Welcome to the second quarter 2009 Allegheny Technologies earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Dan Greenfield, Director of Investor Relations and Corporate Communications. Please proceed.

Thank you. Good afternoon and welcome to Allegheny Technologies earnings conference call for the second quarter 2009. This conference call is being broadcast on our website at AlleghenyTechnologies.com. Members of the media have been invited to listen to this call. Participating on the call today are Pat Hassey, Chairman, President and Chief Executive Officer and Rich Harshman, Executive Vice President Finance, and Chief Financial Officer. All references to net income and earnings in this conference call mean net income and earnings attributable to ATI common stockholders. 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 those on the line. Please note that all forward-looking statements 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 thank you to everyone listening on today's call. Before we get into the details of the quarter I would like to summarize ATI’s current thinking about how the company is now positioned and further positioning itself in this difficult market. First of all, we recognize these are challenging times and while we are seeing signs of stability in some markets like commodity stainless and gains in others like our exotic alloys business, we are realistic in saying that we are not yet seeing signs of significant recovery in our overall business volumes and revenues. Our financial position is strong. Our cost structure has improved considerably since the last down cycle so we have remained profitable with strong cash generation. This has allowed us to improve our competitive capabilities and to continue to invest for the future. Our product mix has improved and we are focused on key global markets for growth and profitability. While we are managing through this downturn, we are not standing still. First, we are entering into new market segments. Second, increasing share in some segments. Thirdly, preparing ATI to be positioned to grow when the economy recovers. Lastly, and most importantly, we remain confident in the intermediate and long-term growth potential for our core global markets. We believe this is the time for ATI to further differentiate itself as a global specialty metals company, uniquely positioned, diversified, technology driven with unsurpassed manufacturing capabilities. Now moving to some details of the quarter, the markets and further opportunities for ATI. The success in this environment begins with a strong financial position and the ability to generate cash. We have both. Excluding special non-recurring charges from our recent capital market transactions, ATI was profitable in the second quarter. Before special charges we earned $0.03 per share.…

(Operator Instructions) The first question comes from the line of Kuni Chen - Banc of America Securities.

On the titanium volume, it looks like you are around 20 million pounds through the first half. Can you give us a view of what you are seeing sequentially and whether or not you feel you are still on track for a 40 million pound type of handle for the full year?

I think we are on track somewhere between 38-40 million pounds. We have to fill in the rest of the year in some areas. We do have a lot of industrial titanium as well as the aerospace side of the business so it depends a little bit on what happens in the engine market in this kind of low period where they are adjusting inventories but we are fairly confident we will see 38 million. Maybe the 40 million.

Does the mix change at all as you go after some of these other markets?

The mix from what it has been in the first half?

Yes.

I don’t see much of a change from where we are today. If you look at where we are in pricing and where the scrap markets are and the opportunity for the total price of this product, we are bouncing along the bottom of this market right now. This is the worst time.

Your comments on electrical steel suggest that your shipments at least have held up nicely. Another one of your peers had commented volumes are down 15-20% or more. Just want to get a little more detail on what you are seeing there and again how you see volumes shaping up in the second half.

I think volume in the second half where we worked with some of our customers on what they are taking and where their inventory stands. We are going to see somewhat of a decline in shipments but not major in the second half of the year. I think we will still be shipping in the range of 95-100,000 tons of electrical steel this year.

The next question comes from Dave Martin – Deutsche Bank. Dave Martin – Deutsche Bank : I wanted to start with the stainless steel business. What operating rate were you running at in the second quarter and where would your utilization rate be today? Secondly, can you comment on any opportunities to export stainless steel that you are seeing?

We are running in 50-60% of capacities. We are seeing more volume in the second half. We have a very receptive particular customer base in Europe for our stainless steel products and we are seeing better shipments in the second half of the year to export out of the country as that market in Europe recovers. So, we are somewhat cautious but encouraged a bit on the stainless steel side. Price increases certainly are helpful. I think there is certainly the ability to do more there. I think the market is stabilizing. The inventories, there just isn’t inventory sitting out there. As somebody needs something they have to buy it. As people look at how they run their own business if they want to take the risk of moving more metal into inventory or they like the idea of buying out of mill inventories at a premium they have all kinds of choices in the market today. The very good news in the U.S. is that the lead times are short. The inventory levels are flexible and it has a very negative effect on import for the market which is good news to the domestic producers. Dave Martin – Deutsche Bank : Coming back to the electrical steel comment, in the first half of the year your shipments were approximately what? About 60,000 tons?

No. We don’t disclose the number. It isn’t our normal level. We all agree with that.

Certainly less than what we were expecting heading into this year primarily because of the housing market in the U.S. and some of the competitive factors and markets outside the U.S. It is still a strong market for us because of our relationships with the customers.

The next question comes from Luke Folta - Longbow Research.

On the sequential decline that we saw in nickel based alloy and titanium volumes do you have a feel for how much of that was inventory adjustment versus how much would be just lower consumption?

I think that is a great question. We are trying to figure that out too. What happens in these uncertain times, people have a certain level of inventory for a certain projected build rate or usage rate? When those projections change or the perception of those projections change, and I think there is a clear difference between what some distributors and suppliers outside of the major OEM system that supply second and third tier versus first tier, and also some of the engine side of the industry certainly they have a different view than the OEM’s on projecting at a current time. So we wind up as a material supplier with a double hit. We end up with whatever the projections are from each side as they settle into the build rate. Then we also wind up with the adjustments due to current inventory levels as well as lead times. So you wind up with lead time changes, inventory reduction changes and then a perceived or actual build rate change. So a material supplier like ATI gets double hit in the first part of that transition. Certainly we are seeing that in the third quarter which feels like the bottom to us as those inventory levels then get corrected and we get to whatever the build rate final numbers will be. It will actually be an increase in our business.

So it is fair to say the adjustment is pretty front loaded, you see the adjustment kind of quick on the inventory side and then you should see sequential alleviation?

Yes. Exactly. It happens quickly and I think as I mentioned in my comments the real truth of the matter is usually somewhere in between the two estimates. Right? When that finally settles out, our past experience has been we see a rather sharp adjustment in how we get our levels back to where we need to be and the day that lead times move out a week or two then it is panic.

On the titanium cost front, given you are going to be bringing Albany down and Utah up, is there associated cost benefit we should be modeling in for 2010?

No, I don’t think that is going to be something that is really going to change what our numbers appear to be. We have got these things factored in. Obviously we are still buying titanium on the outside today with the level of business we have and with our outside commitment on contracts through 2010 we are looking at what percentage of the business we are going to produce in house. When we look at that we see Utah as the better facility in terms of cost and also in terms of product quality. So Utah is coming up in the third quarter and as we announced recently Albany will temporarily idled and we have the swing capacity at Albany. It doesn’t change our view of the longer-term for titanium that we will need both facilities.

The next question comes from Timna Tanners – UBS.

I wanted to follow up and ask a similar question on the stainless demand and how much of that do you think is inventory replenishing and how much of that is underlying demand. In the write up you talk about still seeing weakness in auto and appliance so if you could also talk about if you are starting to see improvement there?

Let me just mention it is a complete difference on the stainless side of the business we really don’t see distributors in a restocking mode. Most of our customers we see are customers who are actually pulling product for the demand levels that they have. We see some demand gradually improving and in some areas improving in a big way. On the automotive side we start to see improvements in our precision rolled strip business which goes into such things as turbo chargers for diesel engines, hose clamps and for other couplings and applications like that. That business recently has gotten some real life into it.

So we have heard some comments from other producers about not restocking, maybe that was a poor way of explaining it, but trying to get ahead of nickel surcharges increasing. You don’t see much of that phenomenon?

No. We see pretty level bookings and schedules even into the higher surcharge months.

Where is the demand improving besides auto?

It is improving across general distribution as well as actually some people are replacing a lot of windows so the window channel business. We have some applications that is just a general increase. The stocking has bottomed out or the materials at the end customer plants have run out and they have gotten a few orders. They have gotten some orders. We see a general improvement across the industry.

In some past calls you have given us a little bit more detail on margin guidance across the different segments. Can you characterize where you might expect the segments to perform a little better or a little worse relative to where they have been? Can you give us a little more color on margin outlook?

I’m not going to go into that great detail but I would say that this feels like the bottom and I don’t think we are going to see prices go lower any place and I don’t think we are going to see scrap prices go down any place.

Just notable to us is as overhead costs, your SG&A went down sharply. Is that something we should expect to see the same? Can you give us any more color on that?

A lot of that has to do with how all the senior management of this company are compensated. It certainly holds for the second half of this year. I hope it goes up next year.

The next question comes from Gautam Khanna – Cowen and Co. Gautam Khanna – Cowen and Co. : In the past you have given us a view on the following quarter’s surcharge mismatched. What is it in Q3?

It is really not all that significant for two reasons. Number one, we did a big surcharge mismatch impact in both flat-rolled and high performance metals because of the collapse of virtually all of the raw material costs we pay in the beginning and the middle of the first quarter 2008. It takes us awhile to work through that because of the longer manufacturing cycles of many of the products that essentially all have surcharges or indices in them. As we head into the third quarter we are largely worked through that. Plus you have at worst the stabilization of raw material costs over a relatively long period of time and things like iron scrap and iron units and [moley] and chrome and what has been more volatile recently has obviously been nickel and nickel is working its way back up. That alleviates some of the negative impact that could have rolled into the third quarter. At this point we don’t consider that to be a big factor in the third quarter. Gautam Khanna – Cowen and Co. : In Q2 you had $17 million of headwind. You are guiding Q3 to at or break even which is what Q2 was pro forma for the retirement of the tax treatment of the pension contribution. What actually is getting worse sequentially? Is it part of it high performance? It looks like flat-rolled all the indications are demand is relatively stable with…

It is clearly part of the high performance primarily on the aero engine side for all the reasons that Pat earlier articulated. There are, some of the comments that were made about exotic alloys in the chemical processing industry also play in some of the high value products in flat-rolled. Some of the specialty alloys and flat-rolled product forms that go into those more capital project type markets. That clearly will be lower demand as we see it here in the third quarter so that has an impact there. I don’t think we would be expecting at this point any further deterioration in engineered products. Quite frankly we are disappointed with the performance in that segment and we obviously have work to do but the real problem there quite frankly is very low business volume pretty much across the end market. I think it is a variety of issues. One of the things I think might have been missed is the comment we clearly will have a benefit in the third quarter for the full quarter on lower pension expense because of the voluntary pension contribution and the remeasurement of the liability but we will also have slightly higher interest costs because of the higher level of debt and the fact not all of that increase will be absorbed through capitalization of interest on our major projects. Gautam Khanna – Cowen and Co. : May I ask how the accounting is going to be affected by the decision to wind down Albany or at least idle it and wind up Rowley? What is the book value of the Albany plant and what is sort of the lingering overhead cost associated with that? To follow-up, as you then start to depreciate Rowley the minute you bring in on line, how do we think about the math there?

Let’s talk about Albany first. We don’t have an impaired asset there because in our view this is a temporary idling that will be reevaluated on a quarterly basis based upon market conditions and our need for titanium units. We have obviously brought down the cost as low as we can bring it down without inhibiting our ability to restart that plant in a very efficient way. We will continue to depreciate that facility. Normally the depreciation gets absorbed in inventory and flows through cost of goods sold that way. Since there won’t be any production going on it is roughly about $1 million a month of depreciation expense for that facility. That will flow through as a period cost. Rowley, the expectation is we will begin initial production towards the second half of September so I don’t think the issue in the third quarter in terms of depreciating will be a significant issue because obviously on a book basis it is when we start. So maybe we will have half a month of depreciation in the quarter. That really won’t be all that significant because of the long-lived asset life for that facility. We will begin to see that and some start up costs in the fourth quarter but that is not going to be a significant issue in our view for the third quarter. Gautam Khanna – Cowen and Co. : Is that asset being depreciated over 30 years or 40 years?

On a book basis it is not 40 years because obviously you look at the individual components and it is a fact and circumstance life assumption on individual pieces of assets. I think roughly the weighted average because most of the, or a high part of the cost is in the building and infrastructure which has a longer depreciable life. I think we are around 28 years, 28-30 years on a book basis. Gautam Khanna – Cowen and Co. : So that is like $1.4 million a month or something like that. The last question, on the retirement benefit expense for 2010 given the pre-funding here and if you froze the asset plans today given the returns, etc. what is a ballpark estimate for what pension plus retirement benefit could be in 2010 recognizing there is a lot that could change between now and the end of the year?

The last phrase is really the operable phrase. What will the bond yield be, the value of the liability. What will the asset level be based upon asset performance? The one thing we know for sure is what the benefit levels are because that is not changing a lot. The other variables are too volatile for me to get into a predictive mode at this point in time. Gautam Khanna – Cowen and Co. : Is there anything you could say for certainty? You are outside the corridor I think this year, right? So that piece continues through so about $60 million?

That is fairly stable. We have actual gains and losses that are rolling through this year of about $76 million. Maybe that is a little bit better and maybe that is a little bit worse. It all depends upon, so far the asset performance and the return performance through six months is tracking pretty close to our long-term expected rate of return of 8.75%. So assuming we keep on that track, we are not creating from an investment return standpoint any further actuarial loss to amortize but we are not creating any actuarial gain either to reduce the loss. The components of the calculation that are relatively stable, and it is all in our footnotes, our service costs certainly and prior service costs and maybe actuarial gains and losses but the variable is expected return on assets and interest costs on the basis of what the Moody’s AA bond yield is and what our return on assets is.

The next question comes from [John Tomasos - John Tomasos Very Independent Research]. [John Tomasos - John Tomasos Very Independent Research]: You have a lot of nickel units in inventory for the different stainless flat-rolled products as well as the high nickel alloys in the high performance segment. Some of them you may buy as scrap. Some of them may be LME deliverable and some of them are subject to the surcharge mechanism and some of the high performance stuff is hedged on behalf of the customers. As the nickel price is rising now with INCO on strike in Ontario, how much exposure do you have in terms of being long nickel units where there could be a gain or loss to the income statement aside from LIFO? Just on an operating basis? Or does between the surcharge and the customer contracts cover it all and there is no impact?

I don’t think that we would view any rising scenario there to be a significant impact to us on the negative side. To your point, where we hedge for customers the customer takes on that nickel cost exposure risk or benefit depending upon where it was hedged. We hedge on the basis of the estimate of when we are going to melt so there is a fairly good matching concept in terms of the quantity that is hedged versus when it is going to ship. That primarily applies to the high performance metal segment. In the flat-rolled products segment while we may have some hedges it is really a very small piece of the equation. In the high performance where we don’t hedge, surcharges and indices in both of those segments apply. So to the extent you have a rising LME on the way up you kind of get the reverse benefit, you get a reverse situation where you have the benefit of a favorable surcharge or index versus the cost just like we have experienced a downside and a rapid collapse of the LME price. So, when you look at it on a pure cycle basis, leaving LIFO out because that adds a more complicated variable to it, I don’t think it is a major issue at the kind of relatively low volatility that we are seeing on nickel. [John Tomasos - John Tomasos Very Independent Research]: You said there was no adverse impact. Could there be a small benefit?

There could be but not a parable amount at these kinds of volume levels and we are very lean in terms of how much raw material cost we have in inventory so the exposure is not really on the raw materials side. It is the length of time it takes us to produce the product from melt through the finished operation. So the exposure and the benefit is primarily in finished goods.

The next question comes from Brian Yu- Citigroup Global.

I think earlier you mentioned that your book to bill ratio was falling below one. Can you give us a little bit better sense of where that is? 0.7 or 0.5? Also, if some of these projects that have been stalled because of financing problems do start to come back when might you see those orders come in?

We mentioned on the capital projects we certainly came into the year with a large backlog of orders that ran well through the first half and even into the third quarter. I think as we see that now we are seeing these projects being released for production to begin for us in the fourth quarter and into the first half of 2010.

On this whole topic of inventory, there has definitely been quite a bit of de-stock mostly on the commodity side. Yet there is talk about inventory adjustments in aerospace. Is it fair to say the de-stocking is commodity and things are getting better but then on the higher margin aerospace business they are expecting more de-stocking to take place in the back half?

I am expecting we will see the stocking throughout the third quarter. How long that lasts I don’t know. It is a month’s kind of situation. It is not a year. It is something we are going to experience in the second half of 2009. I can’t tell you whether this picks up in the fourth quarter or the first quarter of next year. It is within the next five to six months.

Do you see any adjustments necessary to your take or pay contracts to help accelerate the billing process?

No. I don’t think there are any adjustments we are going to make on any of our aerospace contracts.

The next question comes from Sal Tharani - Goldman Sachs.

I just wanted to get color on a comment you made earlier that you have seen some projects coming back because of financial availability and I believe you said it was in Asia you mentioned?

Yes.

Is that in any particular area? China?

It is in South Korea and China.

Have you seen your business grow because of the stimulus package in China being implemented forcefully over there?

I think this is where we are seeing these projects being released. That monies are now available from government financial institutions, banks, basically to stay on the track of the stimulus there. It is actually working. I think some of the projects we are seeing out of South Korea are involved in deep sea oil and gas and power generation. We are seeing the beginning of some of nuclear side of the business. Also in China as you know we have a precision rolled strip business in China, a joint venture called STAL and that business from the light gauge stainless steel standpoint has had a lot of new business. Getting very busy.

Of the total sales I believe you said came from international sales. What portion of that is tied to Asia?

Probably 35% of that.

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

A quick follow-up on CapEx. I see you basically are maintaining your outlook for this year. Conceptually if we sort of normalize for the cash flow impact of working capital draw downs that we have seen here in the first half of the year and still have earnings at low levels, perhaps near break even levels. You kind of get to that level where the self-funding kind of where maybe you are not self-funding any more. Is that sort of the point where you would start to contemplate a CapEx cut or deferrals in 2010? I just want to get a sense as to how you think about that if we stay at these low levels of earnings for a longer than expected period of time.

We have a lot of depreciation added into that cash flow. I don’t know whether you put that into your thinking at this point. We have depreciation in cash flow which is well over $100 million. You can add into what we expect to be better earnings. Then we still have some other adjustments that we are looking for. If you look at our EPS with $100 million of effective benefit side of the pension. We think there is enough cash with where we are and with where we think business is going to be that we will have no problem funding what we need to do next year. As we look at the existing projects you need to recall that two of our major projects are now finishing funding in the third and fourth quarter of this year. Then we basically have just two major projects, both of which are in flat-rolled products, the hot rolling facility in consolidation of the melt facilities at Brackenridge. Those projects will begin to ramp with self-funded money.

The next question comes from Gautam Khanna – Cowen and Co. Gautam Khanna – Cowen and Co. : If you wouldn’t mind prognosticating to 2010 just in light of what may be a six month delay in the 787 program to initial delivery. You know the 777 and 747 rates are coming down. What can we expect realistically for titanium mill product volumes in 2010? I recognize you are getting some penetration on the industrial side but that credit availability is still an issue and the like. Can we get kind of flattish shipments in 2010 or should we be thinking more along the lines of a slight decline and if so I am just talking directionally. I know we don’t have all the pieces here.

We think we are in a flat situation moving into 2010. There are going to be pluses and minuses across the board. We have business in particular areas in oil and gas and in nuclear as well as the aerospace business that is going to offset the two comments you made on the 777 and the 747. We also don’t know when the 787 is going to get off the ground. Let’s assume your numbers six months from now, when that happens we are going to see more pull from titanium not necessarily from the OEM but from the supply chain throughout the rest of the aerospace business that anticipates getting geared up and has committed to support that program. Those inventories are being drawn down throughout the balance of this year that I think will be replenished when that plane gets up in the air. I think we have at least a shot at keeping the flat shipment. Gautam Khanna – Cowen and Co. : I know it is early to comment, but with respect to pricing and mix, how do you see that playing out? We have seen scrap prices continue to ease and titanium clearly the aerospace cycle, the build rate and unit deliveries are coming down. Admittedly the 787 is a big offset to that at some point. Is there something you can comment if the mix shifts to more industrial that it is less profitable and thus going to be less of a margin kind of recovery story perhaps with flat levels of titanium shipments at IHP in 2010?

We don’t see any further margin deterioration in the business we have. The contracts that we have and the market segments we are servicing. When we look at scrap prices and surcharging and where we are now it feels like the bottom. This feels like the bottom. Gautam Khanna – Cowen and Co. : Is there something about the Rowley facility with respect to your unit costs that gives you that conviction? I mean is it a much lower cost facility than Albany?

It is a lower cost facility than Albany. I’m just going to say that. It is a modern facility and it produces, we expect it to produce a product that is of the highest quality that you can buy in the industry. This then allows us to produce more of those kinds of products in house than purchasing them on the open market from a sponge standpoint. Gautam Khanna – Cowen and Co. : On grain oriented electrical steel, when you look out into 2010 do you have a sense for how much capacity today and 2010 is more or less spoken for?

As we make adjustments this year we are not losing the business under contract. We are extending the business forward. We would expect comparable levels next year. Gautam Khanna – Cowen and Co. : With respect to pricing on that given your visibility today are you seeing some stabilization there or is it perhaps going to be softer?

The prices we have are under contract. I think prices in the open market as you know on a global basis are somewhat down from the high prices that were realized in 2007 and 2008. On a spot market basis you have softer pricing possibly. There is not too many prices out there that are really very, very low prices. That is not what I’m trying to say here. I think basically our pricing payables and status will be fairly comparable to 2009.

The next question comes from [Unidentified Analyst]. [Unidentified Analyst]: You talked about the titanium market you think the demand might be in the early stages of recovery. Do you think you will be increasing your operating rates in the third quarter or fourth quarter or probably might be staying around 50-60%?

I think we will be increasing our operating rates but they are going to move by single digit percentage points. We certainly will have more commodity business than stainless business than what we have had in the first half. [Unidentified Analyst]: Where do you think that commodity demand is coming from largely?

It is just a recovery. As we see it, it is a recovery in the markets that we serve which are a lot of the tubular product markets. So they are going into project work around the world. They are going into water systems. They are going into applications that are corrosive resistant. We couldn’t tell you where all the distribution type project work is going but tubular products, and it is in general distribution and somewhat in automotive. Certainly not in housing. [Unidentified Analyst]: The high value stainless steel business, when do you think it might recover?

I think it is just a very slow, gradual recovery. [Unidentified Analyst]: On the aerospace market, you talked about the titanium market is 40 million pounds for 2009. Do you think that might be the same rate in 2010 because of what the build rates are with passenger airline miles, it doesn’t seem that things are going to be picking up there significantly. When you start looking at 2010 do you think the 40 million pounds might be the doable number for 2010?

I think what we were talking about was the total markets both industrial, our unity joint venture in conversion which includes welded tube and in aerospace which is airframe and jet engines. So it is the total ball of wax here. We said that markets this year will range, we think our estimate is 38-40 million pounds. I think it will be the same next year.

Operator, that will conclude our call.

We thank you for joining us ladies and gentlemen. We thank you for your interest in ATI and look forward to our next conference call at the end of the third quarter.

Thank you Pat and thank all of our listeners for joining us today. That concludes our conference call.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.