SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

 

 

ALLEGHENY TECHNOLOGIES INCORPORATED

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1000 Six PPG Place

Pittsburgh, PA 15222-5479

 

March 19, 2007

 

To our Stockholders:

 

We are pleased to invite you to attend the 2007 Annual Meeting of Stockholders. The meeting will be held at 11:00 a.m., Eastern Time, on Wednesday, May 2, 2007, in the Grand Ballroom, 17th Floor, Omni William Penn Hotel, 530 William Penn Place, Pittsburgh, Pennsylvania 15219. The location is accessible to disabled persons.

 

This booklet includes the notice of meeting as well as the Company’s Proxy Statement. Enclosed with this booklet are the following:

 

 

A copy of the Company’s Annual Report for the year 2006 is also enclosed.

 

Your Board of Directors recommends that you vote:

 

 

This Proxy Statement also outlines many of the corporate governance practices at ATI, discusses our compensation practices and philosophy, and describes the Audit Committee’s recommendation to the Board regarding our 2006 financial statements. We encourage you to read these materials carefully.

 

We urge you to vote promptly, whether or not you expect to attend the meeting.

 

If you are a stockholder of record and plan to attend the meeting, please mark the appropriate box on the proxy card, or enter the appropriate information by telephone or Internet, so that we can send your admission ticket to you before the meeting.

 

We look forward to seeing as many of you as possible at the 2007 Annual Meeting.

 

Sincerely,

 

L. Patrick Hassey

Chairman, President and Chief Executive Officer

ALLEGHENY TECHNOLOGIES INCORPORATED

 

Notice of Annual Meeting of Stockholders

 

 

Agenda

 

1) Election of three directors;

 

2) Approval of the 2007 Incentive Plan;

 

3) Ratification of the appointment of Ernst & Young LLP as independent auditors for 2007;

 

4) Vote on stockholder proposal regarding sustainability reporting; and

 

5) Transaction of any other business properly brought before the meeting.

 

Stockholder List

 

A list of stockholders entitled to vote will be available during business hours for 10 days prior to the meeting at the Company’s executive offices, 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479, for examination by any stockholder for any legally valid purpose.

 

Admission to the Meeting

 

Holders of Allegheny Technologies stock or their authorized representatives by proxy may attend the meeting. If you are a stockholder of record and you plan to attend the meeting, you may obtain an admission ticket from us by mail by checking the box on the proxy card indicating your planned attendance and returning the completed proxy card promptly, or by entering the appropriate information by telephone or the Internet. If your shares are held through an intermediary such as a broker or a bank, you should present proof of your ownership at the meeting. Proof of ownership could include a proxy card from your bank or broker or a copy of your account statement. The approximate date of the mailing of this Proxy Statement and proxy card, as well as a copy of ATI’s 2006 Annual Report, is March 19, 2007. For further information about Allegheny Technologies, please visit our web site at www.alleghenytechnologies.com.

 

On behalf of the Board of Directors:

 

Jon D. Walton

Corporate Secretary

 

Dated: March 19, 2007

 

Table of Contents

 

 

 

 

PROXY STATEMENT FOR
2007 ANNUAL MEETING OF STOCKHOLDERS

 

 

You can help the Company save money by electing to receive future proxy statements and annual reports over the Internet instead of by mail. See question 11 below.

 

 

If you held shares of Allegheny Technologies Incorporated (“ATI” or the “Company”) common stock, par value $0.10 per share (“Common Stock”) at the close of business on March 5, 2007, you may vote at the annual meeting. On that day, 102,118,798 shares of our Common Stock were outstanding. Each share is entitled to one vote. Stockholders do not have cumulative voting rights.

 

In order to vote, you must either designate a proxy to vote on your behalf or attend the meeting and vote your shares in person. The Board of Directors (“Board”) requests your proxy so that your shares will count toward a quorum and be voted at the meeting.

 

 

There are four different ways you may cast your vote. You may vote by:

 

 

If you are a stockholder of record and wish to vote by telephone or electronically through the Internet, follow the instructions provided on the proxy card. You will need to use the individual control number that is printed on your proxy card in order to authenticate your ownership.

 

The deadline for voting by telephone or the Internet is 11:59 p.m., Eastern Time, on May 1, 2007.

 

If your shares are held in “street name” (that is, they are held in the name of broker, bank or other nominee), or if your shares are held in one of the Company’s savings or retirement plans, you will receive instructions with your materials that you must follow in order to have your shares voted. For voting procedures for shares held in the Company’s savings or retirement plans, see question 6 below.

 

 

You may revoke your proxy or change your vote at any time before it is voted at the meeting by:

 

 

The latest-dated, timely, properly completed proxy that you submit, whether by mail, telephone or the Internet, will count as your vote. If a vote has been recorded for your shares and you submit a proxy card that is not properly signed and dated, the previously recorded vote will stand.

 

The shares on your proxy or voting instruction card represent those shares registered directly in your name, those held on account in the Company’s dividend reinvestment plan and shares held in the Company’s savings and retirement plans. If you do not cast your vote, your shares (except those held in the Company’s savings and retirement plans) will not be voted. See question 6 for an explanation of the voting procedures for shares in the Company’s savings and retirement plans.

 

 

If your shares are registered differently and are in more than one account, you will receive more than one card. Please complete and return all of the proxy or voting instruction cards you receive (or vote by telephone or the Internet all of the shares on each of the proxy or voting instruction cards you receive) in order to ensure that all of your shares are voted.

 

 

If you hold ATI Common Stock in one of the Company’s savings or retirement plans, you may tell the plan trustee how to vote the shares of Common Stock allocated to your account. You may either sign and return the voting instruction card provided by the plan trustee or transmit your instructions by telephone or the Internet. If you do not transmit instructions, your plan shares will be voted as the plan administrator directs or as otherwise provided in the plan.

 

The deadline for voting by telephone or the Internet is 11:59 p.m., Eastern Time, on April 27, 2007.

 

 

If you hold your shares of ATI Common Stock in “street name” through a broker, bank or other nominee account, you are a “beneficial owner” of the shares. In order to vote your shares, you must give voting instructions to your broker, bank or other intermediary who is the “nominee holder” of your shares. The Company asks brokers, banks and other nominee holders to obtain voting instructions from the beneficial owners of shares that are registered in the nominee’s name. Proxies that are transmitted by nominee holders on behalf of beneficial owners will count toward a quorum and will be voted as instructed by the nominee holder.

 

 

A majority of the outstanding shares, present or represented by a proxy, constitutes a quorum. There must be a quorum for the Annual Meeting to be held. You are part of the quorum if you have voted by proxy or voting instruction card. Abstentions, broker non-votes and votes withheld from director nominees count as “shares present” at the meeting for purposes of determining a quorum.

 

 

The director nominees receiving the highest number of votes will be elected to fill the seats on the Board. Only votes “for” or “against” affect the outcome. Checking the box on the proxy card that withholds authority to vote for a nominee is the equivalent of abstaining. Abstentions are not counted for the purpose of election of directors.

 

With respect to each of the proposals other than the election of directors (Items B-D), stockholders may vote in favor of the proposal or against the proposal, or abstain from voting. The affirmative vote of the majority of shares present in person or by proxy and entitled to vote at the Annual Meeting is required for approval of those proposals. In addition, in the case of the 2007 Incentive Plan (Item B), the number of votes cast for approval of the Plan must constitute a majority of the votes entitled to be cast at the meeting. A stockholder who signs and submits a ballot or proxy is “present,” so an abstention will have the same effect as a vote against those proposals (Items B-D).

 

Under New York Stock Exchange rules, if your broker holds your shares in its name as a nominee, the broker is permitted to vote your shares on the election of directors (Item A) and on the ratification of the appointment of the independent auditors (Item C) even if it does not receive voting instructions from you. Items B and D of this Proxy Statement are “non-

discretionary,” meaning that brokers who hold shares for the accounts of their clients and who have not received instructions from their clients do not have discretion to vote on those items. When a broker votes a client’s shares on some but not all of the proposals at the Annual Meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the Annual Meeting but are not considered “present” for purposes of voting on the non-discretionary items. Specifically in the case of the proposal to approve the 2007 Incentive Plan, a broker non-vote has the effect of a vote against the proposal because approval requires a majority of the votes entitled to be cast. Otherwise, broker non-votes will have no effect on the results.

 

 

The Company maintains a policy of keeping stockholder votes confidential.

 

 

Stockholders can elect to view future Company proxy statements and annual reports over the Internet instead of receiving paper copies in the mail and thus can save the Company the cost of producing and mailing these documents. Costs normally associated with electronic access, such as usage and telephonic charges, will be borne by you.

 

If you are a “stockholder of record” and you choose to vote over the Internet, you can choose to receive future annual reports and proxy statements electronically by following the prompt. If you hold your Company stock in “street name” (such as through a broker, bank or other nominee account), check the information provided by your nominee for instructions on how to elect to view future proxy statements and annual reports over the Internet.

 

Stockholders who choose to view future proxy statements and annual reports over the Internet will receive instructions containing the Internet address for those materials, as well as voting instructions, approximately six weeks before future meetings.

 

If you enroll to view the Company’s future annual reports and proxy statements electronically and vote over the Internet, your enrollment will remain in effect for all future stockholders’ meetings unless you cancel it. To cancel, stockholders of record should access www.melloninvestor.com/isd and follow the instructions to cancel your enrollment. You should retain your control number appearing on your enclosed proxy or voting instruction card. If you hold your Company stock in “street name,” check the information provided by your nominee holder for instructions on how to cancel your enrollment.

 

If at any time you would like to receive a paper copy of the annual report or proxy statement, please write to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479.

 

This list provides some highlights from the Allegheny Technologies’ corporate governance program. You can find details about these and other corporate governance policies and practices in the following pages of the Proxy Statement and in the “Our Corporate Governance” section of the “About Us” page of our web site at www.alleghenytechnologies.com.  

 

ATI’s Board of Directors has adopted Corporate Governance Guidelines, which are designed to assist the Board in the exercise of its duties and responsibilities to the Company. They reflect the Board’s commitment to monitor the effectiveness of decision making at the Board and management level, with a view to achieving ATI’s strategic objectives. They are subject to modification by the Board from time to time.

 

You can find the Company’s Corporate Governance Guidelines on our web site at www.alleghenytechnologies.com, by first clicking “About Us” and then “Our Corporate Governance.” Copies will also be mailed to stockholders on written request directed to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479.

 

The Board of Directors determines the number of directors. The Board currently consists of ten members: L. Patrick Hassey (Chairman), H. Kent Bowen, Robert P. Bozzone, Diane C. Creel, James C. Diggs, Michael J. Joyce, W. Craig McClelland, James E. Rohr, Louis J. Thomas and John D. Turner.

 

In accordance with the Corporate Governance Guidelines, at least 75% of the Company’s directors are, and at least a substantial majority of its directors will be, “independent” under the New York Stock Exchange (“NYSE”) definition of independence and the Company’s categorical Board independence standards, which are set forth in the Corporate Governance Guidelines and attached to this Proxy Statement as Appendix A.  A director is “independent” only if the director is a non-management director and, in the Board’s judgment, does not have a material relationship with the Company or its management.

 

In addition to L. Patrick Hassey, the current Chairman, President and Chief Executive Officer of the Company, the Board considers Robert P. Bozzone, a former Chairman, President and Chief Executive Officer of the Company and whose son-in-law is the President of ATI Allegheny Ludlum, to be a management director.

 

The Board, at its February 22, 2007 meeting, affirmatively determined that the remaining eight of the Company’s current directors, H. Kent Bowen, Diane C. Creel, James C. Diggs, Michael J. Joyce, W. Craig McClelland, James E. Rohr, Louis J. Thomas and John D. Turner, are independent in accordance with the foregoing standards. Seven of the Company’s directors have no relationships with the Company other than as directors and stockholders of the Company. One of the Company’s directors, James E. Rohr, is Chairman and Chief Executive Officer of The PNC Financial Services Group, Inc. (“PNC”). The Company has a $325 million secured revolving credit facility with a syndicate of 14 financial institutions, including PNC Bank, National Association, a subsidiary of PNC, as lender and administrative and collateral agent. The Company pays fees to PNC Bank under the terms of this facility. The Company also invests in three money market funds managed by BlackRock, Inc. (“BlackRock”). PNC currently holds approximately 34% of the outstanding common stock of BlackRock. During 2006, the Company paid fees to PNC and its affiliates representing a de minimis portion of both the Company’s revenues and PNC’s revenues, and therefore, all amounts were substantially less than the materiality threshold under NYSE rules. Mr. Rohr’s compensation is not affected by the fees that the Company pays to PNC. The Board has determined that (A) the transactions between the Company and PNC (i) are commercial transactions carried out at arm’s length in the ordinary course of business, (ii) are not material to PNC or Mr. Rohr, (iii) do not and would not potentially influence Mr. Rohr’s objectivity as a member of the Company’s Board of Directors in a manner that would have a meaningful impact on his ability to satisfy requisite fiduciary standards on behalf of the Company and its stockholders, and (iv) do not preclude a determination that Mr. Rohr’s relationship with the Company in his capacity as Chairman and Chief Executive Officer of PNC is immaterial under NYSE rules, and (B) Mr. Rohr is an independent director under NYSE existing standards and the

Company’s categorical Board independence standards.

 

The Board has also determined that each member of the Audit Committee satisfies the enhanced standards of independence applicable to Audit Committee members under NYSE listing standards and the rules of the Securities and Exchange Commission (“SEC”).

 

The directors are divided into three classes and the directors in each class generally serve for a three-year term unless the director is unable to serve due to death, retirement or disability. The term of one class of directors expires each year at the annual meeting of stockholders. The Board may fill a vacancy by electing a new director to the same class as the director being replaced. The Board may also create a new director position in any class and elect a director to hold the newly created position. It is expected that new directors appointed to the Board to fill vacancies will stand for election by the stockholders at the next annual meeting.

 

Standing Committees

 

The Board of Directors has the following standing committees: Audit Committee, Finance Committee, Nominating and Governance Committee, Personnel and Compensation Committee, and Technology Committee. In 2006, the Board of Directors determined that there was no need to have an Executive Committee and therefore disbanded the Executive Committee.

 

Only independent directors, as independence is determined by NYSE rules, are permitted to serve on the Audit Committee, the Nominating and Governance Committee, and the Personnel and Compensation Committee. Audit Committee members must meet an additional independence standard under SEC rules; specifically, Audit Committee members may not receive any compensation from the Company other than their directors’ compensation.

 

Each committee has a written charter that describes its responsibilities. Each of the Audit Committee, the Nominating and Governance Committee and the Personnel and Compensation Committee has the authority, as it deems appropriate, to independently engage outside legal, accounting or other advisors or consultants. In addition, each committee annually conducts a review and evaluation of its performance and reviews and reassesses its charter. You can find the current charters of each committee on our web site at www.alleghenytechnologies.com by first clicking “About Us,” then clicking “Our Corporate Governance” and then clicking “Committee Charters.” The current charters will also be mailed to stockholders upon written request.

 

Audit Committee

 

The current members of the Audit Committee are Michael J. Joyce (Chairman), Diane C. Creel, James C. Diggs, Louis J. Thomas and John D. Turner. The Board of Directors has determined that these committee members have no financial or personal ties to the Company (other than director compensation and equity ownership as described in this Proxy Statement) and that they meet the NYSE and SEC standards for independence. The Board of Directors has also determined that Michael J. Joyce meets the SEC criteria of an “audit committee financial expert” and meets the NYSE standard of having accounting or related financial management expertise. Mr. Joyce has over 35 years of accounting, auditing and consulting experience, having most recently served as New England Managing Partner of Deloitte & Touche USA LLP prior to his retirement in May 2004.

 

The Audit Committee assists the Board in its oversight of the integrity of the Company’s financial statements, compliance with legal and regulatory requirements, the qualifications and independence of the Company’s independent auditors, and the performance of the Company’s internal audit function and independent auditors. The Committee has the authority and responsibility for the appointment, retention, compensation and oversight of ATI’s independent auditors, including pre-approval of all audit and non-audit services to be performed by the independent auditors. The independent auditors and the internal auditors have full access to the Committee and meet with the Committee with, and on a routine basis without, management being present, to discuss all appropriate matters.

 

The Audit Committee is also responsible for reviewing, approving and ratifying related party

transactions. For more information, see the “Certain Transactions” section of this Proxy Statement.

 

The Audit Committee Report appears on page 26 of this Proxy Statement.

 

Finance Committee

 

The Finance Committee makes recommendations and provides guidance to the Board regarding major financial policies of the Company. It also serves as named fiduciary of the employee benefit plans maintained by the Company.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee is responsible for overseeing corporate governance matters. It oversees the annual evaluation of the Company’s Board and its committees. It also recommends to the Board individuals to be nominated as directors, which process includes evaluation of new candidates as well as an individual evaluation of current directors who are being considered for re-election. In addition, this Committee is responsible for administering ATI’s director compensation program. The Committee also performs other duties as are described in the Corporate Governance Guidelines.

 

Personnel and Compensation Committee

 

The Personnel and Compensation Committee, on behalf of the Board of Directors, establishes and annually reassesses the executive compensation program and the Company’s philosophy on executive compensation, which is more fully discussed in the “Compensation Discussion and Analysis” section of this Proxy Statement.

 

One of the duties of the Committee is to oversee Chief Executive Officer (“CEO”) and executive officer compensation. The Personnel and Compensation Committee reviews and approves corporate goals and objectives relevant to CEO and executive officer compensation, evaluates the CEO’s performance in light of those goals and objectives, and determines and approves the CEO’s compensation level (either as a Committee or together with the other independent directors, as directed by the Board) based on this evaluation. The Committee also reviews and approves non-CEO executive officer compensation, and makes recommendations to the Board with respect to incentive compensation plans and equity-based plans that require Board approval. In addition, the Personnel and Compensation Committee administers ATI’s incentive compensation plans. The Committee may delegate authority to subcommittees, when appropriate. For other executives, the Committee reviews and approves recommendations from management within plan parameters. However, the Committee may not delegate any authority under those plans for matters affecting the compensation and benefits of the executive officers.

 

The Personnel and Compensation Committee, under the terms of its charter, has the sole authority to retain, approve fees and other terms for, and terminate any compensation consultant used to assist the committee in the evaluation of the Chief Executive Officer or other executive compensation. The Committee may also obtain advice and assistance from internal or external legal, accounting or other advisors. Each year, the Committee retains a compensation consultant; for years 2005 and 2006, the Committee retained Mercer Human Resources Consulting (“Mercer”), an outside compensation and executive benefits consulting firm. Mercer was retained to assist the Committee to review market conditions and peer company practices and to benchmark the Company’s executive compensation programs against those parameters. Mercer performed market analyses of peer group companies and the general market for executive talent, and made recommendations to the Committee as to the form of and incentive opportunities for executive compensation.

 

Mercer and the Company’s legal advisors periodically attend the meetings of the Committee. For portions of those meetings, the Chief Executive Officer and the Executive Vice President of Human Resources, Chief Legal and Compliance Officer, General Counsel and Corporate Secretary also attend. The Chief Executive Officer expresses his views on executive compensation to the Committee. Please see the “Compensation Discussion and Analysis” section of this Proxy Statement for more discussion about executive officer compensation.

 

Each of the members of the Personnel and Compensation Committee is a “non-employee director” of the Company as defined under Rule 16b-3 of the Securities Exchange Act of

1934 and each member is also an “outside director” for the purposes of the corporate compensation provisions contained in Section 162(m) of the Internal Revenue Code.

 

The Compensation Committee Report appears on page 30 of this Proxy Statement.

 

Technology Committee

 

The Technology Committee reviews changing technologies and evaluates how they affect the Company and its technical capabilities.

 

During 2006, the Board of Directors held seven meetings. The Board’s committees consisted of the five standing committees already described and the Executive Committee, which did not meet and was disbanded in 2006. In 2006, all directors attended at least 75% of the total Board meetings and meetings of Board committees of which they were members, except for Mr. Bozzone, who attended 71% of these meetings.

 

The non-management directors meet separately from the other directors in regularly scheduled executive sessions without members of management (except to the extent that the non-management directors request the attendance of a member of management). When, as is currently the case, the Chairman of the Board is a management director, or if the Chairman would otherwise so choose, the position of Chair of the meetings of the non-management directors rotates on a per meeting basis in the order specified in the Corporate Governance Guidelines among the non-management Chairs of the Board’s committees. If not a member of management, the Chairman of the Board would serve as Chair of these meetings.

 

We typically schedule a Board meeting in conjunction with our annual meeting of stockholders and expect that our directors will attend absent good reason, such as a scheduling conflict. In 2006, nine of the ten directors attended our annual meeting of stockholders.

 

The table below identifies the directors that the Board has determined to be independent and provides information with respect to Board committee memberships. The table also sets forth the number of meetings held by each Board committee in 2006.

 

 

 

In 2006, non-employee directors received an annual cash retainer of $60,000 for services as a director, at least 25% of which was paid in the form of unrestricted Company Common Stock, and an annual grant of options to purchase

1,000 shares of Company Common Stock under the terms of the Company’s Non-Employee Director Stock Compensation Plan (the “Director Compensation Plan”). The stock options vest in their entirety on the first anniversary of the date of grant. Directors were paid $1,500 per day for Board meetings and $1,000 for each committee meeting attended. The Company also has paid for ATI orientation or training of Board members outside of Board and committee meetings. An annual fee of $5,000 was also paid to each committee chair. Directors who are employees of the Company do not receive any compensation for their service on the Board or its committees.

 

We also pay our directors’ travel, lodging, meal and other expenses connected with their Board service. In addition, certain benefits were made available to Mr. Bozzone, the retired Chairman, President and Chief Executive Officer, including office space, secretarial services, newspaper subscriptions and parking space at ATI’s headquarters building.

 

The non-employee directors of the Board earned the following in 2006:

 

 

 

 

 

The Board encourages directors to obtain a meaningful stock ownership interest in the Company. Directors are expected to own shares of ATI Common Stock having a market value of at least two times the annual retainer amount by December 31, 2009 or within five years of first becoming a director, whichever occurs first, and at least three times the annual retainer amount within a reasonable time thereafter. These guidelines have been met as of December 31, 2006.

 

In December 2004, the Board froze and discontinued the Company’s Fee Continuation Plan for Non-Employee Directors. Under the frozen plan, an amount equal to the annual retainer fee in effect for 2004, which was $28,000, will be paid annually to members of the Board as of January 1, 2005 following the termination of the director’s service as a Board member for each year of the director’s credited service as a director (as defined in the Plan) up to a maximum of ten years.

 

On December 15, 2006, the Board of Directors approved changes to the non-employee director compensation program. Effective January 1, 2007, the annual retainer fee consists of a cash payment of $60,000 and restricted stock valued at $75,000, subject to approval by the stockholders of the 2007 Incentive Plan. Committee chairpersons receive a $10,000 cash retainer fee and directors will continue to be paid $1,500 per day for Board meetings and $1,000 for each committee meeting attended. The Company also pays for ATI orientation or training of Board members outside of Board and committee meetings.

 

ATI has a code of ethics, which we refer to as the Corporate Guidelines for Business Conduct and Ethics, that applies to all directors, officers and employees, including our principal executive officer, our principal financial officer, and our controller and chief accounting officer. ATI has had a code of conduct for many years. We require all directors, officers and employees to adhere to these Guidelines in addressing legal and ethical issues encountered in their work. These Guidelines require that our directors, officers and employees avoid conflicts of interest, comply with all laws, conduct business in an honest and ethical manner and otherwise act with integrity and honesty in all of their actions by or on behalf of the Company. These Guidelines include a Code of Ethics specifically for our Chief Executive Officer, our Chief Financial Officer and all other financial officers and executives, which supplements the general principles set forth in the Guidelines and is intended to promote honest and ethical conduct, full and accurate reporting, and compliance with laws as well as other matters.

 

During 2006, our employees were required to certify that they reviewed and understood the Guidelines. In addition, all officers and managers are required to certify as to their compliance with the standards set forth in the Guidelines. Also, beginning in 2006, the Company implemented an online ethics training program, administered by a third party, requiring all directors, officers and employees to take an interactive online ethics course at least annually.

The Company encourages employees to communicate concerns before they become problems. We believe that building and maintaining trust, respect and communications between employees and management and between fellow employees is critical to the overriding goal of efficiently producing high quality products, providing the maximum level of customer satisfaction, and ultimately fueling profitability and growth. Only the Audit Committee of the Board can amend or grant waivers from the provisions of the Guidelines relating to the Company’s executive officers and directors, and any such amendments or waivers will be promptly posted on our web site at www.alleghenytechnologies.com. To date, no such amendments have been made or waivers granted.

 

A copy of the Corporate Guidelines for Business Conduct and Ethics, which includes the Code of Ethics, is available on our web site at www.alleghenytechnologies.com by first clicking “About Us” and then “Our Ethics” and will be mailed to stockholders and other interested parties on written request directed to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479.

 

The Board is responsible for recommending director nominees to the stockholders and for selecting directors to fill vacancies between stockholder meetings. The Nominating and Governance Committee recommends candidates to the Board. The Nominating and Governance Committee is comprised entirely of independent directors under the applicable rules and regulations of the NYSE and SEC. The Committee operates under a written charter adopted by the Board of Directors. A copy of the Committee’s charter is available at the Company’s web site at www.alleghenytechnologies.com by first clicking “About Us” and then “Our Corporate Governance.” Paper copies can be obtained by writing to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479.

 

The Committee considers director candidates suggested by members of the Committee, other directors, senior management and stockholders. For information on how to submit a candidate for consideration, please see the caption “2008 Annual Meeting and Stockholder Proposals” below.

 

Preliminary interviews of director candidates may be conducted by the Chair of the Nominating and Governance Committee or, at his request, any other member of the Committee or the Chairman of the Board. Background material pertaining to director candidates is distributed to the members of the Committee for their review. Director candidates who the Committee determines merit further consideration are interviewed by the Chair of the Committee and other Committee members, directors and key senior management. The results of these interviews are considered by the Nominating and Governance Committee in its deliberations.

 

Director candidates are generally selected on the basis of the following criteria: their business or professional experience, recognized achievement in their respective fields, integrity and judgment, ability to devote sufficient time to the affairs of the Company, the diversity of their backgrounds and the skills and experience that their membership adds to the overall competencies of the Board, and the needs of the Company from time to time. Nominees must also represent the interests of all stockholders. In accordance with the retirement policy for directors set forth in the Corporate Governance Guidelines, a person who is 72 years or older cannot be elected to serve on the Board.

 

In evaluating the needs of the Board, the Nominating and Governance Committee considers the qualifications of sitting directors and consults with other members of the Board (including as part of the Board’s annual self-evaluation), the Chairman, President and Chief Executive Officer and other members of senior management. At a minimum, all recommended candidates must exemplify the highest standards of personal and professional integrity, meet any required independence standards, and be willing and able to constructively participate in and contribute to Board and committee meetings. Additionally, the Committee conducts individual reviews of current directors whose terms are nearing expiration, but who may be proposed for re-election, in light of the considerations described above and their past contributions to the Board.

 

We maintain a process for stockholders and interested parties to communicate with the Board of Directors or any individual director. ATI stockholders or interested parties who want to communicate with the Board or any individual director can write to:

 

Allegheny Technologies Incorporated
Corporate Secretary
Board Administration
1000 Six PPG Place
Pittsburgh, PA 15222-5479

 

or call 1-877-787-9761 (toll free). Your letter or message should indicate whether you are an ATI stockholder. Depending on the subject matter, the Corporate Secretary will:

 

 

At each Board meeting, the Corporate Secretary presents a summary of all communications received since the last meeting that were not forwarded and makes those communications available to the directors on request.

 

Under Rule 14a-8 of the Securities and Exchange Commission, proposals of stockholders intended to be presented at the 2008 Annual Meeting of Stockholders must be received no later than November 20, 2007 for inclusion in the proxy statement and proxy card for that meeting. In addition, the Company’s certificate of incorporation provides that in order for director nominations or other business to be properly brought before an annual meeting by a stockholder, the stockholder must give timely notice thereof in writing to the Corporate Secretary. The notice must contain certain information, including information about the proposal and the interest, if any, of the stockholder who is making the proposal, as well as the name, address and share ownership of the stockholder giving notice.

 

Stockholders may nominate candidates for election to the Board by following the procedures described in ATI’s certificate of incorporation. Stockholder-recommended candidates will be evaluated on the same basis as other candidates. The provisions of ATI’s certificate of incorporation generally require that written notice of a nomination be received by the Corporate Secretary, who will forward the information to the Nominating and Governance Committee of the Board of Directors for the Committee’s consideration. The notice must contain certain information about the nominee, including his or her age, address, occupation and share ownership, as well as the name, address and share ownership of the stockholder giving notice.

 

For all such notices to be timely, the provisions of the Company’s certificate of incorporation generally require that notice be received by the Corporate Secretary not less than 75 days and not more than 90 days before the first anniversary of the date of the preceding year’s annual meeting. For our annual meeting in the year 2008, we must receive this notice on or after February 2, 2008 and on or before February 17, 2008.

 

Stockholders may obtain a copy of the full text of the provisions of our certificate of incorporation by writing to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479. A copy of our certificate of incorporation has been filed with the Securities and Exchange Commission and can be viewed on our web site at www.alleghenytechnologies.com by first clicking “About Us” and then “Our Corporate Governance.”

 

The rules of the Securities and Exchange Commission require the Company to disclose late filings of reports of stock ownership (and changes in stock ownership) by its directors and statutory insiders. Based upon a review of filings with the SEC and written representations that no other reports were required, the Company believes that, in 2006, the Company’s directors and statutory insiders complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 and all filings by these individuals with respect to Company Common Stock were made on a timely basis.

 

The individuals and entities listed in the following table are beneficial owners of five percent or more of Company Common Stock as of December 31, 2006, based on information filed with the SEC. In general, “beneficial ownership” includes those shares a person has the power to vote or transfer, and options to acquire Common Stock that are exercisable currently or within 60 days.

 

 

 

The following table sets forth the shares of Common Stock reported to the Company as beneficially owned as of March 1, 2007 by the nominees for director, the continuing directors and each officer named in the Summary Compensation Table.

 

 

 

The table also includes the following shares where beneficial ownership is disclaimed: 21,700 shares owned by Mr. Walton’s spouse and 262 shares held by the spouses of other statutory insiders.

 

The table includes shares issuable pursuant to options that are currently exercisable or may become exercisable on or before April 30, 2007 in the following amounts: Mr. Bowen, 3,886; Mr. Bozzone, 32,000; Ms. Creel, 17,506; Mr. Harshman, 15,000; Mr. McClelland, 1,000; Mr. Rohr, 7,701; Mr. Thomas, 1,000; Mr. Turner, 2,000; Mr. Walton, 15,000; and for all directors, nominees, named officers and other statutory insiders as a group, 100,093.

 

 

The Board of Directors has nominated three directors, H. Kent Bowen, L. Patrick Hassey and John D. Turner, to stand for re-election to the Board for a three-year term expiring in 2010. The Board of Directors determined that each of the nominees qualifies for re-election under the criteria for evaluation of directors described under “Identification and Evaluation of Candidates for Director” on page 11 of this Proxy Statement. The Board of Directors determined that Messrs. Bowen and Turner qualify as independent directors under applicable regulations and the Company’s categorical Board independence standards. See “Identification and Evaluation of Candidates for Director” at page 11 of this Proxy Statement and “Number and Independence of Directors” at page 5 of this Proxy Statement.

 

The three nominees who receive the highest number of votes cast will be elected. If you sign and return your proxy card, the individuals named as proxies on the card will vote your shares FOR the election of the three nominees named below unless you provide other instructions. You may withhold authority for the proxies to vote your shares on any or all of the nominees by following the instructions on your proxy card. If a nominee becomes unable to serve, the proxies will vote for a Board-designated substitute or the Board may reduce the number of directors. Management has no reason to believe that any of the three nominees for election named below will be unable to serve.

 

The United Steelworkers (“USW”) proposed the nomination of Louis J. Thomas as agreed to in connection with the 2004 labor negotiations with Allegheny Ludlum Corporation, a Company subsidiary. At that time, the Company agreed that the International President of the USW may propose a nominee for election as a director of the Company to the Company’s Chairman, President and Chief Executive Officer. The USW nominee is to be a prominent individual with experience in public service, labor, education or business who meets the antitrust and conflicts of interest screening required of all Company directors. Upon recommendation by the Nominating and Governance Committee and election to the Board, the USW nominee is expected to serve as a director during the term of the labor agreement.

 

Background information about the nominees and the continuing directors, including their business experience during the past five years, follows.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE ELECTION OF ALL THREE NOMINEES LISTED BELOW.

 

Nominees — Term to Expire at the 2010 Annual Meeting (Class II)

 

 

Continuing Directors — Term to Expire at the 2008 Annual Meeting
(Class III)

 

 

Continuing Directors — Term to Expire at the 2009 Annual Meeting
(Class I)

 

 

The Personnel and Compensation Committee and the Nominating and Governance Committee approved and recommended to the Board of Directors, and the Board of Directors adopted and recommends that you approve the 2007 Incentive Plan (the “Plan”). A summary of the key provisions of the Plan is set forth below and qualified by reference to the complete text of the Plan, which is set forth in Appendix B to this Proxy Statement.

 

THE BOARD RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE PLAN.

 

Plan Highlights

 

The Plan authorizes independent members of the Board of Directors or an authorized committee or subcommittee of independent members of the Board to make incentive awards, including stock-based awards, to Company employees, and stock-based awards to non-employee members of ATI’s Board of Directors. Some key features of the Plan are set forth below, and are more fully described under the caption “Summary of the Plan.”

 

 

 

 

Summary of the Plan

 

Purpose of the Plan

 

The purpose of the Plan is to motivate and reward key officers and executives who contribute to profitability and, in the case of stock-based awards, to give these individuals and members of the Board of Directors an ownership interest in the Company and a proprietary and vested interest in the Company’s growth and financial success. The Board believes that the Plan will enhance the Company’s ability to attract and retain individuals with exceptional managerial, technical and professional skills upon whom, in large measure, the sustained growth and profitability of the Company depend.

 

Comparison with Existing Plan

 

The Plan is similar to the existing 2000 Incentive Plan (the “2000 Incentive Plan”), and continues to provide that a variety of stock- and cash-based awards are available for grant under the Plan. The Plan also provides for the issuance of stock awards to members of ATI’s Board of Directors, and replaces the Non-Employee Director Stock Compensation Plan. Upon the adoption of the Plan, with the approval by the stockholders, the Company’s stock programs would be administered under a single Plan document.

 

Shares Authorized and Award Limits

 

The Plan authorizes the issuance of up to 2.5 million shares of Common Stock of the Company. The number of shares available for issuance under the Plan will be subject to anti-dilution adjustments upon the occurrence of significant corporate events. Subject to the approval of the Plan by the stockholders, no new awards would be granted under the 2000 Incentive Plan.

 

The Plan also contains annual limits on awards to individual participants. In any calendar year, no participant may be granted more than 1 million stock options, stock appreciation rights or other stock grants and more than $15 million in cash.

 

Administration

 

The Personnel and Compensation Committee will administer the Plan as it applies to key officers and executives, and the Nominating and Governance Committee will administer the Plan as it applies to members of the Board of Directors. Each of the Personnel and Compensation Committee and the Nominating and Governance Committee, as applicable, is individually referred to as the “ATI Committee” and are collectively referred to as the “ATI Committees.” Members of the ATI Committees must be “non-employee directors” and “outside directors” to the extent required to meet applicable regulatory requirements. This means

that they cannot be current or former Company officers or employees and may not receive compensation from the Company except in their capacity as directors. The independent members of the Board may assume responsibilities otherwise assigned to the ATI Committees and may amend, alter or discontinue the Plan at any time. However, none of these actions may impair a participant’s existing rights without the participant’s consent. Also, the independent Board members and the ATI Committees cannot amend the Plan without stockholder approval if the amendment would materially modify the Plan by increasing the benefits accrued to participants under the Plan, increasing the number of securities which may be issued under the Plan, modifying the requirements for participation in the Plan, or including a provision allowing the Board to lapse or waive restrictions at its discretion, or in other cases, if approval is required to qualify for or comply with applicable tax or regulatory requirements.

 

As the Plan applies to employees, the Personnel and Compensation Committee has the authority to select employees to whom it will grant awards, to determine the types of awards and the number of shares covered, to set the terms and conditions of the awards and to cancel or suspend awards. As the Plan applies to non-employee directors, the Nominating and Governance Committee has the authority to determine the types of awards to be granted to directors and the number of shares covered, to set the terms and conditions of the awards and to cancel or suspend awards. Each ATI Committee also has the authority to interpret the Plan, establish and modify administrative rules, impose conditions and restrictions on awards and take such other action it considers necessary or appropriate.

 

Eligibility

 

All officers and key employees of the Company and its subsidiaries are eligible to be selected as participants. All non-employee members of the Board of Directors are eligible to receive stock awards under the Plan. The Personnel and Compensation Committee may also grant awards, other than incentive stock options, to non-employees who, in its judgment, render significant services to the Company or any of its subsidiaries. The Company currently has approximately 350 officers and key employees who are potentially eligible to participate in the Plan and nine non-employee directors who would participate in the Plan.

 

Term

 

The Plan has no fixed expiration date, but no incentive stock options may be granted after May 2, 2017 and the provisions of the Plan with respect to performance-based awards (as described below) expire on May 2, 2012.

 

Stock Options

 

The Personnel and Compensation Committee may grant incentive stock options under the Internal Revenue Code to employees and the ATI Committees may grant nonqualified options that do not qualify as incentive stock options to participants. The ATI Committees determine the option grant price and the term of the option, although the price must be equal to or greater than the fair market value of the stock on the date of the grant, and the price and terms of incentive stock options must meet the requirements of the Internal Revenue Code. An option is exercisable at such times as the ATI Committees determine.

 

The participant must pay the option exercise price in full on exercise. The participant may pay the price in cash, by surrendering shares of Common Stock with a value equal to the exercise price, or by a combination of cash, shares of Common Stock, or other consideration approved by the respective ATI Committee.

 

Options will terminate on the terms and conditions that the ATI Committee specifies in the award agreement, although the term cannot exceed ten years. Generally, when a participant’s employment terminates for any reason other than death or disability or retirement (as defined in the Plan), any stock options that were not then exercisable expire and options that were then exercisable expire 30 days after the date of termination. In general, when a participant’s employment terminates due to death, all outstanding stock options vest and are exercisable for twelve months from the date of death. In the case of disability or retirement, options continue to vest and are exercisable over their remaining term.

 

The ATI Committees may permit participants to transfer stock option awards to immediate family members or family trusts. Otherwise, stock

option awards are not transferable during the participant’s lifetime.

 

The Company has chosen to not grant stock options as a matter of policy, and has not granted stock options to employees since 2003. Although the ATI Committees retain discretion to award options, there is no present intention to do so except in recruitment or retention situations.

 

Stock Appreciation Rights

 

A stock appreciation right entitles the holder to receive, upon exercise, the excess of the fair market value of the shares on the exercise date over the SAR exercise price. The ATI Committees may grant SAR awards as stand-alone awards or in combination with a related option award under the Plan. The terms and conditions that govern the related stock option generally govern SARs granted in combination with options.

 

The ATI Committee determines the exercise prices of SARs, which will not be less than the fair market value of the underlying stock on the date of the grant. Payment upon exercise of SARs will be in cash or Common Stock, as determined by the ATI Committee.

 

Restricted Shares

 

Restricted shares are shares issued with conditions or contingencies. Until the conditions or contingencies are satisfied or lapse, the restricted stock is subject to forfeiture. The ATI Committees establish the terms and conditions applicable to a restricted stock award. Under the terms of the Plan, a grant of restricted shares is subject to a minimum forfeiture period of at least three (3) years or, so long as vesting is based on performance criteria, at least two (2) years, unless the ATI Committee deems a shorter period is necessary for recruitment purposes. With respect to performance-based grants to covered employees (generally, the named officers in the Summary Compensation Table of the proxy statement), performance targets will be specified levels of one or more of the performance goals specified in the Plan. See “Performance-Based Compensation” below.

 

A recipient of restricted shares has the right to vote the shares and receive dividends on the shares unless the ATI Committee determines otherwise. If an employee participant ceases to be an employee before the end of the contingency period, the award is forfeited, subject to such exceptions as the ATI Committee may authorize.

 

The ATI Committees, in their sole discretion, may waive all conditions or contingencies relating to a restricted share award under certain circumstances (including the death, disability, or retirement of a participant, or a material change in circumstances arising after the date of grant) and subject to such terms and conditions as it deems appropriate.

 

Performance Awards

 

The ATI Committees may grant performance awards to participants on the terms and conditions specified by the ATI Committees. Under a performance award, a participant receives a payment from the Company based on the extent to which predetermined performance targets are achieved over a specified award period. Performance awards may be denominated and/or paid in cash, Common Stock or a combination of both, as determined by the ATI Committees.

 

The ATI Committees establish the duration of an award period and the performance targets. They also decide whether the performance levels have been achieved, what amount of the award will be paid and the form of payment, which may be cash, stock or other property or any combination.

 

In the case of awards to covered employees, the targets will generally consist of attaining specified levels of one or more of the performance goals specified in the Plan. See “Performance-Based Compensation” below. When circumstances occur which the ATI Committees determine to be extraordinary and to cause predetermined performance targets to be an inappropriate measure of achievement, the ATI Committees, in their discretion, may adjust the performance targets to the extent consistent with the provisions of the Internal Revenue Code relating to the deductibility of the award for federal income taxes.

 

Generally, a participant will forfeit all rights to a performance award if the participant terminates employment before the end of the award period, unless the Personnel and Compensation Committee determines otherwise. On retirement, if the Personnel and Compensation Committee determines that an award should be paid, or in the case of death or disability, the award will be

pro-rated based on the number of months the participant was employed during the award period.

 

Other Stock-Based Awards

 

The ATI Committee may make other awards of stock purchase rights or cash awards, Common Stock awards or other types of awards that are valued in whole or in part by reference to the value of the Common Stock. The ATI Committee will determine the conditions and terms that apply to these awards.

 

Short-Term Cash Awards

 

The Personnel and Compensation Committee may make performance-based annual cash incentive awards to any covered employees, as follows:

 

 

Change in Control

 

In order to preserve the value of outstanding awards for participants in the event of a change in control of the Company, unless the ATI Committees determine otherwise at the time of the grant of a particular award:

 

 

A change in control of the Company means any of the following events:

 

 

Performance-Based Compensation

 

Section 162(m) of the Internal Revenue Code limits the amount of the deduction that a company may take on its U.S. federal tax return for compensation paid to any covered employees (as previously noted, the Code refers to the named officers in the Summary Compensation Table of the proxy statement as “covered employees.”) The limit is $1 million per covered employee per year, with certain exceptions. This deductibility cap does not apply to “performance-based compensation,” if approved by the stockholders. The Company believes that certain awards under the Plan will qualify as performance-based compensation, if stockholders approve the Plan and it is otherwise administered in compliance with Code Section 162(m).

 

The Plan contains a number of measurement criteria that the Personnel and Compensation Committee may use to determine whether and to what extent a covered employee has earned a restricted stock award, performance award, other stock-based award or a short-term cash award.

The measurement criteria that the Personnel and Compensation Committee may use to establish specific levels of performance goals include any one or a combination of the following: operating income, operating profit, income before taxes, earnings per share, return on investment or working capital, return on stockholders’ equity, economic value added (the amount, if any, by which net operating profit after tax exceeds a reference cost of capital), balanced scorecard, reductions in inventory, inventory turns and on-time delivery performance. The Personnel and Compensation Committee may set performance goals based on the achievement of specified levels of corporate-wide performance or performance of the Company subsidiary or business unit in which the participant works and safety measures, and other quantifiable, objective measures of individual performance relevant to the particular individual’s job responsibilities. The Committee may make downward adjustments in the amounts payable under a performance-based compensation award, but it may not increase the award amounts or waive the achievement of a particular goal.

 

Tax Aspects of the Plan

 

The grant of a nonqualified stock option or SAR under the Plan has no U.S. federal income tax consequences for the participant or the Company. Upon exercise of a stock option or SAR, the Company may take a tax deduction and the participant realizes ordinary income. The amount of this deduction and income is equal to the difference between the fair market value of the shares on the date of exercise and the exercise price of the stock option or SAR. The Personnel and Compensation Committee may permit participants to surrender Common Stock or have Common Stock withheld from the shares otherwise issuable in connection with the award to satisfy the required withholding tax obligation.

 

In the case of incentive stock options awarded to an employee, the participant does not recognize income on the grant or the exercise and the Company is not entitled to a deduction. However, the amount by which the fair market value of the Common Stock on the date of exercise exceeds the exercise price is counted in determining the participant’s alternative minimum taxable income. When the participant disposes of the shares acquired on the exercise of an incentive stock option, the gain or loss recognized is treated as long-term capital gain or loss unless the disposition occurs within one year after the exercise or within two years after the grant of the incentive stock option; if the participant makes an earlier disposition of these shares, the participant may recognize ordinary income, to the extent the fair market value of the Common Stock on the date of exercise exceeds the exercise price (but not in excess of the amount the participant realizes in connection with the disposition) and the Company may take a deduction at the same time and for the same amount. The participant will also recognize capital gain, to the extent the amount realized on the sale of the Common Stock exceeds the participant’s basis in the Common Stock, which gain will be long-term or short-term, depending on how long the participant has held the Common Stock.

 

Regarding Plan awards (other than stock options or SARs) that are settled either in Common Stock or other property that is either transferable or not subject to substantial risk of forfeiture, the participant must recognize ordinary income equal to the cash or the fair market value of the Common Stock or other property received. The Company may take a deduction for the same amount.

 

Regarding Plan awards (other than stock options or SARs) that are settled either in cash or in Common Stock or other property that is subject to contingencies restricting transfer and to a substantial risk of forfeiture, the participant must recognize ordinary income equal to the cash or the fair market value of the Common Stock or other property received (less any amount paid by the participant) when the Common Stock or other property first becomes transferable or not subject to substantial risk of forfeiture, whichever occurs first. The Company may take a deduction at the same time and for the same amount.

 

The Personnel and Compensation Committee has discretion as to any award under the Plan to grant a participant a separate cash amount at exercise, vesting or lapse of restrictions to meet mandatory tax withholding obligations or to reimburse for any individual taxes paid.

 

The deductibility under the Internal Revenue Code of compensation payable under the Plan to covered employees is subject to the requirements of Section 162(m). The Incentive Plan is intended, with the approval of

stockholders, to meet such requirements to the extent the awards are performance-based.

 

Recent Share Price

 

On March 5, 2007 (the record date for the Annual Meeting), the closing trading price for Company Common Stock was $94.44 per share.

 

Director Restricted Stock and Awards to Executives

 

The Nominating and Governance Committee intends to make an annual retainer fee award of Restricted Shares having a value of $75,000 to each member of the Board of Directors, subject to the approval of the stockholders of the 2007 Incentive Plan at the 2007 Annual Meeting. The first award would be made following the 2007 Annual Meeting. The valuation used to determine the number of shares to be issued will be based on average of high and low trading prices on the date of the grant. It is expected that the stock award will not vest for three years. The program is expected to provide that, during the restriction period, directors will be entitled to receive cash dividends paid on the restricted shares, and that the restricted shares will vest on death, retirement with the consent of the Company, or a change in control (as defined in the Incentive Plan). See “Director Compensation.”

 

While the Personnel and Compensation Committee has established general guidelines with respect to its compensation programs for officers and key employees which are described in the Compensation Discussion and Analysis section of this Proxy Statement, the designation of specific participants and the amount of any other award that may be made under the Plan will be determined in the discretion of the Personnel and Compensation Committee.

 

Vote Required for Approval

 

Approval of the 2007 Incentive Plan requires the affirmative vote of a majority of votes cast by holders of shares of common stock present in person or represented by proxy and entitled to vote at the meeting, provided that the number of votes cast must constitute a majority of the votes entitled to be cast at the meeting. The Board has approved the Plan and believes it to be in the best interests of the Company and the stockholders.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL OF THE 2007 INCENTIVE PLAN.

Ernst & Young LLP (“Ernst & Young”) has served as independent auditors for the Company since August 15, 1996 and served as independent auditors for Allegheny Ludlum Corporation since 1980. They have unrestricted access to the Audit Committee to discuss audit findings and other financial matters. The Audit Committee of the Board of Directors believes that Ernst & Young is knowledgeable about the Company’s operations and accounting practices and is well qualified to act in the capacity of independent auditors.

 

In appointing Ernst & Young as the Company’s independent auditors for the fiscal year ending December 31, 2007, and making its recommendation that stockholders ratify the appointment, the Audit Committee considered whether the audit and non-audit services Ernst & Young provides are compatible with maintaining the independence of our outside auditors.

 

If the stockholders do not ratify the selection of Ernst & Young, the Audit Committee will reconsider the appointment of Ernst & Young as the Company’s independent auditors.

 

Representatives of Ernst & Young will be present at the Annual Meeting. They will be given the opportunity to make a statement if they desire to do so, and they will be available to respond to appropriate questions following the Annual Meeting.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS FOR FISCAL YEAR 2007.

 

 

The Audit Committee has adopted a policy that sets forth the manner in which the Audit Committee will review and approve all services to be provided by Ernst & Young before the firm is retained to perform the service. Under this policy, the engagement terms and fees of all audit services and all audit-related services are subject to the specific pre-approval of the Audit Committee. In addition, while the Committee believes that the independent auditor may be able to provide tax services to the Company without impairing the auditor’s independence, absent unusual circumstances, the Audit Committee does not expect to retain the independent auditor to provide tax services. Under the policy, the Committee has delegated limited pre-approval authority to the Chair of the Committee with respect to permitted, non-tax related services; the Chair is required to report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee pre-approved all audit and non-audit services provided by Ernst & Young in 2006 and 2005.

 

The fees and expenses billed by Ernst & Young for the indicated services performed during 2006 and 2005 were as follows:

 

 

“Audit fees” consisted of fees related to the annual audit of the Company’s consolidated financial statements and review of the financial statements in our Quarterly Reports on Form 10-Q, Sarbanes-Oxley Section 404 attestation services, audit and attestation services related to statutory or regulatory filings, and the issuance of consents.

 

“Audit-related fees” consisted of fees related to the audits of employee benefit plans, pension and captive insurance company audits.

 

“Tax fees” consisted of fees related to IRS transcript reviews.

 

“All other fees” consisted of subscriptions to Ernst & Young’s web-based EYOnline accounting reference library.

 

The following is the report of the Audit Committee with respect to the Company’s audited financial statements for the year ended December 31, 2006, which include the consolidated balance sheets of the Company as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2006, and the notes thereto (collectively, the “Financial Statements”).

 

Management is responsible for the Company’s internal controls and financial reporting process. Ernst & Young LLP (“Ernst & Young”), the Company’s independent auditors, are responsible for performing an independent audit of the Company’s Financial Statements in accordance with generally accepted auditing standards and expressing an opinion as to their conformity with generally accepted accounting principles and for attesting to management’s report on the Company’s internal control over financial reporting. One of the Audit Committee’s responsibilities is to monitor and oversee the financial reporting process and to review and discuss management’s report on the Company’s internal control over financial reporting.

 

The Audit Committee has reviewed, met and held discussions with the Company’s management, internal auditors, and the independent auditors regarding the Financial Statements, including a discussion of quality, not just acceptability, of the Company’s accounting principles, and Ernst & Young’s judgment regarding these matters.

 

The Audit Committee discussed with the Company’s internal auditors and independent auditors matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU§380). The Audit Committee met with the internal auditors and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Audit Committee has also discussed with Ernst & Young matters required to be discussed by applicable auditing standards.

 

The Audit Committee has received the written disclosures and the letter from Ernst & Young required by the Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees) and has also considered the compatibility of non-audit services with Ernst & Young’s independence. This information was also discussed with Ernst & Young.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors at the February 22, 2007 meeting of the Board that the Financial Statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission. The Board has approved this inclusion.

 

Submitted by:

AUDIT COMMITTEE, whose members are:

Michael J. Joyce, Chairman

Diane C. Creel

James C. Diggs

Louis J. Thomas

John D. Turner

 

The Company has been notified by The Office of the Comptroller of New York City, as custodian and Trustee of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund, and the New York City Fire Department Pension Fund, and as custodian of the New York City Board of Education (collectively, the “Funds”), that the Funds intend to introduce the following resolution at the Annual Meeting. The Funds, whose address is 1 Centre Street, New York, NY 10007-2341, beneficially own in the aggregate 292,608 shares of Common Stock.

 

Stockholder Proposal and Supporting Statement

 

WHEREAS:

 

Investors increasingly seek disclosure of companies’ social and environmental practices in the belief that they impact shareholder value.

Many investors believe companies that are good employers, environmental stewards, and corporate citizens are more likely to be accepted in their communities and to prosper long-term. According to Innovest, an environmental investment research consultant, major investment firms including ABN-AMRO, Neuberger Herman, Schroders, T. Rowe Price, and Zurich Scudder subscribe to information on companies’ social and environmental practices.

 

Sustainability refers to the development that meets present needs without impairing the ability of future generations to meet their own needs. The Dow Jones Sustainability Group defines corporate sustainability as “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.”

 

Globally, approximately 1,900 companies produce reports on sustainability issues (www.corporateregister.com), including more than half of the global Fortune 500 (KPMG International Survey of Corporate Responsibility Reporting 2005).

 

Companies increasingly recognize that transparency and dialogue about sustainability are elements of business success. For example, Unilever’s Chairman stated in a 2003 speech, “So when we talk about corporate social responsibility, we don’t see it as something business ‘does’ to society but as something that is fundamental to everything we do. Not just philanthropy or community investment, important though that is, but the impact of our operations and products as well as the interaction we have with the societies we serve.”

 

An October 6, 2004 statement published by social research analysts reported that they value public reporting because “we find compelling the large and growing body of evidence linking companies’ strong performance addressing social and environmental issues to strong performance in creating long-term shareholder value... We believe that companies can more effectively communicate their perspectives and report performance on complex social and environmental issues through a comprehensive report than through press releases and other ad hoc communications.” (www.socialinvest.org)

 

RESOLVED:

 

Shareholders request that the Board of Directors issue a sustainability report to shareholders, at reasonable cost, and omitting proprietary information, by December 31, 2007.

 

Supporting Statement

 

The report should include the company’s definition of sustainability, as well as a company-wide review of company policies, practices and indicators related to measuring long-term social and environmental sustainability.

 

We recommend that the company use the Global Reporting Initiative’s Sustainability Reporting Guidelines (“The Guidelines”) to prepare the report. The Global Reporting Initiative (www.globalreporting.org) is an international organization with representatives from the business, environmental, human rights and labor communities. The Guidelines provide guidance on report content, including performance in six categories (direct economic impacts, environmental, labor practices and decent work conditions, human rights, society, and product responsibility). The Guidelines provide a flexible reporting system that permits the omission of content that is not relevant to company operations. Almost 900 companies use or consult the Guidelines for sustainability reporting.

 

THE BOARD OF DIRECTORS’ STATEMENT AGAINST
THE STOCKHOLDER PROPOSAL

 

The Board of Directors has considered the above proposal and recommends that you vote “AGAINST” the proposal for the following reasons:

 

The Company’s current social and environmental policies adequately address the sustainability concerns raised by the Funds in its proposal. We value integrity, accountability and the environment, which are evidenced in our policies and practices described below.

 

The Company has a commitment to corporate responsibility and adherence to the highest standards of ethical business conduct. In our annual report, we profile this outlook in the section

captioned “Our Commitment to Integrity.” It outlines our dedication to sound business practices through our strong corporate self-governance program, evidenced by, among other things, our Corporate Guidelines for Business Conduct and Ethics (the “Ethics Guidelines”), which are posted on the “About Us — Our Ethics” section of our web site, www.alleghenytechnologies.com. The Ethics Guidelines highlight our Do What’s Right^® philosophy and address compliance with environmental, employment and workplace safety, antitrust and other laws. The Ethics Guidelines describe our commitment to equal opportunity and fair treatment of employees, and the responsibility of our employees to avoid conflicts of interest, protect against discrimination, treat others with dignity and respect, and act with integrity and honesty in all circumstances. All employees, officers and directors are required to read and adhere to the Ethics Guidelines and have a duty to report violations of the Ethics Guidelines and other Company policies. The Ethics Guidelines and a commitment to Do What’s Right are the foundation of our business culture.

 

As is emphasized in our Ethics Guidelines, we also care about the communities in which we conduct business. In addition to encouraging employees’ social, political and other engagement in their communities, the Company actively participates in the areas in which its facilities are located through charitable giving. We donate to various civic and social organizations, including service organizations dedicated to health and human welfare, as well as to the arts. The Company has consistently generously donated to the United Way, and has sponsored annual United Way Days of Caring in local communities in Pennsylvania, Oregon, North Carolina, and South Carolina. Moreover, the Company and our employees have created and contributed to scholarship funds for schools, colleges and universities around the country and where we have operations. Our operating companies have received recognition for their community involvement and ethical conduct in the workplace.

 

In our foreign enterprises, we endeavor to improve the lives of our employees and the communities in which they live and work. For example, at our Shanghai STAL facility in China, we have implemented Western-style safety standards for our employees and pay well above average wages and benefits. Our STAL joint venture also has contributed funds to a local university for scholarships.

 

We consider environmental compliance to be an integral part of our operations. Not only is environmental protection addressed in the Ethics Guidelines, but the Company also has a separate set of Environmental Guidelines that require compliance with all federal, state, regional and local environmental laws and regulations. Under the Environmental Guidelines, each operating company has an environmental management system that includes mechanisms for regularly evaluating environmental compliance and managing changes in business operations while assessing environmental impact.

 

We also recognize the need for the protection of the environment and the importance of measured use of the earth’s natural resources. One of the hallmarks of our Allegheny Technologies Incorporated Business System (ATIBS) is the elimination of waste in all phases of our manufacturing processes. An important part of that is recycling materials. Many of the products that several of our operating companies manufacture, such as stainless steel and nickel-based alloys, begin as used materials (i.e., scrap metal), and the finished products are themselves recyclable. In fact, approximately 75% or more of the raw materials that Allegheny Ludlum and Allvac use to manufacture specialty metals start from scrap material, which is either purchased or internally-generated by our own manufacturing processes. Once those specialty metals reach the end of their life span, as scrap metal they can be recycled as raw material for new specialty metals. Each of our other operating companies also uses scrap metal as starting materials, although on a smaller scale.

 

Our commitment to recycling and reusing materials is also evident in the following examples:

 

 

 

In addition, our specialty metals are key components of environmentally friendly products. Being corrosive-resistant, stronger and more durable, the Company’s high-quality products are more effective, efficient and long-lasting, which in turn benefits the environment by consuming fewer natural resources and using less energy. For example:

 

 

Moreover, we are always striving for process improvements that are environmentally friendly. We believe that specialty metal production and environmental concerns are interconnected.

 

We regularly perform internal audits to monitor the effectiveness of our compliance efforts and to ensure adherence to Company policies and procedures. Any potential noncompliance is corrected and monitored; this enforces and reinforces our ethical business conduct and our Do What’s Right philosophy.

 

We are dedicated to building and maintaining the trust and respect of our stockholders, employees, customers, suppliers, and communities. While the Board of Directors recognizes the Funds’ interest in the Company’s social and environmental policies, the Board of Directors believes that preparing the sustainability report is unnecessary and would not be an efficient, effective or prudent use of corporate resources. Preparation of a comprehensive sustainability report would be expensive and time-consuming and would duplicate efforts that the Company has already undertaken to derive the policies and information described above. Furthermore, we already make publicly available materials that address the issues raised by this proposal in our periodic reports, news releases, and web site information.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST
THIS STOCKHOLDER PROPOSAL.

 

The Company knows of no business that may be presented for consideration at the meeting other than the items indicated in the Notice of Annual Meeting. If other matters are properly presented at the meeting, the persons designated as proxies on your proxy card may vote at their discretion.

 

Following adjournment of the formal business meeting, L. Patrick Hassey, Chairman, President and Chief Executive Officer, will address the meeting and will hold a general discussion period during which the stockholders will have an opportunity to ask questions about the Company and its business.

 

 

The Personnel and Compensation Committee (referred to in this Report as the “Committee”) has reviewed and discussed the following Compensation Discussion and Analysis with Company management. Based on such review and discussion, the Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2007 Proxy Statement. The Committee furnishes this Report for inclusion in the 2007 Proxy Statement.

 

Submitted by:

PERSONNEL AND COMPENSATION

COMMITTEE, whose members are:

James E. Rohr, Chairman

Diane C. Creel

W. Craig McClelland

 

The Company provides this discussion and analysis concerning its substantive compensation goals, objectives, policies and procedures. The Company has charged the Personnel and Compensation Committee (the “Committee”), composed of three independent, non-employee directors, with a twofold task. With regard to the named executive officers and certain other senior management employees, the Committee has the sole responsibility to carry out the Company’s overarching policy of linking the compensation program to the interests of stockholders. The Committee also has the responsibility to outline the programs for management employees more generally and to supervise management’s implementation to ensure a continuing source of leadership for the Company. The Committee uses a “pyramid” approach to manager compensation generally, scaling compensation challenges and opportunities by level of responsibility and focusing performance on measures particular managers can most directly influence.

 

Summary

 

The management compensation program is designed to attract and retain a deep pool of managerial talent that shares the Company’s commitment to enhancing stockholder value in the short and longer terms. The Committee views the compensation program as a management tool that, through goal and target setting, encourages the management team to achieve or surpass the Company’s business objectives. The array of goals and targets used as incentives across all management levels, which include both financial performance measures as well as achievement of pre-set goals within a particular participant’s area of responsibility, are designed to encourage a team-oriented approach to driving the present value of the Company and to position it for the challenges of the future.

 

The Committee believes that, as management responsibility increases, compensation should be more heavily weighted to performance so that compensation is more “at risk.” The Committee believes this view will help challenge, attract and retain superior managers experienced in the Company’s businesses as well as direct their efforts toward achieving the specific tasks the Board and senior management delineate as necessary for profitable growth.

 

The Committee consistently has described the management compensation program as having the following philosophy:

 

 

 

General Principles

 

For many years, and continuing in 2006, the Committee’s approach to all manager compensation has been to offer a compensation package consisting of base compensation competitive with an identified peer group of companies and incentive opportunities that are performance oriented and linked to the interests of stockholders. For approximately 350 key employees and senior managers, the program consists of base salary and annual incentives. For approximately 100 of such employees, namely senior executives, the program adds longer-term (generally three year) cash and/or equity plans. The following pyramid graphic illustrates the divisions by responsibility levels.

 

For retention purposes, the Committee has authorized participation in qualified and non-qualified retirement plans, a limited number of employment contracts and double trigger change in control agreements.

 

The Committee has always retained discretion for recruitment and retention purposes as well as to reward extraordinary performance. The key concept in the compensation program for senior executives is and has been to provide comparatively modest compensation for average performance but to recognize superior performance with top quartile compensation.

 

The Committee ceased awarding stock options to employees as a matter of policy after 2003 and subsequently the Company became an early adopter of Statement of Financial Accounting Standards (FAS) No. 123(R) “Share-Based Payments” (“FAS 123(R)”). Some stock options granted before that time remain outstanding as reported elsewhere in this Proxy Statement. The Committee retains discretion to award stock options to employees but there is no present intent to do so except in recruitment or retention situations. At the time the Committee ceased awarding stock options, it chose to implement the Performance/ Restricted Stock Program for a smaller, more senior group of managers than the group previously considered for option awards. The Committee’s view was that the Performance/ Restricted Stock Program, by putting half of each award “at risk” for performance for the limited group of employees, would more efficiently provide a strong incentive to the management employees more able to influence corporate earnings and goal achievement.

 

The Company has stock ownership guidelines for its executive officers. The guidelines call for a minimum level of stock ownership based on the executive’s base salary, which is designed to further link these executives’ interests to increased stockholder value, as follows: Chief Executive Officer, three times base salary; Executive Vice Presidents, two times base salary; and Vice Presidents, one times base salary. The executives must reach the target ownership levels before September 2008. These guidelines have been met as of December 31, 2006. The Company also has stock ownership guidelines for its directors, which are discussed in the “Director Compensation” section of this Proxy Statement.

 

Current Compensation Structures

 

The Committee views the compensation program as integrated through several levels of the Company’s management employees. For base salary, the Committee engaged an independent compensation consultant to perform a salary survey of a group of companies with which the Company competes for non-executive management talent as a benchmark for determining the reasonableness of base compensation for salaried employees generally. Base salary for the named officers was benchmarked using a more focused survey of a peer group. The peer group is more fully described under the caption “Three-Year Total Stockholder Return.” With some exceptions recommended by senior management to meet competitive and skill set needs, base compensation for the broad manager group is set at or near the mid-point of the competitive group.

 

For cash and equity incentive programs, the Company uses a “pyramid” approach based on levels of responsibility. With the assistance of its compensation consultant and the advice of legal advisors for the Company, the Committee designs, benchmarks and establishes each of the incentive programs. The Committee determines the general responsibility levels to participate in each program. With reference to the Company’s business plans as in effect at the time of the

implementation of each incentive program, the Committee designates the general performance measures for each incentive program. For the named officers and several other senior managers, the Committee sets the specific performance goals and targets and makes awards of incentive opportunities. For less senior managers participating in the incentive plans, the Committee gives senior management wide latitude to recommend specific performance measures and opportunity awards. The following illustrates and provides a general overview of the “pyramid” approach (each lower level includes participants in each higher level):

 

 

 

Overall, these incentive plans are designed to reward achievement of a matrix of performance measures that individually and in the aggregate are hallmarks of meeting the financial and ethical expectations of the Company’s constituencies, primarily its stockholders. Compliance with Company ethics guidelines is a prerequisite to any individual payment. Earnings are defined with reference to GAAP but exclude any advantages that may occur for the recapture of deferred tax assets and certain other effects of prior tax loss years. Each program has appropriate “claw back” provisions.

 

In implementing the incentive programs, the Committee periodically reviews compensation practices in the industry generally and in the peer group in particular. It may choose to implement different programs in the future. For retention purposes, the Committee also benchmarks the levels of awards from time to time so that the Company’s programs are competitive with others who may be in the market for executive level talent. Award levels may be increased or decreased for peer group practices and competitive purposes.

 

For recent years, the Committee has implemented the incentive compensation programs, all of which have performance features, using the following methods (describing the pyramid in inverse):

 

 

 

The levels of incentive compensation opportunities have been benchmarked against the peer group with the assistance of the Committee’s outside advisors so that incentive compensation delivered to executives would reflect actual achievement of the Company-focused internal and external measures described above and be within the practices of the comparable group. The level of actual achievement of the pre-set goals determine whether aggregate compensation was below, at or above the mid-point of the peer group companies. The benchmarking process sets the performance targets so that achievement of an average level of these measures would provide aggregate compensation near the mid-point of the peer group. Poor performance merits poor or no rewards and there have been, in fact, years in which no annual and/or long term incentive compensation was earned. However, superior performance merits compensation toward the upper end of the range of the peer group. The Committee intends that the upper end of the competitive range can be reached by (i) performing at a superior level against challenging financial and team performance measures keyed to specific Company business plans and (ii) the potential stock price increases that such performance should bring to all constituencies.

 

The Committee believes it strikes an appropriate balance for executive officers between cash and stock compensation opportunities on one axis and between one year and longer term measurements on another. At target levels of awards, based on stock trading values when the award is made, approximately 60% of compensation opportunities for executive officers are payable in cash (base pay, annual bonus and KEPP) and 40% is payable in stock (performance/restricted stock and TSRP). On the axis of short and longer term performance measurement periods, the Committee believes this balance achieves consistency in goal setting that considers both the short term results and building a platform for future profitable growth. On the axis of cash and equity opportunities, the Committee believes the ratio directs the executives’ attention to the interest of stockholders and encourages executives to retain shares of stock. In future planning, it is expected that the Committee will strive to retain these general ratios.

 

The Company also sponsors a number of defined contribution and, for some executives, defined benefit retirement arrangements, with non-qualified programs compliant with Section 409A of the Code aimed at restoring the effects of limitations imposed by the Code, typical of manufacturing companies. The Company is a party to only two employment agreements, a three-year evergreened agreement with Mr. Hassey that was entered into when Mr. Hassey was recruited in 2003, and a one-year evergreened agreement with Mr. Walton that was entered into in 1996 when Allegheny Ludlum Corporation and Teledyne, Inc. entered a business combination. For a discussion of these agreements, see the “Employment and Change in Control Agreements” section of this Proxy Statement. The Company provides a limited number of perquisites, having eliminated the use of automobiles and reimbursement for country club memberships several years ago. In the process of recruiting Mr. Hassey in 2003, the Company agreed to accommodate his request that he be able to avoid relocating his family from its Salt Lake City residence. In order to do so, Mr. Hassey periodically uses Company leased aircraft so that he can maintain a full schedule with the Company. It is also noted that Mr. Hassey’s 2003 employment agreement was executed prior to the discontinuance of option grants to employees and Mr. Hassey was granted 120,000 options at $6.73 per share, the average of the high and low trading price on October 1, 2003, the day that Mr. Hassey began his employment as CEO. Mr. Hassey’s employment agreement was signed in August of 2003 and Mr. Hassey served as a consultant to the Company prior to October 1, 2003.

 

For more information on each of the incentive compensation plans, please see the narrative discussion following the Grants of Plan-Based Awards Table.

 

Process

 

The Committee meets periodically throughout each year alone and with its outside advisors to review the status of achievements toward previously granted incentive compensation opportunities and to benchmark and explore appropriate compensation methods for future years. The Committee discusses these matters with management, particularly the CEO, for a portion of each meeting. In a typical meeting, the Committee will meet with the advisors and management for a period of time discussing the matters on which input from management is appropriate. Then the Committee excuses management to discuss certain items with the advisors only. The Committee also reserves time to meet without management or the advisors.

 

All performance targets are set as early as possible after the Company’s business plan is agreed upon by the Board for the coming year. In no event will a performance target be set after March 31st of a calendar year so that the requirements of Section 162(m) of the Internal Revenue Code regarding performance based compensation are met. The target opportunities for the respective compensation devices are calibrated with the assistance of the outside advisors to reflect mid-point practices of members of the peer group. A guidepost is that average performance within the peer group parameters will earn only mid-point compensation in the aggregate. The Committee then looks to the motivational aspects of the performance increments so that, if superior performance is achieved, compensation may be in the top quartile but within bounds of

competitive practices. It is expected that superior financial and stock price performance will dovetail with the interests of stockholders.

 

AIP and KEPP opportunities are denominated in dollars. With respect to the Performance/ Restricted Stock and TSRP programs, a percentage of base salary is used to determine the number of shares of Company Common Stock awarded, so that the compensation actually earned under these programs is directly in line with the value conferred on stockholders as a result of the Company’s performance.

 

With the assistance of its outside advisors, the Committee constructed and periodically reviews a peer group of companies involved in the metals businesses. There are no public companies which engage in the full range of the Company’s specialty metal production, fabrication, marketing and distribution. Peer group companies are selected based on the relative similarity to one or more aspects of the Company’s businesses and on the risk profiles typically assigned by the capital markets. The Committee recognizes that some companies in the peer group are more heavily involved in one aspect of the Company’s business than others. For example, two members of the peer group are involved almost exclusively in the titanium business while others are primarily in the less specialized stainless steel business; some are more heavily involved in sales than in production or fabricating, etc. However, on balance, the Company believes that the peer group is representative of the companies in our industry that serve similar markets. The peer group companies are set forth under the caption “Three-Year Total Stockholder Return.”

 

CEO Compensation and Compensation Decisions for Performance Measurement Periods Ending in 2006

 

The Company notes that this discussion is prepared at the end of the first three-year incentive compensation performance measurement period after Mr. Hassey became Chief Executive Officer. The KEPP was a plan designed with Mr. Hassey’s assistance as a way to focus management energy on achieving specific team oriented tasks and challenge management to produce earnings.

 

After incurring losses over the previous three years, in 2004, Mr. Hassey and his management team announced the three-year strategic intent for the Company:

2004 — Transition and Transform

2005 — Accelerating Profitability

2006 — Profitable Growth

 

This three-year period also served as the performance measurement period for the Company’s long-term incentive plan awards granted in 2004.

 

As reported elsewhere, the actual earnings, stock price and other performance measures of the management performance program of the Company have been superior during this period.

 

At the time the equity-based opportunities were denominated for the 2004 through 2006 performance measurement period, the closing price of the Company’s Common Stock on the NYSE was $11.10 per share, reflecting several consecutive quarters of losses. The number of shares awarded as opportunities for the 2004 through 2006 performance measurement periods under the TSRP and Performance/Restricted Stock Program were determined by multiplying base pay by a percentage determined in consultation with outside advisors to reflect competitive practices and divided by the then applicable trading price. For the TSRP, the applicable stock price was the average of the closing prices of the Common Stock over the thirty trading days immediately preceding January 1, 2004, or $10.20 per share. For the Performance/ Restricted Stock, the applicable stock price was the average of the high and low trading prices of the stock on the day the award was made, or $11.385 per share. The result of the process was a fixed number of target shares.

 

During the 2004-2006 performance measurement period, the management team delivered on the three-year strategic intent. At the end of 2006, the Company’s revenues had grown to $4.9 billion, from $2.7 billion in 2004. At the close of the 2004 through 2006 performance measurement period, the closing trading price was $90.68 per share. By the time the achievement of all performance measures was determined on January 26, 2007, the valuation date for the award, which was two business days following the release of the Company’s fourth quarter 2006 earnings, the average of the high and low trading prices of ATI Common Stock had increased to $98.98 per share. The $98.98 per

share value is shown in the dollar values of the compensation in the Option Exercises and Stock Vested Table.

 

The approximately nine-fold increase in the trading price of Company Common Stock does not increase the relative percentage of outstanding shares awarded but does have a substantial effect on the dollar value of the awards realized because the target values increase at the same rates as the stock prices and rewards to stockholders increase. In terms of dollars, for the various compensation periods ending December 31, 2006, only the base pay and benefit (including the non-qualified plans shown in the “All Other Compensation” column of the Summary Compensation Table) components represented guaranteed compensation. All other amounts were “at risk” for performance achievement. For Mr. Hassey and each of the other named officers in the Summary Compensation Table, approximately 87% of their respective compensation earned during the 2004-2006 performance measurement period was “at risk.”

 

In early 2007, the Committee reviewed the earnings results, the relative rates of return on the Company’s common stock and the achievement of individual goals. The Committee applied those results to the formulae under the respective long term plans and awarded the shares and cash earnings shown in the tables. For the AIP, based on the Company’s extraordinary performance in 2006, the Committee exercised its discretion and increased the annual bonus amounts above the formula benefit paid to Mr. Hassey by $1,337,584, and for Messrs. Harshman, Kittenbrink, Shilling and Walton, by $130,912 each, in recognition of the superior performance for calendar year 2006.

 

Three-Year Total Stockholder Return

 

The following graph, which is derived from the comparable five-year graph appearing in Item 5 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) (“TSR”) on our Common Stock for three years, from December 31, 2003 through December 31, 2006, as compared to the S&P 500 Index, a peer group of companies, and the S&P Steel Index (formerly known as the S&P Iron & Steel Index). The total stockholder return for the peer group is weighted according to the respective issuer’s stock market capitalization at the beginning of each period. The graph assumes that $100 was invested on December 31, 2003. For a comparison of the Company’s TSR for the past five years, please see Item 5 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which contains the five-year performance graph required by Item 201(e) of Regulation S-K.

 

Peer group companies for the cumulative three-year total return period ended December 31, 2006 were as follows:

 

 

COMPARISON OF CUMULATIVE THREE-YEAR TOTAL RETURN

 

 

The peer group shown is the peer group reviewed by the Personnel and Compensation Committee in evaluating the Company’s compensation programs, and is the peer group used in the 2004-2006 TSRP. Under the TSRP, the TSR of the Company is compared to the TSR of the peer group on an absolute basis and is not weighted for market capitalization. The amount of the award, if any, is determined by measuring the Company’s TSR performance against the relative performance of all peer group companies, without regard to their size. This is unlike the above performance graph, in which the returns are weighted for market capitalization, causing the TSR performance of a large capitalization company to have greater weight than the TSR performance of a small capitalization company. As a result, in the performance graph, weak performance of a large capitalization company will have a greater weight than the strong performance of a small capitalization company.

 

The following Summary Compensation Table sets forth information about the compensation paid by the Company to the Chief Executive Officer, the Chief Financial Officer and to each of the other three most highly compensated executive officers required to file reports under Section 16 of the Securities Exchange Act of 1934, as of December 31, 2006 (the “named officers”).

 

 

 

Other amounts included in the “All Other Compensation Column” consist of the following:

 

 

 

The value of any perquisites, including personal travel amounts, are calculated based on the aggregate incremental cost to the Company. Amounts for Mr. Hassey relating to air travel, most of which are commuting expenses to and from Mr. Hassey’s family home in Salt Lake City, Utah, are calculated based on the hourly and fuel charges and excise taxes paid by the Company for the leased aircraft used. In the process of recruiting Mr. Hassey in 2003, the Company agreed to accommodate his request that he be able to avoid relocating his family from its Salt Lake City residence. In order to do so, Mr. Hassey periodically uses Company leased aircraft so that he can maintain a full schedule with the Company. Mr. Hassey’s use of Company leased aircraft for these purposes is a provision of Mr. Hassey’s employment agreement with the Company. Also, the Personnel and Compensation Committee has required Mr. Hassey to use Company leased aircraft for the Company’s benefit.

 

Under the non-qualified Benefit Restoration Plan, the Company supplements payments received by participants under the Company’s qualified defined benefit plan (referred to as the ATI Pension Plan) and its defined contribution plan (which is known as the Retirement Savings Plan) by accruing benefits on behalf of participants in amounts that are equivalent to the portion of the formula contributions or benefits that cannot be made or accrued under such plans due to limitations imposed by the Internal Revenue Code. See also the narrative discussion following the Non-Qualified Deferred Compensation Table.

 

The quarterly dividends paid on performance/ restricted shares, as described in note 4 above, are based on the intra-day price of the shares on the applicable dividend payment date. The price used to reinvest shares, and the mechanism and manner in which the dividends are reinvested, are consistent with the Company’s dividend reinvestment plan.