-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UFoO0CQ8mcwjQLTPRLUO8nC5dl+n2xpy6/su+rZlhMhcnFcYtiHXQkzHTkvO7h5c h91hlCHBmGlq9fYO9lFRAg== 0000950128-01-500106.txt : 20010516 0000950128-01-500106.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950128-01-500106 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010303 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGHENY TECHNOLOGIES INC CENTRAL INDEX KEY: 0001018963 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 251792394 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12001 FILM NUMBER: 1638407 BUSINESS ADDRESS: STREET 1: 1000 SIX PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4123942800 MAIL ADDRESS: STREET 1: 100 SIX PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 FORMER COMPANY: FORMER CONFORMED NAME: ALLEGHENY TELEDYNE INC DATE OF NAME CHANGE: 19960716 10-Q 1 j8829801e10-q.txt FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _____ to _____ Commission File Number 1-12001 ALLEGHENY TECHNOLOGIES INCORPORATED - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 25-1792394 ------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 1000 Six PPG Place Pittsburgh, Pennsylvania 15222-5479 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (412) 394-2800 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No _____ At May 4, 2001, the Registrant had outstanding 80,202,179 shares of its Common Stock. 2 ALLEGHENY TECHNOLOGIES INCORPORATED SEC FORM 10-Q QUARTER ENDED MARCH 31, 2001 INDEX Page No. PART I. - FINANCIAL INFORMATION Item 1. Financial Statements 3 Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (In millions except share and per share amounts)
March 31, December 31, 2001 2000 ---- ---- (Unaudited) (Audited) ASSETS Cash and cash equivalents $ 23.5 $ 26.2 Accounts receivable 317.7 325.3 Inventories 577.6 585.7 Deferred income taxes 94.2 61.2 Prepaid expenses and other current assets 27.1 24.4 ---------- ---------- Total Current Assets 1,040.1 1,022.8 Property, plant and equipment 875.3 872.0 Prepaid pension cost 617.5 593.6 Cost in excess of net assets acquired 193.9 194.5 Other assets 85.4 93.3 ---------- ---------- Total Assets $ 2,812.2 $ 2,776.2 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 197.8 $ 169.3 Accrued liabilities 187.9 191.0 Short-term debt and current portion of long-term debt 57.6 53.2 ---------- ---------- Total Current Liabilities 443.3 413.5 Long-term debt 501.5 490.6 Accrued postretirement benefits 520.1 525.9 Deferred income taxes 184.4 158.7 Other 138.4 148.3 ---------- ---------- Total Liabilities 1,787.7 1,737.0 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock, par value $0.10: authorized- 50,000,000 shares; issued-none -- -- Common stock, par value $0.10, authorized-500,000,000 shares; issued-98,951,490 shares at March 31, 2001 and December 31, 2000; outstanding-80,133,152 shares at March 31, 2001 and 80,339,957 shares at December 31, 2000 9.9 9.9 Additional paid-in capital 481.2 481.2 Retained earnings 1,039.2 1,050.0 Treasury stock: 18,818,338 shares at March 31, 2001 and 18,611,533 shares at December 31, 2000 (483.1) (482.3) Accumulated other comprehensive loss, net of tax (22.7) (19.6) ---------- ---------- Total Stockholders' Equity 1,024.5 1,039.2 ---------- ---------- Total Liabilities and Stockholders' Equity $ 2,812.2 $ 2,776.2 ========== ==========
The accompanying notes are an integral part of these statements. 3 4 ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions except per share amounts) (Unaudited) Three Months Ended March 31, ------------------- 2001 2000 ---- ---- Sales $542.5 $625.4 Costs and expenses: Cost of sales 476.9 510.7 Selling and administrative expenses 48.4 51.0 Interest expense, net 8.0 6.9 ------ ------ 533.3 568.6 Earnings before other income 9.2 56.8 Other income 1.2 8.4 ------ ------ Income before income taxes 10.4 65.2 Provision for income taxes 4.0 23.9 ------ ------ Net income $ 6.4 $ 41.3 ====== ====== Basic and diluted net income per common share $ 0.08 $ 0.47 ====== ====== The accompanying notes are an integral part of these statements. 4 5 ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)
Three Months Ended March 31, --------------------- 2001 2000 ---- ---- OPERATING ACTIVITIES: Net income $ 6.4 $ 41.3 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24.8 24.8 Deferred income taxes (7.6) 15.8 Gains on sales of investments and businesses -- (10.5) Change in operating assets and liabilities: Accounts payable 28.4 12.4 Prepaid pension cost (23.9) (32.5) Inventories 8.1 1.9 Accounts receivable 7.6 (15.3) Accrued liabilities and other (16.8) (8.1) ------ ------- CASH PROVIDED BY OPERATING ACTIVITIES 27.0 29.8 INVESTING ACTIVITIES: Purchases of property, plant and equipment (24.7) (12.2) Disposals of property, plant and equipment 0.9 1.7 Purchases of businesses and investment in ventures (0.5) -- Proceeds from the sale of investments -- 14.2 Other (0.3) (0.6) ------ ------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (24.6) 3.1 FINANCING ACTIVITIES: Net borrowings under credit facilities 9.6 115.6 Borrowings on long-term debt 4.5 2.4 Payments on long-term debt and capital leases (0.2) (0.7) ------ ------- Net increase in debt 13.9 117.3 Purchases of common stock (3.0) (130.6) Dividends paid (16.0) (17.3) Exercises of stock options -- 0.2 ------ ------- CASH USED IN FINANCING ACTIVITIES (5.1) (30.4) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2.7) 2.5 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 26.2 50.7 ------ ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23.5 $ 53.2 ====== =======
Cash provided by operating activities in 2000 is net of payment of taxes on gain on sale of investments of $3.8 million. Excluding this tax payment, cash provided by operating activities was $33.6 million. The accompanying notes are an integral part of these statements. 5 6 ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES Basis of Presentation The interim consolidated financial statements include the accounts of Allegheny Technologies Incorporated and its subsidiaries. Unless the context requires otherwise, "Allegheny Technologies" and the "Company" refer to Allegheny Technologies Incorporated and its subsidiaries. Certain amounts from 2000 have been reclassified to conform with the 2001 presentation. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of the Company, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2000 Annual Report. The results of operations for these interim periods are not necessarily indicative of the operating results for a full year. New Accounting Pronouncements On January 1, 2001, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" was adopted by the Company. This statement establishes accounting and reporting standards requiring the fair value of derivative instruments be recognized as either assets or liabilities in the statement of financial position. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in the fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Based upon the Company's derivative positions at March 31, 2001, the Company had recognized an unrealized net loss of $5.1 million, net of income taxes, in stockholders' equity as a component of other comprehensive income. The Company had no gain or loss from the cumulative effect of an accounting change recognized in the statement of net income. The cumulative effect on other comprehensive income was immaterial. Derivative instruments are principally used by the Company to hedge certain raw material price, energy price and foreign exchange risks. The Company continually monitors the effectiveness of its derivative instruments. The Company had no gain or loss from hedge ineffectiveness recognized in the statement of net income. 6 7 NOTE 2. INVENTORIES Inventories were as follows (in millions): March 31, December 31, 2001 2000 (audited) ---- ---- Raw materials and supplies $ 95.6 $ 110.3 Work-in-process 492.9 488.4 Finished goods 99.2 99.1 -------- -------- Total inventories at current cost 687.7 697.8 Less allowances to reduce current cost values to LIFO basis (103.5) (108.7) Progress payments (6.6) (3.4) -------- -------- Total inventories $ 577.6 $ 585.7 ======== ======== NOTE 3. SUPPLEMENTAL BALANCE SHEET INFORMATION Property, plant and equipment at March 31, 2001 and December 31, 2000 were as follows (in millions): March 31, December 31, 2001 2000 (audited) ---- ---- Land $ 31.6 $ 31.7 Buildings 214.8 216.2 Equipment and leasehold improvements 1,535.2 1,507.9 -------- -------- 1,781.6 1,755.8 Accumulated depreciation and amortization (906.3) (883.8) -------- -------- Total property, plant and equipment $ 875.3 $ 872.0 ======== ======== Accrued liabilities included salaries and wages of $27.3 million and $37.4 million at March 31, 2001 and December 31, 2000, respectively. NOTE 4. BUSINESS SEGMENTS Information on the Company's business segments was as follows (in millions): Three Months Ended March 31, ----------------------- 2001 2000 ---- ---- Total sales: Flat-Rolled Products $ 289.5 $ 382.5 High Performance Metals 205.3 195.4 Industrial Products 72.7 71.9 -------- -------- 567.5 649.8 Intersegment sales: Flat-Rolled Products 7.0 6.6 High Performance Metals 18.0 17.8 -------- -------- 25.0 24.4 Sales to external customers: Flat-Rolled Products 282.5 375.9 High Performance Metals 187.3 177.6 Industrial Products 72.7 71.9 -------- -------- $ 542.5 $ 625.4 ======== ======== 7 8 Three Months Ended March 31, ----------------------- 2001 2000 ---- ---- Operating Profit(Loss): Flat-Rolled Products $ (4.5) $ 37.7 High Performance Metals 11.0 13.0 Industrial Products 4.1 6.6 -------- -------- Total operating profit 10.6 57.3 Corporate expenses (7.0) (8.3) Interest expense, net (8.0) (6.9) Gains (Losses) on asset sales and other (1.7) 0.5 Excess pension income 16.5 22.6 -------- -------- Income before income taxes $ 10.4 $ 65.2 ======== ======== Excess pension income represents the amount of pension income in excess of amounts allocated to business segments to offset pension and other postretirement benefit expenses. NOTE 5. NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per common share (in millions, except per share amounts): Three Months Ended March 31, ------------------ 2001 2000 ---- ---- Numerator: Numerator for basic and diluted net income per common share - net income $ 6.4 $41.3 ===== ===== Denominator: Weighted average shares 80.2 87.2 Contingent issuable stock 0.1 0.1 ----- ----- Denominator for basic net income per common share 80.3 87.3 Effect of dilutive securities: Employee stock options 0.1 0.1 ----- ----- Dilutive potential common shares 0.1 0.1 Denominator for diluted net income per common share - adjusted weighted average shares 80.4 87.4 ===== ===== Basic and diluted net income per common share $0.08 $0.47 ===== ===== 8 9 NOTE 6. COMPREHENSIVE INCOME The components of comprehensive income, net of tax, were as follows (in millions): Three Months Ended March 31, ------------------ 2001 2000 ---- ---- Net income $ 6.4 $41.3 Foreign currency translation gains (losses) 3.1 (2.1) Unrealized derivative gains (losses) (5.1) -- Unrealized gains (losses) on securities: Unrealized holding gains arising during period (1.3) 0.6 Less: realized gains included in net income -- 7.4 ----- ----- (1.3) (6.8) ----- ----- Comprehensive income $ 3.1 $32.4 ===== ===== NOTE 7. STOCKHOLDERS' EQUITY Allegheny Technologies paid a cash dividend of $0.20 per share of common stock in each of the 2001 and 2000 first quarters. The Company's Board of Directors has authorized up to a total of 25 million shares of Allegheny Technologies common stock to be acquired under the Company's stock repurchase program. These shares may be purchased from time-to-time in the open market or in negotiated transactions. In the first three months of 2001, the Company repurchased 0.2 million shares for $3.0 million under this program. From the inception of the share repurchase program on October 1, 1998 through May 4, 2001, the Company has repurchased 20.5 million shares at a cost of $531.1 million. NOTE 8. FINANCIAL INFORMATION FOR SUBSIDIARY AND GUARANTOR PARENT The payment obligations under the 6.95% debentures due 2025 issued by Allegheny Ludlum Corporation (the "Subsidiary") are fully and unconditionally guaranteed on a joint and several basis by Allegheny Technologies Incorporated (the "Guarantor Parent"). In accordance with previous positions established by the Securities and Exchange Commission, the following summarized financial information illustrates separately the composition of the Subsidiary, the Non-Guarantor Subsidiaries and the Guarantor Parent. Separate complete financial statements of the Subsidiary are not presented because management has determined that they would not provide additional material information that would be useful in assessing the financial composition of the Subsidiary or the guarantor and non-guarantors. The principal elimination entries eliminate investments in subsidiaries and certain intercompany balances and transactions. In 1996, the underfunded defined benefit pension plans of Allegheny Ludlum Corporation were merged with the overfunded defined benefit pension plans of Teledyne, Inc. and Allegheny Technologies became the plan sponsor. As a result, the summarized balance sheet information presented for Allegheny Ludlum Corporation does not include the Allegheny Technologies net prepaid pension asset or the related deferred taxes. Solely for purposes of this 9 10 presentation, pension income has been allocated to Allegheny Ludlum Corporation to offset pension and postretirement expenses which may be funded with pension assets. This allocated pension income has not been recorded in the financial statements of Allegheny Ludlum Corporation. Additionally, management and royalty fees charged to Allegheny Ludlum Corporation and to the Non-Guarantor Subsidiaries by the parent have been excluded solely for purposes of this presentation. Summarized Condensed Financial Information
For the quarter ended March 31, 2001 (unaudited) - ---------------------------------------------------------------------------------------------------------------- Non- Parent Guarantor (In millions) Guarantor Subsidiary Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------------------- Current assets $ 0.7 $ 476.7 $ 581.1 $ (18.4) $1,040.1 - ---------------------------------------------------------------------------------------------------------------- Non-current assets 2,521.5 1,146.5 681.7 (2,577.6) 1,772.1 - ---------------------------------------------------------------------------------------------------------------- Current liabilities 440.9 157.0 334.1 (488.7) 443.3 - ---------------------------------------------------------------------------------------------------------------- Non-current liabilities 1,056.8 728.8 61.7 (502.9) 1,344.4 - ---------------------------------------------------------------------------------------------------------------- Net sales -- 239.1 303.4 -- 542.5 - ---------------------------------------------------------------------------------------------------------------- Gross profit -- 1.9 70.6 (6.9) 65.6 - ---------------------------------------------------------------------------------------------------------------- Net income (loss) $ 6.4 $ (6.2) $ 26.1 $ (19.9) $ 6.4 - ----------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000 (audited) - ---------------------------------------------------------------------------------------------------------------- Non- Parent Guarantor (In millions) Guarantor Subsidiary Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------------------- Current assets $ 3.1 $ 519.3 $ 563.3 $ (62.9) $1,022.8 - ---------------------------------------------------------------------------------------------------------------- Non-current assets 2,514.7 1,125.6 662.1 (2,549.0) 1,753.4 - ---------------------------------------------------------------------------------------------------------------- Current liabilities 430.2 172.0 324.5 (513.2) 413.5 - ---------------------------------------------------------------------------------------------------------------- Non-current liabilities $1,048.4 $ 691.9 $ 69.5 $ (486.3) $1,323.5 - ----------------------------------------------------------------------------------------------------------------
For the quarter ended March 31, 2000 (unaudited) - ---------------------------------------------------------------------------------------------------------------- Non- Parent Guarantor (In millions) Guarantor Subsidiary Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------------------- Net sales $ -- $ 373.8 $ 251.6 $ -- $ 625.4 - ---------------------------------------------------------------------------------------------------------------- Gross profit -- 48.6 73.6 (7.5) 114.7 - ---------------------------------------------------------------------------------------------------------------- Net income $ 41.3 $ 20.7 $ 37.6 $ (58.3) $ 41.3 - ----------------------------------------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENCIES The Company is subject to various domestic and international environmental laws and regulations which require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under these laws. Environmental liabilities are recorded when the Company's liability is probable and the costs are reasonably estimable. In many cases, however, investigations are not yet at a stage where the Company has been able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss, or certain components thereof. Estimates of the Company's liability are further subject to uncertainties regarding the 10 11 nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required, and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these sites proceed, adjustments in the Company's accruals are made to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company's results of operations in a given period, but the amounts, and the possible range of loss in excess of amounts accrued, are not reasonably estimable. Based on currently available information, however, management does not believe future environmental costs in excess of those accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the Company's financial condition or results of operations. The resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations of that period. In addition, there can be no assurance that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on the Company's financial condition or results of operations. At March 31, 2001, the Company's reserves for environmental investigation and remediation obligations totaled approximately $49.2 million, of which approximately $18.2 million was included in other current liabilities. The reserve includes estimated probable future costs of $21.1 million for federal Superfund and comparable state-managed sites; $3.5 million for formerly owned or operated sites for which the Company has remediation or indemnification obligations; $13.7 million for owned or controlled sites at which Company operations have been discontinued; and $10.9 million for sites utilized by the Company in its ongoing operations. The Company is evaluating whether it may be able to recover a portion of future costs for environmental liabilities from third parties other than participating potentially responsible parties. The timing of expenditures of these accrued amounts depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years, and will complete remediation of all sites for which it has identified remediation obligations within approximately 30 years. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) have been or may be asserted against the Company related to its U.S. Government contract work, principally related to the former operations of Teledyne, Inc., including claims based on business practices, cost classifications, and the False Claims Act. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more U.S. Government contracts. Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations. Given the limited extent of the Company's business with the U.S. Government, the Company believes that a suspension or debarment of the Company would not have a material adverse effect on the future operating results and consolidated financial condition of the Company. Although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. 11 12 In the spin-offs of Teledyne Technologies Incorporated ("Teledyne") and Water Pik Technologies, Inc. ("Water Pik"), completed in November 1999, the new companies agreed to assume and to defend and hold the Company harmless against all liabilities (other than certain income tax liabilities) associated with the historical operations of their businesses, including all government contracting, environmental, product liability and other claims and demands, whenever any such claims or demands might arise or be made. If the new companies were unable or otherwise fail to satisfy these assumed liabilities, the Company could be required to satisfy them, which could have a material adverse effect on the Company's results of operations and financial condition. In connection with the spin-offs of Teledyne and Water Pik, the Company received a tax ruling from the Internal Revenue Service stating that the spin-offs would be tax-free to the Company and the Company's stockholders. While the tax ruling, as supplemented, relating to the qualification of the spin-offs as tax-free distributions within the meaning of the Internal Revenue Code generally is binding on the Internal Revenue Service, the continuing validity of the tax ruling, as supplemented, is subject to certain factual representations and uncertainties that, among other things, require the new companies to take or refrain from taking certain actions. If a spin-off were not to qualify as a tax-free distribution within the meaning of the Internal Revenue Code, the Company would recognize taxable gain generally equal to the amount by which the fair market value of the common stock distributed to the Company's stockholders in the spin-off exceeded the Company's basis in the new company's assets. In addition, the distribution of the new company's common stock to Company stockholders would generally be treated as taxable to the Company's stockholders in an amount equal to the fair market value of the common stock they received. If a spin-off qualified as a distribution within the meaning of the Internal Revenue Code but was disqualified as tax-free to the Company because of certain post-spin-off circumstances, the Company would recognize taxable gain as described above, but the distribution of the new company's common stock to the Company's stockholders in the spin-off would generally be tax-free to each Company stockholder. In the spin-offs, the new companies executed tax sharing and indemnification agreements in which each agreed to be responsible for any taxes imposed on and other amounts paid by the Company, its agents and representatives and its stockholders as a result of the failure of the spin-off to qualify as a tax-free distribution within the meaning of the Internal Revenue Code if the failure or disqualification is caused by post- spin-off actions by or with respect to that company or its stockholders. Potential liabilities under these agreements could exceed either new company's net worth by a substantial amount. If either or both of the spin-offs were not to qualify as tax-free distributions to the Company or its stockholders, and either or both of the new companies were unable or otherwise failed to satisfy the liabilities they assumed under the tax sharing and indemnification agreements, the Company could be required to satisfy them without full recourse against the new companies. This could have a material adverse effect on the Company's results of operations and financial condition. A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its business, including those pertaining to product liability, patent infringement, commercial, employment, employee benefits, tax, and stockholder matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Allegheny Technologies is one of the largest and most diversified producers of specialty materials in the world. It operates in the following three business segments, which accounted for the following percentages of total sales for the 2001 and 2000 three months ended March 31: 2001 2000 ---- ---- Flat-Rolled Products 52% 60% High Performance Metals 35% 29% Industrial Products 13% 11% For the three months ended March 31, 2001, operating profit was $10.6 million compared to $57.3 million for the same 2000 period. Sales decreased 13.3 percent to $542.5 million for the three months ended March 31, 2001 compared to $625.4 million for the same 2000 period. Net income for the three months ended March 31, 2001 was $6.4 million, or $0.08 per diluted share compared to $41.3 million, or $0.47 per diluted share, for the three months ended March 31, 2000. Net income for the three months ended March 31, 2000 included $5.0 million, or $0.06 per share, realized on the sale of a minority interest in Gul Technologies Singapore Ltd., partially offset by a charge for exiting the tungsten mill products business of Metalworking Products. The Company realized $18.1 million in cost reductions during the three months ended March 31, 2001. The Company has targeted $110.0 million of cost reductions for 2001. Sales and operating profit for the Company's three business segments are discussed below. FLAT-ROLLED PRODUCTS SEGMENT The Flat-Rolled Products segment reported a first quarter 2001 operating loss of $4.5 million compared to an operating profit of $37.7 million in the same year-ago period. First quarter 2001 sales decreased 24.8 percent to $282.5 million compared to the prior year first quarter. The overall decrease in sales and operating profit resulted from very weak demand and lower prices for commodity stainless steel products due in part to the weakening U.S. industrial economy. Operating profit was also reduced by $7.2 million, compared to the first quarter 2000, due to higher natural gas prices, which resulted from high demand and low supplies of natural gas in the U.S. The decrease in operating profit was partially offset by ongoing cost reductions in the segment's Allegheny Ludlum operation, including a 10 percent salaried workforce reduction, which was completed in the first quarter of 2001. The average price of flat-rolled products in the first quarter 2001 was $2,261 per ton compared to $2,318 per ton in the same 2000 period. General purpose product shipments in the segment (including stainless steel hot roll and cold roll sheet, stainless steel plate and silicon electrical steel) decreased approximately 27.0 percent compared to the first quarter 2000. This decrease was due primarily to very weak demand from service centers due to continued high inventory levels and the weakening U.S. industrial economy. High value product shipments in the segment (including strip, Precision Rolled Strip(R), super stainless steel, and high temperature alloy products) 13 14 decreased 13.2 percent compared to the 2000 first quarter. Certain of these products, particularly Precision Rolled Strip(R) products, are used primarily in the automotive industry, which has also been impacted by the weakening U.S. economy. Average prices per ton for general purpose products decreased 11.0 percent while average prices per ton of high value products remained flat compared to the 2000 first quarter. Total tons shipped in the first quarter of 2001 were 124,333 tons compared to 163,080 tons for the same period of 2000. HIGH PERFORMANCE METALS SEGMENT Operating profit for the first quarter of 2001 decreased to $11.0 million from $13.0 million in the 2000 first quarter, primarily due to $8.3 million in higher energy costs. Sales for the 2001 first quarter increased 5.5 percent compared to the same 2000 period. First quarter 2001 sales benefited from increased demand for nickel-based super alloys, premium titanium alloys and specialty steel alloys serving the aerospace, electrical energy and oil and gas markets. Higher energy costs particularly affected the segment's Wah Chang facility located in Oregon where the Company is constructing an electrical power cogeneration system to help alleviate this cost issue. This system, which will cost approximately $12.0 million, is expected to begin operating in the third quarter of 2001. Certain comparative information on the segment's major products is provided in the following table: Three Months Ended March 31, ------------------ Percent 2001 2000 Change ---- ---- ------ Volume (000's pounds): Nickel-based and specialty steel alloys 12,864 12,088 6.4 Titanium mill products 6,139 5,590 9.8 Zirconium and related alloys 741 810 (8.5) Average prices (per pound): Nickel-based and specialty steel alloys $ 6.29 $ 5.72 10.0 Titanium mill products $11.36 $11.92 (4.7) Zirconium and related alloys $35.80 $33.72 6.2 INDUSTRIAL PRODUCTS SEGMENT Operating profit for the 2001 first quarter was $4.1 million compared to $6.6 million for the same quarter of 2000, and sales were flat compared to the same prior period. Sales of tungsten-based specialty materials increased 12.0 percent over the first quarter of 2000 partially due to a 2000 second quarter acquisition, which serves the oil and gas markets. Sales of forgings and castings decreased 27.0 percent in the same time period due to very weak conditions in industrial markets. Higher natural gas costs reduced first quarter 2001 operating profit by $1.0 million compared to the same 2000 period. CORPORATE ITEMS Corporate expenses decreased 15.7 percent to $7.0 million for the 2001 first quarter compared to the respective 2000 period, due to continued cost controls and 13 percent fewer corporate employees. Net interest expense increased to $8.0 million for the first quarter 2001 from $6.9 million for the first quarter 2000 primarily due to higher debt levels. Excess pension income decreased to $16.5 million for the 2001 first quarter compared to $22.6 million in the 2000 first quarter due to weaker equity markets performance during 2000. 14 15 SPECIAL ITEMS The first quarter of 2000 results include special items of $5.0 million, or $0.06 per share. These items include a gain on the sale of a minority interest in Gul Technologies Singapore Ltd., included in other income, partially offset by a charge for exiting the tungsten mill products business of Metalworking Products included in cost of sales. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2001, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" was adopted by the Company. This statement establishes accounting and reporting standards requiring the fair value of derivative instruments be recognized as either assets or liabilities in the statement of financial position. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in the fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Based upon the Company's derivative positions at March 31, 2001, the Company had recognized an unrealized net loss of $5.1 million, net of income taxes, in stockholders' equity as a component of other comprehensive income. The Company had no gain or loss from the cumulative effect of an accounting change recognized in the statement of net income. The cumulative effect on other comprehensive income was immaterial. Derivative instruments are principally used by the Company to hedge certain raw material price, energy price and foreign exchange risks. The Company continually monitors the effectiveness of its derivative instruments. The Company had no gain or loss from hedge ineffectiveness recognized in the statement of net income. INCOME TAXES The Company's effective tax rate was 38.7 percent for the 2001 first quarter compared to 36.5 percent for the same period in 2000. The increase in the effective tax rate was primarily due to a change in the deferred state tax rate affecting cumulative temporary differences and lower income before income taxes. FINANCIAL CONDITION AND LIQUIDITY In the first three months of 2001, cash generated from operations of $27.0 million and proceeds from the net increase in debt of $13.9 million were used to pay dividends of $16.0 million, invest $24.7 million in capital equipment and business expansion, and repurchase shares of $3.0 million. Cash transactions plus cash on hand at the beginning of the year resulted in a cash position of $23.5 million at March 31, 2001. Working capital decreased to $596.8 million at March 31, 2001, compared to $609.3 million at December 31, 2000. The current ratio decreased to 2.3 from 2.5 in this same period. The decrease in working capital and current ratio at March 31, 2001 compared to December 31, 2000 was primarily due to higher accounts payable balances and lower levels of inventory and accounts receivable partially offset by a higher level of current deferred taxes. Capital expenditures for 2001 are expected to approximate between $100.0 million to $120.0 million, of which $24.7 million had been expended through March 31, 2001. 15 16 On March 13, 2001, a regular quarterly dividend of $0.20 per share of common stock was paid to stockholders of record at the close of business on February 26, 2001. On May 3, 2001, the Board of Directors declared a regular quarterly dividend of $0.20 per share of common stock. The dividend will be paid on June 12, 2001 to stockholders of record at the close of business on May 29, 2001. The Company's Board of Directors has authorized up to a total of 25 million shares of Allegheny Technologies common stock to be acquired under the Company's stock repurchase program. The shares may be purchased from time-to-time in the open market or in negotiated transactions. In the first three months of 2001, the Company repurchased approximately 0.2 million shares for $3.0 million under this program. From the inception of the share repurchase program on October 1, 1998 through May 4, 2001, the Company has repurchased 20.5 million shares at a cost of $531.5 million. The Company believes that internally generated funds, current cash on hand and borrowing from existing credit lines and its commercial paper program will be adequate to meet foreseeable needs. The Company may choose, however, to issue additional debt depending on market conditions. OTHER MATTERS Energy Costs Prices and availability of energy resources are subject to market conditions. These market conditions are often affected by political and economic factors that are outside of the Company's control. The U.S. Government is forecasting that supplies of natural gas may be at historically low levels during 2001. Also, supply and demand factors affecting electricity in the western U.S. have caused volatility in the cost of electric power. In addition, the uncertainty surrounding the price of oil and the political environment in the Middle East may impact petroleum costs. These factors, among other things, may contribute to increased production costs that could have a material impact on the results of operations of the Company. The Company is evaluating energy factors with regard to production costs and has engaged an energy provider as a partner to assist in our energy supply and demand initiatives, including cost containment and control of energy consumption. The Company is constructing an electrical power cogeneration system designed to significantly reduce energy costs at Wah Chang located in Oregon. This system is expected to be operating in the third quarter of 2001. The Company may also periodically apply natural gas surcharges to certain of its products. The Company's ability to implement or maintain energy surcharges depends on market conditions, including pricing by foreign competitors. Costs and Pricing Although inflationary trends in recent years have been moderate, during the same period certain critical raw material costs, including nickel, have been volatile. The Company primarily uses the last-in, first-out method of inventory accounting that reflects current costs in the cost of products sold. The Company considers these costs, the increasing costs of equipment and other costs in establishing its sales pricing policies and has instituted raw material surcharges on certain of its products to the extent permitted by competitive factors in the marketplace. The Company continues to emphasize cost reductions and containment in all aspects of its business. The Company periodically announces price increases on certain of its products. The ability of the Company to implement price increases is dependent on market conditions, economic factors, raw material costs and availability, competitive factors, operating costs and other factors that are 16 17 beyond the Company's control. Furthermore, the benefits of price increases may be delayed due to long manufacturing lead times and the terms of existing contracts. Labor Matters The Company has approximately 11,400 employees. Approximately 47 percent of the Company's workforce is covered by various collective bargaining agreements, principally with the United Steelworkers of America ("USWA"), including: approximately 3,900 Allegheny Ludlum production and maintenance employees covered by collective bargaining agreements between Allegheny Ludlum and the USWA, which are effective through June 30, 2001; approximately 340 Oremet employees covered by a collective bargaining agreement with the USWA which was effective through July 31, 2000; and approximately 650 Wah Chang employees covered by a collective bargaining agreement with the USWA which the USWA terminated as of January 28, 2001. In April, 2001, the USWA and Allegheny Ludlum, Wah Chang and Oremet jointly announced that they had reached tentative six-year agreements covering approximately 4,900 employees, subject to ratification by the employees. To date, these agreements have not been ratified. The costs associated with the new labor agreements, including the effect on excess pension income, will be reflected in the results of operations commencing with contract ratification. Generally, agreements that expire may be terminated after notice by the USWA. After termination, the USWA may authorize a strike. A strike by the employees covered by one or more of the collective bargaining agreements could materially adversely affect the Company's operating results. There can be no assurance that the Company will succeed in concluding collective bargaining agreements with the USWA or other unions to replace those that expire. Growth Objective The Company's growth objective over the long-term is to realize double-digit annual revenue and earnings growth and earn a return on capital employed of at least 300 basis points in excess of the cost of borrowed capital. Environmental The Company is subject to various domestic and international environmental laws and regulations which require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under these laws. The Company's reserves for environmental remediation totaled approximately $49.2 million at March 31, 2001. Based on currently available information, management does not believe that future environmental costs in excess of those accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the Company's financial condition or liquidity. The resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. In addition, there can be no assurance that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on the Company's financial condition or results of operations. With respect to proceedings brought under the federal Superfund laws, or similar state statutes, the Company has been identified as a potentially 17 18 responsible party at approximately 33 of such sites, excluding those at which it believes it has no future liability. The Company's involvement is very limited or de minimis at approximately 11 of these sites, and the potential loss exposure with respect to any of the remaining 22 individual sites is not considered to be material. For additional discussion of environmental matters, see Note 9 to the consolidated financial statements of the Company. Government Contracts One of the Company's operating companies directly performs contractual work for the U.S. Government. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) have been or may be asserted against the Company related to its U.S. Government contract work, principally related to the former operations of Teledyne, Inc., including claims based on business practices and cost classifications and actions under the False Claims Act. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more U.S. Government contracts. Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations. Given the limited extent of the Company's business with the U.S. Government, the Company believes that a suspension or debarment of the Company would not have a material adverse effect on the future operating results and consolidated financial condition of the Company. In addition, although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to have a material adverse effect on the Company's financial condition or liquidity. The resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. For additional discussion of government contract matters, see Note 9 of the consolidated financial statements of the Company. FORWARD-LOOKING AND OTHER STATEMENTS From time to time, the Company has made and may continue to make "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Certain forward-looking statements are contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 9 to the consolidated financial statements of the Company, which represent the Company's expectations or beliefs concerning various future events, unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control. Forward-looking statements include those statements related to anticipated business, economic and market conditions; operational actions taken to respond to market conditions; sales and earnings, financial condition, financial performance and growth and return on capital; prices, price increases and the effect of price increases on performance and product demand; raw material and energy costs, expected capital expenditures, cost reductions, including energy initiatives, anticipated cost savings, including the anticipated time periods in which savings may be realized, capital investments and the impact of investments on the Company's capabilities; working capital, cash flow, dividends, potential repurchases of Company stock; projected pension surplus, excess pension income and reimbursement of retiree health care expenditures; realization of deferred income tax assets; the ratification of labor agreements as well as the expected benefits and costs under those agreements; 18 19 anticipated effects of acquisitions, joint ventures or other business combinations on earnings; the outcome of any government inquiries, litigation or other proceedings related to government contracts or other matters; safety performance; and future environmental costs. These statements are based on current expectations that involve a number of risks and uncertainties, including those described under the captions: "Other Matters - Labor Matters," "Other Matters - - Environmental" and "Other Matters - Government Contracts." Actual results or performance may differ materially from any future results or performance anticipated based on management's current expectations contained in such forward-looking statements. Additional risk factors are described from time to time in the Company's filings with the Securities and Exchange Commission, including its Report on Form 10-K for the year ended December 31, 2000. The Company assumes no duty to update its forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company uses derivative financial instruments from time to time to hedge ordinary business risks for product sales denominated in foreign currencies and to partially hedge against volatile energy and raw material cost fluctuations in the Flat-Rolled Products and High Performance Metals segments. Foreign currency exchange contracts are used to limit transactional exposure to changes in currency exchange rates. The Company sometimes purchases foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts, which are not financially material, are designated as hedges of the variability in cash flows of a portion of the Company's forecasted export sales transactions in which settlement will occur in future periods and which otherwise would expose the Company, on the basis of its aggregate net cash flows in respective currencies, to foreign currency risk. Effective January 1, 2001, the Company began accounting for these contracts as hedges under FASB Statement 133. Changes in the fair value of the Company's foreign currency derivatives will be recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. A portion of the Company's operations consists of investments in foreign subsidiaries. As a result, the Company's financial results could be affected by changes in foreign currency exchange rates. To mitigate this foreign currency translation risk, the Company has a practice of recapitalizing operations using local foreign currency debt to replace direct equity investment. The average interest rate to service this foreign debt is favorable to current U.S. interest rates. As part of its risk management strategy, from time to time, the Company purchases exchange-traded futures contracts to manage exposure to changes in nickel prices, a component of raw material cost for some of its flat-rolled and high performance metals products. The nickel futures contracts obligate the Company to make or receive a payment equal to the net change in value of the contract at its maturity. These contracts are designated as hedges of the variability in cash flows of a portion of the Company's forecasted purchases of nickel. Effective January 1, 2001, the Company began accounting for these contracts as hedges under FASB Statement 133. Changes in the fair value of the Company's nickel derivatives will be recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. 19 20 The Company also enters into energy swap contracts as part of its overall risk management strategy. The swap contracts are used to manage exposure to changes in energy prices, a component of production costs for its operating units. The energy swap contracts obligate the Company to make or receive a payment equal to the net change in value of the contract at its maturity. These contracts are designated as hedges of the variability in cash flows of a portion of the Company's forecasted energy payments. Effective January 1, 2001, the Company began accounting for these contracts as hedges under FASB Statement 133. Changes in the fair value of the Company's energy derivatives will be recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Allegheny Technologies has guaranteed the outstanding Allegheny Ludlum fixed rate 6.95 percent debentures due in 2025. In a period of declining interest rates, the Company faces the risk of required interest payments exceeding those based on the then current market rate. To mitigate interest rate risk, the Company attempts to maintain a reasonable balance between fixed and variable rate debt to keep financing costs as low as possible. The Company believes that adequate controls are in place to monitor these hedging activities, which are not financially material. However, many factors, including those beyond the control of the Company such as changes in domestic and foreign political and economic conditions, as well as the magnitude and timing of interest rate, energy price and nickel price changes, could adversely affect these activities. 20 21 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.34 Allegheny Technologies Incorporated Total Shareholder Return Incentive Compensation Plan (filed herewith).* 10.35 Allegheny Technologies Incorporated Total Shareholder Return Incentive Compensation Program and form of Award Agreement for the 2001-2003 Award Period (filed herewith).* 10.36 Allegheny Technologies Incorporated Annual Incentive Plan for the year 2001 (filed herewith).* (b) Current Reports on Form 8-K filed by the Company - None. - ------------- *Management contract or compensation plan or arrangement required to be filed as an Exhibit to this Report. 21 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLEGHENY TECHNOLOGIES INCORPORATED ----------------------------------- (REGISTRANT) Date: May 15, 2001 By /s/ R.J. Harshman ----------------- Richard J. Harshman Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) Date: May 15, 2001 By /s/ D.G. Reid ------------- Dale G. Reid Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) 22 EX-10.34 2 j8829801ex10-34.txt ATI TOTAL SHAREHOLDER RETURN INCENTIVE COMPENSATIO 1 Exhibit 10.34 ALLEGHENY TECHNOLOGIES INCORPORATED 2000 INCENTIVE PLAN ADMINISTRATIVE RULES FOR THE TOTAL SHAREHOLDER RETURN INCENTIVE COMPENSATION PROGRAM EFFECTIVE AS OF JANUARY 1, 2001 ARTICLE I. ADOPTION AND PURPOSE OF THE PROGRAM 1.01 ADOPTION. These rules are adopted by the Personnel and Compensation Committee and the Stock Incentive Award Subcommittee of the Board of Directors as a part of the Allegheny Technologies Incorporated 2000 Incentive Plan (the "Plan") pursuant to the authority reserved in Section 3.01 of the Plan. The Total Shareholder Return Incentive Compensation Program (the "TSRP") shall be the guidelines for making certain Performance Awards or Other Stock-Based Awards under Article VIII of the Plan. Capitalized terms used but not defined in these rules shall have the same meanings as in the Plan. 1.02 PURPOSE. The purposes of the TSRP are (i) to assist the Corporation in retaining and motivating selected key management employees of the Corporation and its subsidiaries who will contribute to the success of the Corporation, (ii) to reward key management employees for the overall success of the Corporation as determined by the value created for shareholders as measured by the percentile performance of Corporation Common Stock relative to a peer group and (iii) to provide a means of encouraging key management employees to acquire and hold shares of Corporation Common Stock. The TSRP encourages key management employees to acquire and hold shares of Corporation Common Stock by offering them an opportunity to receive shares of Common Stock which, in accordance with the terms and conditions set forth below, will be earned only if the sum of the price and yield of the Common Stock measured against the sums of prices and yields of shares of common stock of a peer group of corporations meets or exceeds the performance reward relationships set at the beginning of an Award Period. Awards under the TSRP are intended to act as an incentive to participating key management employees to achieve long-term objectives that will inure to the benefit of all stockholders of the Corporation measured in terms of relative stock prices. ARTICLE II. DEFINITIONS For purposes of these rules, the capitalized terms set forth below shall have the following meanings: 2.01 AWARD AGREEMENT means a written agreement between the Corporation and a Participant or a written acknowledgment from the Corporation specifically setting forth the terms and conditions of a TSR Target Award granted to a Participant pursuant to Article VI of these rules. 2.02 AWARD TARGETS means the percentage of a TSR Target Award which shall be earned for a particular TSR Performance Period at Threshold, Target and Excellent, respectively. 2.03 BOARD means the Board of Directors of the Corporation. 2.04 BUSINESS DAY means any day on which the New York Stock Exchange shall be open for trading. 2.05 CAUSE means a determination by the Committee that a Participant has engaged in conduct that is dishonest or illegal, involves moral turpitude or jeopardizes the Corporation's right to operate its business in the manner in which it is now operated. 2 2.06 CHANGE IN CONTROL means any of the events set forth below: (a) The acquisition in one or more transactions, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a number of Corporation Voting Securities in excess of 25% of the Corporation Voting Securities unless such acquisition has been approved by the Board; or (b) Any election has occurred of persons to the Board that causes two-thirds of the Board to consist of persons other than (i) persons who were members of the Board on January 1, 2001 and (ii) persons who were nominated for election as members of the Board at a time when two-thirds of the Board consisted of persons who were members of the Board on January 1, 2001; provided, however, that any person nominated for election by the Board at a time when at least two-thirds of the members of the Board were persons described in clauses (i) and/or (ii) or by persons who were themselves nominated by such Board shall, for this purpose, be deemed to have been nominated by a Board composed of persons described in clause (i); or (c) Approval by the stockholders of the Corporation of a reorganization, merger or consolidation, unless, following such reorganization, merger or consolidation, all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Stock and Corporation Voting Securities immediately prior to such reorganization, merger or consolidation, following such reorganization, merger or consolidation beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or trustees, as the case may be, of the entity resulting from such reorganization, merger or consolidation in substantially the same proportion as their ownership of the Outstanding Stock and Corporation Voting Securities immediately prior to such reorganization, merger or consolidation, as the case may be; or (d) Approval by the stockholders of the Corporation of (i) a complete liquidation or dissolution of the Corporation or (ii) a sale or other disposition of all or substantially all the assets of the Corporation. 2.07 COMMITTEE means the Stock Incentive Award Committee of the Board, in the case of individuals who are executive officers of the Corporation, and the Personnel and Compensation Committee of the Board, in the case of individuals who are not executive officers of the Corporation. 2.08 CORPORATION means Allegheny Technologies Incorporated, a Delaware corporation, and its successors. 2.09 CORPORATION VOTING SECURITIES means the combined voting power of all outstanding voting securities of the Corporation entitled to vote generally in the election of the Board. 2.10 DATE OF GRANT means the date as of which a TSR Target Award is granted in accordance with Article VI of these rules. 2.11 DISABILITY means any physical or mental injury or disease of a permanent nature which renders a Participant incapable of meeting the requirements of the employment performed by such Participant immediately prior to the commencement of such disability. The determination of whether a Participant is disabled shall be made by the Committee in its sole and absolute discretion. Notwithstanding the foregoing, if a Participant's employment by the Corporation or an applicable subsidiary terminates by reason of a disability, as defined in an Employment Agreement between such Participant and the Corporation or an applicable subsidiary, such Participant shall be deemed to be disabled for purposes of the TSRP. 2.12 EFFECTIVE DATE means January 1, 2001. 2.13 EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. 3 2.14 EXCELLENT means a relative level of achievement of Performance Reward Criteria at which the TSR for the Corporation for a TSR Performance Period is at a percentile of the TSR for the Peer Group for that Performance Period as determined by the Committee under Section 6.02. Excellent shall be the highest level of performance for which a TSRP Reward will be paid. 2.15 FAIR MARKET VALUE means, as of any given date, the average of the high and low trading prices of the Common Stock on such date as reported on the New York Stock Exchange or, if the Common Stock is not then traded on the New York Stock Exchange, on such other national securities exchange on which the Common Stock is admitted to trade, or, if none, on the National Association of Securities Dealers Automated Quotation System if the Common Stock is admitted for quotation thereon; provided, however, if there were no sales reported as of such date, Fair Market Value shall be computed as of the last date preceding such date on which a sale was reported; provided, further, that if any such exchange or quotation system is closed on any day on which Fair Market Value is to be determined, Fair Market Value shall be determined as of the first date immediately preceding such date on which such exchange or quotation system was open for trading. 2.16 OUTSTANDING STOCK means, at any time, the issued and outstanding Common Stock. 2.17 PARTICIPANT means any key management employee selected by the Committee, pursuant to Section 5.01 of these rules, as eligible to participate under the TSRP for any one or more TSR Performance Period. 2.18 PEER GROUP means a group of corporations with publicly traded common stock listed on a national securities exchange(s) deemed comparable to the Corporation as the number and identity of such group is determined by the Committee, in its discretion, for a particular TSR Performance Period. In the event of bankruptcy, delisting, merger, spin-off or other special circumstances affecting members of the Peer Group during a Performance Period, the Committee shall make such adjustments in the Peer Group as the Committee determines appropriate in its discretion. The Committee may select the number and identity of members of the Peer Group separately for each TSR Performance Period. 2.19 PERFORMANCE REWARD CRITERIA means the relative standing of the Corporation TSR, expressed in percentiles and ranked at Threshold, Target and Excellent, as compared to the TSR for the Peer Group, in each case for a particular TSR Performance Period. 2.20 PERFORMANCE LEVEL means the level of actual achievement of Performance Reward Criteria for a particular TSR Performance Period. In determining final Performance Levels, the Committee shall use straight-line interpolation between Threshold and Target, Target and Excellent but there shall be no interpolation above Excellent or below Threshold. 2.21 PLAN means the Allegheny Technologies Incorporated 2000 Incentive Plan, as the same may be amended from time to time. 2.22 RETIREMENT means a termination of employment with the Corporation and each subsidiary of the Corporation at or after (i) attaining age 55 and (ii) completing five years of employment with the Corporation and/or any subsidiary of the Corporation. 2.23 TARGET means a relative level of Performance Reward Criteria at which the Corporation TSR for a particular TSR Performance Period is at a percentile of TSR for the Peer Group for that TSR Performance Period as determined by the Committee under Section 6.02. 2.24 THRESHOLD means a relative level of Performance Reward Criteria at which the Corporation TSR for a particular TSR Performance Period is at a percentile of TSR for the Peer Group for that TSR Performance Period as determined by the Committee under Section 6.02. Threshold shall be the lowest level of Performance Reward Criteria for which a Plan Reward will be earned. 3 4 2.25 TSR is the percentile ranking of the sum of stock price appreciation of and dividend reinvestment with respect to a share of Corporation Stock as compared to the comparable amount among the Peer Group for a particular TSR Performance Period as calculated on the Fair Market Value of a share of Stock as of the end of the TSR Performance Period plus dividends paid on a share of stock during the TSR Performance Period divided by the Fair Market Value of a share of Stock at the beginning of the TSR Performance Period using the methodology described in item 402(l) of Regulation S-K as promulgated under the Securities Act, as such act or regulation may be amended from time to time, or any successor to either. 2.26 TSRP means the Total Shareholder Return Incentive Compensation Program as set forth in these rules as the same may be amended from time to time. 2.27 TSR PERFORMANCE PERIOD means a three calendar year period beginning on the January 1st designated by the Committee and continuing until the third December 31st thereafter. 2.28 TSR REWARDS means the number of shares of Stock earned for a particular TSR Performance period after application of the Performance Level. 2.29 TSR TARGET AWARD means an award of an opportunity to earn a number of shares of Stock in a TSR Performance Period. The number of shares for a particular Participant shall be determined by the Committee for each TSR Performance Period by dividing the Participant's base salary at the commencement of the TSR Performance Period by the average Fair Market Value for the 30 Business Days preceding the first Business Day of that TSR Performance Period and multiplying the result by a decimal determined appropriate by the Committee based on the Participant's responsibilities and opportunity to contribute to the success of the Corporation. 2.30 STOCK means Common Stock, par value $0.10 per share, of the Corporation. 2.31 WITHHOLDING OBLIGATIONS means the amount of federal, state and local income and payroll taxes the Corporation determines in good faith must be withheld with respect to a TSR Rewards. Withholding Obligations may be settled by the Participant, as permitted by the Committee in its discretion, in shares of Stock otherwise deliverable under the TSRP, cash, previously owned shares of Stock or any combination of the foregoing. 4 5 ARTICLE III. ADMINISTRATION In addition to any power reserved to the Committee under Article III of the Plan, the TSRP shall be administered by the Committee, which shall have exclusive and final authority and discretion in each determination, interpretation or other action affecting the TSRP and its Participants. The Committee shall have the sole and absolute authority and discretion to interpret the TSRP, to modify these administrative rules for the TSRP, to select, in accordance with Section 5.01 of these rules, the persons who will be Participants hereunder, to determine all performance criteria, levels of awards and rewards payable, to impose such conditions and restrictions as it determines appropriate and to take such other actions and make such other determinations in connection with the TSRP as it may deem necessary or advisable. ARTICLE IV. STOCK ISSUABLE UNDER THE TSRP 4.01 NUMBER OF SHARES OF STOCK ISSUABLE. Subject to adjustments as provided in Section 11.07 of the Plan, the maximum number of shares of Stock available for issuance under the TSRP shall be 1,500,000. The Stock to be offered under the TSRP shall be authorized and unissued Stock, or Stock which shall have been reacquired by the Corporation and held in its treasury. 4.02 SHARES SUBJECT TO TERMINATED AWARDS. Shares of Stock forfeited as provided in Section 6.03 of these rules may again be issued under the TSRP. ARTICLE V. PARTICIPATION 5.01 DESIGNATION OF PARTICIPANTS. Participants in the TSRP shall be such key management employees of the Corporation or of its subsidiaries as the Committee, in its sole discretion, may designate as eligible to participate in the TSRP for any one or more TSR Performance Periods. No later than 90 days after the commencement of each TSR Performance Period during the term of the TSRP, the Committee shall designate the Participants who are eligible to participate in the TSRP during such TSR Performance Period. The Committee's designation of a Participant with respect to any TSR Performance Period shall not require the Committee to designate such person as a Participant with respect to any other TSR Performance Period. The Committee shall consider such factors as it deems pertinent in selecting Participants. The Committee shall promptly provide to each person selected as a Participant written notice of such selection. ARTICLE VI. GRANTS UNDER THE TSRP 6.01 ANNUAL DETERMINATION REGARDING TSR PERFORMANCE PERIOD. No later than the 60th day of each calendar year, the Committee shall determine whether to establish a TSR Performance Period, provided, however, for a TSR Performance Period established in calendar year 2001, the Committee may make a determination under this Section 6.01 at any time prior to the 90th day of calendar year 2001. 6.02 DETERMINATION OF GRANTS, AWARDS AND PERFORMANCE CRITERIA. For each TSR Performance Period, the Committee shall take the following actions no later than the 90th day of the first calendar year of that TSR Performance Period: (a) Identify Participants for that TSR Performance Period; (b) Establish the level of the TSR Target Awards for each Participant; (c) Set the Performance Reward Criteria in terms of percentile ranking among the Peer Group for such period at Threshold, Target and Excellent, respectively; (d) Set the Award Targets for Threshold, Target and Excellent; and (e) Determine the Peer Group for that TSR Performance Period. 6.03 TERMINATION OF EMPLOYMENT. If a Participant terminates employment with the Corporation and each subsidiary of the Corporation during a then uncompleted TSR Performance Period for 5 6 reasons other than death, Disability or Retirement, any TSR Target Award for any then uncompleted TSR Performance Period shall be forfeited automatically and the shares represented by such TSR Target Awards shall again be eligible for awards under these Rules. If a Participant terminates employment with the Corporation and each subsidiary of the Corporation for reasons of death, Disability or Retirement during a then uncompleted TSR Performance Period, the Participant shall be entitled to receive a pro rata Plan Reward for each then uncompleted TSR Performance Period determined: (a) when the TSR Rewards for all other Participants in such TSR Performance Period(s) are determined; (b) based on the actual level of achievement of Performance Reward Criteria for that TSR Performance Period and the Participant's TSR Target Award; (c) pro rated by multiplying the number of shares of Stock the Participant would have received if the Participant completed the TSR Performance Period multiplied by a fraction, the numerator of which is the number of months of such TSR Performance Period completed before the Participant's termination of employment and the denominator is 36; and (d) certificates representing the number determined above shall be delivered at the same time as all other certificates for such TSR Performance Period are delivered to Participants who completed the TSR Performance Period. ARTICLE VII. DETERMINATION OF PERFORMANCE REWARD CRITERIA AND DELIVERY OF STOCK 7.01 DETERMINATION OF ACTUAL ACHIEVEMENT OF PERFORMANCE REWARD CRITERIA. As promptly as administratively feasible but in no event later than the March 1st of the calendar year following last calendar year of each TSR Performance Period, the Committee shall determine the TSR of the Corporation and the average TSR of each member of the Peer Group and determine the Performance Level, if any, at which the Performance Reward Criteria have been achieved. 7.02 DETERMINATION OF PLAN REWARDS. Plan Rewards for a particular TSR Performance Period for a particular participant shall be the result of multiplying that Participant's TSR Target Award by the Performance Level for that TSR Performance Period determined under Section 7.01. 7.03 DELIVERY OF STOCK CERTIFICATES. As promptly as administratively feasible after the but in no event later than the March 15th of the calendar year following the last calendar year of a TSR Performance Period, the Corporation shall prepare for each Participant due a Plan Reward under Section 7.02 one or more stock certificates registered in the name(s) indicated by such Participant and shall deliver such certificates to the Participant promptly following the Participant's settlement of the Withholding Obligations by placing such certificates or causing such certificates to be placed in the U.S. mail, postage prepaid, to the address indicated by the Participant. ARTICLE VIII. MISCELLANEOUS 8.01 APPLICATION OF PROVISIONS OF PLAN. Except as set forth in these Rules, the provisions of the Plan, including, but not limited to, Article X, the Terms Applicable Generally to Awards Granted under the Plan, shall apply to these Rules and are incorporated herein as if set forth at length. 8.02 CHANGE IN CONTROL. In the event of a Change in Control, Plan Rewards shall be determined for all then uncompleted TSR Performance Periods as of the date of the Change in Control at the greater of (i) the Performance Level actually attained prior to the Change in Control and projected for the remainder of such uncompleted TSR Performance Periods or (ii) Target for each such uncompleted TSR Performance Period and certificates (or, with the consent of the Committee an amount in cash representing the Fair Market Value of such certificates) representing the Plan Rewards shall be delivered to the Participant as soon after the Change in Control as is administratively feasible. 6 7 8.03 SECURITIES LAWS AND SECTION 162(m) RESTRICTIONS. Any TSR Award denominated in Common Stock shall be subject to the requirement that if at any time the Committee shall determine that any listing or registration of the shares of Common Stock or any consent or approval of any governmental body or any other agreement or consent is necessary or desirable as a condition to the granting of a TSR Award or issuance of shares of Common Stock or cash in satisfaction thereof, such grant of an award or issuance of shares of Common Stock may not be consummated unless such requirement is satisfied in a manner acceptable to the Committee. It is intended, unless the Committee determine otherwise, that the TSRP comply with Rule 16b-3 as issued by the Securities and Exchange Commission and Section 162(m) of the Code. All interpretations of the TSRP relating to Statutory Insiders shall be consistent with that Rule 16b-3, the Exchange Act and Section 162(m) of the Code. In order to maintain compliance with any of Rule 16b-3, the Exchange Act or the Code, the Committee may adopt such other rules or provide restrictions on outstanding TSR Awards as it in its discretion shall deem necessary and such rules or restrictions shall apply to outstanding TSR Awards as if set forth in the respective TSR Award Agreements. 8.04 INVESTMENT REPRESENTATION. Each TSR Award Agreement may provide that the Participant shall deliver to the Committee upon demand by the Committee a written representation that the shares of Common Stock to be delivered are acquired by the Participant for investment and not for resale or with a view to the distribution thereof. Upon demand, delivery of such representation prior to the delivery of shares of Common Stock shall be a condition precedent to the Participant's right to receive such shares of Common Stock. 8.05 NO RIGHTS AS STOCKHOLDERS. Participants shall have no rights as shareholders of the Corporation prior to the actual delivery of shares of Common Stock. The existence of these Rules and/or any TSR Awards then outstanding shall not be a bar or affect in any way the power or authority of the Corporation or any of its then stockholders to take any action regarding the Corporation, its assets or its capital structure. 8.06 NON-UNIFORM DETERMINATIONS. The actions and determinations of the Committee need not be uniform and may be taken or made by the Committee selectively among employees or Participants, whether or not similarly situated. 8.07 AMENDMENT AND TERMINATION OF RULES. The Committee shall have complete power and authority to amend or terminate these Rules at any time it is deemed necessary or appropriate. No termination or amendment of the Rules may, without the consent of the Participant to whom any award shall theretofore have been granted under the TSRP, adversely affect the right of such individual under such award; provided, however, that the Committee may, in its sole discretion, make such provision in the Award Agreement for amendments which, in its sole discretion, it deems appropriate. 7 EX-10.35 3 j8829801ex10-35.txt ATI AWARD AGREEMENT FOR THE 2001-2003 AWARD 1 Exhibit 10.35 FORM OF TOTAL SHAREHOLDER RETURN INCENTIVE COMPENSATION PROGRAM AWARD AGREEMENT Allegheny Technologies Incorporated (the "COMPANY") and the award recipient named below ("PARTICIPANT") enter into this Total Shareholder Return Incentive Compensation Program Agreement effective as of March 23, 2001. Participant: [full name] PARTICIPANT TO COMPLETE THE FOLLOWING CHART (Please print) Street Address - -------------------------------------------------------------------------------- City/State/Zip Code - -------------------------------------------------------------------------------- Social Security Number - -------------------------------------------------------------------------------- WHEREAS, the Company has adopted the Allegheny Technologies Incorporated 2000 Incentive Plan (the "PLAN") and, in accordance with the Plan, has adopted Administrative Rules for the Total Shareholder Return Incentive Compensation Program (the "TSRP") as a portion of the Plan to (i) assist the Company retain and motivate key management employees; (ii) reward key management employees for the overall success of the Company; and (iii) provide a means of encouraging key management employees to acquire and hold shares of Company Common Stock. WHEREAS, the TSRP replaces the Performance Share Program ("PSP") portion of the Company's compensation program and, as provided in Section 5 of the Terms and Conditions attached hereto, as a condition to receiving this TSR Award, the Participant must surrender each outstanding PSP Award, subject to the Change in Control provisions of Section 5.1 of the Terms and Conditions; WHEREAS, the TSRP provides that each TSR Target Award made under the TSRP shall be evidenced by an Award Agreement between the Company and the key management employee who receives a TRS Target Award under the TSRP setting forth the terms and conditions of such TSR Target Award; WHEREAS, the Company desires to make a TSR Target Award to the Participant and evidence such TSR Target Award by this Award Agreement and the Participant, having read and understood the Plan and the TSRP, is willing to enter into this Award Agreement on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the covenants and agreements herein contained and intending to be legally bound, the parties hereto agree with each other as follows: 2 Subject to the attainment of the Performance Levels described below and to the terms and conditions of the Plan, the TSRP and the Terms and Conditions of Award attached hereto and incorporated herein by reference, by which Participant agrees to be bound, the Company awards to Participant the Award described below, with respect to the Performance Period described below: PERFORMANCE PERIOD: January 1, 2001 through December 31, 2003 TSR TARGET AWARD: ______ Shares of Company Common Stock [equals base salary at 1/1/01 times ___% (which is the Participant's target award opportunity as a percent of salary) divided by $14.75 (which is the average closing price for the 30 trading days prior to January 1, 2001)] PERFORMANCE LEVELS: The following table shows the performance award relationship under the TSRP for the 2001-2003 performance period: ================================================================================ Outcome Relative to Peer Group TSR ------------------------------------------------------ Three-Year Percentile Percent of Target Level of Performance Ranking in TSR Award Earned - -------------------------------------------------------------------------------- Below Threshold Below 35th percentile 0% Threshold 35th percentile 50% Target 50th percentile 100% Excellent 75th percentile 200% NOTE: Interpolation between points will be made on a straight line basis on each scale. Below the 35th percentile and above the 75th percentile, there will be no interpolation. THE ACTUAL AWARD UNDER THE TSRP WILL EQUAL THE TSR TARGET AWARD TIMES THE APPLICABLE PERCENT OF TARGET AWARD EARNED. BY EXECUTING THIS TSR AWARD AGREEMENT, THE PARTICIPANT HEREBY SURRENDERS EACH AND ANY OUTSTANDING PSP AWARD, EXCEPT TO THE EXTENT PROVIDED IN SECTION 5.1 OF THE TERMS AND CONDITIONS ATTACHED HERETO. IN WITNESS WHEREOF, the parties hereto have executed this Total Shareholder Return Incentive Compensation Program Award Agreement effective the day and year first above written. ALLEGHENY TECHNOLOGIES INCORPORATED By: /s/ Jon D. Walton ------------------- Title: Senior Vice President, General Counsel and Secretary 2 3 PARTICIPANT: WITNESS: - ------------------------------ ------------------------------ TERMS AND CONDITIONS OF TSRP AWARD Section 1: Definitions Capitalized words used but not defined below or elsewhere in these Terms and Conditions shall have the meanings ascribed to them in the Plan. "ADMINISTRATIVE RULES" or "TSRP" shall mean the Administrative Rules for the TSRP adopted by the Committee effective January 1, 2001, as the same may be amended from time to time. "AWARD" shall mean the grant of a TSR Target Award evidenced by this Award Agreement. "COMMITTEE" means the Personnel and Compensation Committee of the Board of Directors for a Participant who is not a statutory insider of the Company for the purposes of Section 16 of the Securities Exchange Act of 1934 and the Stock Incentive Award Subcommittee of the Board of Directors for a Participant who is a statutory insider. "COMMON STOCK" shall mean the common stock, $0.10 par value per share, of Allegheny Technologies Incorporated. "COMPANY" shall mean Allegheny Technologies Incorporated and its subsidiaries, unless the context requires otherwise. "DISABILITY" shall mean the total and permanent disability of Participant as determined by the Committee in its sole discretion. "EXCELLENT" shall mean a relative standing of the Company's TSR as against the TSR for the Peer Group, in each case for the TSR Performance Period, equal to or greater than 75%. "PEER GROUP" shall mean the corporations listed on Exhibit 1 to this Award Agreement, subject to the adjustments to such group as permitted under the Administrative Rules. "RETIREMENT" means a termination of employment with the Company and each of its subsidiaries at or after (i) attaining age 55 and (ii) completing five years of employment with the Company and/or any subsidiary of the Company. "TARGET" shall mean a relative standing of the Company's TSR as against the TSR of the Peer Group, in each case for the TSR Performance Period, of greater than 50% but less than 75%. "THRESHOLD" shall mean a relative standing of the Company's TSR as against the TSR of the Peer Group, in each case for the TSR Performance Period, of greater than 35% but less than 50%. "TSR PERFORMANCE LEVEL" means the measure of Company TRS performance relative to the Peer Group, as set forth on page 2 of this Award Agreement. In determining the final Performance Level, the Committee shall use straight-line interpolation between Threshold and Target and between Target and Excellent. No TSR Reward will be earned for a Performance Level less than Threshold. No additional TSR Reward above Excellent will be earned for a Performance Level greater than Excellent. 3 4 Section 2: TSRP Award 2.1 Subject to the attainment of the TSR Performance Levels and to the terms and conditions otherwise set forth in the Plan, the TSRP and this Award Agreement, the Company awards to Participant the TSRP Award described in the first two pages of this Award Agreement with respect to the Performance Period described therein. Section 3: Payment 3.1 Subject to the withholding obligations and any requirements of Section 4 then applicable, the Company shall deliver to the Participant certificates representing the TSR Rewards, if any, for the TSR Performance Period within 75 days after the end of the TSR Performance Period. Section 4: Miscellaneous 4.1 General Restriction. To the extent any TSR Target Award is denominated in Common Stock under this Award Agreement, it shall be subject to the requirement that if at any time the Committee shall determine that any listing or registration of the shares of Common Stock or any consent or approval of any governmental body or any other agreement or consent is necessary or desirable as a condition of the issuance of shares of Common Stock or cash in satisfaction thereof, such issuance of shares of Common Stock may not be consummated unless such requirement is satisfied in a manner acceptable to the Committee. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as the same shall be in effect from time to time) or to take any other affirmative action to cause the issuance of shares pursuant to the distribution of TSR Rewards to comply with any law or regulation of any governmental authority. 4.2 Non-Assignability. No TSR Target Award granted under this Award Agreement shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution. During the life of the Participant, any TSR Rewards shall be payable only to the Participant. No assignment or transfer of a TSR Target Award or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise (except by will or the laws of descent and distribution), shall vest in the assignee or transferee any interest or right herein whatsoever, and immediately upon such purported assignment or transfer, the TSR Target Awards shall terminate and become of no further effect. 4.3 Withholding Obligations. Whenever the Company makes delivery under the Plan, in whole or in part, the Company shall notify the Participant of the amount of withholding for tax, if any, which must be paid under federal and, where applicable, state and local law. The Company shall, in the discretion of the Company, but with the consent of the Committee, arrange for payment for such withholding for taxes in any one or combination of the following ways: (i) acceptance of an amount in cash paid by the Participant; or (ii) reduction in the number of shares to be issued in the by that number of shares which, in aggregate, have a value equal to such withholding amount. If the full amount of the required withholding is not recovered in the above manner, the Participant shall, forthwith upon receipt of notice, remit the deficiency to the Company. No shares of Common Stock shall be issued or delivered to the Participant (and/or the Participant's designee) until all applicable withholding obligations shall have been satisfied in full. 4 5 4.4 Delivery of Certificates. As soon as practicable after compliance by the Participant with all applicable conditions including, but not limited to, the satisfaction of the Withholding Obligations described in Section 4.3 hereof, the Company will issue and deliver by mail, or cause delivery by mail, to the Participant at the address specified by the Participant in writing, certificates registered in the name of the Participant (and/or the Participant's designee) for the number of shares of Common Stock which the Participant is entitled to receive (subject to reduction for withholding as provided in Section 4.3 hereof) under the provisions of this Award Agreement. 4.5 No Right to Employment. Nothing in the Plan or in this Award Agreement shall confer upon the Participant the right to continue in the employ of the Company or any subsidiary or affect any right that the Company or a subsidiary may have to terminate the employment of the Participant. 4.6 Amendment or Termination of the Plan. The Plan, or any part thereof (including the TSRP and/or Administrative Rules) may be terminated or may, from time to time, be amended, each in accordance with the Plan, TSRP or Administrative Rules, as applicable, provided, however, the termination or amendment of the Plan, the Administrative Rules or TSRP shall not, without the consent of the Participant, affect Participant's rights under this Award Agreement. 4.7 Investment Representation. Under the federal and/or state securities laws, the Participant may be required to deliver, and, if so, shall deliver, to the Committee, upon demand by the Committee, at the time of any payment of Common Stock, a written representation that the shares to be acquired are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to delivery of any shares shall be a condition precedent to the right of the Participant to receive any shares. 4.8 No Rights as Shareholder. The Participant shall have no rights as a stockholder of the Company with respect to shares of Common Stock subject to the Award evidenced this Award Agreement unless and until a certificate for shares of Common Stock is issued to the Participant. 4.9 Adjustment of Award. In the event of any change or changes in the outstanding Common Stock of the Company by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares or any rights offering to purchase a substantial amount of Common Stock at a price substantially below fair market value or of any similar change affecting the Common Stock, any of which takes effect after the first grant of a TSR Target Award under this Award Agreement, the Committee may, in its discretion, appropriately adjust the number of shares of Common Stock which may be issued under this Award Agreement, the number of shares of Common Stock subject to TSR Target Awards under this Award Agreement and any and all other adjustments deemed appropriate by the Committee to prevent substantial dilution or enlargement of the rights granted to the Participant in such manner as the Committee shall deem appropriate. Any adjustment so made shall be final and binding upon the Participant. 5 6 4.10 Awards Not a Bar to Corporate Event. The existence of the TSR Target Awards granted hereunder shall not affect in any way the right or the power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 4.11 Not Income for Qualified Plans. No amounts of income received by an Participant pursuant to this Award Agreement shall be considered compensation for purposes of any pension or retirement plan, insurance plan or any other employee benefit plan of the Company or any of its affiliates. 4.12 Meaning of Participant. Whenever the word "Participant" is used in any provision of this Award Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, or the person or persons to whom the TSR Target Awards may be transferred by will or by the laws of descent and distribution, the word "Participant" shall be deemed to include such person or persons. 4.13 Determinations of Committee. The actions taken and determinations of the Committee made pursuant to this Award Agreement and of the Committee pursuant to the Plan, the TSRP and the Administrative Rules shall be final, conclusive and binding upon the Company and upon the Participant. No member of the Committee shall be liable for any action taken or determination made relating to this Award Agreement, the Plan, the TSRP, or the Administrative Rules if made in good faith. Section 5: Provisions Relating to the Performance Share Program 5.1 Certain Provisions Applicable Upon a Change in Control. In the event of a Change of Control as defined in the Plan or TSRP or an agreement between the Company and the Participant which would have caused a payment to be made to the Participant under the Performance Share Program with respect to the award period under such program commencing January 1, 2000 and ending December 31, 2002 (the "2000-2002 AWARD PERIOD") and the TSRP, the Participant shall be entitled to receive the greater of the amount payable to the Participant under the Performance Share Program with respect to the 2000-2002 Award Period or the amount payable to the Participant under the TSRP. 5.2 Surrender of PSP Award. As additional consideration for the Award evidenced by this Award Agreement, the Participant hereby (i) surrenders to the Company the award made to the Participant under the Performance Share Program for the 2000-2002 Award Period and all rights relating thereto, except as set forth in Section 5.1 above, and (ii) agrees to execute any additional documents evidencing the surrender of such award. Any purported assertion of rights with respect to such units shall be void and without force and effect and the Company shall have no obligation with respect to such units whatsoever. 6 7 5.3 Definition of Performance Share Program. For the purposes of this Section 5, "PERFORMANCE SHARE Program" means the Administrative Rules for the Performance Share Program adopted by the Committee effective January 31, 2000. ## 7 8 EXHIBIT 1: LIST OF PEER COMPANIES (2001-2003 PERFORMANCE PERIOD) AK Steel Corporation Nucor Corporation Alcan, Inc. Oregon Steel Mills Alcoa Inc. Phelps Dodge Corporation Bethlehem Steel Corp. Precision Castparts Corporation Brush Engineered Materials Quanex Corporation Carpenter Technology Corporation Reliance Steel and Aluminum Commercial Metals Company RTI International Metals Freeport McMoran Copper & Gold Ryerson Tull, Inc. Gibraltar Steel Special Metals Corporation Inco Limited Steel Dynamics IPSCO Steel, Inc. Titanium Metals Corporation Kaiser Aluminum & Chemical Corporation UCAR International, Inc. KEMET Corporation USX--U.S. Steel Kennametal Inc. Worthington Industries, Inc. 8 EX-10.36 4 j8829801ex10-36.txt THE ANNUAL INCENTIVE PLAN FOR YEAR 2001 1 Exhibit 10.36 [ALLEGHENY TECHNOLOGIES LOGO] THE ANNUAL INCENTIVE PLAN FOR YEAR 2001 2 CONTENTS PAGE - -------- ---- At a Glance 1 What is the Annual Incentive Plan? 1 Who is Eligible for This Plan? 1 How Does the Annual Incentive Plan Work? 1 Calculation of the Annual Incentive Plan Award 2 Target Bonus Percentage 2 Performance Goals and the Target Bonus Percentage 2 Financial Performance Goals 3 Safety Improvement Performance Goals 4 Other Individual Performance Goals 4 How the AIP Incentive Award is Calculated When All Goals Are Achieved 5 How the AIP Incentive Award is Calculated for Other Achievement Levels 6 o Maximums and Minimums 6 o Formulas for Weighting Performance 7 Putting it Together - Two Examples 8 Additional Guidelines for the Annual Incentive Plan 12 Discretionary Adjustments 12 Some Special Circumstances 12 Making Payments 13 Administration Details 13 3 AT A GLANCE WHAT IS THE ANNUAL INCENTIVE PLAN? The Annual Incentive Plan (the "AIP" or the "Plan") provides key managers of Allegheny Technologies Incorporated ("Allegheny Technologies" or the "Company") and its operating companies with the opportunity to earn an incentive award when certain pre-established goals are met at the corporate and operating company levels and at the individual level. WHO IS ELIGIBLE FOR THIS PLAN? Generally, key managers who have a significant impact on the company's operations will be eligible to participate in the Plan. Individuals eligible for participation are determined annually, based on recommendations of the operating company presidents, if applicable, and the Company's chief executive officer, with the approval of the Personnel and Compensation Committee of the Company's Board of Directors (the "Committee"). HOW DOES THE ANNUAL INCENTIVE PLAN WORK? Under the Plan, key managers may earn an incentive award based on a percentage of their base salary, depending on the extent to which pre-established corporate, operating company and individual performance goals have been achieved. o For purposes of the Plan, base salary is generally the manager's annual base salary rate as of the end of the year, excluding any commission or other incentive pay. For some special circumstances affecting the amount of base salary used in the Plan, see page 12. o A target bonus percentage is used in calculating the incentive award. It is explained on the next page. Each participating manager will have a target bonus percentage. o The target bonus percentage will be adjusted (upward or downward) based on the extent to which various performance goals are achieved. Under the Plan, 80% of the target bonus percentage will be adjusted based on corporate and operating company financial performance, 10% of the target bonus percentage will be adjusted based on safety improvement, and 10% of the target bonus percentage will be adjusted based on other individual performance. Incentive award payments will generally be distributed in cash after the year-end audit is complete. Page 1 4 CALCULATION OF THE ANNUAL INCENTIVE PLAN AWARD TARGET BONUS PERCENTAGE The Plan establishes an incentive opportunity for each Plan participant, calculated as a percentage of the manager's base salary. Each participant will be provided with an initial percentage, referred to as a "target bonus percentage." Generally, the target bonus percentage is the percentage of base salary that can be earned as an award under the Plan if 100% of the various performance goals are achieved. For 2001, if 100% of the performance goals are achieved, 100% of the target bonus percentage can be earned. If there is a change in the key manager's job position during the year that changes the manager's target bonus percentage, the target bonus percentage used in the award calculation will be determined as follows: o If the individual has at least six months of service in the new position, the newly adjusted target bonus percentage will be used in calculating the individual's award for the full year. o If the individual has less than six months of service in the new position, the individual's award for the year will be calculated on a pro-rata basis using the two different target bonus percentages weighted by length of service in each position during the year. Target bonus percentages, performance goals and performance achievements will be communicated to each eligible participant. The Committee may change the goals and objectives for the Plan at any time. PERFORMANCE GOALS AND THE TARGET BONUS PERCENTAGE An AIP award is based on the extent to which specified, preestablished performance objectives are achieved. For 2001, AIP awards will be based on the extent to which: o Allegheny Technologies and its operating companies achieve specified levels of Operating Profit and Managed Working Capital - the financial goals, o Allegheny Technologies and its operating companies achieve specified levels of improvements in safety performance - the safety goals, and o The participant achieves his or her own other individual performance objectives. At the end of the year, the Company will measure actual performance against each of the preestablished objectives. Page 2 5 As a first step in the calculation, the Company will determine the extent to which pre-established financial performance goals, specifically levels of Operating Profit and Managed Working Capital for 2001, have been achieved. The results achieved will be weighted under a formula, which in turn will impact 80% of the target bonus percentage. The formulas for weighting financial achievements are described on pages 5 to 7. For the remaining 20% of the target bonus percentage, the Company will review actual safety improvements and other individual performance against pre-established objectives: o Since 10% of the target bonus percentage is based on safety improvements, the participant can earn up to 10% (or more) of the target bonus percentage based on the extent to which safety objectives are achieved. The formulas for weighting safety achievements are the same as for weighting financial achievements and are described on pages 5 to 7. o Since 10% of the target bonus percentage is based on other individual performance, the participant can earn up to 10% (or more) of the target bonus percentage based on the extent to which other individual performance objectives are achieved. The formulas for weighting other individual performance achievements are the same as for weighting financial achievements and are described on pages 5 to 7. The weighted percentages attributable to each performance goal as noted above, then will be added together, and that sum will be multiplied by: (1) the individual's target bonus percentage, times (2) the individual's annual base salary, to produce the amount of the incentive award for 2001. Note that potential adjustments are described on page 12. FINANCIAL PERFORMANCE GOALS The financial performance goals for 2001 consist of two measures: Operating Profit ("OP"), and Managed Working Capital ("MWC"), which together comprise 80% of the target bonus percentage. For operating company managers, note that 60% of the financial performance goals' overall 80% weight will be based on the performance of the participant's operating company, and 20% of the financial performance goals' overall 80% weight will be based on corporate level performance. For corporate staff employees, financial performance will be measured completely at the corporate level. More specifically, the financial performance measures comprising 80% of the target bonus percentage will be as follows: o For managers at the operating companies: -- OP achievements at the participant's operating company: 45% -- MWC achievements at the participant's operating company: 15% -- OP achievements at Allegheny Technologies: 12% -- MWC achievements at Allegheny Technologies: 8% --- 80% Page 3 6 o For corporate staff employees: -- OP achievements at the corporate level: 60% -- MWC achievements at the corporate level: 20% --- 80% Each year, financial performance goals will be set at the corporate and operating company level based on the applicable business plan. With the concurrence of the Company's chief executive officer and the Committee, financial performance goals may be further weighted within a particular operating company in accordance with its separate business units ("SBU's") for key managers of those SBU's. SAFETY IMPROVEMENT PERFORMANCE GOALS 10% of the target bonus percentage is based on the extent to which pre-established levels of safety improvement are achieved. The Plan will principally rely upon the percentage improvement in two metrics to measure safety improvement: OSHA Total Recordable Incident Rate and the Lost Workday Case Rate. Each safety metric will comprise 5% of the target bonus percentage. Each of the safety achievement metrics - the OSHA Total Recordable Incident Rate and the Lost Workday Case Rate - will be independently weighted for 2001 under the same formulas as the financial performance goals. Consistent with the overall business plan of Allegheny Technologies, the pre-established safety goal under the Plan for 2001 is a 50% improvement vs. 1999. Safety goals for individuals at specific sites can be adjusted to the needs of their particular location as long as the collective goal for each operating company is a 50% improvement in these safety metrics vs. 1999. For corporate staff employees, the AIP award percentage for safety improvement is based on achieving a 50% safety improvement on the weighted average of all ATI operating companies vs. 1999. OTHER INDIVIDUAL PERFORMANCE GOALS 10% of the target bonus percentage is based on the extent to which pre-established individual performance goals are achieved. Each year, managers will establish other individual performance goals with their immediate supervisors. The achievement of Other Individual Performance goals will be weighted under the same formulas as the financial performance goals. Page 4 7 HOW THE AIP INCENTIVE AWARD IS CALCULATED WHEN ALL GOALS ARE ACHIEVED For the Year 2001, if 100% of the financial performance goals are achieved, then 80% of the target bonus percentage will be credited to the participant: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- FINANCIAL OP - Operating Company 45% 100% 100% 45% MWC - Operating Co. 15% 100% 100% 15% OP - Corporate 12% 100% 100% 12% MWC - Corporate 8% 100% 100% 8% --- --- Financial Total 80% 80% *Earned % of Target = Goal % of Target X Formula Weighting Next, if 100% of the safety improvement goals are achieved, then an additional 10% of the target bonus percentage will be credited to the participant: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- SAFETY Total Recordable Incident Rate 5% 100% 100% 5% Lost Workday Case Rate 5% 100% 100% 5% --- --- Safety Total 10% 10% Finally, if 100% of the individual performance goals are achieved, then an additional 10% of the target bonus percentage will be credited to the participant: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- INDIVIDUAL GOALS 10% 100% 100% 10% Page 5 8 The sum of weighting the financial performance, safety performance, and individual performance produces the earned percentages of target as follows: Financial Performance Goals 80% Safety Improvement Goals 10% Individual Performance Goals 10% --- Total Earned Percentage of Target 100% In this example, assume that the operating company manager's target bonus percentage is 20%. The target bonus percentage of 20% is then multiplied by 100% to produce an adjusted bonus percentage equal to 20% of base salary: Earned Percentage of Target 100% X Target Bonus Percent 20% --- Equals Percentage of Salary for 20% Incentive Award The sections below discuss the impact of achieving more or less than 100% of various goals, and they also discuss the impact of other potential adjustments. HOW THE AIP INCENTIVE AWARD IS CALCULATED FOR OTHER ACHIEVEMENT LEVELS The following section describes maximum and minimum achievement levels, and the formulas used to weight achievements at all levels. Maximums and Minimums o Generally, the maximum percentage used in adjusting or weighting performance achievement is 200%, and the overall maximum incentive award that an individual can earn under the weighting formula is 200% of his or her target bonus percentage. o Where 75% of a financial, safety or other individual performance goal is achieved, only 25% of that goal's share will be allocated to his or her target bonus percentage. o Where less than 75% of a financial, safety or other individual performance goal is achieved, no amount of that goal will be allocated to his or her target bonus percentage. Page 6 9 Formulas for Weighting Performance The following formulas will be used to weight financial, safety, or other individual performance under the Plan: Formula A: If 75% to and including 100% of a goal is achieved, the Percent Allocated for that goal equals the Percentage of Goal Achieved (i.e. Actual Performance divided by Planned Performance) minus 75% (which is the threshold level of performance) times 3, plus 25%. Formula A examples: 1. Assumption: Percentage of Goal Achieved = 90% Weighted Percent for that Goal = [(90% - 75%) x 3] + 25% = [15% x 3] + 25% = 45% + 25% Percent Allocated for Goal = 70% 2. Assumption: Percentage of Goal Achieved = 85% Weighted Percent for that Goal = [(85% - 75%) x 3] + 25% = [10% x 3] + 25% = 30% + 25% Percent Allocated for Goal = 55% Formula B: If over 100% of goal is achieved, the Percent Allocated for that goal equals the Percentage of Goal Achieved (i.e. Actual Performance divided by Planned Performance) minus 100% times 5, plus 100%. In all cases, the maximum Percent Earned of 200% results when 120% or more of that goal is achieved. Formula B examples: 1. Assumption: Percentage of Goal Achieved = 130% Weighted Percent for that Goal = [(130% - 100%) x 5] + 100% = [30% x 5] + 100% = 150% + 100% Percent Allocated for Goal = 250% However, the maximum target bonus is capped at 200%. 2. Assumption: Percentage of Goal Achieved = 105% Weighted Percent for that Goal = [(105% - 100%) x 5] + 100% = [5% x 5] + 100% = 25% + 100% Percent Allocated for Goal = 125% Page 7 10 PUTTING IT TOGETHER Here are two examples of how an incentive award might be determined under the Plan. Example One: Assume that the operating company manager's annual salary is $80,000 and that the manager's target bonus percentage is 20% of base salary. Also, assume actual performance is: Financial goals o 100% of planned Operating Profit, or OP, goals at the operating company o 105% of planned Managed Working Capital, or MWC, goals at the operating company o 105% of planned Operating Profit, or OP, goals at the corporate level o 130% of planned Managed Working Capital, or MWC, goals at the corporate level Safety goals o 90% of Recordable Incident Rate (improvement of 45% in metric since 1999) o 100% of Lost Workday Case Rate (improvement of 50% in metric since 1999) Other Individual Performance goals o 90% of planned Individual Performance goals are met The first step in this example is to calculate the impact of the actual financial performance on 80% of the target bonus percentage. Formula A on page 7 would be used for weighting OP at the operating company level, because 100% of that goal was achieved. Formula B on page 7 would be used for weighting the other financial metrics, because more than 100% of those goals were achieved. Following the formulas, the 80% share of the target bonus percentage is adjusted to 94.75%: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- OP - Operating Company 45% 100% 100% (A) 45.00% MWC - Operating Co. 15% 105% 125% (B) 18.75% OP - Corporate 12% 105% 125% (B) 15.00% MWC - Corporate 8% 130% 200% (B) 16.00% --- ----- Goals Total 80% 94.75% *Earned % of Target = Goal % of Target X Formula Weighting Page 8 11 The next step in this example is to calculate the impact of the actual safety performance on 10% of the target bonus percentage. Accordingly Formula A on page 7 would be used for weighting the safety improvement metrics, because 100% or less of those goals were achieved. Following the formulas, the 10% safety performance share of the target bonus percentage is adjusted to 8.5%: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- Recordable Incident Rate 5% 90% 70% (A) 3.5% Lost Workday Case Rate 5% 100% 100% (B) 5.0% ---- Goals Total 10% 8.5% The last step in this example is to calculate the impact of the actual individual performance on 10% of the target bonus percentage. Formula A on page 7 would be used for individual performance, because less than 100% of those goals were achieved. Following the formulas, the 10% individual performance share of the target bonus percentage is adjusted to 7%: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- Individual Performance 10% 90% 70% (A) 7% The sum of the financial performance, safety performance, and individual performance is: Financial Performance Goals 94.75% Safety Improvement Goals 8.50% Individual Performance Goals 7.00% ----- Total Earned Percentage of Target 110.25% The target bonus percentage of 20% is multiplied by 110.25% to produce an adjusted bonus percentage equal to 22.05% of base salary: Earned Percentage of Target 110.25% X Target Bonus Percent 20% ------ Equals Percentage of Salary for 22.05% Incentive Award With this first example, the incentive award would be calculated as 22.05% of the manager's base salary of $80,000, or $17,640. Page 9 12 Example Two: Assume that the operating company manager's annual salary is again $80,000 and that the manager's target bonus percentage is 20% of base salary but that actual achievements are: Financial goals o 90% of planned Operating Profit, or OP, goals at the operating company o 100% of planned Managed Working Capital, or MWC, goals at the operating company o 75% of planned Operating Profit, or OP, goals at the corporate level o 105% of planned Managed Working Capital, or MWC, goals at the corporate level Safety goals o 100% of Recordable Incident Rate (improvement of 50% in metric since 1999) o 160% of Lost Workday Case Rate (improvement of 80% in metric since 1999) Other Individual Performance goals o 105% of planned Individual Performance goals are met The first step in this example is to calculate the impact of the actual financial performance on 80% of the target bonus percentage. Formula A on page 7 would be used for weighting OP and MWC at the operating company and OP at the corporate level, because 100% or less of those goals were achieved. Formula B on page 7 would be used for weighting the MWC goal at the corporate level, because over 100% of that goal was achieved. Following the formulas, the 80% share of the target bonus percentage is adjusted to 59.50%: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- OP - Operating Company 45% 90% 70% (A) 31.50% MWC - Operating Co. 15% 100% 100% (A) 15.00% OP - Corporate 12% 75% 25% (A) 3.00% MWC - Corporate 8% 105% 125% (B) 10.00% -- ----- Goals Total 80% 59.50% *Earned % of Target = Goal % of Target X Formula Weighting Page 10 13 The next step in this example is to calculate the impact of the actual safety performance on 10% of the target bonus percentage. Accordingly Formula A on page 7 would be used for weighting the Total Recordable Incident Rate or TRIR, because 100% or less of those goals were achieved. Formula B will be used for weighting Lost Workday Case Rate or LWCR performance achievements as they are greater than 100% of planned improvement. Following the formulas, the 10% safety performance share of the target bonus percentage is adjusted to 15%: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- Recordable Incident Rate 5% 100% 100% (A) 5% Lost Workday Case Rate 5% 160% 200% (B) 10% -- --- Goals Total 10% 15% The last step in this example is to calculate the impact of the actual individual performance on 10% of the target bonus percentage. Formula B on page 7 would be used for individual performance, because over 100% of those goals were achieved. Following the formulas, the 10% individual performance share of the target bonus percentage is adjusted 12.5%: Goal % Goal Formula Earned % of Goals of Target Achieved % Weighting Target * ----- --------- ---------- --------- -------- Individual Performance 10% 105% 125% (B) 12.5% The sum of the financial performance, safety performance, and individual performance is: Financial Performance Goals 59.50% Safety Improvement Goals 15.00% Individual Performance Goals 12.50% ------ Total Earned Percentage of Target 87.00% The target bonus percentage of 20% is multiplied by 87.00% to produce an adjusted bonus percentage equal to 17.40% of base salary: Earned Percentage of Target 87.00% X Target Bonus Percent 20% ----- Equals Percentage of Salary for 17.40% Incentive Award With this first example, the incentive award would be calculated as 17.40% of the manager's base salary of $80,000, or $13,920. Page 11 14 ADDITIONAL GUIDELINES FOR THE ANNUAL INCENTIVE PLAN In any year, a minimum Operating Profit (OP) of 75% of plan must be achieved for annual incentives to be paid regardless of other factors. The total of the incentive awards in any given year cannot exceed 5% of the Operating Profit of Allegheny Technologies or the operating company, as the case may be. If, in any year, awards exceed 5% of Operating Profit, awards of the affected company will be reduced to eliminate the excess. DISCRETIONARY ADJUSTMENTS In some cases, the Plan allows for discretionary adjustments of up to +20% or - -20% of an individual's calculated award. However, the sum of discretionary adjustments for all eligible managers of the affected company cannot exceed +5% of the aggregate calculated awards for that company. SOME SPECIAL CIRCUMSTANCES The above formulas generally determine the amount of the incentive award for the year. Other factors that may affect the actual award follow: o If a manager leaves the company due to retirement, death, or disability, an award will be calculated based on the actual base salary earned during the year in which the manager left--so long as the manager worked at least six months of that year. o If a manager leaves the company before the end of the plan year for any other reason, the manager will not receive a bonus award for that year. o If a manager voluntarily leaves the company after the end of the year but before the award is paid, the manager would receive any bonus due unless the employment is terminated for cause. If employment is terminated for cause, the manager would not be entitled to receive an award under the Plan. o Managers who are hired mid-year may earn a pro-rated award for that year, based on the salary earned during that year. However, managers with less than two months service in a plan year (i.e. hired after October 31) would not be eligible for an award for that year. o If the manager received an adjustment in base salary due to a change in job position (i.e. other than a merit increase), the manager's base salary for plan purposes will be the sum of (1) the product of the number of months prior to the adjustment times the rate of monthly base salary immediately prior to the adjustment, and (2) the product of the number of months after the adjustment times the rate of monthly base salary as of the end of the Plan Year. Page 12 15 MAKING PAYMENTS All incentive award payments will generally be paid in cash, less applicable withholding taxes, after the year-end audit is complete. This is expected to occur by no later than March 15. ADMINISTRATION DETAILS This summary relates to the Annual Incentive Plan (AIP) of Allegheny Technologies Incorporated and its subsidiaries. The Plan is administered by the Committee, which has full authority to: o Interpret the Plan; o Designate eligible participants and categories of eligible participants; o Set the terms and conditions of incentive awards; and o Establish and modify administrative rules for the Plan. Plan participants may obtain additional information about the plan and the Committee from: Senior Vice President, General Counsel and Secretary Allegheny Technologies Incorporated 1000 Six PPG Place Pittsburgh PA 15222 5479 Phone: 412-394-2836 Fax: 412-394-2837 The Plan will remain in effect until terminated by the Committee. The Committee may also amend the plan at its discretion. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and is not "qualified" under Section 401(a) of the Internal Revenue Code. Page 13 -----END PRIVACY-ENHANCED MESSAGE-----