Good day, ladies and gentlemen, and welcome to the First Quarter 2008 Allegheny Technologies Earnings conference Call. My name is Heather and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions]. I would now like to turn the presentation over to your host for today's conference, Mr. Dan Greenfield, Director of Investor Relations. Please proceed, sir.

Thank you, Heather. Good afternoon, and welcome to Allegheny Technologies earnings conference call for the first quarter 2008. This conference call is being broadcast live on our website at alleghenytechnologies.com and on ccbn.com. Members of the media have been invited to listen to this call. Participating in the conference call today are Pat Hassey, Chairman, President and Chief Executive Officer; and Rich Harshman, Executive Vice President, Finance and Chief Financial Officer. After some initial comments, we will ask for questions. During the question-and-answer session, please limit yourself to two questions to be considerate of others on the line. Please note that all forward-looking statements made this afternoon are subject to various assumptions and caveats as noted in the earnings release. Actual results may differ materially. Here is Pat Hassey.

Thanks, Dan, and thanks to everyone for joining us today. We said the first quarter of 2008 would be similar to our fourth quarter 2007 performance, and it was. We also expected first quarter results to be negatively impacted by raw material costs being higher than the indices and surcharges used to determine selling prices. This is a timing issue, and it did indeed impact our first quarter results both in High Performance Metals and in Flat-Rolled products. So, here's our view. High performance Metals segment operating profit was below our minimum target of 30%. This was primarily due to two things; first, the timing mismatch between raw material cost and selling price indices; and second, lower nickel-based alloy volumes and a more competitive marketplace. We saw some of our customers, particularly distributors, taking inventory management actions. We believe inventories at these customers are now fairly lean. In contrast, shipments of our nickel-based alloys to jet engine OEM customers remained solid. We expect our High performance Metal operating margins to hover in the high-20s until there is more conviction on the aerospace build schedules. Nickel alloy volumes continued to improve compared to the first quarter. We expect titanium volumes to remain at high levels, and our exotic alloys business is doing very well due to strong demand from the chemical process sector as well as growing demand from the nuclear energy market. In the Flat-Rolled Products segment, operating profit was 13.5% of sales. This improvement of 500 basis points compared to the fourth quarter. But operating profit fell below our minimum target of 15%. We believe conditions now exist for our Flat-Rolled Products segment operating margins to recover to approximately 15% in the second quarter. Engineered Products operating profit in the first quarter was again unacceptable. Operating performance in our…

Heather?

Hello?

Yes. Can we go to the question-and-answer period, please? Question and Answer

Sure. [Operator Instructions]. Your first question comes from the line of John Hill with Citi. Please proceed.

Great, and thanks for the call, everyone. Just a quick question to revisit this Boeing and titanium situation, I mean it's great if they take their volumes in '08, but it creates a question about an overhang in '09. If you had to redirect those mill products elsewhere in your customer base, could you sell them? Would have to cut volumes? And would you make more money or less money if you could redirect those volumes elsewhere?

John, where we are... let's just back up for a second and remember that we expect to ship the volumes that we had in our schedules during 2008 to Boeing. Also, when we talk about Boeing honoring their contracts, we have multi-year contracts, which include a minimum target and a maximum level. So when we talk about their honoring their contracts, we are talking about honoring the contracts straight through this contract period. So that's the first point, and there are significant volumes in that contract that are take or pay volumes that will be shipped under any circumstances. That's the first point. Secondly, we're reaching… we're running at a rate of 50 million pounds this year. We had over 12 million pounds this shipment… 12.2 million pounds of titanium shipments in the first quarter. We began to redirect some of those volumes as to grow to that 50 million pound level really in the second half of 2007. So we are directing our shipments into more of the marine market, into the tubing markets, into the nuclear markets, into the chemical processing industry to create that growth that we have committed to at the 50 million pounds. I think we're able to reach that growth this year and sustain that level throughout the future. I think it will take the ramp-up of the new airplane programs, both the 787 and the 380, to get us to that next plateau of around 60 million pounds. So we're very confident that we are going to reach the 50 million pound level. We are gearing for that level. We are stretching into the international markets for the titanium products that we have, generating fairly good margins on all of these products, and we're looking forward to the growth into the new aerospace platforms as the production begins to ramp-up.

Great perspective. And then briefly, could you just provide us a little bit more comfort as to why it's believed that the mismatch between input costs and surcharges, particularly titanium scrap, that that's a situation that will be mitigated in the second quarter?

Well, we're looking at… we're into the second quarter now. So we know what the prices are in the market right now and they may move a quarter, $0.50, something like that, but what… the bookings that we have and what we see in this market we don't think that scrap prices are going to go into any type of a freefall or a tumble. So as we look at the quarter we have, John, our titanium lead times are around 24 weeks. So, when we look at that we pretty much know what we're doing in the second quarter, we pretty much know what it's priced at, and hopefully we will have a good handle around this impact of lingering metal in the system that we had purchased or scrap that we had committed to that hit us in the first quarter that will not have the same impact on us into the second quarter.

Great answer. Thank you.

Your next question comes from the line of Michael Gambardella with JPMorgan. Please proceed.

Yes, good afternoon.

Hi, Michael.

Hi. I have a question. How much material have you already shipped to the Dreamliner in terms like on the… titanium frames that you supply to the Dreamliner, how many of those… the material for... how many units are already out there in the system?

It is a good speculative question, as you know. We are one of three major suppliers. So we know what we shipped. Our volumes started back in 2006 were higher in 2007, were higher in 2008. Now that's because they were at a 100% delivered performance and a 100% quality, meet all of our commitments, and they can get the metal from whatever form or shape that they want it in. If somebody else isn’t shipping, I don't know. I have said before that I thought there was at least around 35 ship sets at in this system. So I am going to say… I am going to… this is Pat Hassey relatively giving you a guess, okay, Michael. 35 to 50 ship sets, some place out there, some place in the system, some suppliers having more than others… having ordered more than others. But basically, these ship sets are at the built rate that I think meets Boeing’s extended delivery with some, let's call it, shock absorber capability in their logistics supply or TMX to move those tonnages around to other airplane programs. It's all fungible between commercial and military, and it's all products that can be used on any Boeing airframe. So, when you look at the total picture it gets complex to try to figure out from one supplier exactly where they are going to sit versus another supplier. But I think it's reasonable to assume that Boeing is going to meet its commitment they’ve set to their supplier base. I got a personal call that we will on honor our contracts, we were taking the metal that we've talked to you about, and we are going to work through this together.

I mean, can you say when the… when was the last time you shipped, specifically materials, to the Dreamliner project?

We can't tell you whether we shipped material to the Dreamliner, a 747 or a 777 unless we’re making a particular shape that we know is 100% dedicated to that particular airplane program. But I can tell you that we were making shipments to the Boeing Corporation straight to the last days of the first quarter.

Sure. Okay. Thanks a lot, Pat.

Your next question comes from the line of Gautam Khanna with Cowen and Company. Please proceed.

Hello. You made a comment about Boeing honoring their commitments, and when you say that do you mean the minimum commitment in '09?

I think it's honoring their contracts. This program has never rammed to what we would consider target level of shipments under our normal production schedule. So, when we talk about minimums in our contract, we're within grasp of those minimums in double digit maybe… numbers either direction, not more than 20% either way from the minimums.

Okay. And if I recall on your last conference call, you made a comment that when the ramp really picked up on 87, it could create a tightening of the supply shortage, if you will, that would drive prices in the marginal market, the spot markets. Is the opposite true now that we have had some slack in the system, a one-year push out till full rate on the 87, should we expect further erosion? And if so, when does it appear? And did it appear in Q1? Is that what we are seeing or is there yet some erosion to come?

Well, if you noticed, in our Q1 our shipments were up, I think 26% was the number. So, we certainly didn't see any erosion. In total we shipped almost 12.5 million pounds of titanium products out of this business.

For the pricing erosion?

Pricing erosion, if you're talking about the margin compression, hits us hard when we have higher priced raw materials going into a pricing index that sells it for less money. So, if we have higher priced material running through our flow times and selling it for the current indices at the current pricing levels, the margin contraction comes from the raw material mismatch. I’ve tried to make that clear.

I understand that. I guess that --.

There is no margin contraction in our contracted volumes, it's our own problems of--.

Correct.

Mismatch is there. So getting back to your full question, I don't think we're going to see a contraction. I don't think that's the right answer. I think what we're going to see now is a more gradual increase to this build rate than what I had talked about earlier when we saw the original schedules of second revision from Boeing versus the latest revision and ramp. Now we see a much more gradual ramp, which I'll call much more traditional to the Boeing ramp up of programs versus stepping this up from shipping 12 airplanes to trying to get to a rate of shipping 80 or 90 airplanes the next year. This is going to be a much more gradual ramp, but you take the same result and spread it across, say, 18 to 24 months versus six months.

I understand. I guess what I'm trying to reconcile are a couple of conflicting comments. One comment is, on the last earnings call you mentioned that the 30% of business in titanium that is not under contract could be the swing item if indeed the 787 ramp as projected. There’s been a slip since that last call, a material slip, especially in terms of getting to full rate, let alone first delivery. Isn't the opposite true, namely pricing on those 30% sales that are not contracted under firm-based pricing could erode and if so is that why you are guiding to high-20s margins at high performance? When are we going to start to see the drop-off in titanium spot pricing show up in your results beyond what they have already shown because we have already seeing pricing come over… it has declined 5% in this quarter, in the Q1? I don't know if that is mix dependent, if you have more ingot versus mill or what have you. But if you can work us through kind of the quarrel area of the argument you presented on Q4, which was the 30% of business not under contract has pricing leverage if the 787 ramps as planned. We know that that's not happening. So when is this going to show up in pricing and margins?

Well, it's not happening in a steep ramp, but the volume of that airplane program as it continues to improve, whether it is the normal build rates of them making more total aircraft going from 450 planes to 475 or 480 planes to over 500 in 2009 and a corollary to that with the Airbus programs ramping slightly higher than the Boeing programs. So we have another 20% of material going into those programs that are not as high as usage as the 787, but each of those airplanes uses some titanium, later models more than other models. So it is more of a gradual move. The second factor that we have is that as titanium is more available to your point, we would suspect that we will see moderation in the spot market business. The question of that just simply gets back to exactly what product form will the demand be in. If we are talking about products that are going into, let's say, the heat exchanger or tubing markets, I don't see much pricing pressure coming into those markets, which are two large segments for us. If we are talking about more commodity type of products that might be going into some less stringent applications, I would agree with you that we could see some pricing degradation. But overall, I think that when we talk about staying around the high-20s, that's where we are going to be in that area until we start to see this gradual ramp of the new airplane programs pushing the supply base tighter, and as that tightens up we are going to see this spot prices rise as well as any spot business within that industry. But basically, I am looking for, at least in our products and companies, more about Plateau, more about not being able to move prices up, but not too much pressure other than where we are at today. So, if that makes sense to you, that's about as close as I can give it to you.

I appreciate the color. Last question and I will turn it over. You've given some directional guidance on Q2. We understand Flat-Rolled is improving sequentially. Kind of what is your view today on the back-half of this year in terms of EPS? What is Q4 likely to look like? I mean, are going to two bucks a share? Is there… I mean, give us some color because there are a lot of moving pieces here?

Thank you. I think if I had my own way, I'd probably give your guidance. But we are not going to give guidance on this year. We've given guidance very clearly into the fourth and first quarter of this year. I would like to get off that by just simply talking about what the markets are, what the indicators are, and you're going to have to put your own bent to what you think is going to happen in the market. What we are saying is that we see the second quarter improving and we see our position gaining some speed going forward. Exactly how everything works out in this world and what happens to the exact number of scrap prices or reactions of the competitors as to their own volumes and situations, we are going to just have to see how that road works out and navigate through it.

Thanks a lot, guys. I appreciate it.

Your next question comes from the line of David Martin with Deutsche Bank. Please proceed.

Yes, thank you. I wanted to ask a few questions principally on the stainless market. First of all, can you update us on your operating rates in that market? I think you had said in the first quarter you pretty much operated at full capacity within your target base load. Has that continued into the second quarter? And then secondly, can you give us a little bit of color on the divergence in the markets, both in the U.S. and Europe? It has been slightly reported that price attempts by you have failed in the U.S. marketplace, but despite that prices continue to increase in Europe and some of your European peers are out trying to raise prices now for the third quarter. And then lastly, can you give us a sense of how many tons you would have shipped that to the U.S. into Europe in the quarter?

I can just tell you on the last part of your question that we're getting more and more interest in shipping more tons to Europe, I’d not like to report that exact number. I'll tell you that we were shipping at the highest levels we have ever exported into Europe. The European markets are actually moving faster than the U.S. market and prices are actually rising and looks like that that market is returning to more normal levels. In regards to our own operating schedules, we are actually operating at a fuller rate in the second quarter than in the first quarter, but it all depends on exactly which part of our sub-units in this business that you are really talking about. So let me just come back. Our nickel-based alloys and super alloys are operating at a higher level now in the second quarter than the first quarter. We are at about 85% of our highest levels ever. Highest levels that we have ever operated in during 2007, we are about 15% under that right now. Our electrical steel business is running as much volume as it can possibly put out the door. Our plate business was choppy in the first quarter because of project work that either got delayed or with the banking and credit issues and all that was going on, just simply got moved out a couple of months and that business is now going to be operating at a much higher level, I'm not saying 100% but a much higher level than it was in the first quarter. We're at 85,000 tons in the first quarter. We're going to be higher than that to achieve better returns and also more stable pricing in our standard sheet in the second quarter. So generally speaking, when you look at our second quarter, we're going to be operating at pretty much full. The other issue that we have, as we go into the third quarter we usually have some summer maintenance schedules to take care of on standard kind of maintenance schedules. So we're going to be pushing production into the second quarter. So I think we're going to operate at pretty full levels all the way through. On the price increase, I think they are moving in that direction as you pointed out in Europe and I think that's… that appears solid. And in the U.S., we just had one competitor that evidently wasn't full or didn't think they should raise prices.

Okay. And then just wanted to follow-up on electrical steels. I know you've commented in the past that you're going to see pretty meaningful price increases on contracts in '08. Were those fully reflected in the first quarter? Are there some that get re-priced at different times of the year?

This has been integrated strategy that we had put into place where we have some contracts that expired in January. We have other contracts that will be expiring at the end of this year in the fourth quarter of this year. So we have not fully realized the full benefits of our changes in the electrical silicon business. And so we still have some customers that are basically, let's say, running on 2007 contracts that will expire sometime before or… before 2009. We've other customers that have just been re-priced for 2008 that will run for the next few years. And we now have a situation that basically 90% of our business is under one type of a contract or another and these contracts are integrated throughout each year. So we have a blended price going forward.

Okay. Thank you.

Year next question comes from the line of David MacGregor with Longbow Research. Please proceed.

Yes. Good afternoon, everyone.

Hi, David.

Pat, just on the stainless business, if you're not getting the price increase, can you just talk about your inability to improve second quarter gross margins in stainless?

Well, we do have a price increase in the ready coil and we do have price increases on offshore businesses. So that's the first point, okay. Secondly, we are improving situations in plate and in high-performance side of that business, both in titanium, nickel-based alloys, and we're already full on electrical steels. We're talking about standard sheet and standard sheet only… and will have greater volume.

And can you just talk a little bit about your... maybe to the extent you can talk about just the cost base on your scrap, when does cheaper scrap start to flow through the P&L?

I think in the… I think now, I think in the second quarter certainly got not a few pennies per share in the first quarter.

Okay. Second question just has to do… I guess back onto the titanium issue and you talked about your ability to redirect titanium if this Boeing program should continue to pushed out further. I'm just wondering what the capacity is of those other markets might be to absorb that redirected material? It doesn’t seem like that long ago we were getting excited about golf club heads and high glass frames, and 787 seems to really have been the driver since 2004. So without that, I'm just trying to get a sense from you what you feel the capacity might be to move that product?

Well, I think there is two things. It is really the infrastructure build around the world. What we are seeing is… and I think I made a comment in the press release that our bookings in the Asian market were at record levels in 2007 and we’re far exceeding those levels in 2008. This is basically titanium industrial applications. So, we are talking about products that are going into chemical processing industry, sulfuric acid plants, we're talking about clean water, we're talking about the Middle East, we're talking nuclear applications on the rebuild and some of the projects going on there. So, we work finding people are coming and knocking on our door as they believe that titanium is more readily available and at prices that they can afford and also that the industrial side of the market can move back into titanium applications that maybe were being substituted by high nickel-based steels, stainless steel.

Good. Thanks, and good luck to you.

Thank you.

Your next question comes from the line of Chris Olin with Cleveland Research. Please proceed.

Hi there.

Hi, Chris.

Pat, I just want to make sure I am clear. What exactly is going on in the nickel-based alloys marketplace? I know you talked a little bit about distributors, but is there something else within those numbers that may get lower than it shouldn’t [ph] be?

Well, it was whereas volumes that I think happened in the first quarter, if you’re talk about the first quarter results and lower volumes and more competitive pricing were my comments. Two things happened; one, it was kind of a one-time quarter in that I think we saw people that because of their earnings last year may have pulled more nickel into the fourth… our fourth quarter of 2007. And then, we also had other people in the marketplace that have fiscal quarters ending that maybe pushed some material out of the first quarter into our second quarter. So, we think that the second quarter right now, Chris, appears to be very similar to the quantities that we shipped in the fourth quarter, recovering to more normal levels, and we will see where we are. I think from a competitive standpoint, as we looked at some of the quotes we were seeing in the marketplace that we saw people getting more aggressive about bringing nickel into their order base. So, we'll just have to see how that plays out as these markets come back in increasing volume. On the sheet side of the business, we saw a… very much of a filling of our schedule over the first quarter into second and third quarter kind of schedule. So, we are watching that carefully. We'll just have to see where it recovers. I’d just characterize it this way. Volumes are going to be covered and we are going to watch the competitive pricing situation.

Is there any issue with the 787 on that specific marketplace or is --?

Not through us because we were growing into that market and so we're growing. And again it's frangible kind of products for us. What I like about the aerospace business in general, it’s at the early stages. They’ve got 7000 airplanes on order. The strategy continues to be to ramp the existing models, especially the later versions, and we have two more airplanes coming on stream. So, it's very important to recognize that as Boeing or Airbus moved from the, let's say, 450 to 475 range, and then to the 500 to 525 range. But this is significant business to all of their suppliers without the new airplane programs. And so as we do that plus add the 380 I think first to that airplane ramp and then a more gradual ramp now on the 787, we're going to see those volumes continue to grow, only on a much more gradual basis than a steep-stepped ramp.

Okay. I guess lastly, I'm not sure if anybody else has tried, so I'll give it a shot. Can you define somewhat better, I mean consensus for the second quarter is 170, [inaudible] 150, 160?

I am going to let Rich answer the question... on that.

Hi, Chris. It is somewhat better. What we said was we thought the first quarter at $1.40 was the bottom. For all the reasons Pat has articulated, we see the second quarter is somewhat better, and we're really not going to get into the… giving specific guidance because when we do that nobody seems to listen to us anyway. So, we will stick with a somewhat better description.

Okay.

Thanks, Chris.

Your next question comes from the line of Mark Parr with KeyBanc Capital Markets. Please proceed.

Okay. Thanks very much. Good afternoon.

Hi, Mark.

I just wanted to make sure I heard what you had said in response to the question that Chris just asked. When you were talking about the Flat-Rolled nickel alloy, did you say that volume moment was picking up in the second and third quarter based on your older momentum?

Yes. We had a record load during a portion of 2007. We are now back to 85% of that record load, which is a very, very good forward load for us. So I think we see flat to increasing prices. We see more volume, especially in our nickel-based alloys. When you couple that with the CP sheet, we should see some very nice numbers coming out of our high performance side of the Flat-Rolled business.

Okay. And if I could ask one more question, on the... as far as your service center business in the stainless market, could you talk a little bit about what you're seeing from an inventory perspective here as we move into the second quarter?

Well, I think what's happening in this market with all the uncertainties and issues that we have, it's unusual and as you know for these U.S. distributors to have inventories at three times their annual shipments… 3.1 times their annual shipments.

Yes. These are very low numbers.

Yes. Very, very low numbers. Secondly, they're willing to pay a substantial premium for the mills inventories within ready coil to handle the outages or to handle special requirements or the buffer through to the business. So the question is, are they going to continue to operate at these levels or at some point in time are they just simply going to say they're going to restock? And I think we're getting nickel prices that seem to be leveling out in the current 12.90 to 13.20, let's say, ranges. I think as people get comfortable with the fact that those numbers are going to be relatively stable and they look and see that certain parts of this market continue to pull on a very strong basis, I'll give you… one example is appliances. You may think that the appliance market might be suffering from the housing market. I can tell you the appliance market are running wide open, and that is maybe after market or somebody not going to buy a new house, but they are going to remodel their old kitchen, I don't really know. But I can tell you that the appliance markets are very strong in comparison to what you might think in the housing market. So I think they’re seeing not an escalating great business, but they are certainly seeing a sustained, stable business at a higher level than what we saw in the.... certainly in the second half of last year and into the first quarter. It is improving and getting stronger. So I think the prices in that market and volumes… volume is definitely moving up for us and prices are flat too, improving in that market. There is certainly not going to be more discounting.

So maybe if I could just ask you just a general macro question, given what you just shared when you think based on your customers and the business you are seeing, do you think we're moving closer to or further away from a recessionary scenario for the economy?

Well, we can only talk about the segments that we deal with, and the segments that we deal with in durable goods and then of course in the… some of the things that I just mentioned, we think well over 50% of our revenues are coming really from end customers that are outside United States.

Okay.

And if we take away housing and automotive, which hurt us in the precision strip business in the U.S, two things happened. We would say that our markets are getting better, and when we add the international markets to it and the value of the U.S. dollar, let's say, into EU markets, we've opportunities to grow in those markets. And when we look at the growth in China and India, you can argue whether the growth in China is going to be 9% or 14%. So the first quarter it was over 10%, the second quarter looks very busy for us, and when we look at the opportunities to sell into the Middle East and to India, we see the same kind of things, 8% or 9% growth. So for products that we're making in the specialty infrastructure build kind of things, electricity, distribution of electricity, power generation, clean water, these kind of infrastructure, applications that requires specialty materials, which really those economies are not making and haven't had the technology or the provision to make, we see a pretty bright future for that segment of the business. If I was going to worry about anything, I’d still worry like everybody else does that 70% of the markets are driven by the consumer in the U.S. So we're pushing our strategies to those durable goods markets in the international markets for a diversified product base and a diversified strategy of selling around the world.

Great, Pat. Thanks for all that color. I really appreciate it.

Thanks.

Your next question comes from the line of Sanil Daptardar with Sentinel. Please proceed.

Thanks. In the opening comments, you mentioned about the high-performance metal segment that the marketplace is getting more competitive. Could you just elaborate on that what you mean by that?

Well, we've seen it mostly on the nickel-based alloys where people have put some capacities in over the last year. I think they would like to fill those capacities and it depends on where they are qualified or what segments that they were in. When you look at ATI's mill products, and this is where you have to differentiate this company from some of the other companies, we produce products that range from seamless tubing and wire to sheet and plate and rounds and shapes that we can enter various segments to produce products that are needed in those segments. Other people have a more narrower alley to go down. And so, as we go…. come into some of those markets to sell products, we can see more competitive pricing today than what we saw in 2007.

Okay. So… then your commentary on flat to increasing prices may not remain... may not stand still in that case, then we may probably see some price increases in that business, right?

I think when we look at the [inaudible] side of the business, super alloys and nickel-based alloys and titanium products, that… what I said is that we see a much stronger workload on the books today and the second quarter than we saw in the fourth quarter and even entering into the first quarter. So with that kind of a situation and extending lead times on those products, my history has been when you have order loads that are growing, you have lead times that are extending and you have global access indeed that prices eventually move with that.

Okay.

Yes, Rich, go ahead.

Yes, just one more thing. When you look at the High Performance Metals segment and more specifically the nickel and specialty alloys products in that segment, about 60% of our business in that segment in nickel and specialty alloys is under long-term agreements. So there you really… you don't have the kind of pricing issues that we're talking about other than the changes in the raw material indices.

Okay.

Okay?

That's a good clarification. On the Boeing contract, of course you would be shipping the volumes. Now, in case of the pricing for those volumes, is it at the market rate or it’s at the contract price? And does it tend to move with the market rate or what? How is that contract structure?

It is at contract pricing, but it does reflect metal indices that change, but it's a contracted price for the base pricing with some leading indicators around the raw materials that go into the pricing metrics and that's part of the overall formula. So… but it's fixed pricing.

Okay. It's fixed pricing. So --.

With raw material indices that reflect the cost of raw material.

Well, for example, now you had a 22% decline in the titanium products average selling price. So is that reflected in that Boeing contract kind of… if there is a decline in the price then probably that your price might be also declining with it?

The price would decline, but it doesn't necessarily mean the margins will decline. It should not mean the margins declined. The price declines because we can buy raw materials at lower prices. Now, when we look at that, this is where we get into this problem in a short period of time, in a three-month, four-month, six-month period of time of mismatches of material we have in this system or have procured in our own arrangements and what we can sell for as prices are changing. So that's the mismatch that I think gave us some lower earnings in the first quarter.

Okay. If I ask the last question [inaudible], on the distributor side, you saw that they are not restocking, but the destocking cycle is over. What rate do you have when the distributors may start restocking basically to stainless products?

Well, usually if there is a restocking then we are going to see schedules moving and pricing moving. So… because we’re… we and most other mills are running at fairly good volumes for these markets and with the U.S. dollar where it is, it isn't very profitable for certain foreign mills to be shipping into the U.S. from product produced in their own country. The exception for that is countries that may manipulate currency and bring it into the U.S.

In other words is the restocking basically would be dependent on the demand. If they are not seeing any kind of improvement in the demand, is there a need for restocking, that's what the distributors might be wondering. So, is that the way one should read that or --?

I think if they see the demand as stable and where it is and things leveling up, the question they have to ask themselves at that point in time is are we going to continue to buy from the mills inventories of ready coil at premium prices or decide to restock some of these quantities and carry the risk in our own inventories. Today, they are choosing to pay the premium prices to the mills for their inventories that are being carried in ready coil form.

Okay. Thank you.

Thank you.

Your next question comes from the line of Tim Hayes with Davenport. Timothy Hayes - Davenport & Co.: Hi, good afternoon.

Hello. Timothy Hayes - Davenport & Co.: My question pertains to the High Performance Metals segment and specifically in the nickel-based alloys, the decline in volumes there. I was surprised that the customers waited till Q1 '08 to destock. Is the destocking by customers, is that in a specific end-market such as jet engines or is it in a broader range of end-markets?

I think it was across the board. You can a pick a specific customer that decided to pull something into the fourth quarter and then level his business back out into the first quarter that is now back to normal shipment levels. We can isolate a couple of those. You can pick distributors that had higher based nickel in their inventory that they wanted to drain down, take those inventories to a linear level during the first quarter and I think those have… that basically what we were seeing is that we were going to see nickel volumes much more in line with what we had seen in the fourth quarter, starting in the second quarter forward. Rich, go ahead.

Yes, this is another expansion of that. The distributor customers for nickel alloys on the High Performance Metals side, those are not the premium materials for aero-engines. Those are products that largely go into the oil taps, to the corrosion markets, the non-critical, more static parts on a jet engine. So, that's really where the inventory management and destocking was going on. I think the OEM customers were more pulling into the fourth quarter or pushing out a little bit into the second quarter depending upon their own unique situation. But it was not a demand driven phenomena. The oil patch market has been going through an inventory destocking phase on nickel alloys for a while and we see that gradually working its way through here in the second quarter, not only in the U.S. market but also in Europe. Timothy Hayes - Davenport & Co.: Very good. Thank you.

Your next question comes from the line of Sal Tharani with Goldman Sachs. Please proceed.

Good afternoon.

Good afternoon, Sal.

Pat, I was just wondering, hearing your comments it looks like not much is going… happening until the Boeing situation gets a little more clear, which will be a few quarters away from here. You have a lot of cash on your hand, granted you are using a lot of money on CapEx also. I'm sure you'll find your stocks cheap. I am sure some of the investors find it cheap. Why not just… and you are very delevered, why not just lever up and do a massive share buyback?

Well, our first priority, Sal, is the profitable growth of the company. What we are looking at is the long-term value... sorry, the long-term... this is a long-term franchise, long-term really value-based franchise. If you believe in the aerospace business and if you believe in the infrastructure build around the world and if you believe in the technology of this company, its geopolitical security and its ability with the U.S. dollar today to ship on a global basis, the best use of our money today for our shareholders is to position this company both from an unsurpassed manufacturing capability and the technology that we have into this new base to provide new opportunities and new products to grow this company and really make it a long-term franchise for someone to hold. That's our first priority. Second priority comes after that is dividend policy of the company. We've had increasing dividends over the last three years and we have an announced and specified share repurchase program. We think in today's world a company that has the balance sheet that we have, growing in the right markets with the right technology in the right country is a heck of a value at the price of where we are today. And we believe that as we demonstrate that with the stability of earnings that we have even in this down cycle over the last six months, with the stability of earnings that we have and the ability to increase those earnings in the short to medium term, that's the best use of our cash and that’s what we are doing in a very balanced way.

Okay. Going back on the nickel-based alloys I was just wondering, if I look at the... you mentioned that nickel-based alloys had a base price plus some... plus the raw material cost. If I go back at $13 nickel level, these prices were hovering around $15, $16 a pound. Has something changed or do you think there is a lag effect and you may go down to that level on your average selling price going forward?

I think that in the contracted business we have that the prices are pretty much set. I think in… depending on what happens to the total market and the volume and how aggressive the industry wants to get on picking up certain parts of the spot business that it could be a very competitive market for a period of time until the volumes in the aerospace business continue to pick up under these new build rates. We continue to see another 10% or 15% to 20% build in the next 18 months out of the aerospace business. We continue to see the need for energy in these big land-based turbines and growth in the Middle East and also growth in Asia. We continue to see the need in the nuclear business. This is all going to catch up. So there is going to be some short-term dislocations if you want to call them that, some competitive issues. We are a company that's well positioned, that has a market share that is not going to erode. So, yes, we may meet some of those situations along the way.

Sal, this is Richard. Another thing to reflect upon is that when nickel prices were $15, $16, $17, $18 a pound, obviously the information we disclose is heavily mix sensitive. What product form we're selling, is it an ingot, billet, bar, et cetera, what grade of nickel is it because they are all different kind of grades in terms of how much nickel contained is in it, but if you go back to our third quarter and the public information that is out there, when nickel was at a much higher price the average prices for the products as we disclosed it were over $20. So when nickel was at $15 or $16, the average selling prices were not at $15 or $16.

Got it. So it looks like your base prices have come up also.

Yes. Once again it just depends upon what the product is and what the market is.

Okay. And one more, on the mismatch between inventories… sorry, raw materials and selling price you mentioned, how much inventory do you tell… how many months should we expect this mismatch to continue? And continuing on that, I thought that you're using lot more sponge now because you're making about what, 22 million tons of sponge and using lot less scrap.

Well, on the nickel side we are a net buyer of outside nickel and we do use scrap and we do have revert programs coming back through the company. Our lead times on nickel are well into the third quarter. And if you want a shape or a rectangle it moves out further, if you want a round bar it's center. So we’ll just have to see how the markets play out in total. As Rich pointed out, two-thirds of what we're doing is under contract. Those prices are set. So we have that one-third exposure to whatever happens in the market.

And I think the… we… obviously the answer to the question of how long until the indices and surcharges are in better balance with the cost flowing through the income statement depend on the stability of the raw material cost. We believe that, and we’ve said this in the news release, that those indices and surcharges are in much better balance heading into the second quarter than they were in the first quarter. On your question in terms of titanium sponge, yes, we're using all the sponge we're producing at Albany. That gives us a defined cost, but not all of our products are 100% sponge melted. So generally, a heat contains a mix of both sponge and scrap and the indices are based off of that.

Do you have ability to use more sponge in your products or some of the products don't lend themselves to [inaudible]?

In some cases we can use all sponge sheets, in other cases… in many cases we cannot because of the metallurgical specifications and targets we're trying to hit.

And you're bringing more sponge capacity early next year. Are you confident that there will be enough demand or you will just be replacing more and more scrap with that?

We'll be replacing some scrap, but we also are buying from the outside. So as that comes up and we reach the 50 million pound level… you remember, we started this year off that 40 million pound level, we’re adding 10 million pounds this year. I think we will be in pretty much balance of what we need to do next year. What we're looking forward to after that is the ramp to the 60 million pound level, which won't happen unless we see the new airplane program, so that's our feeling. When that happens then we'll see the rest of these facilities ramp up with it. So that's where we are.

Okay. Thank you very much.

Thank you.

As there are no further questions at this time, I would like to turn the call back over to Pat Hassey for closing remarks.

Thanks everyone for joining us today, and thank you for your continuing support of ATI. We appreciate the questions. We appreciate for taking your time to learn more about ATI and our future.

Thank you, Pat, and thanks to all listeners for joining us today. As always, news releases may be obtained by email and are available on our website. Also, a rebroadcast of this conference call is available on our website. That concludes our conference call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.