Edgar Filing: ALLEGHENY TECHNOLOGIES INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-K

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, 2012

¨	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 or organization)		(I.R.S. Employer Identification Number)

1000 Six PPG Place, Pittsburgh, Pennsylvania		15222-5479
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (412) 394-2800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, $0.10 Par Value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant is well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

On February 15, 2013, the Registrant had outstanding 107,474,678 shares of its Common Stock.

The aggregate market value of the Registrant’s voting stock held by non-affiliates at June 30, 2012 was approximately $3.4 billion, based on the closing price per share of Common Stock on June 29, 2012 of $31.89 as reported on the New York Stock Exchange. Shares of Common Stock known by the Registrant to be beneficially owned by directors 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 the Annual Meeting of Stockholders to be held on May 2, 2013 are incorporated by reference into Part III of this Report.

INDEX


	Page Number
PART I
Item 1. Business		1
Item 1A. Risk Factors		9
Item 1B. Unresolved Staff Comments		12
Item 2. Properties		12
Item 3. Legal Proceedings		13
Item 4. Mine Safety Disclosures		13

PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
Item 6. Selected Financial Data		15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		40
Item 8. Financial Statements and Supplementary Data		41
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		79
Item 9A. Controls and Procedures		79
Item 9B. Other Information		82

PART III
Item 10. Directors and Executive Officers of the Registrant		82
Item 11. Executive Compensation		82
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		82
Item 13. Certain Relationships and Related Transactions, and Director Independence		83
Item 14. Principal Accountant Fees and Services		83

PART IV
Item 15. Exhibits, Financial Statements and Financial Statement Schedules		83

SIGNATURES

PART I

Item 1. Business

The Company

Allegheny Technologies Incorporated (ATI) is a Delaware corporation with its principal executive offices located at 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479, telephone number (412) 394-2800, Internet website address http://www.atimetals.com. 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 is one of the largest and most diversified specialty metals producers in the world. We use innovative technologies to offer growing global markets a wide range of specialty metals solutions. Our products include titanium and titanium alloys, nickel-based alloys and superalloys, zirconium, hafnium and niobium, advanced powder alloys, stainless and specialty steel alloys, grain-oriented electrical steel, tungsten-based materials and cutting tools, carbon alloy impression die forgings, and large grey and ductile iron castings. Our specialty metals are produced in a wide range of alloys and product forms and are selected for use in applications that demand metals having exceptional hardness, toughness, strength, resistance to heat, corrosion or abrasion, or a combination of these characteristics. The acquisition of Ladish Co., Inc. (now ATI Ladish) in May 2011 added advanced forgings, titanium investment castings and precision finishing capabilities to ATI’s product portfolio. Results for ATI Ladish, which principally serves the aerospace & defense market, are included in the High Performance Metals segment from the acquisition date. ATI is a fully integrated supplier from raw material (for titanium) and melt (for other specialty alloy systems) through highly engineered finished components.

We focus our advanced specialty metals technology, unsurpassed manufacturing capabilities, and innovative products to serve global end use markets with highly diversified and specialized product offerings. Strategic end use markets for our products include:

Aerospace and Defense. We are a world leader in the production of premium titanium alloys, nickel-based and cobalt-based alloys and superalloys, and vacuum-melted specialty alloys used in the manufacture of components for both commercial and military jet engines, as well as replacement parts for those engines. We also produce titanium alloys, vacuum-melted specialty alloys, and high-strength stainless alloys for use in commercial and military airframes, airframe components and missiles.

Titanium and titanium alloys are critical metals in aerospace and defense applications. Titanium and titanium alloys possess an extraordinary combination of properties, including superior strength-to-weight ratio, good elevated temperature resistance, low coefficient of thermal expansion, and extreme corrosion resistance. These metals are used to produce jet engine components such as blades, vanes, discs, and casings, and airframe components such as structural members, landing gear, hydraulic systems, and fasteners. The latest and next-generation airframes and jet engines use even more titanium and titanium alloys in component parts in order to minimize weight and maximize fuel efficiency.

Our nickel-based alloys and superalloys and specialty alloys are also widely used in aerospace and defense applications. Nickel-based alloys and superalloys remain extremely strong at high temperatures and resist degradation under extreme conditions. Typical aerospace applications for nickel-based alloys and superalloys include jet engine shafts, discs, blades, vanes, rings and casings. The latest, next generation, and future-generation jet engines use new generations of nickel-based superalloys in large part due to increased fuel efficiency requirements that require hotter-burning engines. Our specialty alloys include vacuum-melted maraging steels used in the manufacture of aircraft landing gear and structural components, as well as jet engine components.

Our titanium alloy, nickel-based alloy, and specialty alloy precision forgings and titanium investment castings are used in aerospace jet engine and airframe applications. We are a technology leader with advanced isothermal forging, hot-die forging and our patented Supercooler™ capability.

ATI also offers tungsten cutting tools and machining for difficult-to-machine specialty metals, such as titanium alloys, nickel-based superalloys, and specialty alloys used in airframe, jet engine, and armor applications.

We continuously seek to develop innovative new alloys to better serve the needs of this end use market. For example, we developed ATI 718 Plus® alloy, a new nickel-based superalloy that can withstand higher temperatures than the standard 718 superalloy, for use in legacy jet engines and the next generation of fuel efficient jet engines. Rene 65 alloy, a future-generation alloy, is the newest nickel-based superalloy in our portfolio. We also developed ATI 425® alloy sheet, a new cold-rollable titanium alloy, that is an alternative to the most popular high-strength titanium alloys, for use in airframe components.

Demand for our products by the aerospace and defense market has increased significantly over the last several years. Based on current forecasts and existing backlogs reported by the two manufacturers of large commercial aircraft, we expect to benefit from announced increased production rates for legacy, next-generation, and future-generation aircraft, and increased demand for aftermarket jet engine spare parts.

Oil and Gas and Chemical Process Industry. The environments in which oil and gas can be found in commercial quantities have become more challenging, involving deep offshore wells, high pressure and high temperature conditions in sour wells and unconventional sources, such as shale oil and gas, and oil sands. Challenging offshore environments are in deepwater remote locations that are further off the continental shelf, including arctic and tropic locations, often one mile or more below the water’s surface, and up to two miles below the ocean bottom. The requirements for equipment, which could operate for up to 30 years in these environments, require the specialty metals that we produce.

All of our business segments produce specialty metals that are critical to the oil and gas industry and the chemical process industry. Our specialty metals, including titanium and titanium alloys, nickel-based alloys, zirconium alloys, stainless and duplex alloys, other specialty alloys, and tungsten materials have the strength, wear corrosion-resistant properties necessary for difficult environments. Global demand for these materials is increasing in Asia, the Middle East, Africa, Australia, North and South America, and the North Sea. Demand for these products is growing due to increased activity in both new exploration and production, and enhanced oil recovery in existing fields as well as oil and gas shale reserves.

Our Datalloy2® specialty stainless is used for non-magnetic drill collars that enable the most advanced directional and horizontal drilling techniques to be guided to the exact position desired for the reservoir. We have developed a family of duplex alloys, including ATI 2003® and ATI 2102® lean duplex alloys, for use in subsea and deepwater oil and gas applications. Several of our strip, plate and cast products are NORSOK qualified. The NORSOK standards are developed by the Norwegian petroleum industry and are intended to identify materials used in oil and gas applications that are safe and cost-effective.

Tungsten carbide is the most wear-resistant metal commercially available. One application for our tungsten carbide products is in oil and gas earth boring drill bit inserts and bodies. As drilling methods such as directional and horizontal drilling become more complex, our advanced tungsten carbide materials are often specified to enable faster rate of penetration and extended bit life.

Electrical Energy. Our specialty metals are widely used in the global electric power generation and distribution industry. We believe energy needs and environmental policies and the electrification of developing countries will continue to drive demand for our specialty metals and products for use in this industry.

For electrical power generation, our specialty metals, corrosion-resistant alloys (CRAs) and ductile iron castings are used in coal, nuclear, natural gas, and wind power applications. In coal-fired plants, our CRAs are used for pipe, tube, and heat exchanger applications in water systems in addition to pollution control scrubbers. Our CRAs are also used in water systems, fuel cladding components, and process equipment for nuclear power plants. For nuclear power plants, we are an industry pioneer in producing reactor-grade zirconium and hafnium alloys used in nuclear fuel cladding and structural components. We have developed Nushield™ products, a new line of borated stainless alloys that begin with our advanced powder metals and are used for spent nuclear fuel applications. We are a technology leader for large diameter nickel-based superalloys used in natural gas land-based turbines for power generation. For renewable energy generation, our alloys are used for solar and geothermal applications. We are also one of a few U.S. producers of very large ductile iron castings used for wind turbines.

For electrical power distribution, our grain-oriented electrical steel (GOES) is used in distribution and power transformers, where low loss magnetic properties are important. In January 2010, the U.S. Department of Energy (DOE) began requiring more efficient transformers, which increases premium grade GOES demand. ATI is one of a select group of global companies that produces these premium grades of GOES. In February 2011, the U.S. DOE published a revised preliminary rule that would further raise transformer efficiency standards effective January 2016. This new rule will result in the continued use of GOES in transformer manufacturing and will further increase the demand for premium grades.

Medical. ATI’s advanced specialty metals are used in medical device products that save and enhance the quality of lives.

Our zirconium-niobium, titanium- and cobalt-based alloys are used for knees, hips and other prosthetic devices. These replacement devices offer the potential of lasting much longer than previous implant options.

Our biocompatible nickel-titanium shape memory alloy is used for stents to support collapsed or clogged blood vessels. Reduced in diameter for insertion, these stents expand to the original tube-like shape due to the metal’s superelasticity. Our ultra fine diameter (0.002 inch/0.051 mm) titanium wire is used for screens to prevent blood clots from entering critical areas of the body. In addition, our titanium bar and wire are used to make surgical screws for bone repairs.

Manufacturers of magnetic resonance imaging (MRI) devices rely on our niobium superconducting wire to help produce electromagnetic fields that allow physicians to safely scan the body’s soft tissue. In addition, our tungsten heavy alloy materials are used for shielding applications in MRI devices.

Enhancing and Expanding Our Manufacturing Capabilities. Demand for our products from the aerospace and defense, oil and gas, chemical process industry, electrical energy, and medical markets increased significantly over the last several years. We have undertaken a multi-phase program to enhance and expand our capabilities to produce premium specialty metals aimed at these strategic markets. Since 2004, we have invested approximately $3.7 billion in capital investments and asset acquisitions to: renew and expand our annual titanium sponge production capabilities; expand our premium titanium alloy melt and remelt capability; expand our nickel-based alloy and superalloy melt and remelt capability; expand our titanium and specialty alloy plate production capability; and expand our premium titanium and nickel-based superalloy forging capability. Additionally, we purchased assets that added advanced nickel-based alloy and titanium alloy powders to our product portfolio. We acquired the capability to manufacture high performance forgings and castings.

We are in the later stages of building the world’s most advanced and powerful hot-rolling and processing facility in the specialty metals flat-rolled products industry. This facility is designed to provide the capability of producing nearly all of the alloys we currently make and advanced new alloys and sizes that will add to our product portfolio.

We believe these investments strengthen and enhance ATI’s leadership position in the production of advanced specialty metals.

Business Segments

We operate in the following three business segments, which accounted for the following percentages of total revenues of $5.03 billion, $5.18 billion, and $4.05 billion for the years ended December 31, 2012, 2011, and 2010, respectively:


	2012			2011			2010
High Performance Metals		43	%		38	%		33	%
Flat-Rolled Products		47	%		52	%		58	%
Engineered Products		10	%		10	%		9	%

Information with respect to our business segments is presented below and in Note 13 of the Notes to the Consolidated Financial Statements.

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, zirconium and related alloys including hafnium and niobium, and other specialty alloys, primarily in long product forms such as ingot, billet, bar, shapes and rectangles, rod, wire, seamless tube, and castings. We also produce nickel-based alloys and superalloys, titanium alloys, and specialty metal powders, and semi-finished near-net-shape products from advanced powder alloys, as well as precision forgings, castings and machined parts. We are integrated from raw materials (sponge) to melt, remelt, finish processing, forging, investment casting, and machining in our titanium and titanium alloys, and zirconium and hafnium alloy products. The major end markets served by our High Performance Metals segment are aerospace and defense, oil and gas, chemical process industry, electrical energy, and medical. Most of the products in our High Performance Metals segment are sold directly to end-use customers, and a significant portion of our High Performance Metals segment products are sold under multi-year agreements. The operating units in this segment are ATI Allvac, ATI Allvac Ltd (U.K.), ATI Ladish, ATI Wah Chang, and ATI Powder Metals.

Approximately 65% of High Performance Metals segment revenue is derived from the aerospace and defense market. Demand for our products is driven primarily by the commercial aerospace cycle. Large aircraft and aircraft engines are manufactured by a small number of companies, such as The Boeing Company, Airbus S.A.S. (an EADS company), Bombardier Aerospace (a division of Bombardier Inc.), and Embraer (Empresa Brasileira de Aeronáutica S.A.) for airframes, and GE Aviation (a division of General Electric Company), Rolls-Royce plc, Pratt & Whitney (a division of United Technologies Corporation), Snecma (SAFRAN Group), and various joint ventures that manufacture jet engines. These companies and their suppliers form a substantial part of our customer base in this business segment. ATI supplies the aerospace and defense supply chain with nickel- and cobalt-based alloys and superalloys, titanium alloys, vacuum-melted specialty alloys, and advanced powder alloys for commercial and military jet engines, for both original engines and spare parts. For commercial and military airframe and structural parts, ATI manufactures titanium alloys, vacuum-melted specialty alloys, and high-strength stainless alloys. The loss of one or more of our customers in the aerospace and defense market could have a material adverse effect on ATI’s results of operations and financial condition.

Flat-Rolled Products Segment

Our Flat-Rolled Products segment produces, converts and distributes stainless steel, nickel-based alloys and superalloys, titanium and titanium-based alloys and specialty alloys in a variety of product forms, including plate, sheet, engineered strip, and Precision Rolled Strip® products, as well as grain-oriented electrical steel sheet. The major end markets for our flat-rolled products are oil and gas, chemical process industry, electrical energy, automotive, food equipment and appliances, construction and mining, aerospace and defense, and electronics, communication equipment and computers. The operations in this segment are ATI Allegheny Ludlum, the Chinese joint venture company known as Shanghai STAL Precision Stainless Steel Company Limited (STAL), in which we hold a 60% interest, 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 Verkhnaya Salda Metallurgical Production Association (VSMPO), a Russian producer of titanium, aluminum, and specialty steel products.

Stainless steel, nickel-based alloys and titanium sheet products are used in a wide variety of industrial and consumer applications. In 2012, approximately 50% by volume of our stainless 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® products are used by customers to fabricate a variety of products primarily in the automotive, construction, and electronics markets. In 2012, 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. In 2012, approximately 50% by volume of our plate products were sold to independent service centers, with the remainder sold directly to end-use customers.

Grain-oriented electrical steel is used in power transformers where electrical conductivity and magnetic properties are important. Nearly all of our grain-oriented electrical steel products are sold directly to end-use customers.

Engineered Products Segment

The principal business of our Engineered Products segment is the production of tungsten powder, tungsten heavy alloys, tungsten carbide materials, and tungsten carbide cutting tools. We are integrated from the raw materials (ammonium paratungstate) to the manufacture of our tungsten-based products. The segment also produces carbon alloy steel impression die forgings and large grey and ductile iron castings, and provides specialty metals fabrication and precision metals processing services. The operating units in this segment are ATI Tungsten Materials, ATI Portland Forge, ATI Casting Service, ATI Fabricated Components, and ATI Precision Finishing.

We produce a line of sintered tungsten carbide products that approach diamond hardness for industrial markets, including automotive, oil and gas, chemical process industry, machine and cutting tools, aerospace, 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 produce grey and ductile iron castings used in the transportation, wind power generation and automotive markets. We have specialty metals finishing capabilities including press brake forming, roll forming, welding, cutting and machining for component parts and assemblies. 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 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 the quality of our products, service and delivery capabilities, our capabilities to produce a wide range of specialty metals in various alloys and product forms, our technological capabilities including our research and development efforts, our marketing strategies, the prices for our products and services, our manufacturing costs, and industry manufacturing capacity.

We face competition from both domestic and foreign companies. Some of our foreign competitors are either directly or indirectly subsidized by governments. 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. The antidumping and countervailing duty orders were reviewed in 2011 by the U.S. Department of Commerce and the U.S. International Trade Commission to determine whether the orders should remain in place for another five years. The agencies decided that eight such orders against five countries will continue in effect. We continue to monitor unfairly traded imports from foreign producers for appropriate action.

Major Competitors

Nickel-based alloys and superalloys and specialty steel alloys

•

Carpenter Technology Corporation: A

•

Special Metals Corporation, a Precision Castparts Corp. company: C

•

Haynes International, Inc.: B

•

Outokumpu Oyj (Finland): C

Titanium and titanium-based alloys

•

Titanium Metals Corporation, a Precision Castparts Corp. company: C

•

RMI Titanium, an RTI International Metals company: C

•

VSMPO—AVISMA (Russia): A

Precision forgings and titanium investment castings

•

Precision Castparts Corp.: A

•

Firth Rixson Limited (United Kingdom): A

•

Aubert & Duval, a group member of Eramet (France): A

Zirconium and related alloys

•

Cezus, a group member of AREVA (France): A

•

H.C. Starck: A

•

Western Zirconium Plant of Westinghouse Electric Company, owned by Toshiba Corporation: A

Stainless steel

•

AK Steel Corporation: B

•

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

•

Outokumpu Oyj (Finland): B

•

Imports from

•

Aperam (formerly part of Arcelor Mittal) (France, Belgium and Germany): B

•

Outokumpu Oyj (Finland) including Mexinox S.A. de C.V., group member (Mexico): B

•

Ta Chen International Corporation (Taiwan): B

•

Various Chinese producers: B

Tungsten and tungsten carbide products

•

Kennametal Inc.: D

•

Iscar (Israel): D

•

Sandvik AB (Sweden): D

•

Seco Tools AB (Sweden), owned by Sandvik AB: D

KEY – A = Primarily High Performance Metals segment, B = Primarily Flat-Rolled Products segment, C = Both High Performance Metals and Flat-Rolled Products segments, D = Primarily Engineered Products segment

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 currently adequate. The principal raw materials we use in the production of our specialty metals are scrap (including iron-, nickel-, chromium-, titanium-, molybdenum-, and tungsten-bearing scrap), nickel, titanium sponge, zirconium sand and sponge, ferrochromium, ferrosilicon, molybdenum and molybdenum alloys, 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 may 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, in 2012 we used approximately 100 million pounds of nickel; therefore a hypothetical increase of $1.00 per pound in nickel prices would result in increased costs of approximately $100 million. We also used approximately 795 million pounds of ferrous scrap in the production of our flat-rolled products in 2012, so that a hypothetical increase of $0.01 per pound in ferrous scrap prices would result in increased costs of approximately $8 million.

While we have increased our manufacturing capacity to produce titanium sponge, the major raw material for our titanium products, a portion of our needs, together with certain other raw materials, such as nickel, cobalt, and ferrochromium, are available to us and our specialty metals industry competitors primarily from foreign sources. Some of these foreign sources are located in countries that may be subject to unstable political and economic conditions, which could 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 raw materials are primarily purchased from the U.S. and China. 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. Niobium is purchased primarily from producers in Brazil. We also purchase titanium sponge from sources in Kazakhstan and Japan.

Export Sales and Foreign Operations

Direct international sales represented approximately 36% of our total annual sales in 2012, 35% of our total sales in 2011, and 32% of our total sales in 2010. These figures include direct export sales by our U.S.-based operations to customers in foreign countries, which accounted for approximately 26% of our total sales in 2012, 26% of our total sales in 2011, and 23% of our total sales in 2010. Our overseas sales, marketing and distribution efforts are aided by our international marketing and distribution offices, ATI Europe, ATI Europe Distribution, and ATI Asia, or by independent representatives at various locations throughout the world. We believe that at least 50% of ATI’s 2012 sales were driven by global markets when we consider exports of our customers. Direct sales by geographic area in 2012, and as a percentage of total sales, were as follows:


(In millions)
United States	$	3,228.7	64	%
Europe		1,121.6	22	%
Far East		433.0	9	%
Canada		141.4	3	%
South America, Middle East and other		106.8	2	%

Total sales	$	5,031.5	100	%

ATI Allvac Ltd has manufacturing capabilities for melting, remelting, forging and finishing nickel-based alloys and specialty alloys in the United Kingdom. ATI Tungsten Materials, which has manufacturing capabilities in the United Kingdom and Switzerland, sells high precision threading, milling, boring and drilling components, tungsten carbide burrs, rotary tooling, and specialty abrasive wheels and discs for the European market from locations in the United Kingdom, Switzerland, Germany, France, and Italy. ATI Ladish has manufacturing capabilities for precision forging and machining in Poland, primarily serving the construction, transportation and aerospace markets. 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 $1.6 billion at December 31, 2012 and $2.1 billion at December 31, 2011. We expect that approximately 80% of confirmed orders on hand at December 31, 2012 will be filled during the year ending December 31, 2013. Backlog of confirmed orders of our High Performance Metals segment was approximately $1.3 billion at December 31, 2012 and $1.5 billion at December 31, 2011. We expect that approximately 80% of the confirmed orders on hand at December 31, 2012 for this segment will be filled during the year ending December 31, 2013. Backlog of confirmed orders of our Flat-Rolled Products segment was approximately $0.3 billion at December 31, 2012 and $0.5 billion at December 31, 2011. We expect that approximately 75% of the confirmed orders on hand at December 31, 2012 for this segment will be filled during the year ending December 31, 2013.

Generally, our sales and operations are not seasonal. However, demand for our products is cyclical over longer periods because specialty metals customers operate in cyclical industries and are subject to changes in general economic conditions and other factors both external and internal to those industries.

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, 2012, 2011, and 2010 included the following:


(In millions)	2012		2011		2010
Company-Funded:
High Performance Metals	$	16.5	$	10.8	$	11.9
Flat-Rolled Products		5.8		6.2		1.9
Engineered Products		3.0		2.3		2.7

	$	25.3	$	19.3	$	16.5

Customer-Funded:
High Performance Metals	$	1.5	$	1.5	$	0.8

Total Research and Development	$	26.8	$	20.8	$	17.3

Our research, development and technical service activities are closely interrelated and are directed toward cost reduction and 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 hundreds of 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, 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.

We consider environmental compliance to be an integral part of our operations. We have a comprehensive environmental management and reporting program that focuses on compliance with applicable federal, state, regional and local environmental laws and regulations. Each operating company has an environmental management system that includes mechanisms for regularly evaluating environmental compliance and managing changes in business operations while assessing environmental impact.

Our Corporate Guidelines for Business Conduct and Ethics address compliance with environmental laws as well as employment and workplace safety laws, and also describe our commitment to equal opportunity and fair treatment of employees. We continued to realize significant progress in safety across ATI’s operations during 2012. As a result of our continuing focus on and commitment to safety, in 2012 our OSHA Total Recordable Incident Rate was 2.71 and our Lost Time Case Rate was 0.58, which we believe to be competitive with world class performance.

Employees

We have approximately 11,200 full-time employees, of which approximately 15% are located outside the United States. Approximately 44% of our workforce is covered by various collective bargaining agreements, predominantly with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (“USW”).

Available Information

Our Internet website address is http://www.atimetals.com. Our annual reports 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, as well as proxy and information statements and other information that we file, 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 United States Securities and Exchange Commission (“SEC”). 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. You may read and copy materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website at http://www.sec.gov, which contains reports, proxy and information statements and other information that we file electronically with the SEC.

Executive Management, Including Executive Officers under Federal Securities Laws

The following are members of the Company’s executive management, including executive officers under the federal securities laws, as of February 15, 2013:


Name	Age	Title
Richard J. Harshman*	56	Chairman, President and Chief Executive Officer
Dale G. Reid*	57	Executive Vice President, Finance and Chief Financial Officer
Hunter R. Dalton*	58	Executive Vice President, Long Products and President, ATI Allvac
Terry L. Dunlap*	53	Executive Vice President, Flat-Rolled Products and President, ATI Allegheny Ludlum
John D. Sims	53	Executive Vice President, Primary Titanium Operations, and Engineered Alloys and Products
Gary J. Vroman*	53	Executive Vice President, High Performance Forgings and Castings
Elliot S. Davis*	51	Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary
Carl R. Moulton	65	Senior Vice President, International
Karl D. Schwartz*	49	Controller and Chief Accounting Officer

*	Such individuals 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 Company’s executive officers and management.

Richard J. Harshman became Chairman, President and Chief Executive Officer on May 1, 2011. Mr. Harshman was President and Chief Operating Officer from August 2010 to May 2011. Prior to that, he served as Executive Vice President, Finance and Chief Financial Officer from October 2003 to August 2010. Mr. Harshman was Senior Vice President, Finance and Chief Financial Officer from 2001 to 2003 and Vice President, Finance from 2000 to 2001. Prior to that, he was Vice President, Investor Relations and Corporate Communications. Previously, he had served in a number of financial management roles for the Company.

Dale G. Reid was named Executive Vice President, Finance and Chief Financial Officer on May 1, 2011. Previously, Mr. Reid served as Senior Vice President, Finance and Principal Financial Officer from August 2010 until May 2011. Mr. Reid is responsible for ATI’s strategic sourcing and information technologies shared services and the world-wide accounting, treasury, tax, and internal audit functions. Mr. Reid also chairs the corporate pension investment committee. Previously, he served as Vice President, Controller, Chief Accounting Officer, and Treasurer from 2003 to August 2010.

Hunter R. Dalton became Executive Vice President, Long Products on May 1, 2011. He has served as President, ATI Allvac since April 2008. Previously, he served as Group President, ATI Long Products from October 2008 to May 2011. From 2003 to April 2008, Mr. Dalton served as Senior Vice President of Sales and Marketing for ATI Allvac.

Terry L. Dunlap became Executive Vice President, Flat-Rolled Products on May 1, 2011. He has served as President, ATI Allegheny Ludlum since 2002. Previously, he served as Group President, ATI Flat-Rolled Products from October 2008 to May 2011.

John D. Sims became Executive Vice President, Primary Titanium Operations, and Engineered Alloys and Products on February 1, 2013. Previously, Mr. Sims served as Executive Vice President, Primary Metals and Exotic Alloys from May 2011 to February 2013 and as President, ATI Wah Chang from October 2008 to February 2013. Previously, Mr. Sims was Group President, ATI Primary Metals and Exotic Alloys from February 2011 to May 2011.

Gary J. Vroman became Executive Vice President, High Performance Forgings and Castings in June 2011. Mr. Vroman has served as President, ATI Ladish since May 2011, upon ATI’s completion of the Ladish acquisition. Previously, Mr. Vroman was the President and Chief Executive Officer of Ladish Co., Inc. from September 2009 until May 2011. Mr. Vroman also served as President of Forging at Ladish from January 2008 until September 2009 and as Vice President, Sales and Marketing of Forging at Ladish from 1995 to January 2008.

Elliot S. Davis became Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary on May 1, 2011. Previously, Mr. Davis was Vice President and General Counsel from August 2010 to May 2011. Mr. Davis served as Assistant General Counsel from 2008, when he joined the Company, to August 2010. Mr. Davis had previously been a partner of K&L Gates LLP, where he practiced for nearly 20 years in their corporate, mergers and acquisitions and securities group.

Carl R. Moulton was named Senior Vice President, International on May 1, 2011. Previously, Mr. Moulton served as Vice President, International since March 2009. Prior to that, Mr. Moulton was President of Uniti LLC since its formation in 2003.

Karl D. Schwartz is Controller and Chief Accounting Officer and has served in that role since May 2011. Previously, Mr. Schwartz served as Controller and Principal Accounting Officer since August 2010. Prior to that, Mr. Schwartz had served as Assistant Controller since 2002, when he joined the Company.

Item 1A. Risk Factors

There are inherent risks and uncertainties associated with our business that could adversely affect our operating performance and financial condition. Set forth below are descriptions of those risks and uncertainties that we currently believe to be material, but the risks and uncertainties described are not the only risks and uncertainties that could affect our business. See the discussion under “Forward-Looking Statements” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Annual Report on Form 10-K.

Cyclical Demand for Products. The cyclical nature of the industries in which our customers operate causes demand for our products to be cyclical, creating potential uncertainty regarding future profitability. Various changes in general economic conditions may affect the industries in which our customers operate. These changes could include decreases in the rate of consumption or use of our customers’ products due to economic downturns. Other factors that may cause 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.

Worldwide economic conditions deteriorated significantly in the recent past and could remain weak in the future. These conditions have had, and may continue to have, an adverse effect on demand for our customers’ products and, in turn, on demand for our products. If these conditions persist or worsen, our results of operations and financial condition could be materially adversely affected.

Product Pricing. From time-to-time, reduced demand, intense competition and excess manufacturing capacity have resulted in reduced prices, excluding raw material surcharges, for many of our 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 most of the same period certain critical raw material costs, such as nickel, titanium sponge, chromium, and molybdenum and scrap containing iron, nickel, titanium, chromium, and molybdenum have been volatile and at historically high levels. While we have been able to mitigate some of the adverse impact of rising raw material costs through raw material surcharges or indices 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.

Risks Associated with Commercial Aerospace. A significant portion of the sales of our High Performance Metals segment represents products sold to customers in the commercial aerospace industry. The commercial aerospace industry has historically been cyclical due to factors both external and internal to the airline industry. These factors include general economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, execution of projected build rates, price competition, and international and domestic political conditions such as military conflict and the threat of terrorism. The length and degree of cyclical fluctuation are influenced by these factors and therefore are difficult to predict with certainty. Demand for our products in this segment is subject to these cyclical trends. A downturn in the commercial aerospace industry has had, and may in the future have, an adverse effect on the prices at which we are able to sell these and other products, and our results of operations, business and financial condition could be materially adversely affected.

Risks Associated with Strategic Capital Projects. From time-to-time, we undertake strategic capital projects in order to enhance, expand and/or upgrade our facilities and operational capabilities. For instance, over the past five years we have undertaken major expansions of our titanium and premium-melt nickel-based alloy, superalloy and specialty alloy production capabilities, and commenced construction of a new advanced specialty metals hot rolling and processing facility. Our ability to achieve the anticipated increased revenues or otherwise realize acceptable returns on these investments or other strategic capital projects that we may undertake is subject to a number of risks, many of which are beyond our control, including a variety of market, operational, permitting, and labor-related factors. In addition, the cost to implement any given strategic capital project ultimately may prove to be greater than originally anticipated. If we are not able to achieve the anticipated results from the implementation of any of our strategic capital projects, or if we incur unanticipated implementation costs or delays, our results of operations and financial position may be materially adversely affected.

Dependence on Critical Raw Materials Subject to Price and Availability Fluctuations. We rely to a substantial extent on third parties to supply certain raw materials that are 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 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. If unable to obtain adequate and timely deliveries of required raw materials, 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, or suffer harm to our reputation.

We acquire certain important raw materials that we use to produce specialty materials, including nickel, zirconium, niobium, chromium, cobalt, tungsten, and titanium sponge, 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 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 2012 and 2011, the effect of falling raw material costs on our LIFO inventory valuation method resulted in cost of sales which were $76.8 million and $9.3 million lower than would have been recognized had we utilized the FIFO methodology to value our inventory. Conversely, in 2010, the effect of rising raw material costs on our LIFO inventory valuation method resulted in cost of sales which were $60.2 million higher than would have been recognized had 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.

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 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 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. We also could be subject to future laws and regulations that govern greenhouse gas emissions and various matters related to climate change, which could increase our operating costs.

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 43 of such sites, excluding those at which we believe we have no future liability. Our involvement is limited or de minimis at approximately 26 of these sites, and the potential loss exposure with respect to any of the remaining 17 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, from time-to-time, 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 intend to 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, 2012, our reserves for environmental matters totaled approximately $16 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 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 businesses, including those pertaining to product liability, patent infringement, commercial, government contracting, employment, employee and retiree benefits, taxes, environmental, health and safety and occupational disease, and stockholder and corporate governance 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 11,200 full-time employees, of which approximately 15% are located outside the United States. Approximately 44% of our workforce is covered by various collective bargaining agreements, predominantly with the USW. At various times, our collective bargaining agreements expire and are subject to renegotiation. Our collective bargaining agreement with the USW that covers approximately 500 ATI Wah Chang employees expires Apri1 1, 2013. Generally, collective bargaining 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 material adverse effect 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.

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; trade duties; 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 affect our results for the period in which they occur.

Risks Associated with Retirement Benefits. At December 31, 2012, our U.S. qualified defined benefit pension plan was approximately 77% funded as calculated in accordance with U.S. generally accepted accounting principles, and we are not required to make any contribution to this plan in 2013. However, we may be required to fund the U.S. qualified defined benefit pension plan in the years beyond 2013 depending upon the value of plan investments and obligations in the future and changes in laws or regulations that govern pension plan funding. Depending on the timing and amount, a requirement that we fund our U.S. qualified defined benefit pension plan could have a material adverse effect on our results of operations and financial condition.

Risks Associated with Acquisition and Disposition Strategies. We intend to continue to strategically position our businesses in order to improve our ability to compete. Strategies we employ to accomplish this may include seeking new or expanding existing specialty market niches for our products, expanding our global presence, acquiring businesses complementary to existing strengths, and continually evaluating the performance and strategic fit of our existing business units. From time-to-time, management holds discussions with management of other companies to explore acquisitions, joint ventures, and other business combination opportunities as well as possible business unit dispositions. 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 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.

Risks Associated with Information Technology. Information technology infrastructure is critical to supporting business objectives; failure of our information technology infrastructure to operate effectively could adversely affect our business. We depend heavily on information technology infrastructure to achieve our business objectives. If a problem occurs that impairs this infrastructure, the resulting disruption could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on business in the normal course. Any such events could cause us to lose customers or revenue and could require us to incur significant expense to remediate.

As we integrate, implement and deploy new information technology processes and information infrastructure across our operations, we could experience disruptions in our business that could have an adverse effect on our business, financial condition, results of operations and cash flow.

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. From time-to-time, 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 as well as political and social turmoil 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.

Risks Associated with Government Contracts. Some of our operating companies perform contractual work directly 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 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal domestic facilities for our high performance metals include titanium sponge production, melting operations, and production facilities that include processing and finishing operations. Titanium sponge production facilities are located at Rowley, UT and Albany, OR. Domestic melting operations are located in Monroe, NC, Bakers, NC, and Lockport, NY (vacuum induction melting, vacuum arc re-melt, electro-slag re-melt, plasma melting); Richland, WA (electron beam melting); and Albany, OR (vacuum arc re-melt). 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, Albany, OR, and Oakdale, PA. Our production of zirconium and related alloys takes place at facilities located in Albany, OR, Huntsville, AL, and Frackville, PA. Our production of highly engineered forgings, castings, and machined components takes place at facilities in Cudahy and Coon Valley, WI, Windsor, CT, Albany, OR, and Irvine, CA.

Our principal domestic locations for melting stainless steel and other flat-rolled specialty metals are located in Brackenridge, Midland and Latrobe, PA. Hot rolling of material is performed at our domestic facilities in Brackenridge, Washington 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 Bedford, MA, and Louisville, OH. We are constructing a new advanced specialty metals Hot-Rolling and Processing Facility (HRPF) for our Flat-Rolled Products business segment at our existing Brackenridge, PA site. Construction of the HRPF is expected to be completed with assets ready for service by the end of 2013. The HRPF is designed to produce thinner and wider hot-rolled coils of exceptional quality at reduced cost with shorter lead times and require lower working capital requirements.

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), Bolingbrook, IL (specialty metals fabrication) and southwestern Pennsylvania (precision metals finishing services).

Substantially all of our properties are owned, and three 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, the United Kingdom, Poland, and the People’s Republic of China. We own and/or lease and operate facilities for melting and re-melting, machining and bar mill operations, laboratories and offices located in Sheffield, England. We own highly engineered forging and machining operations in Stalowa Wola, Poland. Through our STAL joint venture, we operate facilities for finishing Precision Rolled Strip products in the Xin-Zhuang Industrial Zone, Shanghai, China.

Our executive offices, located in PPG Place in Pittsburgh, PA, 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 December 2008, the Environmental Protection Agency (EPA) sent a subsidiary of the Company a notice of violation (NOV) alleging violations of rules governing the management of hazardous wastes at the entity’s Albany, Oregon facility. In May 2010, the EPA sent a second NOV alleging additional violations of hazardous waste rules arising out of related circumstances, and a separate NOV to another subsidiary, which alleged violations of the hazardous waste rules at its Albany, Oregon facility. The Company and the EPA are discussing resolution of these NOVs.

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, government contracting, employment, employee and retiree benefits, taxes, environmental, health and safety and occupational disease, and stockholder and corporate governance 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, including those described above, however, could have a material adverse effect on our results of operations for that period.

Information relating to legal proceedings is included in Note 16. Commitments and Contingencies of the Notes to Consolidated Financial Statements and incorporated herein by reference.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock Prices

Our common stock is traded on the New York Stock Exchange (symbol ATI). At February 7, 2013, there were 4,778 record holders of Allegheny Technologies Incorporated common stock. We paid a quarterly cash dividend of $0.18 per share of common stock outstanding for each quarter of 2012 and 2011. The ranges of high and low sales prices for shares of our common stock for the quarterly periods ended on the dates indicated were as follows:


2012	March 31		June 30		September 30		December 31
High	$	53.00	$	44.17	$	37.02	$	33.95
Low	$	39.78	$	27.61	$	27.68	$	25.35


2011	March 31		June 30		September 30		December 31
High	$	69.75	$	73.53	$	66.39	$	51.25
Low	$	53.73	$	57.66	$	35.91	$	30.79

Cumulative Total Stockholder Return

The graph set forth below shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) on our common stock from December 31, 2007 through December 31, 2012 as compared to the S&P 500 Index and a Peer Group of companies. We believe the Peer Group of companies, which is defined below, is representative of companies in our industry that serve similar markets during the applicable periods. The total stockholder return for the Peer Group is weighted according to the respective issuer’s stock market capitalization at the beginning of each period. The graph assumes that $100 was invested on December 31, 2007.

LOGO


Company / Index	Dec ’07		Dec ’08		Dec ’09		Dec ’10		Dec ’11		Dec ’12
ATI		100.00		30.01		53.82		67.26		59.08		38.34
S&P 500 Index		100.00		63.00		79.67		91.68		93.61		108.59
Peer Group		100.00		42.76		61.21		69.74		59.34		66.20

Source: Standard & Poor’s

Peer Group companies for the cumulative five year total return period ended December 31, 2012 were as follows:


AK Steel Holding Corporation	Materion Corp	Steel Dynamics, Inc.
ALCOA Inc.	Nucor Corp.	The Timken Company
Carpenter Technology Corporation	Precision Castparts Corp.	Titanium Metals Corporation
Castle (A M) & Co.	Reliance Steel & Aluminum Co.	United States Steel Corporation
Commercial Metals Company	RTI International Metals, Inc.	Universal Stainless & Alloy Products, Inc.
Kennametal Inc.	Schnitzer Steel Industries, Inc.	Worthington Industries, Inc.

Item 6. Selected Financial Data


(In millions)
For the Years Ended December 31,	2012		2011		2010		2009		2008
Revenue by Market:
Aerospace & Defense	$	1,621.4	$	1,481.0	$	1,027.5	$	945.4	$	1,530.6
Oil & Gas/Chemical Process Industry		955.8		1,107.0		787.8		581.7		1,225.2
Electrical Energy		599.5		778.8		670.9		576.4		868.1
Medical		223.7		253.0		234.5		122.5		137.1

Subtotal - Key Markets		3,400.4		3,619.8		2,720.7		2,226.0		3,761.0
Construction/Mining		390.0		321.6		274.3		148.1		230.5
Automotive		389.5		386.8		319.7		207.9		423.6
Transportation		222.4		233.7		169.8		73.0		172.8
Food Equipment & Appliances		215.6		243.0		277.8		184.3		335.0
Electronics/Computers/Communication		170.0		161.1		130.4		85.3		156.0
Machine & Cutting Tools		126.9		136.3		97.8		64.9		129.2
Conversion Services and Other		116.7		80.7		57.3		65.4		101.6

Total	$	5,031.5	$	5,183.0	$	4,047.8	$	3,054.9	$	5,309.7


(In millions, except per share amounts)
For the Years Ended December 31,	2012		2011		2010		2009			2008
Sales:
High Performance Metals	$	2,190.6	$	1,955.9	$	1,337.5	$	1,300.0		$	1,944.9
Flat-Rolled Products		2,349.2		2,726.0		2,338.5		1,516.1			2,909.1
Engineered Products		491.7		501.1		371.8		238.8			455.7

Total Sales	$	5,031.5	$	5,183.0	$	4,047.8	$	3,054.9		$	5,309.7

Operating profit (loss):
High Performance Metals	$	371.6	$	364.5	$	257.8	$	234.7		$	539.0
Flat-Rolled Products		126.9		213.4		85.9		71.3			385.0
Engineered Products		39.4		34.1		12.8		(23.8	)		20.9

Total operating profit	$	537.9	$	612.0	$	356.5	$	282.2		$	944.9

Income before income taxes	$	244.0	$	339.4	$	125.7	$	64.9		$	867.7
Net income		167.8		223.1		78.7		38.0			573.5

Less: Net income attributable to noncontrolling interests		9.4		8.8		8.0		6.3			7.6

Net income attributable to ATI		158.4		214.3		70.7		31.7			565.9

Basic net income per common share		1.49		2.09		0.73		0.33			5.71

Diluted net income per common share		1.43		1.97		0.72		0.32			5.67


(In millions, except per share amounts and ratios)
As of and for the Years Ended December 31,	2012		2011		2010		2009		2008
Dividends declared per common share	$	0.72	$	0.72	$	0.72	$	0.72	$	0.72

Ratio of earnings to fixed charges		3.0x		3.8x		2.2x		1.5x		19.4x

Working capital	$	1,639.1	$	1,707.7	$	1,324.1	$	1,373.0	$	1,235.5

Total assets		6,247.8		6,046.9		4,493.6		4,346.0		4,170.4

Long-term debt		1,463.0		1,482.0		921.9		1,037.6		494.6

Total debt		1,480.1		1,509.3		1,063.3		1,071.1		509.8

Cash and cash equivalents		304.6		380.6		432.3		708.8		469.9

Total ATI Stockholders’ equity		2,479.6		2,475.3		2,040.8		2,012.2		1,957.4

Noncontrolling interests		107.5		96.3		88.6		77.4		71.6

Total Stockholders’ equity		2,587.1		2,571.6		2,129.4		2,089.6		2,029.0

The information presented in Selected Financial Data should be read in conjunction with the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Item 8. Financial Statements and Supplementary Data.

In May 2011, we acquired Ladish Co., Inc. (now ATI Ladish) for $897.6 million, comprised of the issuance of 7.3 million shares of ATI common stock, which increased stockholders’ equity by $513.6 million, and the payment of $384 million in cash. ATI Ladish results are included in the High Performance Metals segment from the date of the acquisition.

In January 2011, we issued $500 million of 5.95% Senior Notes due in 2021. A portion of the proceeds from this transaction was used to fund the cash portion of the Ladish acquisition. Additionally in 2011, we retired the remaining $117 million of our outstanding 8.375% Notes due in December 2011.

Total ATI stockholders’ equity for 2012 and 2011 included net decreases of $164.1 million and $320.0 million, respectively, for the year-end remeasurements of pensions and other postretirement benefits, primarily due to the use of lower discount rates to measure the benefit obligations.

In 2009, we issued $350 million of 9.375% Senior Notes due 2019 and $402.5 million of 4.25% Convertible Senior Notes due 2014. Proceeds from these transactions were used to retire $183.3 million of our outstanding 8.375% Notes due 2011 and to fund a voluntary pre-tax $350 million cash contribution to our domestic pension plan to significantly improve its funded position.

For purposes of determining the ratio of earnings to fixed charges, earnings include pre-tax income plus fixed charges (excluding capitalized interest). Fixed charges consist of interest on all indebtedness (including capitalized interest) plus that portion of operating lease rentals representative of the interest factor (deemed to be one-third of operating lease rentals).

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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. Net income and net income per share amounts referenced below are attributable to Allegheny Technologies Incorporated and Subsidiaries.

Overview of 2012 Financial Performance

Our financial performance in 2012 reflected the challenging business conditions resulting from global economic uncertainties and fiscal policy issues. Sales in 2012 decreased 3% to $5.03 billion, compared to $5.18 billion for 2011. Direct international sales for 2012 were $1.80 billion and represented 36% of our total sales. For 2012, the High Performance Metals segment generated 52%, the Flat-Rolled Products segment generated 42%, and the Engineered Products segment generated 6% of our direct international sales. While first half 2012 results were generally in line with our expectations of gradually improving market conditions, conservative inventory management actions throughout the supply chains of most of our major end markets in response to uncertain global economic conditions in the second half of 2012 resulted in lower sales and profitability compared to 2011. Net income attributable to ATI for 2012 decreased to $158.4 million, or $1.43 per share, compared to $214.3 million, or $1.97 per share, for 2011. Results for 2012 included an $8.8 million net of tax charge for asset write-downs associated with consolidating our iron casting facilities in our Engineered Products business segment. Results for 2011 included $29.6 million, net of tax, for expenses associated with our acquisition of Ladish Co. Inc. (now ATI Ladish) in May 2011 and other charges.

Our 2012 results reflect ATI’s position as a globally focused, diversified high-value specialty metals company with strong cash flow and liquidity, and a solid balance sheet. The aerospace and defense market and the global infrastructure markets, specifically oil and gas, chemical process industry, electrical energy, and the medical market, represented 67% of ATI’s 2012 sales. For 2012, sales to the aerospace and defense market grew by $140.4 million, or 9%, to $1.62 billion and represented 32% of our sales. Sales in 2012 to the oil and gas and chemical process industry markets were $956 million and represented 19% of ATI sales.

In our High Performance Metals segment, sales in 2012 increased 12% to $2.19 billion, with sales to the aerospace and defense market up $159.1 million, or 13%, primarily due to a full year of ATI Ladish sales. Sales to the oil and gas market remained strong, reflecting the trend toward directional drilling, deep water projects and sour gas projects. Medical market demand also remained strong. Operating profit for the High Performance Metals segment was $371.6 million, or 17.0% of sales, a 2% increase compared to 2011, due primarily to higher shipments for our nickel-based and specialty alloys products, lower start-up costs associated with our Rowley, UT premium-titanium sponge facility, and the benefits from our gross cost reductions.

In our Flat-Rolled Products segment, sales decreased 14% to $2.35 billion, primarily as a result of lower raw material surcharges and reduced base prices for most products. Total product shipments increased 4% for the full year 2012, as shipments of standard stainless products increased 12% while shipments of high-value products decreased 4%. Volatile raw material costs and the resulting impact on surcharges affected demand during the second half of the year as customers managed inventory levels and the timing of purchases. Operating profit for the Flat-Rolled Products segment decreased to $126.9 million, or 5.4% of sales, due to lower base prices for most products and inventory costs not aligning with raw material surcharges.

In our Engineered Products segment, 2012 sales decreased 2% to $491.7 million. While demand remained strong from the oil and gas and construction and mining markets, demand weakened from the electrical energy and the machine and cutting tools markets. Segment operating profit for 2012 improved to $39.4 million, a 16% increase compared to 2011 primarily due to improved results for our tungsten-based products and industrial forgings.

For 2012, total segment operating profit decreased 12% to $537.9 million compared to $612.0 million for 2011.

During 2012, we strengthened our positions in key global growth markets, continued to enhance our manufacturing capabilities, reduced costs, and maintained our strong balance sheet. We also realized continued success in implementing the ATI Business System, which is continuing to drive lean manufacturing throughout our operations. Our accomplishments during 2012 from these important efforts included:

•

Continued growth of our global market presence as direct international sales increased to 36% of our total sales, at $1.8 billion. We believe at least 50% of ATI’s 2012 sales were driven by global markets when we consider exports by our customers.

•

We continued to realize significant benefits from our strategic focus on key high value specialty products, including titanium and titanium alloys, precision castings and forgings, nickel-based alloys and specialty alloys, zirconium and related alloys, and grain-oriented electrical steel. In 2012, sales of these key high value products represented 79% of our total sales.

•

Continued improvement in our positions with key customers in the aerospace, oil and gas, electrical energy, and medical markets as we entered into new long-term agreements for our Mission Critical Metallics^®. During 2012, we concluded long-term sourcing agreements with new or existing customers which are expected to benefit future years revenues by over $2.5 billion.

•

Continued expansion of our industry leading technology portfolio by making important research and development investments. ATI 718Plus^® alloy, our groundbreaking nickel-based superalloy, continued to gain acceptance in the marketplace and is being used on legacy and next-generation aero-engines. Rene 65 alloy, a future generation alloy, is the newest nickel-based superalloy for the aerospace market in our portfolio. Our ATI 2003^® Lean Duplex Alloy was recently selected for offshore topside structural components use on a North Sea project in the oil and gas market.

•

Our ATI 425^® alloy has been qualified for rotary blade applications such as abrasion strips, and continues to be evaluated for numerous airframe applications including fastener stock, hydraulic tubing, and hot- and superplastic-formed parts.

•

We continued to build a foundation for profitable growth. Since 2004, we have transformed ATI by investing over $3.7 billion in capital expenditures and acquisitions, of which $382 million was spent in 2012. These strategic capital investments support the expected long-term growth in our markets, especially for titanium and titanium alloys, nickel-based alloys and superalloys, vacuum melted specialty alloys, and precision forgings and castings. Virtually all of these investments have been in the United States, with the enhancement and expansion of our internal capabilities being self-funded. Significant among these investments are:

•

The design and construction of a new advanced specialty metals Hot-Rolling and Processing Facility (HRPF) at our existing Flat-Rolled Products segment Brackenridge, PA site for approximately $1.16 billion. The HRPF construction is progressing on schedule and on budget. Construction is expected to be completed with assets ready for service by the end of 2013, and formal commissioning is expected to occur in the first half of 2014. The HRPF is designed to be the most powerful mill in the world for production of specialty metals. It is designed to produce thinner and wider hot-rolled coils of exceptional quality at reduced cost with shorter lead times, and require lower working capital requirements. When completed, we believe ATI’s new HRPF will provide unsurpassed manufacturing capability and versatility in the production of a wide range of flat-rolled specialty metals. We expect improved productivity, lower costs, and higher quality for our diversified product mix of flat-rolled specialty metals, including nickel-based and specialty alloys, titanium and titanium alloys, zirconium alloys, Precision Rolled Strip ^® products, and stainless sheet and coiled plate products. It is designed to roll and process exceptional quality hot bands of up to 78.62 inches, or 2 meters, wide.

•

The acquisition of ATI Ladish on May 9, 2011 for $897.6 million. ATI Ladish results are included in the High Performance Metals segment from the date of the acquisition. ATI Ladish engineers, produces and markets high-strength, high technology forged and cast metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets, for both domestic and international customers. ATI is now a fully integrated supplier, from raw material (for titanium) and melt through highly engineered technically complex parts, creating a more stable and sustainable supply chain for aerospace, defense and industrial markets. In the first full year as part of ATI, ATI Ladish recorded its best revenue year ever and has been accretive to ATI’s results of operations for the full 2012 year.

•

The expansion of ATI’s aerospace quality titanium sponge production capabilities. Titanium sponge is an important raw material used to produce our titanium mill products. Our greenfield premium-grade titanium sponge (jet engine rotating parts) facility in Rowley, UT, with a total cost of approximately $500 million, completed the standard-grade qualification process in the first half of 2012. We continue to improve the facility’s cost structure through process and productivity improvements and technology initiatives, and we expect to begin the premium-grade qualification process in 2013. With the Utah sponge facility, our total annual sponge production capacity, including our Albany, OR standard grade titanium sponge facility, is projected to be approximately 46 million pounds. These secure supply sources are intended to reduce our purchased titanium sponge and purchased titanium scrap requirements. In addition, the Utah facility will have the infrastructure in place to further expand annual capacity by approximately 18 million pounds, bringing the total annual capacity at that facility to 42 million pounds, if needed.

•

We continued to enhance our capabilities as the world’s leader in titanium plasma arc melting (PAM) with the qualification during 2012 of our fourth PAM furnace. With the expansion of our High Performance Metals segment production capabilities in North Carolina, ATI remains the world’s leading PAM melter for the most critical and demanding jet engine applications.

We currently expect 2013 capital expenditures to be approximately $550 million, which includes approximately $450 million relating to the HRPF project. We expect 2013 to be our peak year for capital expenditures. Our objective is to fund these capital expenditures with cash on hand and cash flow generated from our operations, and if needed, by using a portion of our $400 million unsecured domestic revolving credit facility.

•

We realized significant cash generation in 2012, despite a decline in profitability, with cash flow from operations of $428 million, which represented the third best year in our history. We utilized our cash in 2012 to invest $382 million in capital expenditures, primarily for the HRPF project, and return $77 million to our stockholders as dividends.

•

We continued to maintain our strong balance sheet. Cash on hand at the end of 2012 was $305 million, and our percentages of net debt to total capitalization and total debt to total capitalization were 32.2% and 37.4%, respectively. Our U.S. defined benefit pension plan is sufficiently funded such that we are not required to make any contributions to this plan for 2013.

•

Our safety focus continued across all of ATI’s operations. Our OSHA Total Recordable Incident Rate was 2.71 and our Lost Time Case Rate was 0.58 per 200,000 hours worked, which we believe to be competitive with world class performance.

•

We realized continued success from the ATI Business System, which continues to drive lean manufacturing throughout our operations. In addition to the safety performance discussed above, we realized over $114 million in gross cost reductions in 2012, which exceeded our goal of $100 million. We have targeted additional gross cost reductions of at least $100 million in 2013.

•

To further improve our operating efficiency, we consolidated operations in our Engineered Products segment, resulting in the closure of our iron casting facility in Alpena, MI, which resulted in an $8.8 million, after-tax, non-cash asset impairment charge in the fourth quarter of 2012. In our Flat-Rolled Products segment, we are consolidating service center operations, which is on schedule to be completed in the first quarter of 2013. In our High Performance Metals segment, we took steps to size our primary zirconium operations to improve its cost structure based on the current demand profile in the nuclear electrical energy market.

Our focus is to continue to deliver value for our customers and profitable growth for our stockholders. We believe market conditions remain favorable for strong secular growth over the next 3 to 5 years in many of our key global markets. Aerospace build rates are expected to continue to increase and OEM backlogs remain at record levels. Demand for ATI’s new products is expected to grow substantially as new technology airframe and jet engine deliveries increase. Demand for our products generally leads a change to a production build schedule by approximately 6 to 12 months. In addition, demand for jet engine spare parts is projected to begin to modestly improve, compared to the second half of 2012, as we move through 2013.

Global oil and gas exploration and production forecasts project spending to set a new record, and upstream capital spending, especially in the U.S., is expected to grow. ATI benefits from the trend toward horizontal and directional drilling, deep water projects, and sour gas projects. In the chemical processing industry, ATI benefits from projects requiring specialty metals that can withstand highly corrosive and high temperature environments.

In the electrical energy market, we expect to benefit from growing global demand for safe, clean and efficient electrical energy. Our specialty metals are used in nuclear, coal, and natural gas power generation, including pollution control equipment and spent nuclear fuel storage. Our products are also used to manufacture power generation equipment used for renewable energy sources, particularly in wind, solar and geothermal power applications. Demand for our products from the medical market is expected to remain strong because of the aging populations in developed countries and the growth of advanced medical procedures in developing countries requiring the products that we produce. We also expect to benefit from our ongoing market and product development activities aimed at introducing innovative new ATI alloys and extending our reach into our key global markets with product forms that are new to ATI. We intend to use these improving market conditions to continue to positively differentiate ATI as a uniquely positioned, diversified, technology-driven global specialty metals producer.

Results of Operations

Sales were $5.03 billion in 2012, $5.18 billion in 2011, and $4.05 billion in 2010. Direct international sales represented approximately 36% of 2012 sales, 35% of 2011 sales, and 32% of 2010 sales.

Segment operating profit was $537.9 million in 2012, $612.0 million in 2011, and $356.5 million in 2010. Our measure of segment operating profit, which we use to analyze the performance and results of our business segments, excludes income taxes, corporate expenses, net interest expense, retirement benefit expense, closed company expenses and restructuring costs, if any. We believe segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level.

Income before tax was $244.0 million in 2012, $339.4 million in 2011, and $125.7 million in 2010. Net income attributable to ATI was $158.4 million in 2012, $214.3 million for 2011, and $70.7 million for 2010. Results for 2012 included after-tax charges of $8.8 million, or $0.08 per share, for an asset impairment charge related to the closure of our Alpena, MI iron casting facility. Results for 2011 include after-tax charges of $29.6 million, or $0.26 per share, for Ladish acquisition expenses, accelerated recognition of equity compensation due to executive retirements, and restructuring and start-up expenses.

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


	2012						2011						2010
	Revenue			Operating Profit			Revenue			Operating Profit			Revenue			Operating Profit
High Performance Metals		43	%		69	%		38	%		59	%		33	%		72	%

Flat-Rolled Products		47	%		24	%		52	%		35	%		58	%		24	%

Engineered Products		10	%		7	%		10	%		6	%		9	%		4	%

Comparative information for our overall revenues (in millions) by end market and their respective percentages of total revenues is as follows:


Market	2012				2011				2010
Aerospace & Defense	$	1,621.4	32	%	$	1,481.0	29	%	$	1,027.5	25	%
Oil & Gas/Chemical Process Industry		955.8	19	%		1,107.0	21	%		787.8	19	%
Electrical Energy		599.5	12	%		778.8	15	%		670.9	17	%
Medical		223.7	4	%		253.0	5	%		234.5	6	%

Subtotal - Key Markets		3,400.4	67	%		3,619.8	70	%		2,720.7	67	%
Construction/Mining		390.0	8	%		321.6	6	%		274.3	7	%
Automotive		389.5	8	%		386.8	7	%		319.7	8	%
Transportation		222.4	4	%		233.7	4	%		169.8	4	%
Food Equipment & Appliances		215.6	4	%		243.0	5	%		277.8	7	%
Electronics/Computers/Communication		170.0	3	%		161.1	3	%		130.4	3	%
Machine & Cutting Tools		126.9	3	%		136.3	3	%		97.8	2	%
Conversion Services and Other		116.7	3	%		80.7	2	%		57.3	2	%

Total	$	5,031.5	100	%	$	5,183.0	100	%	$	4,047.8	100	%

We are one of the largest and most diversified specialty metals producers in the world. Our high-value products include titanium and titanium alloys, nickel-based alloys and specialty steels, precision forgings and castings, zirconium and related alloys, precision and engineered stainless steel strip, tungsten-based materials and cutting tools, and grain-oriented electrical steel. Our standard products include specialty stainless sheet, stainless steel sheet, stainless steel plate, and large iron castings. Our specialty metals are produced in a wide range of alloys and product forms and are selected for use in applications that demand metals having exceptional hardness, toughness, strength, resistance to heat, corrosion or abrasion, or a combination of these characteristics.

Comparative information for our major high-value and standard products based on their percentages of our total revenues is as follows:


For the Years Ended December 31,	2012			2011			2010
High-Value Products
Nickel-based alloys and specialty alloys		25	%		25	%		21	%
Titanium and titanium alloys		13	%		14	%		15	%
Precision forgings and castings		13	%		9	%		3	%
Precision and engineered strip		11	%		12	%		13	%
Tungsten-based materials		7	%		7	%		6	%
Zirconium and related alloys		6	%		5	%		7	%
Grain-oriented electrical steel		4	%		6	%		8	%

Total High-Value Products		79	%		78	%		73	%
Standard Products
Specialty stainless sheet		9	%		10	%		13	%
Stainless steel sheet		8	%		9	%		11	%
Stainless steel plate		2	%		2	%		2	%
Iron castings and other		2	%		1	%		1	%

Total Standard Products		21	%		22	%		27	%

Grand Total		100	%		100	%		100	%

Information with respect to our business segments is presented below.

High Performance Metals


(In millions)	2012			% Change			2011			% Change			2010
Sales to external customers	$	2,190.6			12	%	$	1,955.9			46	%	$	1,337.5

Operating profit		371.6			2	%		364.5			41	%		257.8

Operating profit as a percentage of sales		17.0	%					18.6	%					19.3	%

Direct international sales as a percentage of sales		43.1	%					40.1	%					32.8	%

Our High Performance Metals segment produces, converts and distributes a wide range of high performance alloys, including titanium and titanium-based alloys, nickel- and cobalt-based alloys and superalloys, zirconium and related alloys including hafnium and niobium, advanced powder alloys and other specialty metals, in long product forms such as ingot, billet, bar, rod, wire, shapes and rectangles, and seamless tubes, plus precision forgings and castings, and machined parts. These products are designed for the high performance requirements of such major end markets as aerospace and defense, electrical energy, oil and gas, chemical process industry, and medical. The operating units in this segment are ATI Allvac, ATI Allvac Ltd (U.K.), ATI Ladish, ATI Wah Chang and ATI Powder Metals.

2012 Compared to 2011

Sales for the High Performance Metals segment for 2012 increased 12%, to $2.19 billion, with sales to the aerospace and defense markets up $159.1 million, or 13%, due primarily to a full year of ATI Ladish sales which offset reduced demand in the 2012 second half in the jet engine aftermarket. Sales to the oil and gas market remained strong, reflecting the trend toward directional drilling, deep water projects and sour gas projects. Medical market demand remained strong for implants and imaging equipment. Comparative information for our High Performance Metals segment revenues (in millions) by market, the respective percentages of overall segment revenues for the years ended 2012 and 2011, and the percentage change in revenues by market for 2012 is as follows:


Market	2012				2011				Change
Aerospace:
Jet Engines	$	719.6	33	%	$	667.7	34	%	$	51.9		8	%
Airframes		388.6	18	%		304.3	15	%		84.3		28	%
Government		198.6	9	%		188.8	10	%		9.8		5	%

Total Aerospace		1,306.8	60	%		1,160.8	59	%		146.0		13	%
Oil & Gas/Chemical Process Industry		211.2	10	%		180.2	9	%		31.0		17	%
Medical		188.4	9	%		182.2	9	%		6.2		3	%
Electrical Energy		166.3	7	%		177.4	9	%		(11.1	)	(6	%)
Defense		111.3	5	%		98.2	5	%		13.1		13	%
Construction/Mining		66.6	3	%		36.1	2	%		30.5		84	%
Other		140.0	6	%		121.0	7	%		19.0		16	%

Total	$	2,190.6	100	%	$	1,955.9	100	%	$	234.7		12	%

Comparative information for the High Performance Metals segment’s major product categories, based on their percentages of 2012 and 2011 segment revenues is as follows:


For the Years Ended December 31,	2012			2011
High-Value Products
Nickel-based alloys and specialty alloys		36	%		38	%
Titanium and titanium alloys		26	%		30	%
Precision forgings and castings		25	%		17	%
Zirconium and related alloys		13	%		15	%

Total High-Value Products		100	%		100	%

In 2012 and 2011, the aerospace market represented 60% and 59%, respectively, of the revenues of the segment with the majority of the sales to the jet engine market. Aerospace has historically represented a significant market for our High Performance Metals segment, especially for premium quality specialty metals used in the manufacture of jet engines for the original equipment and spare parts markets. In May 2011, we expanded our product capabilities with the acquisition of ATI Ladish, which engineers, produces and markets high-strength, high technology forged and cast metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets, for both domestic and international customers. ATI is now a fully integrated supplier, from raw material (for titanium) and melt through highly engineered technically complex parts, creating a more stable and sustainable supply chain for aerospace, defense and industrial markets. In addition, we have become a larger supplier of specialty metals used in airframe construction. In 2012 and 2011, sales of our material into the airframe market represented approximately 30% and 26%, respectively, of our aerospace market sales.

Over the past several years, we have entered into long-term agreements with our customers for Mission Critical Metallics^®, in the form of mill products and components, to reduce their supply uncertainty. These agreements include a titanium products supply agreement for aircraft airframes and structural components with The Boeing Company that extends through the end of 2018. This long-term agreement covers value-added titanium mill products and provides opportunity for greater use of ATI’s highly engineered titanium cast and forged products. The agreement includes both long-product forms that are manufactured within the High Performance Metals segment, and a significant amount of plate products that are manufactured utilizing assets of both the High Performance Metals and Flat-Rolled Products segments. Revenues and profits associated with these titanium products covered by the Boeing long-term agreement are included primarily in the results for the High Performance Metals segment. We have long-term agreements with Rolls-Royce plc for the supply of nickel-based superalloy disc-quality products and precision forgings and castings for commercial jet engine applications. We also have long-term agreements with GE Aviation for the supply of premium titanium alloys, nickel-based alloys, and vacuum-melted specialty alloys products for commercial and military jet engine applications.

The commercial aerospace market’s use of titanium alloys is expected to increase significantly as new aircraft airframe designs use a larger percentage of titanium alloys. For example, the airframe (excluding engines) of the new Boeing 787 Dreamliner, which entered service in late 2011, uses significantly more titanium and titanium alloys as a percentage of total weight than any previous commercial aircraft airframe. New aircraft designs from Airbus, the A380 and A350-XWB, and from defense contractors also utilize a greater percentage of titanium alloys. Given the significant current backlogs of Boeing and Airbus, as well as the engine manufacturers, this increasing demand for titanium alloys mill products is expected to last for at least the next several years. Both Boeing and Airbus have implemented production increases, and announced future production increases over the next several years for legacy and next generation aircraft, which is expected to positively impact the demand for titanium alloys and nickel-based superalloys for both jet engine and airframe applications. Due to manufacturing cycle times, demand for our specialty metals leads the deliveries of new aircraft by between 6 to 12 months. In addition, as our specialty metals are used in rotating components of jet engines, demand for our products for spare parts is impacted by aircraft flight activity and engine refurbishment requirements of U.S. and foreign aviation regulatory authorities. As the number of aircraft in service increases, the need for our materials associated with engine refurbishment is expected to increase.

LOGO

Airline Miles - Revenue Passenger (Worldwide, per year, in billions)


2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
1,862	2,140	2,311	2,447	2,609	2,640	2,532	2,734	2,912	3,072	3,210	3,371	3,539	3,716	3,902

Source: International Civil Aviation Organization; 2012 preliminary, 2013-2017 forecast

Airline Miles - Freight (Worldwide, tons per year, in billions)


2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
85	95	98	103	106	105	91	108	109	108	109	113	119	125	131

Source: International Civil Aviation Organization; 2012 preliminary, 2013-2017 forecast

LOGO

Commercial Aircraft Engines in Service (Worldwide, per year)


2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
41,069	42,297	43,684	44,611	45,858	47,083	48,225	49,503	50,313	51,963	53,788	55,712	57,557	58,975	61,191

Source: Airline Monitor; 2012 preliminary, 2013-2017 forecast

New Commercial Aircraft Engine Builds (Worldwide, per year)


2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
1,900	1,918	1,910	2,088	2,192	2,232	2,372	2,356	2,398	2,716	3,000	3,260	3,380	3,200	3,197

Source: Airline Monitor; 2012 preliminary, 2013-2017 forecast

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Commercial Jet & Military Aircraft Build Rate and Forecast

Sources: Airline Monitor, Forecast International (Worldwide, per year); 2012 preliminary, 2013-2017 forecast


	2003		2004		2005		2006		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
Boeing deliveries		281		285		290		398		441		375		481		462		481		588		650		715		730		680		605
Airbus deliveries		305		320		378		434		453		483		498		510		534		588		620		645		650		590		635
Regional Jet del.		315		312		260		185		183		225		183		135		157		119		180		190		210		220		220
NATO Military del.		160		243		243		241		226		231		211		275		287		274		254		252		246		258		284

Total deliveries		1,061		1,160		1,171		1,258		1,303		1,314		1,373		1,382		1,459		1,569		1,704		1,802		1,836		1,748		1,744

The Airline Monitor forecast (above) assumes a decline in single aisle deliveries in 2016 and 2017 as Airbus and Boeing transition to the new models, A320neo and 737MAX, due to an expected decline in deliveries of older models, based on prior model changeover patterns. This forecast differs from announced build rates by the OEMs. Even with the Airline Monitor assumption, the forecasted deliveries in 2016 and 2017 remain near historically high levels. Based on Airline Monitor data, the total share of twin aisle aircraft builds will grow from 19% of commercial aircraft builds in 2011 to more than 30% in 2017. The projected growth increase of large twin aisle aircraft builds is significant, as the next generation of large aircraft utilize significantly more of the high value types of materials we produce in both the airframe and in the engines.

Airline revenue passenger miles increased 5.5% in 2012, continuing a growth trend that has resulted in an increase of more than 21% since 2009, as activity levels recovered from the global economic weakness experienced in 2008-2009. Airline freight miles have remained relatively unchanged since 2010 after recovering from 2008-2009 decreases. Since 2003, airline revenue passenger miles and freight miles have compound annual growth rates of 5.1% and 2.4%, respectively, according to the International Civil Aviation Organization (ICAO) data. Based on current forecasts, the ICAO expects growth of about 5% annually, for several years, based on the demand for passenger and freight travel from developing economies, especially in Asia and the Middle East, and expected continuing economic growth in the rest of the world. New commercial jet and NATO military aircraft deliveries have averaged 4.5% increases annually since 2003. Independent forecasts from both Airline Monitor and Forecast International project 2.2% average annual growth of commercial jet and NATO military aircraft deliveries for the next 5 years.

High Performance Metals segment operating profit for 2012 increased 2% to $371.6 million compared to 2011, due primarily to higher shipments for our nickel-based and specialty alloys products, lower start-up costs associated with our Rowley, UT premium-titanium production facility, and the benefits of gross cost reductions. Operating profit in 2011 was impacted by $27.3 million of inventory fair value adjustments associated with the Ladish transaction, and $31.7 million of start-up and idle facility costs associated with our primary titanium sponge operations.

We continued to aggressively reduce costs in 2012. Gross cost reductions, before the effects of inflation, totaled approximately $63 million. Major areas of gross cost reductions included $54 million from operating efficiencies and $8 million from procurement savings.

2011 Compared to 2010

Sales for the High Performance Metals segment for 2011 increased 46% to $1.96 billion, due to ATI Ladish sales and improved overall demand from the commercial aerospace jet engine market, both for new aircraft builds and replacement spares as a result of increased flight activity. Overall sales to the aerospace market increased 50% for 2011. Sales to the electrical energy market increased 86%, driven by demand for land-based gas turbines. In addition, demand increased from the oil and gas market, reflecting the trend toward directional drilling, deep water projects and sour gas projects, and in the medical market for implants and imaging equipment. Comparative information for our High Performance Metals segment revenues (in millions) by market, the respective percentages of overall segment revenues for the years ended 2011 and 2010, and the percentage change in revenues by market for 2011 is as follows:


Market	2011				2010				Change
Aerospace:
Jet Engines	$	667.7	34	%	$	393.5	29	%	$	274.2		70	%
Airframes		304.3	15	%		277.3	21	%		27.0		10	%
Government		188.8	10	%		104.8	8	%		84.0		80	%

Total Aerospace		1,160.8	59	%		775.6	58	%		385.2		50	%
Medical		182.2	9	%		143.6	11	%		38.6		27	%
Oil & Gas/Chemical Process Industry		180.2	9	%		145.7	11	%		34.5		24	%
Electrical Energy		177.4	9	%		95.2	7	%		82.2		86	%
Defense		98.2	5	%		104.0	8	%		(5.8	)	(6	%)
Construction/Mining		36.1	2	%		2.2	0	%		33.9		1541	%
Other		121.0	7	%		71.2	5	%		49.8		70	%

Total	$	1,955.9	100	%	$	1,337.5	100	%	$	618.4		46	%

Comparative information for the High Performance Metals segment’s major product categories, based on their percentages of 2011 and 2010 segment revenues, is as follows:


For the Years Ended December 31,	2011			2010
High-Value Products
Nickel-based alloys and specialty alloys		38	%		41	%
Titanium and titanium alloys		30	%		38	%
Precision forgings and castings		17	%		0	%
Zirconium and related alloys		15	%		21	%

Total High-Value Products		100	%		100	%

High Performance Metals segment operating profit for 2011 increased 41% to $364.5 million compared to 2010, primarily due to higher shipments for most of our products, a favorable product mix, improved selling prices and the benefits of gross cost reductions. Operating profit in 2011 was impacted by $27.3 million of inventory fair value adjustments associated with the Ladish transaction, and $31.7 million of start-up and idle facility costs associated with our primary titanium sponge operations. Operating profit in 2010 included $55.8 million of start-up and idle facility costs mainly involving the primary titanium sponge operations. The start-up costs related mostly to our Rowley, UT titanium sponge facility.

We continued to aggressively reduce costs in 2011. Gross cost reductions, before the effects of inflation, totaled approximately $63 million. Major areas of gross cost reductions included $39 million from operating efficiencies and $18 million from procurement savings.

Flat-Rolled Products


(In millions)	2012			% Change			2011			% Change			2010
Sales to external customers	$	2,349.2			(14	%)	$	2,726.0			17	%	$	2,338.5

Operating profit		126.9			(41	%)		213.4			148	%		85.9

Operating profit as a percentage of sales		5.4	%					7.8	%					3.7	%

Direct international sales as a percentage of sales		32.0	%					33.6	%					32.4	%

Our Flat-Rolled Products segment produces, converts and distributes stainless steel, nickel-based alloys, specialty alloys, and titanium and titanium-based alloys, in a variety of product forms including plate, sheet, engineered strip, and Precision Rolled Strip products, as well as grain-oriented electrical steel sheet. The major end markets for our flat-rolled products are electrical energy, oil and gas, chemical processing, automotive, food processing equipment and appliances, construction and mining, electronics, communication equipment and computers, and aerospace and defense. The operations in this segment are ATI 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 consolidated statement of income as net income attributable to noncontrolling interests. The remaining 50% interest in Uniti LLC is held by VSMPO, 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.

2012 Compared to 2011

Sales for the Flat-Rolled Products segment for 2012 were $2.35 billion, or 14% lower than 2011, primarily due to decreased shipments to the electrical energy, oil and gas and chemical process industry markets, and reduced base selling prices for nearly all products, with standard stainless base selling prices at historically low levels in the fourth quarter of 2012. Demand from the oil and gas market was impacted by inventory management actions within the supply chain, as drilling activity declined in response to oil and gas supply/demand considerations. Sales increased to the global automotive market and the construction and mining markets. Direct international sales were 32% of sales. Comparative information for our Flat-Rolled Products segment revenues (in millions) by market, the respective percentages of overall segment revenues for the years ended 2012 and 2011, and the percentage change in revenues by market for 2012 is as follows:


Market	2012				2011				Change
Oil & Gas/Chemical Process Industry	$	601.9	26	%	$	790.7	29	%	$	(188.8	)	(24	%)
Electrical Energy		405.2	17	%		564.4	21	%		(159.2	)	(28	%)
Automotive		352.4	15	%		346.4	13	%		6.0		2	%
Construction/Mining		244.9	10	%		216.3	8	%		28.6		13	%
Food Equipment & Appliances		212.6	9	%		231.1	8	%		(18.5	)	(8	%)
Electronics/Computers/Communication		161.0	7	%		153.4	6	%		7.6		5	%
Aerospace & Defense		160.7	7	%		179.9	7	%		(19.2	)	(11	%)
Transportation		120.3	5	%		134.0	5	%		(13.7	)	(10	%)
Medical		23.1	1	%		61.4	2	%		(38.3	)	(62	%)
Other		67.1	3	%		48.4	1	%		18.7		39	%

Total	$	2,349.2	100	%	$	2,726.0	100	%	$	(376.8	)	(14	%)

Total product shipments increased 4% in 2012, as increased shipments of standard stainless products more than offset weaker demand for most high-value products. Average transaction prices in 2012 were 17% lower than 2011, and declined sequentially, quarter over quarter, for both high value and standard stainless products, and base selling prices for standard stainless products were at historically low levels.

Comparative information for the Flat-Rolled Products segment’s major product categories, based on their percentages of 2012 and 2011 segment revenues is as follows:


For the Years Ended December 31,	2012			2011
High-Value Products
Precision and engineered strip		24	%		23	%
Nickel-based alloys and specialty alloys		22	%		21	%
Grain-oriented electrical steel		10	%		11	%
Titanium and titanium alloys		4	%		6	%

Total High-Value Products		60	%		61	%
Standard Products
Specialty stainless sheet		19	%		19	%
Stainless steel sheet		17	%		16	%
Stainless steel plate		4	%		4	%

Total Standard Products		40	%		39	%

Grand Total		100	%		100	%

Sales of our Flat-Rolled Products segment high-value products, which include engineered strip, Precision Rolled Strip, nickel-based alloys and specialty steels, titanium and titanium alloys, and grain-oriented electrical steel products, decreased 17% in 2012 primarily due to lower average transaction prices, and lower shipment volumes for titanium and titanium alloys, and grain oriented electrical steel. Demand for our titanium products from the chemical process industry and oil and gas markets were impacted by timing delays on large projects, with shipments of titanium and ATI-produced Uniti titanium products declining 38% compared to 2011, to 11.7 million pounds. Shipments of our grain-oriented electrical steel products, which are primarily sold under long-term supply agreements with key customers, continued to be affected by the downturn in residential and commercial construction.

Sales of our standard products, which primarily include stainless steel sheet, strip, and plate, decreased 9% compared to 2011. Although our shipment volumes of standard products increased in 2012, average transaction selling prices decreased by 19% due to declining raw materials surcharges and historically low base selling prices. For the U.S., apparent domestic consumption of stainless steel sheet and strip increased 8% in 2012 compared to 2011, according to the Specialty Steel Industry of North America (SSINA) using annualized November 2012 data. However, imports of these products into the U.S. increased nearly 15% in 2012 compared to 2011, and imports accounted for over 27% of domestic consumption in 2012.

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Source: SSINA

US ADC of Stainless Sheet and Strip (hot rolled and cold rolled)


	2003		2004		2005		2006		2007		2008		2009		2010		2011		2012*
Millions of Tons		1.57		1.81		1.62		1.84		1.52		1.25		0.96		1.25		1.58		1.71

*	2012 represents Nov YTD annualized

The majority of our flat-rolled products are sold at prices that include surcharges for raw materials, including purchased scrap, that are required to manufacture our products. These raw materials include nickel, iron, chromium, and molybdenum. Nickel, which comprises a significant percentage of our material costs, and where price is influenced by commodity exchange trading, continued to be volatile during 2012. The cost of nickel increased 17% during the first two months of 2012 to an average monthly cost of $9.43 per pound in February 2012, only to decline over the next six months to a monthly average cost of $7.06 per pound in August 2012, or a 25% decline, essentially repeating a fluctuation pattern experienced in 2011. Nickel ended the year with an average monthly cost of $7.82 per pound in December 2012. Our other major raw materials were also volatile, with chromium and molybdenum costs rising early in the year, only to finish 2012 with annual average monthly cost decreases of 12% and 16%, respectively. Volatility in raw material surcharges affects customer purchasing trends.


03	04	05	06	07	08	09	10	11	12	03	04	05	06	07	08	09	10	11	12
6.43	6.25	6.09	15.68	11.79	4.39	7.74	10.94	8.23	7.82	202	405	280	235	325	235	345	430	510	395

Source: London Metals Exchange										Source: American Metals Market


03	04	05	06	07	08	09	10	11	12	03	04	05	06	07	08	09	10	11	12
0.54	0.69	0.54	0.66	1.71	1.03	0.89	1.33	1.11	0.97	7.26	31.24	26.58	24.78	32.38	9.60	11.38	16.19	13.39	11.20

Source: Platts Metals Week										Source: Platts Metals Week

Segment operating profit was $126.9 million, a 41% decrease compared to 2011. The reduction was primarily due to lower base selling prices for nearly all products, which offset a 4% increase in overall shipment volume. Average transaction prices for standard stainless products declined sequentially each quarter of 2012, continuing a 2011 trend, and were at historically low levels for most standard products by the end of 2012. A weaker product mix, with lower shipments of most high value products, more than offset a better matching of raw material prices with surcharges and the benefits of our gross cost reduction efforts.

We continued to aggressively reduce costs and streamline our flat-rolled products operations. In 2012, we achieved gross cost reductions, before the effects of inflation, of approximately $43 million in our Flat-Rolled Products segment. Major areas of gross cost reductions included $17 million from procurement savings and $14 million from operating efficiencies.

2011 Compared to 2010

Sales for the Flat-Rolled Products segment for 2011 were $2.73 billion, or 17% higher than 2010, due primarily to increased shipments and improved base-selling prices for most high-value products. Demand for these products was strong from the oil and gas and chemical process industry and aerospace markets, and improved from the global automotive market. Sales to the oil and gas and chemical process industry markets grew to 46% of sales, and direct international sales increased to 34% of sales. Comparative information for our Flat-Rolled Products segment revenues (in millions) by market, the respective percentages of overall segment revenues for the years ended 2011 and 2010, and the percentage change in revenues by market for 2011 is as follows:


Market	2011				2010				Change
Oil & Gas/Chemical Process Industry	$	790.7	29	%	$	542.7	23	%	$	248.0		46	%
Electrical Energy		564.4	21	%		550.5	24	%		13.9		3	%
Automotive		346.4	13	%		281.8	12	%		64.6		23	%
Food Equipment & Appliances		231.1	8	%		268.9	11	%		(37.8	)	(14	%)
Construction/Mining		216.3	8	%		225.0	10	%		(8.7	)	(4	%)
Aerospace & Defense		179.9	7	%		116.4	5	%		63.5		55	%
Electronics/Computers/Communication		153.4	6	%		117.1	5	%		36.3		31	%
Transportation		134.0	5	%		112.5	5	%		21.5		19	%
Medical		61.4	2	%		80.1	3	%		(18.7	)	(23	%)
Other		48.4	1	%		43.5	2	%		4.9		11	%

Total	$	2,726.0	100	%	$	2,338.5	100	%	$	387.5		17	%

Total product shipments decreased 1% for 2011, as increased shipments and improved base-selling prices for most high-value products was offset by weak demand for standard stainless products. While average transaction prices for standard stainless products were higher on an annual basis compared to 2010, shipment volumes and average transaction prices declined sequentially, quarter over quarter, in 2011 due to lower demand, falling raw material surcharges and weak base-selling prices.

Comparative information for the Flat-Rolled Products segment’s major product categories, based on their percentages of 2011 and 2010 segment revenues is as follows:


For the Years Ended December 31,	2011			2010
High-Value Products
Precision and engineered strip		23	%		23	%
Nickel-based alloys and specialty alloys		21	%		15	%
Grain-oriented electrical steel		11	%		13	%
Titanium and titanium alloys		6	%		5	%

Total High-Value Products		61	%		56	%
Standard Products
Specialty stainless sheet		19	%		23	%
Stainless steel sheet		16	%		18	%
Stainless steel plate		4	%		3	%

Total Standard Products		39	%		44	%

Grand Total		100	%		100	%

Our Flat-Rolled Products segment high-value product shipments, which include engineered strip, Precision Rolled Strip, super stainless steel, nickel-based alloys, specialty alloys, titanium and grain-oriented electrical steel products, increased 9% in 2011 while average transaction prices for these high-valued products increased 17%. Demand for our engineered strip and Precision Rolled Strip products improved throughout 2011 as most markets continued to improve. Demand for our titanium products from the chemical process industry and oil and gas markets continued to increase, and shipments of titanium and ATI-produced Uniti titanium products increased over 50% in 2011 to almost 19 million pounds. Shipments of our grain-oriented electrical steel products, which are primarily sold under long-term supply agreements with key customers, continued to be affected by the downturn in residential and commercial construction.

Shipments of our standard products, which primarily include stainless steel hot rolled and cold rolled sheet, and stainless steel plate, decreased 9% while average transaction prices for these products increased by 11%.

Raw material costs continued to be volatile in 2011. The majority of our flat-rolled products are sold at prices that include surcharges for raw materials, including purchased scrap, that are required to manufacture our products. Nickel, which comprises a significant percentage of our raw material costs, and where price is influenced by commodity exchange trading, continued to be volatile during 2011. The cost of nickel increased 17% during the first two months of 2011, to an average monthly cost of $12.82 per pound in February 2011, only to decline throughout most of the year to a monthly average cost of $8.11 per pound in November 2011, a 37% decline, ending the year with an average monthly cost of $8.23 per pound in December 2011. Other major raw materials that we use were also volatile, with chromium and molybdenum both decreasing more than 15% during 2011. Volatility in raw material surcharges affects customer purchasing trends.

Operating income was $213.4 million, a 148% increase compared to 2010. The improvement in 2011 operating profit was primarily due to higher shipments of high-value products, a better matching of raw material prices with surcharges, and the benefits from our gross cost reduction efforts.

We continued to aggressively reduce costs and streamline our flat-rolled products operations. In 2011, we achieved gross cost reductions, before the effects of inflation, of approximately $47 million in our Flat-Rolled Products segment. Major areas of gross cost reductions included $25 million from operating efficiencies and $18 million from procurement savings. In the fourth quarter 2011, we implemented plans to consolidate certain finishing operations in the Flat-Rolled Products segment, which resulted in $2.6 million of restructuring charges, primarily related to severance and benefit costs associated with the temporary idling of the New Castle, IN sheet finishing facility.

Engineered Products


(In millions)	2012			% Change			2011			% Change			2010
Sales to external customers	$	491.7			(2	%)	$	501.1			35	%	$	371.8

Operating profit		39.4			16	%		34.1			166	%		12.8

Operating profit as a percentage of sales		8.0	%					6.8	%					3.4	%

Direct international sales as a percentage of sales		21.6	%					22.7	%					23.6	%

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 specialty metals fabrication and precision metals processing services. The operations in this segment are ATI Tungsten Materials, ATI Portland Forge, ATI Casting Service, ATI Fabricated Components and ATI Precision Finishing.

The major markets served by our products of the Engineered Products segment include a wide variety of industrial markets including oil and gas, machine and cutting tools, transportation, construction and mining, electrical energy, aerospace and defense, and automotive.

2012 Compared to 2011

Sales for the Engineered Products segment decreased 2% to $491.7 million in 2012. While demand remained strong from the oil and gas and construction and mining markets, demand weakened from the electrical energy and machine and cutting tools markets. Comparative information for our Engineered Products segment revenues (in millions) by market, the respective percentages of overall segment revenues for the years ended 2012 and 2011, and the percentage change in revenues by market for 2012 is as follows:


Market	2012				2011				Change
Oil & Gas/Chemical Process Industry	$	142.7	29	%	$	136.2	27	%	$	6.5		5	%
Machine & Cutting Tools		79.5	16	%		86.3	17	%		(6.8	)	(8	%)
Construction/Mining		78.5	16	%		69.2	14	%		9.3		13	%
Transportation		78.3	16	%		78.8	16	%		(0.5	)	(1	%)
Aerospace & Defense		42.7	9	%		42.1	8	%		0.6		1	%
Electrical Energy		28.1	6	%		37.0	8	%		(8.9	)	(24	%)
Automotive		25.8	5	%		30.7	6	%		(4.9	)	(16	%)
Medical		12.2	2	%		9.4	2	%		2.8		30	%
Other		3.9	1	%		11.4	2	%		(7.5	)	(66	%)

Total	$	491.7	100	%	$	501.1	100	%	$	(9.4	)	(2	%)

Comparative information for the Engineered Products segment’s major product categories, based on their percentages of 2012 and 2011 segment revenues is as follows:


For the Years Ended December 31,	2012			2011
High -Value Products
Tungsten-based materials		67	%		68	%
Precision forgings		25	%		25	%

Total High-Value Products		92	%		93	%
Standard Products
Iron castings and other		8	%		7	%

Total Standard Products		8	%		7	%

Grand Total		100	%		100	%

Segment operating profit improved to $39.4 million for 2012, a 16% increase over 2011. Improved demand for tungsten-based products and forged products helped to offset higher start-up costs at our ATI Fabricated Components operation and continued weakness for iron castings products. Operating results were impacted by idle facility costs of $1.7 million in 2012 and $2.4 million for 2011.

In 2012, we achieved gross cost reductions, before the effects of inflation, of approximately $9 million in our Engineered Products segment, primarily from procurement savings and operating efficiencies.

2011 Compared to 2010

Sales for the Engineered Products segment increased 35% to $501.1 million in 2011 as demand continued to improve from the oil and gas, transportation, aerospace, electrical energy, and automotive markets, but remained weak from the wind energy market. Comparative information for our Engineered Products segment revenues (in millions) by market, the respective percentages of overall segment revenues for the years ended 2011 and 2010, and the percentage change in revenues by market for 2011 is as follows:


Market	2011				2010				Change
Oil & Gas/Chemical Process Industry	$	136.2	27	%	$	99.3	27	%	$	36.9		37	%
Machine & Cutting Tools		86.3	17	%		65.9	18	%		20.4		31	%
Transportation		78.8	16	%		51.8	14	%		27.0		52	%
Construction/Mining		69.2	14	%		47.1	13	%		22.1		47	%
Aerospace & Defense		42.1	8	%		31.6	8	%		10.5		33	%
Electrical Energy		37.0	8	%		25.2	7	%		11.8		47	%
Automotive		30.7	6	%		27.2	7	%		3.5		13	%
Medical		9.4	2	%		10.8	3	%		(1.4	)	(13	%)
Other		11.4	2	%		12.9	3	%		(1.5	)	(12	%)

Total	$	501.1	100	%	$	371.8	100	%	$	129.3		35	%

Comparative information for the Engineered Products segment’s major product categories, based on their percentages of 2011 and 2010 segment revenues is as follows:


For the Years Ended December 31,	2011			2010
High -Value Products
Tungsten-based materials		68	%		69	%
Precision forgings		25	%		23	%

Total High-Value Products		93	%		92	%
Standard Products
Iron castings and other		7	%		8	%

Total Standard Products		7	%		8	%

Grand Total		100	%		100	%

The improved demand and better pricing for most products resulted in operating profit of $34.1 million for 2011, a significant increase over 2010 operating profit of $12.8 million. Operating results were impacted by idle facility costs of $2.4 million for 2011 and $2.7 million in 2010.

In 2011, we achieved gross cost reductions, before the effects of inflation, of approximately $14 million in our Engineered Products segment. Major areas of gross cost reductions included $11 million from procurement savings and operating efficiencies, and $3 million from lower compensation and benefit expenses.

Corporate Expenses

Corporate expenses were $68.4 million in 2012 compared to $92.5 million in 2011, and $64.1 million in 2010. The decrease in corporate expenses in 2012 was primarily the result of reduced annual and long-term performance-based compensation expenses, including the accelerated recognition of equity compensation due to executive retirements in 2011. Additionally, the decrease in corporate expenses in 2012 compared to 2011 was due to Ladish acquisition expenses and higher corporate funded R&D costs in 2011.

Interest Expense, Net

Interest expense, net of interest income and interest capitalization, was $71.6 million in 2012, $92.3 million for 2011 and $62.7 million for 2010. The decrease in interest expense in 2012 compared to 2011 was primarily due to $12.4 million of higher capitalized interest on capital projects, and $8.6 million of interest expense in 2011 associated with the remaining $117 million portion of the 8.375% Notes due 2011 that matured, and were repaid, in December 2011. The increase in interest expense in 2011 was primarily due to the January 7, 2011 issuance of $500 million of 5.95% Notes due 2021, and debt assumed in the Ladish acquisition. Interest expense is presented net of interest income of $0.7 million for 2012, $1.4 million for 2011, and $1.1 million for 2010.

Capital expenditures associated with strategic investments to expand our production capabilities resulted in interest capitalization in 2012, 2011, and 2010. Interest expense in 2012, 2011, and 2010 was reduced by $24.5 million, $12.1 million, and $12.5 million, respectively, related to interest capitalization on major strategic capital projects.

Closed Company and Other Expenses

Closed company and other expenses, which were $31.5 million in 2012, $9.9 million in 2011 and $13.9 million in 2010, include charges incurred in connection with closed operations, pre-tax gains and losses on the sale of surplus real estate, non-strategic investments and other assets, and other non-operating income or expense. In the fourth quarter of 2012, we recorded a $13.0 million pre-tax charge to write down the value of the long-lived assets with the closing of our Alpena, MI iron casting facility, which was formerly part of the operations in our Engineered Products segment. This charge is included within cost of sales in the consolidated statements of income. Other items are presented primarily in selling and administrative expenses in the consolidated statements of income, and primarily related to legal, environmental and insurance costs associated with closed operations.

Retirement Benefit Expense

Retirement benefit expense, which includes pension and postretirement medical benefits, increased to $122.4 million in 2012, compared to $77.9 million in 2011. The 2012 increase was primarily due to the utilization of a lower discount rate to value retirement benefit obligations and lower than expected returns on plan assets. Retirement benefit expense in 2010 was $90.1 million. The decrease in expense in 2011 compared to 2010 was primarily due to higher than expected returns on pension plan assets in prior years. Since 2004, we have made over $765 million of voluntary pension contributions to our U.S. qualified defined benefit pension plan, including $350 million in the second quarter of 2009. However, declining discount rates, which are used to measure retirement benefit obligations, have continued to negatively impact both retirement benefit expense and the funded position of our U.S. qualified defined benefit pension plan. Retirement benefit expenses are included in 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 2012, 2011, and 2010 was as follows:


(In millions)	2012		2011		2010
Cost of sales	$	89.3	$	55.1		$	64.6
Selling and administrative expenses		33.1		22.8			25.5

Total retirement benefit expense	$	122.4	$	77.9		$	90.1

Total retirement benefit expense for 2013 is expected to increase to approximately $130 million, an $8 million increase from 2012. We expect pension expense to be approximately $106 million compared to pension expense of $97.6 million in 2012. These expected increases are primarily a result of utilizing a lower discount rate to value the benefit obligations.

Income Taxes

Net income for 2012 included a provision for income taxes of $76.2 million, or 31.2% of income before tax, for U.S. Federal, foreign and state income taxes. The 2011 provision for income taxes was $116.3 million, or 34.3% of income before tax, for U.S. Federal, foreign and state income taxes. The income tax rate in 2012 includes the effects of a greater portion of pre-tax income from foreign earnings that are generally taxed at lower rates than the U.S. Federal rate, and the benefits of the U.S. Federal manufacturing deduction. The 2010 provision for income taxes was $47.0 million, or 37.4% of income before tax, for U.S. Federal, foreign and state income taxes. The 2010 provision for income taxes included charges of $9.2 million related to U.S. Federal legislation, including the Patient Protection and Affordable Care Act, which eliminated the tax benefit of company-provided retiree prescription drug coverage, and the Small Business Jobs and Credit Act, which increased the Company’s ability to recover prior years’ cash taxes paid through accelerated depreciation of property placed into service in 2010, but reduced the 2010 tax benefit of the manufacturing deduction.

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, 2012, we had a net deferred tax asset of $47.5 million.

Financial Condition and Liquidity

We believe that internally generated funds, current cash on hand, and available borrowings under our existing credit facilities will be adequate to meet foreseeable liquidity needs, including the ongoing expansion of our production capabilities over the next few years. If we needed to obtain additional financing using the credit markets, the cost and the terms and conditions of such borrowings may be influenced by our credit rating. Changes in our credit rating do not impact our access to, or the cost of, our existing credit facilities.

We did not borrow funds under our $400 million domestic senior unsecured credit facility during 2012, 2011, or 2010. However, as of December 31, 2012 approximately $4 million of this facility was utilized to support letters of credit.

We have no off-balance sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K.

Cash Flow and Working Capital

Cash flow from operations for 2012 was $427.5 million, which included a reduction in managed working capital of $22.4 million. During 2012, cash used in investing activities was $378.7 million, which included $382.0 million in capital expenditures. Cash used in financing activities was $124.8 million in 2012, primarily due to dividend payments to ATI stockholders of $76.5 million, $27.1 million of net debt retirements, and income tax withholding on share-based compensation of $23.4 million. At December 31, 2012, cash and cash equivalents on hand totaled $304.6 million, a decrease of $76.0 million from year end 2011. Cash and cash equivalents held by our foreign subsidiaries was $100.1 million at December 31, 2012.

Cash flow from operations for 2011 was $296.8 million, as improved profitability was partially offset by an investment in managed working capital of $273.3 million, primarily due to a significant increase in the level of business activity. Cash used in investing activities was $624.7 million, including $349.2 million for the acquisition of Ladish, net of cash acquired, and $278.2 million in capital expenditures. Cash provided by financing activities was $276.2 million in 2011, primarily due to issuance of $500.0 million of 5.95% Senior Notes due 2021, partially offset by debt retirements of $146.9 million, including the remaining $117 million of 8.375% Notes due 2011 which matured in December 2011, and dividend payments of $74.7 million. At December 31, 2011, cash and cash equivalents on hand totaled $380.6 million, a decrease of $51.7 million from year end 2010.

Managed Working Capital

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 LIFO inventory valuation reserves, excess and obsolete inventory reserves, and reserves for uncollectible accounts receivable which, due to their nature, are managed separately. We also measure managed working capital as a percentage of the prior two months annualized sales to evaluate our performance based on recent levels of business volume. We define managed working capital as gross inventory plus accounts receivable less accounts payable.

LOGO


	03			04			05			06			07			08			09			10			11			12
Millions/$		576			853			1,048			1,582			1,627			1,412			1,061			1,380			1,823			1,801
% of Annualized Revenue		30.7	%		29.5	%		30.3	%		29.0	%		32.2	%		35.2	%		34.5	%		34.4	%		37.8	%		41.1	%

In 2012, managed working capital decreased by $22.4 million, due to decreased business activity. The $22.4 million reduction in managed working capital resulted from a $97.3 million decrease in accounts receivable, a $7.7 million increase in accounts payable, offset by an $82.6 million increase in inventory as we staged inventory to meet 2013 demand.

In 2011, managed working capital increased by $273.3 million, after adjusting for the $170.2 million of working capital acquired in the Ladish acquisition, due to increased business activity. The increase in managed working capital was a use of cash in 2011, as gross inventory increased $244.9 million and accounts receivable increased $79.8 million, partially offset by an increase in accounts payable of $51.4 million.

Managed working capital as a percentage of sales has increased to historical levels due to a continuing shift in mix to more value-added products, primarily in the High Performance Metals and Flat-Rolled Products business segments, which have longer manufacturing processes. Days sales outstanding, which measures actual collection timing for accounts receivable, remained relatively constant in 2012 compared to 2011. Gross inventory turns, which excludes the effect of LIFO inventory valuation reserves, decreased slightly across all of our business segments at year-end 2012.

The components of managed working capital were as follows:


(in millions)	December 31, 2012			December 31, 2011			December 31, 2010
Accounts receivable	$	613.3		$	709.1		$	545.4
Inventory		1,536.6			1,384.3			1,024.5
Accounts payable		(499.9	)		(490.7	)		(394.1	)

Subtotal		1,650.0			1,602.7			1,175.8
Allowance for doubtful accounts		5.5			5.9			5.6
LIFO reserve		76.9			153.7			163.0
Corporate and other		68.4			60.9			35.3

Managed working capital	$	1,800.8		$	1,823.2		$	1,379.7

Annualized prior 2 months sales	$	4,380.0		$	4,820.6		$	4,007.7

Managed working capital as a % of annualized sales		41.1	%		37.8	%		34.4	%

December 2012 change in managed working capital	$	(22.4	)

Capital Expenditures and Acquisitions

Capital expenditures for 2012 were $382.0 million, compared to $278.2 million in 2011, and $219.1 million in 2010. Since 2004, we have transformed ATI by investing over $3.7 billion in capital expenditures and acquisitions. Nearly all of these investments have been in the United States and more than 80% have been self-funded.

We have significantly expanded and continue to expand our manufacturing capabilities to meet current and expected demand growth from the aerospace (engine and airframe) and defense, oil and gas, chemical process industry, electrical energy, and medical markets, especially for titanium and titanium-based alloys, nickel-based alloys and superalloys, specialty alloys, and zirconium and related alloys. Significant capital expenditures completed or in progress include:

•

The expansion of ATI’s aerospace quality titanium sponge production capabilities. Titanium sponge is an important raw material used to produce our titanium mill products. Our greenfield premium-grade titanium sponge (jet engine rotating parts) facility in Rowley, UT, with a total cost of approximately $500 million, continued to ramp up production during 2012, and completed the standard-grade qualification process in the first half of 2012. We continue to improve the facility’s cost structure through process and productivity improvements and technology initiatives, and we expect to begin the premium-grade qualification process in 2013. When this Utah sponge facility is fully operational, our total annual sponge production capacity, including our Albany, OR standard grade titanium sponge facility, is projected to be approximately 46 million pounds. These secure supply sources are intended to reduce our purchased titanium sponge and purchased titanium scrap requirements. In addition, the Utah facility will have the infrastructure in place to further expand annual capacity by approximately 18 million pounds, bringing the total annual capacity at that facility to 42 million pounds, if needed.

•

We currently expect our 2013 capital expenditures to be approximately $550 million, which includes approximately $450 million relating to the HRPF project. We expect 2013 to be our peak year of capital expenditures. Our objective is to fund these capital expenditures with cash on hand and cash flow generated from our operations, and if needed, by using a portion of our $400 million unsecured domestic credit facility.

Debt

Total debt outstanding decreased by $29.2 million, to $1,480.1 million at December 31, 2012, from $1,509.3 million at December 31, 2011. The decrease was primarily due to principal payments of $15.7 million on debt assumed in the 2011 Ladish acquisition, and $10.4 million of repayments under foreign credit facilities. In managing our overall capital structure, some of the measures on which we focus are net debt to total capitalization, which is the percentage of our debt, net of cash that may be available to reduce borrowings, to our total invested and borrowed capital, and total debt to total capitalization, which excludes cash balances. At year-end 2012, our net debt to total capitalization was 32.2%, compared to 31.3% at December 31, 2011, and 23.6% at December 31, 2010. Total debt to total capitalization was 37.4% at December 31, 2012 compared to 37.9% at December 31, 2011, and 34.3% at December 31, 2010.


(In millions)	December 31, 2012			December 31, 2011
Total debt	$	1,480.1		$	1,509.3
Less: Cash		(304.6	)		(380.6	)

Net debt	$	1,175.5		$	1,128.7
Net debt	$	1,175.5		$	1,128.7
Total ATI stockholders’ equity		2,479.6			2,475.3

Net ATI capital	$	3,655.1		$	3,604.0
Net debt to ATI capital		32.2	%		31.3	%


(In millions)	December 31, 2012			December 31, 2011
Total debt	$	1,480.1		$	1,509.3
Total ATI stockholders’ equity		2,479.6			2,475.3

Total ATI capital	$	3,959.7		$	3,984.6
Total debt to ATI capital		37.4	%		37.9	%

We have a $400 million senior unsecured domestic revolving credit facility that expires in April 2017. The facility includes a $200 million sublimit for the issuance of letters of credit. Under the terms of the facility, we may increase the size of the credit facility by up to $100 million without seeking the further approval of the lending group. The facility requires us to maintain a leverage ratio (consolidated total indebtedness divided by consolidated earnings before interest, taxes and depreciation and amortization) of not greater than 3.25, and maintain an interest coverage ratio (consolidated earnings before interest and taxes divided by interest expense) of not less than 2.0. At December 31, 2012, our leverage ratio was 2.09 and our interest coverage ratio was 5.68. The definition of consolidated earnings before interest and taxes, and consolidated earnings before income, taxes, depreciation and amortization as used in the interest coverage and leverage ratios excludes any non-cash pension expense or income, and consolidated indebtedness in the leverage ratio is net of cash on hand in excess of $50 million. We were in compliance with these required ratios during all applicable periods. As of December 31, 2012, there had been no borrowings made under the facility, although a portion of the facility was used to support approximately $4 million in letters of credit.

We have an additional, separate credit facility for the issuance of letters of credit. As of December 31, 2012, $32 million in letters of credit were outstanding under this facility.

STAL, our Chinese joint venture company in which ATI has a 60% interest, has a revolving credit facility with a group of banks which extends through August 2014. Under the credit facility, STAL may borrow up to 205 million renminbi (approximately $33 million at December 2012 exchange rates) at an interest rate equal to 90% of the applicable lending rate published by the People’s Bank of China. The credit facility is supported solely by STAL’s financial capability without any guarantees from the joint venture partners, and is intended to be utilized in the future for the expansion of STAL’s operations, which are located in Shanghai, China. The credit facility requires STAL to maintain a minimum level of shareholders’ equity and certain financial ratios. We were in compliance with these required ratios during all applicable periods. As of December 31, 2012, there had been no borrowings made under this credit facility.

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


(In millions)	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Contractual Cash Obligations
Total Debt including Capital Leases (A)	$	1,475.6	$	17.1	$	436.7	$	21.7	$	1,000.1
Operating Lease Obligations		96.2		17.6		30.4		19.9		28.3
Other Long-term Liabilities (B)		109.9		—		29.3		13.1		67.5
Unconditional Purchase Obligations
Raw Materials (C)		590.0		265.8		133.4		38.2		152.6
Capital expenditures		543.6		406.8		136.8		—		—
Other (D)		183.2		86.2		62.3		16.0		18.7

Total	$	2,998.5	$	793.5	$	828.9	$	108.9	$	1,267.2

Other Financial Commitments
Lines of Credit (E)	$	545.6	$	86.0	$	59.6	$	400.0	$	—
Guarantees	$	19.9

(A)	Debt and capital leases exclude acquisition fair value adjustments.

(B)	Other long-term liabilities exclude pension liabilities and accrued postretirement benefits. See Note 9. Pension Plans and Other Postretirement Benefits of the notes to the 2012 consolidated financial statements for further information on these obligations.

(C)	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, 2012, for raw material obligations with variable pricing.

(D)	We have various contractual obligations that extend through 2016 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.

(E)

Drawn amounts were $14.2 million at December 31, 2012 under foreign credit agreements, and drawn amounts are included in total debt. Drawn amounts also include $4.5 million utilized under the $400 million domestic senior unsecured credit facility for standby letters of credit, which renew annually, and $32.0 million under a separate letter of credit facility. These letters of credit are used to support: $30.1 million in workers’ compensation and general insurance arrangements, and $6.4 million related to environmental, legal and other matters.

Retirement Benefits

At December 31, 2012, our U.S. qualified defined benefit pension plan (U.S. Plan) was approximately 77% funded in accordance with generally accepted accounting principles. The funded position of the U.S. Plan declined in 2012 primarily due to the use of a lower discount rate to value plan liabilities.

On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21 Act) was signed into law. The MAP-21 Act included certain pension-related provisions which included changes to the methodology used to determine discount rates for ERISA funding purposes for qualified defined benefit pension plans. Based on historical interest rates, the MAP-21 Act allows plan sponsors to utilize a higher discount rate to value pension liabilities, which results in lower required pension plan contributions under ERISA. Based upon current regulations and actuarial studies, we are not required to make a cash contribution to the U.S. Plan for 2013. However, we may elect, depending upon investment performance of the pension plan assets and other factors, to make additional voluntary cash contributions to this plan in the future.

We fund certain retiree health care benefits for Allegheny Ludlum using investments held in a Company-administered Voluntary Employee Benefit Association (VEBA) trust. This allows us the opportunity to generate investment returns to recover a portion of the retiree medical costs. In accordance with our labor agreements, during 2012, 2011, and 2010, we funded $0.9 million, $5.2 million, and $4.2 million, respectively, of retiree medical costs using the investments of this VEBA trust. We may continue to fund certain retiree medical benefits utilizing the investments held in this VEBA. The value of the investments held in this VEBA was approximately $6.3 million as of December 31, 2012.

Dividends

We paid a quarterly cash dividend of $0.18 per share of common stock outstanding for each quarter of 2012 and 2011. The payment of dividends and the amount of such dividends depends upon matters deemed relevant by our Board of Directors, such as our results of operations, financial condition, cash requirements, future prospects, 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.

Inventories

At December 31, 2012, we had net inventory of $1,536.6 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 been extremely volatile during the past four years. Since we value most of our inventory utilizing the LIFO inventory costing methodology, a rise in raw material costs has a negative effect on our operating results, while, conversely, a fall in material costs results in a benefit to operating results. For example, in 2012 and 2011, the effect of falling raw material costs on our LIFO inventory valuation method resulted in cost of sales which were $76.8 million and $9.3 million lower than would have been recognized had we utilized the FIFO methodology to value our inventory. Conversely, in 2010, the effect of rising raw material costs on our LIFO inventory valuation method resulted in cost of sales which were $60.2 million higher than would have been recognized had 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.

The LIFO inventory valuation methodology is not utilized by many of the companies with which we compete, including foreign competitors. As such, our results of operations may not be comparable to those of our competitors during periods of volatile material costs due, in part, to the differences between the LIFO inventory valuation method and other acceptable inventory valuation methods.

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, 2012, no significant 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. In the fourth quarter of 2012, following an evaluation of business conditions and possible business uses of the idled Alpena, MI iron casting facility, we determined that we were unlikely to produce iron castings at this facility and adopted a plan of disposal, and we recorded a $13 million pre-tax long-lived asset impairment charge, representing the excess of net book value over the estimated fair market value.

Retirement Benefits

We have defined benefit and defined contribution pension plans covering substantially all of our employees. Under U.S. generally accepted accounting principles, benefit expenses recognized in financial statements for defined benefit pension plans are determined on an actuarial basis, rather than as contributions are made to the plan. A significant element in determining our pension expense in accordance with the accounting standards 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 assets are invested in, how those investments have performed historically, and expectations for how those investments will perform in the future. Our expected long-term return on pension plan investments was 8.5% in 2012. We apply this assumed rate 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 for the current year. The actual returns on pension plan assets for the last five years have been 8.0% for 2012, 0.3% for 2011, 12.2% for 2010, 16.4% for 2009, and a negative 25.3% for 2008. For 2013, we reduced our expected rate of return to 8.25% based upon our strategic allocation of pension assets across the various investments asset classes, and consideration of both historical and projected annual compound returns. The effect of increasing, or lowering, the expected return on pension plan investments by 0.25% results in additional pre-tax annual income, or expense, of approximately $5.3 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 U.S. 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.

In accordance with accounting standards, we determine the discount rate used to value pension plan liabilities as of the last day of each year. 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 December 2012, we established a discount rate of 4.25% for valuing the pension liabilities as of the end of 2012, and for determining the pension expense for 2013. We had previously assumed a discount rate of 5.0% at the end of 2011 and 5.8% for the end of 2010. The estimated effect of changing the discount rate by 0.50% would decrease pension liabilities in the case of an increase in the discount rate, or increase pension liabilities in the case of a decrease in the discount rate, by approximately $170 million. Such a change in the discount rate would decrease pension expense in the case of an increase in the discount rate, or increase pension expense in the case of a decrease in the discount rate, by approximately $12 million. 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 the accounting standards.

As discussed above, gains and losses due to differences between actual and expected results for investment returns on plan assets, and changes in the discount rate used to value benefit obligations are deferred and recognized in the income statement over future periods. However for balance sheet presentation, these gains and losses are included in the determination of benefit obligations, net of plan assets, included on the year-end statement of financial position. At December 31, 2012, the Company had $1.46 billion of pre-tax net actuarial losses on its pension obligations, primarily related to continued declines in the discount rate used to value the pension obligations, and also due to negative investment returns on plan assets in 2008, which have been recognized on the balance sheet through a reduction in stockholders’ equity, and are being recognized in the income statement through expense amortizations over future years.

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. Under most of the plans, our contributions towards premiums are capped based upon the cost as of certain dates, thereby creating a defined contribution. For the non-collectively bargained plans, we maintain the right to amend or terminate the plans in the future. In accordance with U.S. generally accepted accounting standards, postretirement expenses recognized in financial statements associated with defined benefit plans are 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 benefit obligations for these plans. The discount rate, which is determined annually at the end of each year, is developed based upon rates of return on high quality, fixed-income investments. At the end of 2012, we determined the rate to be 4.25%, compared to a 5.0% discount rate in 2011, and a 5.8% discount rate in 2010. The estimated effect of changing the discount rate by 0.50%, would decrease postretirement obligations in the case of an increase in the discount rate, or increase postretirement obligations in the case of a decrease in the discount rate, by approximately $24 million. Such a change in the discount rate would decrease postretirement benefit expense in the case of an increase in the discount rate, or increase postretirement benefit expense in the case of a decrease in the discount rate, by approximately $0.8 million. Based upon predictions of continued significant medical cost inflation in future years, the annual assumed rate of increase in the per capita cost of covered benefits of health care plans is 8.7% in 2012 and is assumed to gradually decrease to 5.0% in the year 2028 and remain level thereafter. Certain of these postretirement benefits are funded using plan investments held in a Company-administered VEBA trust. The December 31, 2012 asset balance is $6 million and consists primarily of private equity investments. For 2012, our expected return on investments held in the VEBA trust was 8.3%. This assumed long-term rate of return on investments is applied to the market value of plan assets at the end of the previous year. This produces the expected return on plan investments that is included in annual postretirement benefits expense for the current year. Our expect return on investments in the VEBA trust is 8.3% for 2013. The effect of increasing, or lowering, the expected return on postretirement benefit plan investments by 0.25% has a negligible effect on pre-tax annual income, or expense, due to the low level of investments held.

New Accounting Pronouncements Adopted

In June 2011, the Financial Accounting Standards Board (FASB) issued amendments to financial accounting standards related to the presentation of comprehensive income which requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, these amendments require an entity to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB deferred the requirement for presenting the reclassification adjustments from comprehensive income to net income by component within the face of the financial statements. Finally, no changes were made to the calculation and presentation of earnings per share. These amendments, with retrospective application, were effective for interim and annual periods in fiscal year 2012. A separate consolidated statement of comprehensive income is included in these consolidated financial statements. Other than the change in presentation, these changes did not have an impact on the consolidated financial statements. In February 2013, the FASB further amended the accounting standards adding new disclosure requirements for items reclassified out of accumulated other comprehensive income. The newly issued guidance will require entities to disclose additional information about reclassification adjustments, including (1) changes in accumulated other comprehensive income balances by component and (2) significant items reclassified out of accumulated other comprehensive income. The new disclosure requirements are effective for fiscal years, and interim periods within those years, beginning after December 15, 2012.

In July 2012, the FASB issued amended guidance that simplifies how entities test indefinite-lived intangible assets other than goodwill for impairment. The changes are effective for interim and annual periods beginning after September 15, 2012 with early adoption permitted. The Company elected to early adopt this guidance, which provides the Company with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of the indefinite-lived intangible assets other than goodwill is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, go directly to the two-step quantitative impairment test.

Pending Accounting Pronouncements

In December 2011, the FASB issued guidance enhancing disclosure requirements about the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. The new guidance requires the disclosure of the gross amounts subject to rights of set-off, amounts offset in accordance with the accounting standards followed, and the related net exposure. The new guidance will be effective for the Company beginning January 2013. We do not anticipate material impacts on our financial statements upon adoption.

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 in Item 1A, Risk Factors, of this Annual Report on Form 10-K and will be described from time-to-time in the Company filings with the SEC, including the Company’s Annual Reports on Form 10-K and the Company’s subsequent reports filed with the SEC on Form 10-Q and Form 8-K, which are available on the SEC’s website at http://www.sec.gov and on the Company’s website at http://www.atimetals.com. We assume no duty to update our forward-looking statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As part of our risk management strategy, we utilize derivative financial instruments, from time to time, to hedge our exposure to changes in energy and raw material prices, foreign currencies, and interest rates. We monitor the third-party financial institutions which are our counterparty to these financial instruments on a daily basis and diversify our transactions among counterparties to minimize exposure to any one of these entities. Fair values for derivatives were measured using exchange-traded prices for the hedged items including consideration of counterparty risk and the Company’s credit risk. Our exposure to volatility in interest rates is presently not material, as nearly all of our debt is at fixed interest rates.

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, have 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. We use several approaches to minimize any material adverse effect on our financial condition or results of operations from volatile energy prices. These approaches include incorporating an energy surcharge on many of our products and using financial derivatives to reduce exposure to energy price volatility.

At December 31, 2012, the outstanding financial derivatives used to hedge our exposure to natural gas cost volatility represented approximately 70% of our forecasted requirements for 2013, 40% for 2014 and 5% for 2015. The net mark-to-market valuation of these outstanding hedges at December 31, 2012 was an unrealized pre-tax loss of $3.9 million, comprised of $0.4 million in prepaid expenses and other current assets, $0.7 million in other assets, $4.4 million in accrued liabilities and $0.6 million in other long-term liabilities. The effects of the hedging activity will be recognized in income over the designated hedge periods. For the year ended December 31, 2012, the effects of natural gas hedging activity increased cost of sales by $8.1 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, in 2012 we used approximately 100 million pounds of nickel; therefore a hypothetical change of $1.00 per pound in nickel prices would result in increased costs of approximately $100 million. In addition, in 2012 we also used approximately 795 million pounds of ferrous scrap in the production of our flat-rolled products and a hypothetical change of $0.01 per pound would result in increased costs of approximately $8 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.

The majority of our products are sold utilizing raw material surcharges and index mechanisms. However as of December 31, 2012, we had entered into financial hedging arrangements primarily at the request of our customers related to firm orders, for an aggregate amount of less than 10% of our estimated annual nickel requirements. These nickel hedges extend to 2016. Any gain or loss associated with these hedging arrangements is included in cost of sales. At December 31, 2012, the net mark-to-market valuation of our outstanding raw material hedges was an unrealized pre-tax loss of $0.5 million, comprised of $0.6 million in prepaid expenses and other current assets, $0.3 million in other assets, $1.1 million in accrued liabilities and $0.3 million in other long-term liabilities.

Foreign Currency Risk. Foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates. We sometimes purchase foreign currency forward contracts that permit us to sell specified amounts of foreign currencies expected to be received from our 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. At December 31, 2012, the outstanding financial derivatives used to hedge our exposure to foreign currency, primarily euros, represented approximately 10% of our forecasted total international sales through 2015. At December 31, 2012, the net mark-to-market valuation of the outstanding foreign currency forward contracts was an unrealized pre-tax gain of $0.7 million, comprised of $2.9 million in prepaid expenses and other current assets, $0.9 million in other assets, $1.7 million in accrued liabilities and $1.4 million in other long-term liabilities. In addition, we may also designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Allegheny Technologies Incorporated and Subsidiaries

We have audited the accompanying consolidated balance sheets of Allegheny Technologies Incorporated and Subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, cash flows, and changes in equity for each of the three years in the period ended December 31, 2012. 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, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Allegheny Technologies Incorporated and Subsidiaries’ internal control over financial reporting as of December 31, 2012, 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 28, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

February 28, 2013

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Income

(In millions, except per share amounts)


For the Years Ended December 31,	2012			2011			2010
Sales	$	5,031.5		$	5,183.0		$	4,047.8

Costs and expenses:
Cost of sales		4,338.3			4,369.8			3,557.5
Selling and administrative expenses		377.8			382.1			304.9

Income before interest, other income and income taxes		315.4			431.1			185.4
Interest expense, net		(71.6	)		(92.3	)		(62.7	)
Other income, net		0.2			0.6			3.0

Income before income taxes		244.0			339.4			125.7

Income tax provision		76.2			116.3			47.0

Net income		167.8			223.1			78.7

Less: Net income attributable to noncontrolling interests		9.4			8.8			8.0

Net income attributable to ATI	$	158.4		$	214.3		$	70.7

Basic net income attributable to ATI per common share	$	1.49		$	2.09		$	0.73

Diluted net income attributable to ATI per common share	$	1.43		$	1.97		$	0.72

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income

(In millions)


For the Years Ended December 31,	2012			2011			2010
Net income	$	167.8		$	223.1		$	78.7

Currency translation adjustment
Unrealized net change arising during the period		14.3			2.7			(5.4	)

Unrealized holding gain (loss) on securities
Net gain (loss) arising during the period		—			(0.1	)		—

Derivatives
Net derivatives gain (loss) on hedge transactions		(9.8	)		(19.4	)		9.1
Reclassification to net income of net realized gain (loss)		5.2			25.5			(20.8	)
Income taxes on derivative transactions		(1.8	)		2.3			(4.5	)

Total		(2.8	)		3.8			(7.2	)

Postretirement benefit plans
Actuarial loss
Amortization of net actuarial loss		119.8			81.2			83.4
Net gain (loss) arising during the period		(272.7	)		(516.3	)		(36.7	)
Prior service cost
Amortization to net income of net prior service cost (credits)		(11.8	)		(7.0	)		(4.7	)
Income taxes on postretirement benefit plans		(67.3	)		(165.0	)		17.8

Total		(97.4	)		(277.1	)		24.2

Other comprehensive income (loss), net of tax		(85.9	)		(270.7	)		11.6

Comprehensive income (loss)		81.9			(47.6	)		90.3

Less: Comprehensive income attributable to noncontrolling interests		11.3			14.6			11.2

Comprehensive income (loss) attributable to ATI	$	70.6		$	(62.2	)	$	79.1

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Balance Sheets


(In millions, except share and per share amounts)	December 31, 2012			December 31, 2011
Assets
Cash and cash equivalents	$	304.6		$	380.6
Accounts receivable, net		613.3			709.1
Inventories, net		1,536.6			1,384.3
Prepaid expenses and other current assets		56.1			95.5

Total Current Assets		2,510.6			2,569.5
Property, plant and equipment, net		2,559.9			2,368.8
Cost in excess of net assets acquired		740.1			737.7
Deferred income taxes		71.5			—
Other assets		365.7			370.9

Total Assets	$	6,247.8		$	6,046.9

Liabilities and Stockholders’ Equity
Accounts payable	$	499.9		$	490.7
Accrued liabilities		330.5			320.3
Deferred income taxes		24.0			23.5
Short-term debt and current portion of long-term debt		17.1			27.3

Total Current Liabilities		871.5			861.8
Long-term debt		1,463.0			1,482.0
Accrued postretirement benefits		495.2			488.1
Pension liabilities		721.1			508.9
Deferred income taxes		—			9.8
Other long-term liabilities		109.9			124.7

Total Liabilities		3,660.7			3,475.3

Equity:
ATI Stockholders’ Equity:
Preferred stock, par value $0.10: authorized-50,000,000 shares; issued-none		—			—
Common stock, par value $0.10: authorized-500,000,000 shares; issued-109,695,171 shares at December 31, 2012 and 2011; outstanding-107,398,963 shares at December 31, 2012 and 106,354,612 shares at December 31, 2011		11.0			11.0
Additional paid-in capital		1,181.7			1,207.1
Retained earnings		2,427.6			2,361.5
Treasury stock: 2,296,208 shares at December 31, 2012 and 3,340,559 shares at December 31, 2011		(111.3	)		(162.7	)
Accumulated other comprehensive loss, net of tax		(1,029.4	)		(941.6	)

Total ATI Stockholders’ Equity		2,479.6			2,475.3
Noncontrolling Interests		107.5			96.3

Total Stockholders’ Equity		2,587.1			2,571.6

Total Liabilities and Stockholders’ Equity	$	6,247.8		$	6,046.9

The accompanying notes are an integral part of these statements.

Allegheny Technologies Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

(In millions)


For the Years Ended December 31,	2012			2011		2010
Operating Activities:
Net income	$	167.8		$	223.1	$	78.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		194.0			174.4		141.5
Deferred taxes		(19.4	)		52.7		102.2
Change in operating assets and liabilities:
Retirement benefits		58.9