Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 Allegheny Technologies earnings conference call. My name is [Jasmine] and I'll be your operator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Dan Greenfield, Director of Investor Relations. Please proceed.

Thank you, Jasmine. Good afternoon and welcome to Allegheny Technologies earnings conference call for the fourth quarter and fiscal year 2008. This conference call is being broadcast live on our website at AlleghenyTechnologies.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. ATI earned $5.67 per share, with revenues totaling $5.3 billion in 2008. It was the second-best year for revenues and earnings per share in the company's history. This was accomplished with global economic conditions turning down sharply in the fourth quarter, resulting in deteriorating demand in some key market segments for ATI. Although ATI is not immune to the global downturn, our financial position remains strong. ATI has a strong balance sheet, strong cash flow, good liquidity, and we expect to continue to generate significant cash flow even with reduced earnings. At the end of 2008, we had $470 million of cash on hand. We have no borrowings under our $4 million domestic credit facility. We have no significant near-term debt maturing. Net debt to total capitalization was only 2%. Managed working capital ended 2008 at $1.4 billion, with receivables totaling over $530 million. Our financial metrics remained strong and are strong. Return on capital employed was 21.8%. Excluding capital being invested in strategic projects that are not yet completed, ROC was 26.7%. Return on stockholders equity was a respectable 27%. So overall, we delivered a good year in 2008. Now getting right over to our view of 2009, the combination of three major events - a continuing credit crisis leading to frozen new project lending in some of our markets, the global recession and its resulting circumstances of uncertainty and lack of forward visibility for customers, and the short-term impact of the precipitous drop of primary metal prices during the fourth quarter of 2008 are expected to negatively impact ATI earnings in the first quarter of 2009. These three events have already resulted in challenging conditions in some of our core markets. We have limited short-term visibility, but we'll…

(Operator Instructions) Your first question comes from Timna Tanners - UBS.

I wanted to know if you could give a little bit more information about the commodity stainless business just because I'm trying to understand the comments you've made in the past about the minimum levels that are required to sustain levels of margins throughout the business, if you could talk about how that might impact the company going forward or how that may or may not be as much of a factor.

Well, I think the objective of our company is to first of all get to the core volumes we need to pace the operations. Obviously, coming out of December with the shutdowns of the automotive industry, the appliance manufacturers, building and construction, etc., the basic shutdown, I think, of most of the industry from the second half of December into January, we did not reach those levels for December. We had similar kind of issues going into the November timeframe. So if you look and see, we shipped something in the range of 103,000 tons totally for this segment against a commodity side of about 51,000 - 52,000 tons. That's below what we need. We need to have 60,000 tons anyway, but we've said we'd like to have around 300,000 tons of commodity type work. So what has to happen in our view is that we would like to see the core levels for the business reached and I think we're seeing more stability as we're going forward now. We're seeing people again buying at least at these levels and maybe a little bit improved from what we saw in the fourth quarter. So how it affects our business is we need these volumes to pace the operations. We intend to make money on the commodity products that we sell and, when we look at the ability to produce these volumes, along with our differentiated products, we would expect the Flat-Rolled Products segment to be profitable going through the year with the exception of the first quarter, which is being hit with - if you take the $70 million and tax-impact that, we're somewhere around $0.47  $0.48 of earnings that will not be there.

And then do you have - if I missed it, forgive me; there was a lot of detail in your release  but did you have what the remaining amount is on your LIFO reserve?

For total or just for that segment?

If you have it by segment, but I was thinking in total.

Yes, Timna, it's about $200 million.

$200 million, yes.

Remaining? So how would you expect, then, to continue to see that? I mean, does your forecast for the first quarter of around breakeven include any further LIFO benefit?

I would say we have no significant LIFO in there. It depends on what happens with pricing. We're seeing some stabilization in the pricing of nickel. We still see some drop in the pricing of chromium, other areas. This is a total combination of all the raw materials that we buy, from pig iron all the way through to the nickel-based alloys. So it depends on what the prices are for the whole quarter.

The final one from me is really on the SG&A line. We were really noting the decline and there was a mention in the release about how it had to do with compensation. Is there anything more there or how do we think about how to project that going forward perhaps?

Well, I think it's reflective of where we are. The management of this company and the leadership of this company are all on a performance-based plan. As the performance pays off, we get paid better, and when the performance doesn't realize what we would expect it to be then we get paid less.

So the $15 million swing is attributable to that from quarter to quarter or is there more that's going on?

Well, it's overhead reductions plus that, yes.

Your next question comes from David Martin - Deutsche Bank Securities.

I wanted to start with the pension plan, if I may. First you stated that the pension plan is underfunded by 17%. Could you quantify what that means in dollar terms? Secondly, are there any funding requirements in 2009? And lastly, can you detail major changes to assumptions such as the discount rate and/or expected returns?

At the end of the year the funded status is there's a deficit of about $380 million at 12/31/08. We had taken action. I mean, as unhappy about that as we are, it actually is better than it could have been had we not taken some action at the end of '07 as well as early '08 in terms of our strategic asset allocation. We reduced our equity exposures and moved more into fixed income, both strategically and tactically. So it could have been worse, believe it or not. The major assumptions that we're making, obviously there are two key drivers there - one is the long-term expected rate of return based off of your strategic asset allocation, and we spend a lot of time not only with ourselves but also with our actuaries in looking at what we expect that long-term expected rate of return to be. It has been at 8.75% for the last several years for us, and it will continue to be that going forward on a long-term expectation basis. The discount rate to value liabilities is a different issue in terms of the accounting rules. There it's a point in time measurement as opposed to a long-term expectation, and we're using a rate supported by a bond model that, once again, our actuaries put together based upon our liability profile and that's 6.85% is the discount rate we are assuming for 2009 pension expense.

And then any funding requirements?

Yes, the funding side, obviously different rules from the accounting side. We look at that a number of different times. The last deep look that we had late last year was that we don't expect any mandatory funding in 2009.

And then lastly just quickly on the CapEx of $450 for '09, can you give us some color of what your maintenance CapEx would be? What of the $450 is going into growth and what of the $450 could potentially be going to the hot mill in Pennsylvania?

Well, we have the three major projects. First of all, we're really not going to start heavy spending on the hot mill until the Utah sponge facility is online and that major expense is passed. The second one, of course, is the superalloy forging facility down in North Carolina. Both of those come online into the third quarter. We have a lot to do with selecting the final vendor, the engineering contract, site preparation, permitting for this hot mill in our Brackenridge facility, so that is under way today. There's buildings being removed, there's grading that's beginning, the permits are in. Final engineering for the project is still under way, and then we need to select the winner of the mill. So that will all be done this year with engineering work beginning, and so that's the third major funding. If you take all of those things away out of the $450 million, you've probably got $400 million of it right there.

Your next question comes from Gautam Khanna - Cowen and Company.

Could you walk me through how we should think about the $70 million of surcharge inventory mismatch in Q1? If it's all at Flat-Rolled and it goes away in Q2, I mean, is it whatever the baseline is in Q1 plus $70 million directly to operating profit?

I think you have to say that this is an 85% to 90% problem in the Flat-Rolled area just simply because of the volume of the metal that's in Flat-Rolled. When you look at our turns per year in the business there, you're probably talking a three-to-one ratio to shipments, so when you only ship 100,000 tons of product in a quarter and you've got, let's say, 300,000 tons all the way through the system from slabs and casting and raw materials and coils, etc., it's going to take us the two quarters to flush it out. Unfortunately, if we had more volume, most of this would have been flushed out in the fourth quarter with significant higher surcharges to offset it. So this is a first quarter problem, and it's an 85% problem to Flat-Rolled. And I look at that just exactly as you looked at it. This is a $0.47 after-tax hit in the first quarter that we will not have after the first quarter.

And so you're saying that there's 300,000 tons. You do 100 million pounds per quarter -

A hundred thousand tons, then you're going to have a 3 to 1 ratio.

Great. Got it, 3 to 1. Okay, so it pairs off by Q2. What about, you know, previously you'd mentioned sort of the 787 first flight test as a potential catalyst, for lack of a better word, for the supply chain in the aerospace world pulling more titanium and perhaps causing a second order effect of spot titanium mill prices rising. Do you still see that happening in Q2 when first flight takes affect?

Well, I think we're all waiting for the first flight to go in the second quarter, and I think Boeing will be reporting I think next week. We're all anxious to hear their report on the progress of that program. I think there's enough titanium supply around now that we won't see the spike that we had at one point in time talked about, but I think there's certainly a huge potential here and I think you have to put the Airbus aircraft into the equation now because, with the two-year delay on the Boeing aircraft and Airbus's continuing iteration that they are going to make the 2013 date, now you have a situation where both suppliers - one has 478 orders, the other has 920 orders - or 1,400 aircraft that we have yet to see the first one delivered to a customer. When you look at those backlogs and years of work, you can make your own assessment as to your belief in the ramp up for those programs. But if you're the Boeing Corporation and you have 920 aircraft on order, getting the next aircraft order in the chain for delivery is several years out and I think it would be to everyone's advantage - the airlines, the industry, the builder, the suppliers, everyone - if in fact that build rate could increase to the maximum levels as soon as the operations can be geared to do that. And I'm Boeing is looking at those lead times and Airbus then coming in two years behind Boeing is saying if we're going to get our share of this business, we need to get our airplane up and running, too. So there is great potential because of the titanium intensity airframes plus the large engines with more titanium in them that this is still a wonderful opportunity for the titanium industry. It's a question of timing and it's a question of both airframers coming up  they will come up serially, one before the other - but when they both are in production trying to push these build rates. That is a lot of metal.

May I ask, Pat, also, if I recall in February of last year you'd mentioned you'd estimated 34 to 40 ships. Those were the 787 titanium in the chain. Do you have an update to what that might be now?

I don't think it's changed. I don't think it's changed. I think we probably have that number there someplace in the overall supply chain. I don't think the supply chain is now the issue for the Boeing Corporation. They are working on the issues to get this airplane up and flying. I think the supply chain's caught up.

Your next question comes from Kuni Chen - Banc of America Securities.

I guess just first of all, can you maybe give us a bit of a view on titanium for '09? The volumes were up about 15% in '08. I know that's a combination of both aerospace side and industrial, and certainly your comments on aerospace point to a somewhat down number in '09. Can you just kind of give us a view on both the aerospace and industrial side and just kind of, you know, how much down are we talking about? Is it sort of a mid single-digit number or something greater than that?

Well, we've shipped 47 million pounds overall in the company. That includes Flat-Rolled high value products as well as in the High Performance Metal section, so these numbers are buried in our reports under how they were originally and consistently reported. In addition, we have our Unity joint venture, which is work that is both conversion work and other work for Unity. So that's the 47 million pounds in total. Obviously, this is an equation that we know pretty much where we're going to be on the airframe and aero engine side. The industrial side is dependent on exactly what happens in some of the tubing businesses and then that's dependent on project work that is scheduled and new work that could be scheduled. And then we're looking, of course, in the land-based vehicles and in the defense markets as to what's there for us. So if I had to guess today - and it's really a guess because we have limited visibility forward  I think it's more like a double-digit number. I don't think it's going to be severe to the company. I don't think we're going to hit 47 million pounds, but personally I'll be disappointed if that number isn't well over 4, starting with 40 something.

And then just as a follow up, if I take some of your guidance points for a $70 million cost hit in Flat-Rolled and build in some of the higher pension expense going forward, I still get sort of back into High Performance margins dropping off rather substantially if you look from the fourth quarter to the first quarter. Can you just give us a little bit more color on what's driving the margin squeeze in that business?

Well, as I said, it's margin and it's more competitive pricing and it's volume. And so you get more competitive pricing, volume and mix, and that's what we're facing in there. And again, we have some portions of that business that are under long-term arrangements and contracts that we're very confident about. There's other portions of the business that have to be booked on a spot basis as the orders come in. So as we look at that we have less of a forward load than we had last year and we have some more competitive pricing to deal with, so we're just going to have to see how that sorts its way through. But the margins of the High Performance Group at, I think they were 26% of revenue, are still very attractive to us and we are still a very viable competitor worldwide in that market. So this is going to be dependent on what new business we can capture, what segments that we're going to find the volume in. And so again, as I've said before, this is where we turn the telescope of the company - periscope of the company - and look for what areas can we find the right pricing, the right volume and the right mix of products for us outside of the known quantities we have under the LTAs. So we're just going to have to see how that shakes out as the year goes forward and what the economy gives us.

Your next question comes from Luke Folta - Longbow Research.

I hope we can tackle the middle margin outlook for 2009 for titanium, understanding on the revenue side that spot prices are probably going to be lower. Can you give us some color on your expectation for any movement in contract prices via the escalators and de-escalators on those contracts and also your expectations for purchase spot price - or, excuse me, purchase price for sponge and possibly the sponge scrap ratio?

I could give you all those things, Luke, but I don't think I can. Yes, you've got all the levers there as to what the final number will come out to be. First of all, scrap is more plentiful and we have the best melting mechanisms in the industry on how to utilize scrap more efficiently than anyone else. We have every kind of furnace and we have access to those markets, so we expect to have the blends doing the right things for us from a profitability standpoint. We're going to be ramping up the new facility starting in the third quarter. That will be our lowest cost source of sponge. That will have some impact for us, but we'll have to see if we have startup costs there, too. Today we're running both our own facilities plus we're still purchasing, so we have the combination of the two and we've had lower prices for 2009 in procuring sponge than we had in 2008. Let's just leave it at that. So we have those two factors. We have the most efficient way of doing it. Now, we do have a mix shift as we look around for where we're going to find the markets. Some of the markets are certainly larger volume, but lower pricing; others we have under long-term arrangements that remain fixed. So all those combinations of things generate the margins, but we still are generating what we would consider competitive margins, good returns for the company in the titanium business.

And just one more quick follow up. You said there's no mandatory pension contribution in '09. Are you still planning to make some contribution and, if so, would it be a higher number than 2008, you would expect?

Yes, what we've said is that from a financial discipline standpoint we like to at least make voluntary contributions that are equal to our current year service cost, which is about $30 million. In 2008 we did the $30 million cash contribution and we also contributed 1.5 million shares of ATI stock, so the total was about $65 million, but I think from a cash utilization standpoint we would be thinking at this time of something in the range of $30 million. But that would be voluntary.

Your next question comes from Sanil Daptardar - Sentinel Asset Management.

Just one housekeeping question first on the LIFO expense for the quarter. What was the LIFO expense for the quarter?

Oh, $132.7 million - oh, for the quarter it was $132.7 million for the quarter. And that's in the release; you just have to add the pieces together by segment.

He's talking about 2008, I'm assuming.

Yes, 2008 income of $132.7 million because the LIFO -

LIFO expense or income?

It was income.

Oh, income. So you had a pretty high LIFO income in the fourth quarter, then?

Yes, we did.

Okay. Then you talked about in the chemical processing industry some of the new projects may be delayed. If that happens early in 2009, when you're accounting for the volumes, basically, for this area segment, is it being accounted in the 2009 estimate or do you think that the volumes are not included in this item.

What we're saying is that the projects that we have scheduled for 2009 are moving forward and will be completed. And so our concern is more for the end of 2009 going into 2010 as to if those volumes that we currently have booked and scheduled and in our portfolio of business will continue at those same levels based on the ability of the industry to get financing. And so I think we're all going to be watching what happens with the financing markets on a global basis, the stimulus packages, and exactly what they are in China - South Korea, China, India, those areas of the world as well as the U.S. - in terms of what the, say, the fourth quarter into 2010 might look like. We're not too concerned about where we are with projects through the first two - three quarters.

You talked about the defense sector. I think that's a new area for the group. I think it was formed a year ago. Do you think any kind of weakness in the aerospace commercial market may be offset by the defense sector?

We're hoping so, yes. We're hoping so.

Your next question comes from Chris Olin - Cleveland Research.

I got on the call late, so I apologize if you already covered this, but I wanted to know if you offered any comments about the stimulus package. It looks like the dollars allocated to electrical distribution are pretty significant, and I'm just wondering if you have any thoughts on exactly what this could mean for electrical steel demand or if there's any kind of school of thought on how dollars translate into volumes?

I think when we look at electrical distribution and power generation, most of our business today is under longer-term arrangements and in those arrangements, our booking schedules are pretty well booked and full. Now, I do believe that there's inventories in the system in the U.S. especially that will be available to - any monies that are going into this business, there will be business for those people involved in making the transformers. I think for our company, we expect our order load to remain pretty solid booked as it is now.

But if you consider two to three years of good demand, is there at least an opportunity to get higher pricing?

Sure.

Is there an indirect benefit?

I think if this infrastructure bill runs two or three years, coupled with the recovery in the economies in Asia and India, there's going to be the same kind of surge for electrical steel needs that we saw in 2006 and 2007.

And then just real quick on titanium. How do you look at the or how should I model contracts in terms of the weakness in spot pricing? Is there any kind of price resetting in January or any kind of annual negotiations going on with that?

I think the current pricing levels that you might find through your contacts in distribution or around the system are generally what the prices are.

Your next question comes from Sal Tharani - Goldman Sachs.

I just wanted to get some view again on electrical steel, particularly [grain-oriented] electrical steel. You mentioned that you have them on the long-term contract and you're booked for 2009. Do you reset the prices every year on these contracts?

Well, if you look at what's happened to material prices and the surcharge mechanism, pricing has been set throughout the contracts. The surcharges are down considerably from what they were, let's say, in the early parts of - the middle of last year. I think overall pricing in the marketplace may be just about flat on total price.

But the base price -

Total pricing.

Flat?

Total pricing flat, yes. Even though the surcharges are down, base prices are up somewhat.

And the second question is on the raw materials side, particularly on the nickel and stainless steel side, you saw huge volatility in 2007 and now in the second half of 2008. Has anything changed in the way you do your surcharge in terms of squeezing the time further or tightening the time between when the nickel price is announced and when you put the surcharge? Have you made any attempt and any success on that?

The surcharge mechanism has been in place in the North American markets for many, many years, and the timing stays in place just like it has been. The issue that we have in the mismatch is one of a dramatic drop in prices with a dramatic drop in volume in the inventories and in process that you carry, and your business cannot react that quickly to it. So I don't think it's a situation of changing the surcharge mechanism and timing. I think it's a one-up event that we have to deal with this year. I think you make a very good point for how we look at our operations and how we run our pull schedules and how much inventory we keep in managed working capital as to how we can better position ourselves to have less influence by these rapid changes in pricing.

And do you also have a contract on the buy side of nickel? I mean, do you contract out volume? I understand pricing would [inaudible] but do you have to take a certain amount of volume every quarter or something?

Yes, Sal, this is Rich. It depends upon the raw material we're buying, but generally speaking these are requirements contracts. In the case of nickel, I mean, we're no different than any other consumer. It's LME plus a premium, and in these kinds of markets, the premium is lower than it would be in a stronger market.

Your next question comes from Peter Jacobs - Ragen MacKenzie.

I just have a housekeeping question and that relates to how you're going to reflect the increased pension expense in the P&L. And I was curious if I look at the business segment reporting, where you do have a line item for pension and post-retirement, is that where we would see it?

Yes, that's where you would see it, Peter.

So basically if I'm modeling I can pretty much use $35 million a quarter as you said in the press release, correct?

That's correct.

Secondly, in the cash flow statement under the operating activities, there is a $224 million, I guess, use of cash for accrued liabilities and other. Could you kind of break that apart for me?

Now, first of all, the biggest item in there is LIFO. We have managed working capital, which is gross inventory - that's a source of cash. The LIFO income is in net income, so that's obviously not - LIFO is not a cash item. We also have currency translation in there and then all of the other activities and the various accrued liabilities on the balance sheet. But the biggest item is obviously the LIFO income for the year, which was $169 million pretax.

Okay, $169 million pre-tax of which, what, $132 million, I believe you said, was in the fourth quarter?

Correct.

Your next question comes from Mark Parr - KeyBanc Capital Markets.

Pat, I was wondering, you had started talking about grain-oriented electrical steel in terms of the surcharges. I was wondering, did you make any comments about the potential for base price increases in '09 and can you talk about backlog momentum in that business for you?

Well, in our particular contracts, many of our contracts have minimums to them. Some of them are requirements. Some of them - or most of them - are contracts that require at the prices we offer to take the material. So they have a base price to them and they have a surcharge to them, and what I said was that prices in 2009 are flat with 2008, but the surcharges are lower. Now, you have to remember that we have contracts that expire in alternative years. For example, we don't have every contract that we have was renegotiated in 2008. Some of those contracts  maybe a third, a third and a third  as to contracts ending, new ones beginning. So there's some different levels out there in the industry, but I would characterize the total pricing of electrical steel products as flat.

I also had another question just on nickel based, both on the flats and on the long side. Can you give us some commentary - I'm not sure if you provided this, but do you have any comments you can provide as far as base pricing for those product categories?

I think base pricing is down in the single digits for this year versus last year on the average.

And then lastly, the $150 million of new cost saves that you've identified, is that all based on existing operations? I was just wondering if any of that might have had something to do with commissioning new sponge capacity later this year.

No, we have nothing in there for the benefits that we'll have on the sponge plant. We'll be saving those for 2010. We'll get that started in the third quarter. There's a lot of qualifying we have to do on the rotating parts side of those premium products. Other products will be qualified immediately. We're going to like the newer cost structure there; we're going to like the output of the products. But those are not in our $150 million we're talking about. Our cost savings for 2008 were $135 million, so we're saying at least $150 million in 2009 - at least $150 million.

Your next question comes from Timothy Hayes - Davenport & Company, LLC.

Two questions. First on the LIFO, we can get the true-ups at the end of the year. Were there any true-ups in the Q4 like we saw in Q4 of '07?

Well, yes, the true-ups always happen in the fourth quarter, so some of that, when you look at LIFO - and I've read some of the comments in terms of backing out LIFO from the earnings, which is an interesting concept because when we took the LIFO charges, I didn't see anybody adding that back - our inventories are valued on a LIFO basis. And to a large extent, the $133 million in the fourth quarter, about half of that was actually offset by higher FIFO-type costs because of a combination of the revaluation of the [inaudible] scrap in our inventory down to a lower level to approximate market, which we did at 12/31, and there's a charge associated with that which was offset by LIFO to a large extent. And then we did have some of the surcharge mismatches in the fourth quarter as well on product that we were selling and shipping in the fourth quarter that had higher FIFO raw material costs than what the surcharges were. So about half of that $132 million is really offset by those higher costs that are reflected in the quarter and the rest is really the impact of the true-ups because, as we were going through the year, as I think you know, we project what we think our costs are going to be in the fourth quarter throughout the year. So in the first quarter we're projecting what we think nickel is going to be in the fourth quarter. And none of us - and I don't think anybody, no commodity's analyst  projected that nickel would end the year at $4.50. So all of that is part of the true-up that happens in the fourth quarter. And it happened in 2007 as well.

Not enough volume to carry it off.

Yes, not enough volume. I mean, to Pat's point earlier, had we been shipping at kind of a more normalized volume level, especially in Flat-Rolled Products in the fourth quarter, most of that mismatch or a much bigger part of it would have been taken in the fourth quarter and offset by the LIFO, and unfortunately the volumes were so low that some of that moves into the first quarter.

In terms of being able to quantify that, say in Q4 of '07 in the High Performance segment, I think there was a LIFO gain of $61 million and about $50 million of that was considered a true-up for the year. Do you have the figures?

Well, I know it was $61 million. I can't remember off the top how much of that was true-up. I think that that number sounds maybe a little high because we did have significant reductions throughout '07 in terms of titanium scrap, so some of that would have offset some of the index mismatch off the titanium scrap in the fourth quarter. There's actually a bigger decline in the fourth quarter of '07 in titanium scrap relative to the rest of '07 than there was in '08 on titanium scrap relative to the rest of '08.

All right, moving to a second question, then, was there any impact of the Boeing strike in Q4 and might there be any in Q1 and, if so, any thoughts on how much it might be?

Oh, I think we're going to, you know, we have a contract with Boeing and so we're going to be shipping lower volumes to Boeing and, as we said, lower volumes on the aerospace side in 2009 than what we shipped in 2008, so basically we had very little disruption from Boeing from their outage.

Yes, it's more of a supply chain issue.

More of a supply chain than - the materials that we supply Boeing, again, are fungible materials that can be used in any program that they have. They're not a parts-specific program, like a finished part for the 787. It's materials that are used in the 787 as the production would ramp, but it's also used in any airplane program that they use titanium.

Your next question comes from Gautam Khanna - Cowen and Company.

Just looking at the annual operating profit margin at High Performance in '08, it was 28%, so net of LIFO, right? What are you targeting for 2009 given kind of all the uncertainties, High Performance margins, recognizing quarter to quarter they could bounce around?

Well, we're not really targeting. We used to say that we think those margins would stay around a 30% mark and I would think that those margins would be around a 30% mark plus in any normal economic condition. During a recession like we're seeing now and sorting things through, I think if we keep those margins in the 20s, we're going to be quite happy - mid 20s up.

Mid 20s up. And that's based on single digit base price erosion in titanium and nickel, superalloys and lower surcharges?

It's going to be based on overall market conditions and what the prices are as we see the spot business coming in and what those prices are going to do to the total mix.

And may I also, I mean, it looks like deferred taxes were $132 million cash sources here. What do you expect them to be in 2009? Are you going to be a cash taxpayer and what will your tax rate be?

Oh, yes, we'll be a cash taxpayer in 2009 and we were a significant cash taxpayer in 2008. Obviously, the effective tax rate and the cash tax rate are two different things, so, yes, we will be a cash taxpayer in 2009 in our view and it will be a meaningful use of cash and we incorporate that in the comments that Pat made about cash and self-funding. On the balance sheet or on the P&L side, the effective tax rate, obviously we update that every quarter based upon a detailed analysis of the facts and circumstances, but as we sit today and look into 2009, we would expect that effective rate to be around 37%.

And Rich, do you happen to have the inventory broken out by WIP, raw materials and finished goods?

Yes, I do, if you hold on for one second. The raw materials in round numbers, $164 million  this is gross, obviously - work in process, $129 million, and finished goods, $165 million.

Great. And do you guys have the backlog by segment as you normally do at year end as well?

The biggest backlog obviously and the one that's most reflective is in the High Performance Metals segment, and that backlog, because it'll be in our K, is - hold on for one second here  about $675 million and that compares to $683 million at the end of '07. That backlog  remember how we book backlog  that backlog would not include surcharges or indices; it's base prices. And that backlog only includes - even where we have a firm LTA - it only includes releases that have a definitive delivery date against them. So we could have an LTA like we do with Boeing that obviously runs through 2015, but that backlog would only include where we have definitive releases against that firm contract.

Your next question comes from Sal Tharani - Goldman Sachs.

Just a quick question on pension. You made some contribution using equity. Is that the plan for next year also? And just give us [inaudible] to what was the reason for that?

Well, the reason for it at the end of 2008 was that of all the investments that we have in the pension plan, all the individual equities and bonds and whatever they are, the one that we know best and have the most confidence in is ATI. So we think that that kind of a - that the use of our stock to contribute to the plan obviously helps the funded status of the plan. We look at it as a long-term investment strategy looking out over the next three to five years. And at the price that it was contributed at, we think that that was a good investment on the part of the plan. And actually, under pension accounting, in terms of how pension accounting works, that contribution, even though it may be counterintuitive, that contribution was actually accretive to the shareholders. It's not dilutive. And whether we would do that in 2009, we haven't made that decision yet or that recommendation to our Board. The $30 million comment that I made earlier in terms of funding to the current service costs, that would be contemplated as a cash contribution.

And second thing on pension, you mentioned the expense of $140 million total pension combined [inaudible]. I understand it's because of the underfunding or huge underfunding which has been created because of market conditions, but do you amortize it over several years?

Yes, well, there's a various components to the net pension expense. One of them is actuarial gains and losses. The biggest actuarial loss is the difference between the expected return on assets and the actual return on assets. That we do amortize in accordance with GAAP over about a 10-year period.

Thanks, everyone, for joining us today. We appreciate the questions. We appreciate your interest in our company and look forward to talking to you again at the next release.

And thanks to all the listeners for joining us today. As a reminder, the rebroadcast of this conference call is available on our website. That concludes our conference call.

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