benefit payments from the
Company's various pension and other postretirement benefit plans through 2014,
and also includes estimated Medicare Part D subsidies projected to be received
during this period based on currently available information.

56

The annual assumed rate of increase in the per capita cost of covered
benefits (the health care cost trend rate) for health care plans was 10.0% in
2005 and is assumed to gradually decrease to 5.0% in the year 2014 and remain at
that level thereafter. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. A one percentage point
change in assumed health care cost trend rates would have the following effects:

The annual measurement date for the Company's retirement benefits is
November 30. At November 30, 2004, the value of the accumulated pension benefit
obligation (ABO) exceeded the value of pension assets by approximately $245
million. A minimum pension liability was recognized in 2002 as a result of a
severe decline in the equity markets from 2000 through 2002, higher benefit
liabilities from long-term labor contracts negotiated in 2001, and a lower
assumed discount rate for valuing liabilities. Accounting standards require a
minimum pension liability to be recorded and the pension asset recorded on the
balance sheet to be written off if the value of pension assets is less than the
ABO at the annual measurement date. Accordingly, in the 2002 fourth quarter, the
Company recorded a charge against stockholders' equity of $406 million, net of
deferred taxes, to write off the prepaid pension cost representing the
overfunded position of the pension plan, and to record a deferred pension asset,
$122 million at December 31, 2004, for unamortized prior service cost relating
to prior benefit enhancements. In the fourth quarter of 2004 and 2003, the
Company's adjustment of the minimum pension liability resulted in an increase to
stockholders' equity of $2 million for 2004 and $47 million for 2003, presented
as other comprehensive income (loss). These charges and adjustments did not
affect the Company's results of operations and do not have a cash impact. In
addition, they do not affect compliance with debt covenants in the Company's
bank credit agreement. In accordance with accounting standards, the full charge
against stockholders' equity would be reversed in subsequent years if the value
of pension plan investments returns to a level that exceeds the ABO as of a
future annual measurement date.

NOTE 10. BUSINESS SEGMENTS --

The Company operates in three business segments: Flat-Rolled Products, High
Performance Metals and Engineered Products. The Flat-Rolled Products segment
produces, converts and distributes stainless steel, nickel-based alloys, and
titanium and titanium-based alloys in sheet, strip, plate and Precision Rolled
Strip(R) products as well as silicon electrical steels and tool steels. The
companies in this segment include Allegheny Ludlum, the Company's 60% interest
in STAL, and the Company's industrial titanium joint venture known as Uniti LLC
("Uniti"). The investment in Uniti is accounted for under the equity method.
Sales to Uniti, which are included in ATI's Consolidated Statements of
Operations, were $32.1 million in 2004, and income recognized under the equity
method of accounting was $2.2 million, which is included in Flat-Rolled Products
segment operating profit. Operating results involving Uniti for 2003 were not
material.

The High Performance Metals segment produces, converts and distributes
nickel- and cobalt-based alloys and superalloys, titanium and titanium-based
alloys, zirconium, hafnium, niobium, nickel-titanium, tantalum, and their
related alloys, and other specialty alloys and metals, primarily in slab and
long products such as ingot, billet, bar, rod, wire, and seamless tube. The
companies in this segment include Allvac, Allvac Ltd (U.K.) and Wah Chang.

The Engineered Products segment's principal business produces tungsten
powder, tungsten carbide materials and carbide cutting tools. This segment also
produces carbon alloy steel impression die forgings and large grey and ductile
iron castings, and performs precision metals processing services. The companies
in this segment are Metalworking Products, Portland Forge, Casting Service and
Rome Metals.

57

Intersegment sales are generally recorded at full cost or market.
Common services are allocated on the basis of estimated utilization.

Information on the Company's business segments was as follows:

(In millions) 2004 2003 2002
- ------------------------------------ -------- -------- --------

Total sales:
Flat-Rolled Products $1,660.4 $1,060.4 $1,050.9
High Performance Metals 853.0 685.5 660.1
Engineered Products 314.1 259.9 243.8
-------- -------- --------
Total sales 2,827.5 2,005.8 1,954.8
======== ======== ========

Intersegment sales:
Flat-Rolled Products 16.5 16.9 10.6
High Performance Metals 58.9 43.8 30.1
Engineered Products 19.1 7.7 6.3
-------- -------- --------
Total intersegment sales 94.5 68.4 47.0
======== ======== ========

Sales to external customers:
Flat-Rolled Products 1,643.9 1,043.5 1,040.3
High Performance Metals 794.1 641.7 630.0
Engineered Products 295.0 252.2 237.5
-------- -------- --------
Total sales to external customers $2,733.0 $1,937.4 $1,907.8
======== ======== ========

Total international sales were $556.2 million in 2004, $441.9 million
in 2003, and $440.0 million in 2002. Of these amounts, sales by operations in
the United States to customers in other countries were $336.8 million in 2004,
$270.0 million in 2003, and $276.9 million in 2002.

(In millions) 2004 2003 2002
- ---------------------------------------------------- -------- -------- --------

Operating profit (loss):
Flat-Rolled Products $ 61.5 $ (14.1) $ (8.6)
High Performance Metals 84.8 26.2 31.2
Engineered Products 20.8 7.8 4.7
-------- -------- --------

Total operating profit 167.1 19.9 27.3
Corporate expenses (34.9) (20.5) (20.6)
Interest expense, net (35.5) (27.7) (34.3)
Curtailment gain, net of restructuring costs 40.4 -- --
Management transition and restructuring costs -- (69.8) (42.8)
Other income (expenses), net of gains on asset sales 2.5 (47.7) (11.6)
Retirement benefit expense (119.8) (134.4) (21.8)
-------- -------- --------

Income (loss) before income taxes $ 19.8 $ (280.2) $ (103.8)
======== ======== ========

Management transition costs, which are classified as selling and
administrative expenses on the statement of operations, and curtailment gains
and restructuring costs, which are classified as restructuring costs in the
statement of operations, include gains realized from amendments to benefit
plans, impairments for long-lived assets, charges related to severance and other
facility closure charges. For the years ended December 31, 2004, 2003, and 2002,
restructuring charges excluded from segment operations were $5.0 million,
$62.4 million, and $42.8 million, respectively. For the year ended December 31,
2004, net gains from the curtailment of benefit programs excluded from segment
operations were $46.2 million. For 2003, costs associated with the termination
of a stock-based management incentive program and contractual obligations
related to CEO transition of $7.4 million were classified as selling and
administrative expenses in the statement of operations.

58

Other income (expenses), net of gains on asset sales, includes charges
incurred in connection with closed operations, pretax gains and losses on the
sale of surplus real estate, non-strategic investments, and other assets, and
other non-operating income or expense, which are primarily included in selling
and administrative expenses, and in other income (expense) in the statement of
operations. These items resulted in net income of $2.5 million in 2004 and net
charges of $47.7 million and $11.6 million in 2003 and 2002, respectively. For
2003, net charges include litigation expense of $22.5 million relating to an
unfavorable jury verdict in the first quarter of 2004 concerning a lease of
property in San Diego, CA.

Retirement benefit expense includes both pension expense and other
postretirement benefit expenses. Operating profit with respect to the Company's
business segments excludes any retirement benefit expense.

(In millions) 2004 2003 2002
- ----------------------------------- -------- -------- --------

Depreciation and amortization:
Flat-Rolled Products $ 40.2 $ 39.0 $ 55.3
High Performance Metals 25.6 22.8 20.9
Engineered Products 10.1 11.7 13.0
Corporate 0.2 1.1 0.8
-------- -------- --------
Total depreciation and amortization $ 76.1 $ 74.6 $ 90.0
======== ======== ========

Capital expenditures:
Flat-Rolled Products $ 19.5 $ 28.2 $ 15.4
High Performance Metals 26.5 44.4 30.8
Engineered Products 3.8 1.1 2.5
Corporate 0.1 0.7 --
-------- -------- --------
Total capital expenditures $ 49.9 $ 74.4 $ 48.7
======== ======== ========

Identifiable assets:
Flat-Rolled Products $ 995.8 $ 787.9 $ 850.0
High Performance Metals 676.0 602.0 594.7
Engineered Products 174.6 178.1 186.5
Corporate:
Pension Asset 122.3 144.0 165.1
Income Taxes 53.0 52.6 171.0
Other 294.0 138.6 138.8
-------- -------- --------
Total assets $2,315.7 $1,903.2 $2,106.1
======== ======== ========

Geographic information for external sales, based on country of origin
and assets are as follows:

PERCENT Percent Percent
(In millions) 2004 OF TOTAL 2003 Of Total 2002 Of Total
- -------------------- -------- -------- --------- -------- -------- --------

External Sales:
United States $2,176.9 80% $1,495.5 77% $1,468.0 77%
United Kingdom 108.2 4% 97.2 5% 93.2 5%
Germany 96.5 4% 82.6 4% 86.9 5%
France 88.1 3% 54.3 3% 61.8 3%
Canada 53.1 2% 42.4 2% 40.2 2%
China 64.1 2% 37.1 2% 21.3 1%
Japan 26.2 1% 25.0 1% 28.7 2%
Other 119.9 4% 103.3 6% 107.7 5%
-------- --- -------- --- -------- ---
Total External Sales $2,733.0 100% $1,937.4 100% $1,907.8 100%
======== === ======== === ======== ===

59

PERCENT Percent Percent
(In millions) 2004 OF TOTAL 2003 Of Total 2002 Of Total
- ------------- -------- -------- -------- -------- -------- --------

Total Assets:
United States $1,966.4 85% $1,598.4 84% $1,813.6 86%
United Kingdom 187.3 8% 169.1 9% 170.8 8%
China 64.1 3% 50.7 3% 49.2 2%
Germany 30.8 1% 24.5 1% 18.7 1%
Switzerland 23.7 1% 23.3 1% 22.5 1%
Japan 12.7 --% 10.3 1% 7.3 --%
France 12.6 --% 9.9 --% 8.2 --%
Canada 3.3 --% 3.7 --% 4.9 --%
Other 14.8 2% 13.3 1% 10.9 2%
-------- --- -------- --- -------- ---
Total Assets $2,315.7 100% $1,903.2 100% $2,106.1 100%
======== === ======== === ======== ===

NOTE 11. CURTAILMENT (GAIN), RESTRUCTURING AND OTHER CHARGES --

CURTAILMENT (GAIN) AND RESTRUCTURING CHARGES

For the year ended December 31, 2004, the Company recorded a $40.4 million
curtailment gain, net of restructuring costs, which includes the $71.5 million
curtailment and settlement gain and the $25.3 million pension termination
benefit charge discussed in Note 9. Pension Plans and Other Postretirement
Benefits, and $5.8 million in restructuring charges in the Flat-Rolled Products
segment related to the new labor agreement and the J&L asset acquisition.
Charges included labor agreement costs of $4.6 million, severance costs of
$0.7 million related to approximately 30 salaried employees, and $0.5 million
for asset impairment charges for redundant equipment following the J&L asset
acquisition. At December 31, 2004, approximately $0.6 million of the
restructuring charges represent future cash payments that are expected to be
paid within one year.

In 2003, the Company recorded charges of $62.4 million, including
$47.5 million for impairment of long-lived assets in the Company's Flat-Rolled
Products segment, $11.1 million for workforce reductions across all business
segments and the corporate office, and $3.8 million for facility closure charges
including present-valued lease termination costs, net of forecasted sublease
rental income, at the corporate office. In the 2003 fourth quarter, based on
existing and projected operating levels at the Company's remaining operations in
Houston, PA and its Washington Flat Roll coil facility located in Washington,
PA, it was determined that the net book values of these facilities were in
excess of their estimated fair market values based on expected future cash
flows. Charges for the Houston facility and the Washington Flat Roll coil
facility were recorded to write down the book values of these facilities to
their estimated fair market values. These asset impairment charges did not
impact current operations at these facilities. The workforce reductions affected
approximately 375 employees across all segments and the corporate office.

In 2002, the Company recorded total charges of $42.8 million related to
the indefinite idling of the Massillon, OH stainless steel plate facility, due
to continuing poor demand for wide continuous mill plate products, and workforce
reductions across all of the Company's operations. The Massillon, OH stainless
steel plate facility was indefinitely idled in the 2002 fourth quarter and
resulted in a pretax non-cash asset impairment charge of $34.4 million,
representing the book value of the facility in excess of its estimated fair
market value. In addition, during the second half of 2002, and in light of the
continuing decline in demand for the Company's products in the markets served,
the Company announced workforce reductions of approximately 665 employees. These
workforce reductions resulted in a severance charge of $8.4 million, net of a
retirement benefits curtailment gain.

Reserves for restructuring charges recorded in 2003 and 2002 involving
future payments were approximately $5 million at December 31, 2004 and
$9 million at December 31, 2003. The reduction in reserves resulted from cash
payments to meet severance and lease payment obligations.

60

OTHER GAINS AND CHARGES

In 2004, the Company recognized non-recurring gains of $12.9 million, including
$5.5 million related to net gains on sales of real estate and realization of
other investments, a $4.6 million environmental reserve reduction related to the
settlement of the Clean Water Act case (see additional discussion in Note 14.
Commitments and Contingencies), income from corporate-owned life insurance of
$1.2 million, partially offset by closed company charges of $8.8 million
primarily related to litigation.

In 2003, the Company recorded $34.7 million in other charges, including
closed company charges of $22.5 million for litigation, $7.6 million for
environmental and insurance matters, and $4.6 million for various non-operating
asset impairments. Closed company charges were determined based on the status of
legal matters including court proceedings, and on updated estimates of the
Company's liability for environmental closure costs and for liabilities under
retrospectively-rated insurance programs. In the consolidated statement of
operations, litigation and environmental charges are classified in selling and
administrative expenses and insurance charges are classified in cost of sales.

In 2002, the Company recorded $6.5 million in charges relating to its
approximately 30% equity interest in New Piper Aircraft, Inc. ("New Piper"),
including equity in net losses of New Piper and the write-down of the Company's
investment to its estimated realizable value. Based on New Piper's fourth
quarter 2002 realization of additional losses and adverse trends in its
liquidity and financial condition, the Company determined in the 2002 fourth
quarter that it was more likely than not that the carrying value of its equity
interest in New Piper was not recoverable. These charges are classified in other
income (expense) in the consolidated statements of operations.

NOTE 12. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS --

The payment obligations under the $150 million 6.95% debentures due 2025
issued by Allegheny Ludlum Corporation (the "Subsidiary") are fully and
unconditionally guaranteed by Allegheny Technologies Incorporated (the
"Guarantor Parent"). In accordance with positions established by the Securities
and Exchange Commission, the following financial information sets forth
separately financial information with respect to the Subsidiary, the
non-guarantor subsidiaries and the Guarantor Parent. The principal elimination
entries eliminate investments in subsidiaries and certain intercompany balances
and transactions. Investments in subsidiaries, which are eliminated in
consolidation, are included in other assets on the balance sheets. Subsidiary
results in 2004 include the effects of the J&L asset acquisition, including
indebtedness incurred in conjunction with the acquisition.

In 1996, the underfunded defined benefit pension plans of the
Subsidiary were merged with the overfunded defined benefit pension plans of
Teledyne, Inc. and Allegheny Technologies became the plan sponsor. As a result,
the balance sheets presented for the Subsidiary and the non-guarantor
subsidiaries do not include the Allegheny Technologies deferred pension asset,
pension liabilities or the related deferred taxes. The pension asset,
liabilities and related deferred taxes and pension income or expense are
recognized by the Guarantor Parent. Management and royalty fees charged to the
Subsidiary and to the non-guarantor subsidiaries by the Guarantor Parent have
been excluded solely for purposes of this presentation.

61

ALLEGHENY TECHNOLOGIES INCORPORATED
FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT
BALANCE SHEETS

December 31, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Non-
Guarantor guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
- --------------------------------------------- ---------- ---------- ------------ ------------- ------------

ASSETS
Cash and cash equivalents $ 0.2 $ 176.1 $ 74.5 $ -- $ 250.8
Accounts receivable, net 0.3 169.7 187.9 -- 357.9
Inventories, net -- 266.8 246.2 -- 513.0
Prepaid expenses and other current assets 0.1 8.4 30.0 -- 38.5
-------- -------- -------- ---------- --------
TOTAL CURRENT ASSETS 0.6 621.0 538.6 -- 1,160.2
Property, plant, and equipment, net -- 336.5 381.8 -- 718.3
Deferred pension asset 122.3 -- -- -- 122.3
Deferred income taxes 53.0 -- -- -- 53.0
Cost in excess of net assets acquired -- 112.1 93.2 -- 205.3
Investments in subsidiaries and other assets 1,378.6 432.4 544.7 (2,299.1) 56.6
-------- -------- -------- --------- --------
TOTAL ASSETS $1,554.5 $1,502.0 $1,558.3 $(2,299.1) $2,315.7
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable $ 3.9 $ 164.2 $ 103.1 $ -- $ 271.2
Accrued liabilities 547.6 63.2 283.6 (702.2) 192.2
Short-term debt and
current portion of long-term debt -- 7.5 21.9 -- 29.4
-------- -------- -------- --------- --------
TOTAL CURRENT LIABILITIES 551.5 234.9 408.6 (702.2) 492.8
Long-term debt 308.4 404.8 40.1 (200.0) 553.3
Accrued postretirement benefits -- 263.1 209.6 -- 472.7
Pension liabilities 240.9 -- -- -- 240.9
Other long-term liabilities 27.8 26.6 75.7 -- 130.1
-------- -------- -------- --------- --------
TOTAL LIABILITIES 1,128.6 929.4 734.0 (902.2) 1,889.8
-------- -------- -------- --------- --------
TOTAL STOCKHOLDERS' EQUITY 425.9 572.6 824.3 (1,396.9) 425.9
-------- -------- -------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,554.5 $1,502.0 $1,558.3 $(2,299.1) $2,315.7
======== ======== ======== ========= ========

62

ALLEGHENY TECHNOLOGIES INCORPORATED
FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT
STATEMENTS OF OPERATIONS

For the year ended December 31, 2004
Non-
Guarantor guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
- -------------------------------------------------- ---------- ---------- ------------ ------------ ------------

SALES $ -- $1,517.1 $1,215.9 $ -- $2,733.0
Cost of sales 85.1 1,429.2 973.8 -- 2,488.1
Selling and administrative expenses 101.5 25.9 105.9 -- 233.3
Curtailment (gain), net of restructuring costs -- (40.4) -- -- (40.4)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INTEREST, OTHER INCOME
AND INCOME TAXES (186.6) 102.4 136.2 -- 52.0
Interest expense, net (25.9) (9.0) (0.6) -- (35.5)
Other income (expense) including equity
in income (loss) of unconsolidated subsidiaries 232.3 6.1 3.5 (238.6) 3.3
-------- -------- -------- -------- --------
Income (loss) before income tax 19.8 99.5 139.1 (238.6) 19.8
provision (benefit)
Income tax provision (benefit) -- -- -- -- --
-------- -------- -------- -------- --------
NET INCOME $ 19.8 $ 99.5 $ 139.1 $ (238.6) $ 19.8
======== ======== ======== ======== ========

ALLEGHENY TECHNOLOGIES INCORPORATED
FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT
CONDENSED STATEMENTS OF CASH FLOWS

For the year ended December 31, 2004
Non-
Guarantor guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
- ------------------------------------ ---------- ---------- ------------ ------------ ------------

CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (15.2) $ 5.5 $ 127.3 $ (93.5) $ 24.1
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES (214.1) (24.3) (184.6) 368.4 (54.6)
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 229.2 152.6 94.8 (274.9) 201.7
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (0.1) $ 133.8 $ 37.5 $ -- $ 171.2
======== ======== ======== ======== ========

63

ALLEGHENY TECHNOLOGIES INCORPORATED
FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT
BALANCE SHEETS

December 31, 2003
Non-
Guarantor guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
- --------------------------------------------- ---------- ---------- ------------ ------------ ------------

ASSETS
Cash and cash equivalents $ 0.3 $ 42.3 $ 37.0 $ -- $ 79.6
Accounts receivable, net 0.1 89.4 159.3 -- 248.8
Inventories, net -- 147.3 212.4 -- 359.7
Income tax refunds 7.2 -- -- -- 7.2
Prepaid expenses and other current assets -- 11.5 36.5 -- 48.0
-------- -------- -------- --------- --------
TOTAL CURRENT ASSETS 7.6 290.5 445.2 -- 743.3
Property, plant, and equipment, net -- 326.3 384.8 -- 711.1
Deferred pension asset 144.0 -- -- -- 144.0
Deferred income taxes 52.6 -- -- -- 52.6
Cost in excess of net assets acquired -- 112.1 86.3 -- 198.4
Investments in subsidiaries and other assets 994.4 546.0 326.9 (1,813.5) 53.8
-------- -------- -------- --------- --------
TOTAL ASSETS $1,198.6 $1,274.9 $1,243.2 $(1,813.5) $1,903.2
======== ======== ======== ========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2.5 $ 92.4 $ 77.4 $ -- $ 172.3
Accrued liabilities 465.6 70.2 181.2 (522.4) 194.6
Short-term debt and
current portion of long-term debt -- 9.6 18.2 -- 27.8
-------- -------- -------- --------- --------
TOTAL CURRENT LIABILITIES 468.1 172.2 276.8 (522.4) 394.7
Long-term debt 309.4 349.9 45.1 (200.1) 504.3
Accrued postretirement benefits -- 316.8 190.4 -- 507.2
Pension liabilities 220.6 -- -- -- 220.6
Other long-term liabilities 25.8 22.8 53.1 -- 101.7
-------- -------- -------- --------- --------
TOTAL LIABILITIES 1,023.9 861.7 565.4 (722.5) 1,728.5
-------- -------- -------- --------- --------
TOTAL STOCKHOLDERS' EQUITY 174.7 413.2 677.8 (1,091.0) 174.7
-------- -------- -------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,198.6 $1,274.9 $1,243.2 $(1,813.5) $1,903.2
======== ======== ======== ========= ========

64

ALLEGHENY TECHNOLOGIES INCORPORATED
FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT
STATEMENTS OF OPERATIONS

For the year ended December 31, 2003
Non-
Guarantor guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
- ------------------------------------------------- ---------- ---------- ------------ ------------ ------------

SALES $ -- $ 962.1 $ 975.3 $ -- $1,937.4
Cost of sales 94.5 963.9 815.2 -- 1,873.6
Selling and administrative expenses 87.4 19.2 142.2 -- 248.8
Restructuring costs 7.6 49.1 5.7 -- 62.4
-------- -------- -------- -------- --------
Income (loss) before interest, other income
and income taxes and cumulative effect of
change in accounting principle (189.5) (70.1) 12.2 -- (247.4)
Interest (expense) income, net (20.2) (10.0) 2.5 -- (27.7)
Other income (expense) including equity
in income (loss) of unconsolidated subsidiaries (71.8) (7.3) 9.1 64.9 (5.1)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX PROVISION
(BENEFIT) AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (281.5) (87.4) 23.8 64.9 (280.2)
-------- -------- -------- -------- --------
Income tax provision (benefit) 31.8 (29.1) 140.7 (110.3) 33.1
-------- -------- -------- -------- --------
Net income (loss) before cumulative effect of
change in accounting principle (313.3) (58.3) (116.9) 175.2 (313.3)
Cumulative effect of change in accounting
principle, net of tax (1.3) -- -- -- (1.3)
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (314.6) $ (58.3) $ (116.9) $ 175.2 $ (314.6)
======== ======== ======== ======== ========

ALLEGHENY TECHNOLOGIES INCORPORATED
FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT
CONDENSED STATEMENTS OF CASH FLOWS

For the year ended December 31, 2003
Non-
Guarantor guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
- ------------------------------------- ---------- ---------- ------------ ------------ ------------

CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (57.5) $ 136.7 $ 24.5 $ (21.7) $ 82.0
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES -- (28.2) (46.3) 4.2 (70.3)
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 57.6 (109.2) 42.6 17.5 8.5
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 0.1 $ (0.7) $ 20.8 $ -- $ 20.2
======== ======== ======== ======== ========

65

ALLEGHENY TECHNOLOGIES INCORPORATED
FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT
STATEMENTS OF OPERATIONS

For the year ended December 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Non-
Guarantor guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
- -------------------------------------------------- ---------- ---------- ------------ ------------ ------------

SALES $ -- $ 984.3 $ 923.5 $ -- $1,907.8
Cost of sales 17.6 959.3 767.6 -- 1,744.5
Selling and administrative expenses 40.8 27.5 120.0 -- 188.3
Restructuring costs -- 38.5 4.3 -- 42.8
-------- -------- -------- -------- --------
Income (loss) before interest, other income
and income taxes (58.4) (41.0) 31.6 -- (67.8)
Interest expense, net (22.0) (10.2) (2.1) -- (34.3)
Other income (expense) including equity
in income (loss) of unconsolidated subsidiaries (22.1) 0.1 9.1 11.2 (1.7)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (102.5) (51.1) 38.6 11.2 (103.8)
Income tax provision (benefit) (36.7) (16.6) 11.2 4.1 (38.0)
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (65.8) $ (34.5) $ 27.4 $ 7.1 $ (65.8)
======== ======== ======== ======== ========

ALLEGHENY TECHNOLOGIES INCORPORATED
FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT
CONDENSED STATEMENTS OF CASH FLOWS

For the year ended December 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Non-
Guarantor guarantor
(In millions) Parent Subsidiary Subsidiaries Eliminations Consolidated
- ------------------------------------- ---------- ---------- ------------ ------------ ------------

CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 13.2 $ 81.3 $ (72.0) $ 181.7 $ 204.2
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES -- (11.5) (40.7) 12.4 (39.8)
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES (13.4) (41.1) 109.9 (194.1) (138.7)
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (0.2) $ 28.7 $ (2.8) $ -- $ 25.7
======== ======== ======== ======== ========

66

NOTE 13. PER SHARE INFORMATION --

The following table sets forth the computation of basic and diluted net income
(loss) per common share:

Weighted average shares issuable upon the exercise of stock options
which were antidilutive, and thus not included in the calculation, were
1.6 million in 2004, 7.5 million in 2003 and 5.9 million in 2002.

NOTE 14. COMMITMENTS AND CONTINGENCIES --

Rental expense under operating leases was $18.0 million in 2004, $17.5 million
in 2003, and $15.9 million in 2002. Future minimum rental commitments under
operating leases with non-cancelable terms of more than one year at December 31,
2004, were as follows: $15.6 million in 2005, $13.0 million in 2006,
$11.8 million in 2007, $4.5 million in 2008, $3.6 million in 2009 and
$7.5 million thereafter.

When it is probable that a liability has been incurred or an asset of
the Company has been impaired, a loss is recognized if the amount of the loss
can be reasonably estimated.

Asset retirement obligation ("ARO") liabilities, related to landfills,
total $1.9 million at December 31, 2004. Estimates of ARO liabilities are
evaluated annually in the fourth quarter, or more frequency if material new
information becomes known. Changes in estimated landfill closure dates, the cash
flows associated with closure activities, and accretion expense for the
recognized liabilities have not been material since the adoption of the ARO
accounting standard, SFAS 143, on January 1, 2003. The accounting for asset
retirement obligations requires significant estimates. In certain cases, the
Company has determined that an ARO exists, but the amount of the obligation is
not reasonably estimable. The Company may determine that additional AROs are
required to be recognized as new information becomes available.

67

The Company maintains reserves for contingent tax liabilities, for
differences between the benefit of tax deductions as filed on various income tax
returns and recorded income tax provisions. These liabilities are estimated
based on analyses of probable return-to-provision adjustments using currently
available information.

The Company is subject to various domestic and international
environmental laws and regulations that govern the discharge of pollutants, and
disposal of wastes, and which may require that it investigate and remediate the
effects of the release or disposal of materials at sites associated with past
and present operations. The Company could incur substantial cleanup costs,
fines, and civil or criminal sanctions, third party property damage or personal
injury claims as a result of violations or liabilities under these laws or
noncompliance with environmental permits required at its facilities. The Company
is currently involved in the investigation and remediation of a number of its
current and former sites, as well as third party sites.

Environmental liabilities are recorded when the Company's liability is
probable and the costs are reasonably estimable. In many cases, however, the
Company is not able to determine whether it is liable 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, including the
nature and extent of site contamination, available remediation alternatives, the
extent of corrective actions that may be required, and the number,
participation, and financial condition of other potentially responsible parties
("PRPs"). The Company expects that it will adjust its accruals to reflect new
information as appropriate. 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 does not believe
that there is a reasonable possibility that a loss exceeding the amount already
accrued for any of the sites with which the Company is currently associated
(either individually or in the aggregate) will be an amount that would be
material to a decision to buy or sell the Company's securities. Future
developments, administrative actions or liabilities relating to environmental
matters, however, could have a material adverse effect on the Company's
financial condition or results of operations.

At December 31, 2004, the Company's reserves for environmental
remediation obligations totaled approximately $28.7 million, of which
approximately $8.4 million were included in other current liabilities. The
reserve includes estimated probable future costs of $8.8 million for federal
Superfund and comparable state-managed sites; $9.0 million for formerly owned or
operated sites for which the Company has remediation or indemnification
obligations; $5.8 million for owned or controlled sites at which Company
operations have been discontinued; and $5.1 million for sites utilized by the
Company in its ongoing operations. The Company continues to evaluate whether it
may be able to recover a portion of future costs for environmental liabilities
from third parties.

The timing of expenditures depends on a number of factors that vary by
site. The Company expects that it will expend present accruals over many years
and that remediation of all sites with which it has been identified will be
completed within thirty years.

Various claims have been or may be asserted against the Company related
to its government contract work, principally related to the former operations of
Teledyne, Inc. 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. Although the outcome of these matters cannot be
predicted with certainty, the Company does not believe any pending matter of
which management is aware 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.

In June 1995, the U.S. Government 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 for
incidents at five facilities. In February 2002, the Court issued a decision
imposing a penalty of $8.2 million for incidents at five facilities that
occurred over a period of approximately six years which Allegheny Ludlum had
reported to the appropriate environmental agencies. The Company appealed the
decision, and, on April 29, 2004 the Third Circuit Court of Appeals vacated the
decision and remanded the case to the District Court for further consideration.
Prior to the retrial of the case, the U.S. Government and Allegheny Ludlum
agreed to settle the case in full for approximately $2.4 million, to be paid by
Allegheny Ludlum in early 2005. Results of operations in 2004 includes the
reversal of approximately $5.8 million in reserves as a result of this
settlement.

In March 1995, Kaiser Aerospace & Electronics Corporation ("Kaiser")
filed a civil complaint against Teledyne Industries, Inc. (now TDY Industries,
Inc.) ("TDY"), a wholly-owned subsidiary of the Company, and others in state
court in Miami-Dade County, Florida. The complaint alleged that TDY breached a
Cooperation and Shareholder's Agreement with Kaiser. TDY and Kaiser currently
are engaged in discovery. Kaiser seeks unspecified damages in an amount "to be
determined at trial." The court has directed the parties to complete any
mediation in early August 2005, and if necessary be prepared to try the case in
September 2005. While the outcome of the litigation cannot be predicted, and the
Company believes that the claims are not meritorious, an adverse resolution of
this matter could have a material adverse effect on the Company's results of
operations and financial condition.

68

TDY Industries, Inc. and the San Diego Unified Port District ("Port
District") are involved in litigation concerning property located in San Diego,
California. TDY entered into three sublease arrangements for portions of the
property, subject to the approval of the Port District, which the Port District
refused. After its administrative appeal was denied, TDY commenced a lawsuit in
state court in San Diego against the Port District. TDY alleged breach of
contract and other causes of action relating to the Port District's failure to
consent to the subleases. The Port District filed a cross-complaint against TDY
alleging breach of contract. Following trial, in March 2004, the jury rendered a
verdict in favor of the Port District. The Company recorded a litigation expense
charge of $22.5 million to its 2003 operating results as a result of this
verdict. Judgment was entered on the cross-complaint in the amount of $22.7
million, including related costs and prejudgment interest. TDY appealed the
verdict in the California State Court of Appeals in July 2004. At December 31,
2004, the Company had adequate reserves for this matter.

In June 2003, the Port District commenced a separate action in United
States District Court for the Southern District of California against TDY
asserting federal, state and common law claims related to alleged environmental
contamination on the San Diego property. The complaint seeks an unspecified
amount of damages and a declaratory judgment as to TDY's liability for
contamination on the property. In the second quarter 2004, the court granted in
part TDY's motion to dismiss portions of the complaint relating to alleged
violations of state law. TDY has answered essentially denying all remaining
claims, asserting a counterclaim and seeking injunctive relief. TDY has also
asserted claims against neighboring property owners and former operators related
to the environmental condition of the San Diego facility.

In another matter related to the San Diego facility, the Port District
requested that the California Department of Toxic Substances Control ("DTSC")
evaluate whether the property is regulated as a hazardous waste transportation,
storage, or disposal facility under the Resource Conservation and Recovery Act
("RCRA") and similar state laws. In response to the Port District's request, in
2003, DTSC concluded that the closure of four solid waste management units at
the San Diego facility is subject to DTSC oversight. The Company is evaluating
data from the Site to respond to DTSC's positions.

TDY has conducted an environmental assessment of portions of the San
Diego facility at the request of the San Diego Regional Water Quality Control
Board ("Regional Board"), and the Port District has commenced a site-wide
environmental investigation. At this stage of the assessment, TDY cannot predict
if any remediation will be necessary beyond the work identified in the prior
investigations. In October 2004, the Regional Board issued an order directing
that TDY investigate contamination at the site and conduct a clean up if
necessary. TDY appealed the order, which has been held in abeyance pending the
outcome of the Company's additional investigation directed primarily at
neighboring properties.

While the outcome of these environmental matters cannot be predicted
with certainty, and the Company believes that the claims against it are not
meritorious, an adverse resolution of the matters relating to the San Diego
facility could have a material adverse affect on the Company's results of
operations and financial condition.

TDY and another wholly-owned subsidiary of the Company, among others,
have been identified by the U.S. Environmental Protection Agency (EPA) as PRPs
at the Li Tungsten Superfund Site in Glen Cove, New York. The Company believes
that most of the contamination at the site resulted from work done while the
U.S. Government either owned or controlled operations at the site, or from
processes done for various governmental agencies, and that the U.S. Government
is liable for a substantial portion of the remediation costs at the site. In
November 2000, TDY filed a cost recovery and contribution action against the
U.S. Government. In March 2003, the Court ordered the parties to the action to
fund a portion of the remediation costs at the site. In July 2004, TDY, the U.S.
Government and the EPA entered into an Interim Agreement, under which the U.S.
Government funded $20.9 million and TDY funded $1 million of the remediation
costs at the site. TDY and the U.S. Government are mediating the cost recovery
and contribution action. In addition, EPA agreed that TDY will not be required
to perform additional work at the site and will not be subject to enforcement
action prior to the earlier of March 18, 2005, or the conclusion of the
mediation. TDY expects to seek contribution from other PRPs at the site. Based
on information presently available, the Company believes its reserves on this
matter are adequate. An adverse resolution of this matter could have a material
adverse effect on the Company's results of operations and financial condition.

Since 1990, TDY has been operating under a Corrective Action Order from
EPA for a facility that TDY owns and formerly operated in Hartville, Ohio. TDY
has prepared a plan to carry out additional remediation activities, which has
been approved by EPA. The Company believes its reserves for the continued
operation of the interim system and for costs it expects to incur for the
additional remediation activities are adequate.

A number of other lawsuits, claims and proceedings have been or may be
asserted against the Company relating to the conduct of its currently and
formerly owned businesses, including those pertaining to product liability,
patent infringement, commercial, employment, employee benefits, taxes,
environmental and health and safety, and stockholder matters. While the outcome
of litigation cannot be predicted with certainty, and some of these 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.

69

NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) --

Quarter Ended
--------------------------------------------------------------------
(In millions except share and per share amounts) March 31 June 30 September 30 December 31
- ----------------------------------------------------- ----------- ----------- ------------ -----------

2004 -
Sales $ 577.8 $ 646.5 $ 730.6 $ 778.1
Gross profit 10.4 52.6 76.9 105.0
Net income (loss) (50.4) 26.6 8.6 35.0
----------- ----------- ----------- -----------
Basic net income (loss) per common share $ (0.63) $ 0.33 $ 0.10 $ 0.37
----------- ----------- ----------- -----------
Diluted net income (loss) per common share $ (0.63) $ 0.31 $ 0.09 $ 0.35
=========== =========== =========== ===========
Average shares outstanding 80,905,108 81,289,591 90,650,022 95,628,425
----------- ----------- ----------- -----------

2003 -
Sales $ 480.5 $ 489.9 $ 482.6 $ 484.4
Gross profit 14.6 20.8 18.2 10.2
Net loss before cumulative effect of change
in accounting principle (25.8) (26.0) (28.8) (232.7)
Net loss (27.1) (26.0) (28.8) (232.7)
----------- ----------- ----------- -----------
Basic and diluted net loss per common share before
cumulative effect of change in accounting principle $ (0.32) $ (0.32) $ (0.36) $ (2.89)
----------- ----------- ----------- -----------
Basic and diluted net loss per common share $ (0.34) $ (0.32) $ (0.36) $ (2.89)
----------- ----------- ----------- -----------
Average shares outstanding 80,708,060 80,961,069 81,077,966 80,642,124
=========== =========== =========== ===========

The 2004 second quarter includes a curtailment gain, net of
restructuring costs, of $40.4 million, including a $71.5 million curtailment and
settlement gain, a $25.3 million pension termination benefit charge, and
$5.8 million of restructuring charges. The restructuring charges related to the
new labor agreement at our Allegheny Ludlum operations and the J&L asset
acquisition, and included labor agreement costs of $4.6 million, severance costs
of $0.7 million, and $0.5 million for asset impairment charges for redundant
equipment following the J&L asset acquisition.

The 2003 fourth quarter includes the effect of a $138.5 million
non-cash special charge to establish a valuation allowance for a majority of the
Company's net deferred tax assets, as prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."

The 2003 fourth quarter also includes charges of $47.5 million for
impairment of long-lived assets in the Company's Flat-Rolled Products segment;
$9.9 million for workforce reductions across all business segments and the
corporate office; $3.8 million for facility closure charges including
present-valued lease termination costs at the corporate office; and
$34.7 million for closed company charges and other charges, including
$22.5 million for litigation expense.

The 2003 third quarter includes a charge of $8.6 million, including
$7.4 million for management transition and $1.2 million for workforce
reductions. Also included is $4.0 million in interest income related to a
Federal income tax settlement associated with prior years.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have evaluated the
Company's disclosure controls and procedures as of December 31, 2004, and they
concluded that these controls and procedures are effective.

70

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal control over
financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated
under the Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers and effected by the company's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of
the company;

Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.

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

Internal control over financial reporting cannot provide absolute
assurance of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process that
involves human diligence and compliance and is subject to lapses in judgment and
breakdowns resulting from human failures. Internal control over financial
reporting can also be circumvented by collusion or improper management override.
Because of such limitations, there is a risk that material misstatements may not
be prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.

The Company's management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004. In making
this assessment, the Company's management used the criteria set forth by the
Committee of Sponsoring Organizations ("COSO") of the Treadway Commission's
Internal Control-Integrated Framework.

Based on our assessment, management has concluded that, as of December
31, 2004, the Company's internal control over financial reporting is effective
based on those criteria.

The Company's independent registered public accounting firm that
audited the financial statements included in this Annual Report issued an
attestation report on our management's assessment of the Company's internal
control over financial reporting.

MANAGEMENT'S CERTIFICATIONS

The certifications of the Company's Chief Executive Officer and Chief Financial
Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31 and
32 in the Company's Report on Form 10-K. In addition, in 2004, the Company's
Chief Executive Officer provided to the New York Stock Exchange the annual CEO
certification regarding the Company's compliance with the New York Stock
Exchange's corporate governance listing standards.

/s/ L. Patrick Hassey

L. Patrick Hassey
Chairman, President and Chief Executive Officer

/s/ Richard J. Harshman

Richard J. Harshman
Executive Vice President-Finance
and Chief Financial Officer

71

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ALLEGHENY TECHNOLOGIES INCORPORATED

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Allegheny
Technologies Incorporated maintained effective internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Allegheny
Technologies Incorporated's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the company's internal control over financial reporting based
on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

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

In our opinion, management's assessment that Allegheny Technologies
Incorporated maintained effective internal control over financial reporting as
of December 31, 2004, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, Allegheny Technologies Incorporated
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of Allegheny Technologies Incorporated as of December 31, 2004 and 2003,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2004 of
Allegheny Technologies Incorporated and our report dated February 23, 2005
expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
February 23, 2005

72

ITEM 9B. OTHER INFORMATION

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 our
directors required by this item is incorporated and made part hereof by
reference to the material appearing under the heading "Our Corporate Governance"
and "Election of Directors" in Allegheny Technologies' Proxy Statement for the
2005 Annual Meeting of Stockholders ("the 2005 Proxy Statement"), which will be
filed with the Securities and Exchange Commission, pursuant to Regulation 14A,
not later than 120 days after the end of the fiscal year. Information concerning
the Audit Committee and its financial expert required by this item is
incorporated and made part hereof by reference to the material appearing under
the heading "Committees of the Board of Directors - Audit Committee" in the 2005
Proxy Statement. Information required by this item regarding compliance with
Section 16(a) of the Exchange Act is incorporated and made a part hereof by
reference to the material appearing under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the 2005 Proxy Statement for the 2005 Annual
Meeting of Stockholders. Information concerning the executive officers of
Allegheny Technologies is contained in Part I of this Form 10-K under the
caption "Principal Officers of the Registrant."

Allegheny Technologies has adopted Corporate Guidelines for Business
Conduct and Ethics that apply to all employees including its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. Allegheny Technologies will
provide a copy free of charge. To obtain a copy, contact the Corporate
Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh,
Pennsylvania 15222-5479 (telephone: 412-394-2836). The Corporate Guidelines for
Business Conduct and Ethics as well as the charters for the Company's Audit,
Finance, Nominating and Governance, Personnel and Compensation (and Stock
Incentive Award Subcommittee), Technology and Executive Committees, as well as
periodic and current reports filed with the SEC, are available through the
Company's web site at http://www.alleghenytechnologies.com and available in
print to any shareholder upon request. The Company intends to post on its
website any waiver from or amendment to the guidelines that apply to the
officers named that relate to elements of the code of ethics identified by the
Securities and Exchange Commission.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference to "Director
Compensation," "Executive Compensation" and "Compensation Committee Interlocks
and Insider Participation" as set forth in the 2005 Proxy Statement. We do not
incorporate by reference in this Form 10-K either the "Report on Executive
Compensation" or the "Cumulative Total Stockholder Return" section of the 2005
Proxy Statement.

73

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information relating to the ownership of equity securities by certain
beneficial owners and management is incorporated by reference to "Stock
Ownership Information" as set forth in the 2005 Proxy Statement.

EQUITY COMPENSATION PLAN INFORMATION

Information about our equity compensation plans at December 31, 2004 was as
follows:

(1) Includes 138,000 shares available for issuance under the Non-Employee
director Compensation Plan (in the form of options or shares) and 3.5
million shares available for issuance under the 2000 Incentive Plan
(which provides for the issuance of stock options and stock
appreciation rights, restricted shares and other-stock-based awards).
The total number of shares authorized under the Incentive Plan is 10%
of the outstanding shares, as such number shall increase during the
10-year term of the Plan. Of these shares, a maximum of 2.2 million
shares have been reserved for issuance for award periods under the
Total Shareholder Return Incentive Compensation Program. See note 7.
Stockholders' Equity for a discussion of the Company's stock-based
compensation plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated by reference to "Certain
Transactions" as set forth in the 2005 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is incorporated by reference to Item B -
"Ratification of Selection of Independent Auditors" including "Audit Committee
Pre-Approval Policy" and "Independent Auditor: Services and Fees," as set forth
in the 2005 Proxy Statement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:

(1) FINANCIAL STATEMENTS

The following consolidated financial statements and report are filed as
part of this report under Item 8 - "Financial Statements and Supplementary
Data":

Consolidated Statements of Income - Years Ended December 31, 2004, 2003, and 2002
Consolidated Balance Sheets at December 31, 2004 and 2003
Consolidated Statements of Cash Flows - Years Ended December 31, 2004, 2003, and 2002
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 2004, 2003, and 2002
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Notes to Consolidated Financial Statements

74

(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

Exhibits required to be filed by Item 601 of Regulation S-K are listed
below. Documents not designated as being incorporated herein by reference are
filed herewith. The paragraph numbers correspond to the exhibit numbers
designated in Item 601 of Regulation S-K.

Exhibit
No. Description
- -------- -----------

3.1 Certificate of Incorporation of Allegheny Technologies Incorporated, as
amended, (incorporated by reference to Exhibit 3.1 to the Registrant's
Report on Form 10-K for the year ended December 31, 1999 (File No.
1-12001)).

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 Revolving Credit and Security Agreement dated June 13, 2003
(incorporated by reference to Exhibit 99.1 to the Registrant's Report
on Form 8-K dated June 19, 2003 (File No. 1-12001)).

4.2 First Amendment to Revolving Credit and Security Agreement, dated April
15, 2004 (incorporated by reference to Exhibit 99.2 to the Registrant's
Report on Form 8-K dated June 1, 2004 (File No. 1-12001)).

4.3 Indenture dated as of December 18, 2001 between Allegheny Technologies
Incorporated and The Bank of New York, as trustee, relating to
Allegheny Technologies Incorporated 8.375% Notes due 2011 (incorporated
by reference to Exhibit 4.2 to the Registrant's Report on Form 10-K for
the year ended December 31, 2001 (File No. 1-12001)).

4.4 Form of 8.375% Notes due 2011 (included as part of Exhibit 4.3).

4.5 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 (incorporated by reference to Exhibit 4.1 to
Registrant's Current Report on Form 8-K dated August 15, 1996 (File No.
1-12001)).

4.6 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 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)).*

10.3 Allegheny Technologies Incorporated Fee Continuation Plan for
Non-Employee Directors, as amended (filed herewith).*

10.4 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)).*

10.5 Allegheny Technologies Incorporated Benefit Restoration Plan, as
amended (incorporated by reference to Exhibit 10.8 to the Registrant's
Report on Form 10-K for the year ended December 31, 1999
(File No. 1-12001)).*

10.6 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)).*

10.7 Employment Agreement dated August 26, 2003 between Allegheny
Technologies Incorporated and L. Patrick Hassey (incorporated by
reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q dated
November 4, 2003 (File No. 1-12001)).*

75

10.8 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)).*

10.9 Form of Restricted Stock Agreement dated May 15, 2003 (incorporated by
reference to Exhibit 10.12 to the Registrant's Report on Form 10-K for
the year ended December 31, 2003 (File No. 1-12001)).*

10.10 Form of Amended and Restated Change in Control Severance Agreement
(Senior Management) (incorporated by reference to Exhibit 10.17 to the
Registrant's Report on Form 10-K for the year ended December 31, 2001
(File No. 1-12001)).*

10.11 Allegheny Technologies Incorporated 2000 Incentive Plan, as amended
(filed herewith).*

10.12 Total Shareholder Return Incentive Compensation Program effective
January 1, 2002 (incorporated by reference to Exhibit 10.30 to the
Registrant's Report on Form 10-K for the year ended December 31, 2002
(File No. 1-12001)).*

10.13 Total Shareholder Return Incentive Compensation Program effective
January 1, 2003 (incorporated by reference to Exhibit 10.12 to the
Registrant's Report on Form 10-K for the year ended December 31, 2003
(File No. 1-12001)).*

10.14 Amendment to the Allegheny Technologies Incorporated Pension Plan
Amendment effective January 1, 2003 (incorporated by reference to
Exhibit 10.12 to the Registrant's Report on Form 10-K for the year
ended December 31, 2003 (File No. 1-12001)).*

10.15 Asset Purchase Agreement, dated February 16, 2004, by and among J&L
Specialty Steel, LLC, Arcelor S.A., Jewel Acquisition LLC, and
Allegheny Ludlum Corporation (incorporated by reference to Exhibit 99.2
to the Registrant's Report on Form 8-K/A filed on February 17, 2004
(File No. 1-12001)).

10.16 2004 Annual Incentive Plan (incorporated by reference to Exhibit 10.1
to the Registrant's Report on Form 8-K dated July 20, 2004 (File No. 1-12001)).*

10.17 Administrative Rules for the Total Shareholder Return Incentive
Compensation Program (as amended effective as of January 1, 2004), and
Form of Total Shareholder Return Incentive Compensation Plan Agreement
for 2004 (incorporated by reference to Exhibit 10.2 to the Registrant's
Report on Form 8-K dated July 20, 2004 (File No. 1-12001)).*

10.18 Form of Restricted Stock Agreement dated March 11, 2004 (incorporated
by reference to Exhibit 10.3 to the Registrant's Report on Form 8-K
dated July 20, 2004 (File No. 1-12001)).*

10.19 Key Employee Performance Plan (incorporated by reference to
Exhibit 10.4 to the Registrant's Report on Form 8-K dated July 20, 2004
(File No. 1-12001)).*

10.20 Summary of Non-employee Director Compensation (filed herewith).*

21.1 Subsidiaries of the Registrant (filed herewith).

23.1 Consent of Ernst & Young LLP (filed herewith).

31.1 Certification of Chief Executive Officer required by Securities and
Exchange Commission Rule 13a - 14(a) or 15d - 14(a) (filed herewith).**

31.2 Certification of Chief Financial Officer required by Securities and
Exchange Commission Rule 13a - 14(a) or 15d - 14(a) (filed herewith).**

32.1 Certification pursuant to 18 U.S.C. Section 1350 (filed herewith).

* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Report.

** The Exhibit attached to this Form 10-K shall not be deemed "filed" for the
purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act") or otherwise subject to liability under that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of
1933, as amended, or the Exchange Act, except as expressly set forth by
specific reference in such filing.

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.

76

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: February 28, 2005 By /s/ L. Patrick Hassey
--------------------------------
L. Patrick Hassey
Chairman, 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 28th day of February, 2005.

77

EXHIBIT INDEX

10.3 Allegheny Technologies Incorporated Fee Continuation Plan for
Non-Employee Directors, as amended (filed herewith).*

10.4 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)).*

10.5 Allegheny Technologies Incorporated Benefit Restoration Plan, as
amended (incorporated by reference to Exhibit 10.8 to the Registrant's
Report on Form 10-K for the year ended December 31, 1999 (File No.
1-12001)).*

10.6 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)).*

10.7 Employment Agreement dated August 26, 2003 between Allegheny
Technologies Incorporated and L. Patrick Hassey (incorporated by
reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q dated
November 4, 2003 (File No. 1-12001)).*

10.8 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)).*

10.9 Form of Restricted Stock Agreement dated May 15, 2003 (incorporated by
reference to Exhibit 10.12 to the Registrant's Report on Form 10-K for
the year ended December 31, 2003 (File No. 1-12001)).*

10.10 Form of Amended and Restated Change in Control Severance Agreement
(Senior Management)(incorporated by reference to Exhibit 10.17 to the
Registrant's Report on Form 10-K for the year ended December 31, 2001
(File No. 1-12001)).*

10.11 Allegheny Technologies Incorporated 2000 Incentive Plan, as amended
(filed herewith).*

10.12 Total Shareholder Return Incentive Compensation Program effective
January 1, 2002 (incorporated by reference to Exhibit 10.30 to the
Registrant's Report on Form 10-K for the year ended December 31, 2002
(File No. 1-12001)).*

10.13 Total Shareholder Return Incentive Compensation Program effective
January 1, 2003 (incorporated by reference to Exhibit 10.12 to the
Registrant's Report on Form 10-K for the year ended December 31, 2003
(File No. 1-12001)).*

10.14 Amendment to the Allegheny Technologies Incorporated Pension Plan
Amendment effective January 1, 2003 (incorporated by reference to
Exhibit 10.12 to the Registrant's Report on Form 10-K for the year
ended December 31, 2003 (File No. 1-12001)).*

10.15 Asset Purchase Agreement, dated February 16, 2004, by and among J&L
Specialty Steel, LLC, Arcelor S.A., Jewel Acquisition LLC, and
Allegheny Ludlum Corporation (incorporated by reference to Exhibit 99.2
to the Registrant's Report on Form 8-K/A filed on February 17, 2004
(File No. 1-12001)).

10.16 2004 Annual Incentive Plan (incorporated by reference to Exhibit 10.1
to the Registrant's Report on Form 8-K dated July 20, 2004 (File No.
1-12001)).*

10.17 Administrative Rules for the Total Shareholder Return Incentive
Compensation Program (as amended effective as of January 1, 2004), and
Form of Total Shareholder Return Incentive Compensation Plan Agreement
for 2004 (incorporated by reference to Exhibit 10.2 to the Registrant's
Report on Form 8-K dated July 20, 2004 (File No. 1-12001)).*

10.18 Form of Restricted Stock Agreement dated March 11, 2004 (incorporated
by reference to Exhibit 10.3 to the Registrant's Report on Form 8-K
dated July 20, 2004 (File No. 1-12001)).*

10.19 Key Employee Performance Plan (incorporated by reference to Exhibit
10.4 to the Registrant's Report on Form 8-K dated July 20, 2004 (File
No. 1-12001)).*

10.20 Summary of Non-employee Director Compensation (filed herewith).*

21.1 Subsidiaries of the Registrant (filed herewith).

23.1 Consent of Ernst & Young LLP (filed herewith).

31.1 Certification of Chief Executive Officer required by Securities and
Exchange Commission Rule 13a - 14(a) or 15d - 14(a) (filed herewith).**

31.2 Certification of Chief Financial Officer required by Securities and
Exchange Commission Rule 13a - 14(a) or 15d - 14(a) (filed herewith).**

32.1 Certification pursuant to 18 U.S.C. Section 1350 (filed herewith).

* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Report.

** The Exhibit attached to this Form 10-K shall not be deemed "filed" for the
purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act") or otherwise subject to liability under that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of
1933, as amended, or the Exchange Act, except as expressly set forth by
specific reference in such filing.

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.