Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Allegheny Technologies Earnings Conference Call. My name is Keisha, and I'll be your operator for today. [Operator Instructions] I would now like to hand the call over to Mr. Dan Greenfield, Senior Director of Investor Relations and Corporate Communications. Please proceed.

Thank you, Keisha. Good afternoon, and welcome to the Allegheny Technologies earnings conference call for the fourth quarter and full year 2010. This conference call is being broadcast on our website at www.ATImetals.com. Members of the media have been invited to listen to this call. Participating in the call today are Pat Hassey, Chairman and Chief Executive Officer; Rich Harshman, President and Chief Operating Officer; and Dale Reid, Senior Vice President, Finance and Principal Financial Officer. All references to net income and earnings in this conference call mean net income and earnings attributable to ATI. Comments on our expectations for 2011 and beyond do not include any impact from our pending acquisition of Ladish. In addition, as I am sure you appreciate, we cannot comment or entertain questions regarding Ladish since the acquisition is not yet complete. After some initial comments, we will ask for questions. During the question-and-answer session, please limit yourself to two questions to be considerate of others on the line. Please note that all forward-looking statements this afternoon are subject to various assumption and caveats as noted in the earnings release. Actual results may differ materially. Here is Pat Hassey.

Thanks, Dan, and thanks to everyone for joining today's call. Overall, 2010 was a much better year than 2009 with sales up 33% to back over $4 billion in revenue. 2009 net income was up 125% to $0.72 a share. 2010 turned out to be the transition year we had forecasted. Improvements in our markets are the basis for our 2011 outlook. Disappointing as the fourth quarter may appear at $0.15 a share, it was a greatly improved bookings quarter and a good start for 2011. High Performance Metals has increased its backlog by over 40% to over $650 million, and Flat-Rolled Products revenues are forecasted up 15% for the first quarter of 2011. Engineered Products bookings are stronger and continue to grow. It was a quarter where we were impacted by $19.5 million in LIFO inventory reserve charges for nickel and other raw materials, and it was the quarter where we took added one-time charges on startup delays at our Raleigh titanium facility of $20 million. Overall, a negative $0.26 per share impact. Our key global markets are performing well. And 2010 was the transition year to resumption of strong secular growth in our key global markets beginning in 2011. We see the second half of 2011 as stronger than the first half due to a ramping aerospace market beginning in the third quarter and continuing in 2012. For 2010, we saw strong year-on-year recovery. Some key measures. ATI is now more global than ever before. Direct international sales were 32% of the total. Segment operating profit for 2010 was $356 million, a 26% increase compared to the previous year. 2010 results included a $60 million LIFO charge and the $62 million of idle facility and start-up cost. Gross cost reductions in 2010 were $135 million. We generated positive…

[Operator Instructions] Your first question comes from the line of Luke Folta with Longbow Research.

Relating to the guidance. In your 15% to 20% revenue guidance, taking the midpoint of that would give you something like $700 million in growth year-over-year. Can you help us understand where you see that breaking out in rough terms per segment?

Sure. I think as I said in my comments, we're very bullish on the High Performance Metals. As I said, our schedules are booked out well into the second quarter. We've had a price increase. We've had surcharge increases. We still continue to pull some of the products we're booking into the third quarter. So I think when I look at that number, we expect a higher percentage, around the 20% number for High Performance Metals, maybe closer to the 15% number for Flat-Rolled Products and maybe 8% to 10% in Engineered Products.

And just a follow-up on that as it relates to the 50 million pounds in titanium shipments. Do you have a sense of how much of that you expect will come from the Flat Rolled side of the business?

Yes, around 20 million pounds.

Your next question comes from the line of Timna Tanners with UBS.

So I wanted to ask you if you could give us a little bit of insights into why the scrap price for titanium has been slipping lately.

It hasn't as far as we know. We're pretty level. We're about $6.90-some for processed 6-4 bulk weldable in the fourth quarter. That number, we're buying right now at about $7.

So maybe the grades that we're looking at, because we look at the aero quality, has slipped a little bit over the last couple months. Actually, I was just wondering if there was anything in that, or how correlated that is?

Actually, not from what we're buying. Actually, the low end of the product range, the ferrotitanium prices are on the rise. Chips are hard to find, and the kind of material that we buy that is outside of our closed loop systems with our customers and our own revert, we're still around $7 a pound for it.

And then my other question was recently there was, I think, one of that Kazakhstanian sponge producers was saying that they're increasing sharply global supply. I just wanted to get your characterization on the supply side if you think that's being met with some of this demand that you've been talking about as well.

I think that you'll find that the primary site today is -- I would classify it as either balanced or in short supply, shorter supply. When you look at scrap going up to the area of prices where it is today, as we talked about, I think 18 months ago, it was something around $5.50, and people thought that it had peaked out there. And part of the problem is there's just not metal units available. Some of the areas of the world that we're familiar with, these announced capacity expansions either were delayed, canceled or did not come on stream as fast as forecasted. So I can see if somebody's brought some capacity on, say, cost of oxygen [ph], they're going to sell some more sponge.

But you see it as being fairly balanced or in tight supply for what? For all grades or for the commercially pure and...

I think it's balanced today. I think as we move into the aerospace cycle, I think we're going to find some production disruptions. And I think that to answer the question before we get it, I think again that the buffer stock that Boeing's holding is a very smart thing that they're doing, and that they'll be well-balanced if this thing ramps up. But even when you look at needs today in Bar, and looking at the amount of spare parts and builds on these airplanes increasing, the announced builds, the forecasted builds, the projected new wide aisle airplanes coming on line. There's a lot of jet engines, and there are some of these engines that are quite large and take about -- well, they take a large amount of titanium.

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

I want to dig a little bit more into the titanium segment. I guess the first issue I want to make sure I understand is we had been hearing a little bit about potential pauses in buying until Boeing resolves this 787 issue, which looks like there's a little more clarity, but still some concern out there. So I thought maybe orders would slow a little bit throughout 2011. But as I look at your segment results, they came in a little bit below what I was expecting. And you've heard about some other companies seeing some push out of orders. I'm wondering if the market actually corrected in the fourth quarter or like November, December and now we're already seeing some pretty good momentum. I guess any clarity on how the channel changed since the Boeing news was out there?

I think there's a couple things that -- they're going in some different directions. I think the 787 push-out to the third quarter maybe is when you did your channel checks for some people, especially in general distribution that have specific programs on that particular aircraft. You would see that type of a lull, and I think that those people probably have some good feeling of relief with the current six aircraft back flying in Boeing, quoting this qualification first delivery into the third quarter. That's one thing that may have a pause on the airframe side. Moving out of that to jet engines, there's been no pause but only increasing, and increasing sales for us into the first quarter and beyond. So the jet engine market is quite strong for us; I don't know about others. And as we look at the industrial side of titanium, what I mentioned in the Flat-Rolled Products side, when we look at the projects that are happening around the world today, in desalinization, in gas production, in chemical processing back to certain kinds of chemical plants as well as some oil and gas for the nickel side of the business, these markets will pull material and keep that entire sector of High Performance Metals pretty tight.

And then just one more in terms of the outlook. Within the 20 million pounds you're expecting, titanium volumes within the sheet segments or the Flat-Rolled segment, does that include 6 million pounds to that desalinization project? And also are you making any assumptions about the penetration of the 425 product?

The answer to both those questions is yes. And we're getting some traction. I don't think there'll be big quantities in the 425 sheet yet, but it's starting out like any normal, as you know, aerospace qualification. We're going to get the first application. When the first application is flying and it's tested and it's certified, the doors open up more and the orders start to come heavier in other areas. So we have lots of feelers out there, lots of people testing the material, some on a fast-track, and there's some good quantities involved. But I don't think it's a big impact in 2011, but I wouldn't say the same thing for 2012.

Your next question comes from the line of Dave Martin with Deutsche Bank.

Wanted to start with your guidance, which I appreciated, but, Pat, I think you mentioned in your comments that you think the second half of the year will be much improved over the first. Could you help us understand the difference maybe between the halves simply because I wouldn't want to, and I'm sure you wouldn't want expectations early in the year to get ahead of themselves.

First of all, the pricing initiatives that we took in the fourth quarter, with the schedules moving out, we really don't get much advantage of that until the second quarter. I mean, as we book things to finish out the first quarter short delivery, we'll see some better pricing. But most of that starts in the second quarter and extends in the third and fourth quarters. So that's one area of improvement is on the pricing side. Secondly, with this strong entry for us to ramp to that, I think that the first quarter will be lighter than the second quarter, and the third quarter continue to build, and then we have the fourth quarter where we're sort of starting to ramp up on some of these issues. If you just take a look at the projected builds of large airplanes that crank up in the second half of -- beginning in the fourth quarter of next year and start to move into the 2012 time frames and back that up in terms of lead times for engines, some of these planes that are production models that are in white tail form now, don't have the engines hung on them yet. There's a lot of weight and a lot of big tonnage coming in engines, and when you couple that with the part fleet being reduced, the amount of traffic that the airlines have now and pushing utilization and the upcoming increase in single-aisle schedules, you start to see where the second half is going to be driven by the aerospace side of the business. And for us, probably more on the jet engine side than the airframe side until 2012. And then as 2012 starts to crank up, we'll be back balancing out. But we have a very strong load coming, I think, on the jet engine and big jet engine side of the company. So we see that, and we also see this project work that I talked about in the schedules that we can book it in, the schedule that we can deliver it in and crank to that level of production will be in the second half too. So we get pricing, and we get more tonnage in the second half.

And then secondly, I just wanted to come back to Raleigh. Can you mention where the production rate is today so we can understand the operational ramp in the coming quarters? And then secondly, can you update us on your plans with the Oregon sponge facility?

I think let me just put it this way: We'll be at a 20 million-pound rate in the second half of the year. Our total production will probably come in more like 18 million pounds. So you can take that front part out and a 20 million-pound rate. You can see that we're going to ramp that plant more like up 40% sometime second quarter and beyond. The plant in Albany is our swing plant. We're operating today pressing, sorting operations, inspection operations on the sponge. We continue to operate our VAR furnaces there and our forge press there. And so on the sponge operations, which are warm, meaning that we can start them when we choose to, I think as we get into 2012 and we see these kind of requirements where we have targeted capacity out of this business to approach somewhere near 60 million pounds at the high point of the cycle, and with the restrictions that we see coming out of Asia on the titanium side from the Kazakhs and others that important to the United States, then I think we'll see the Albany operations back in operation sometime in that late '12, '13 timeframe.

Your next question comes from the line of Steve Levenson with Stifel, Nicolaus. Stephen Levenson - Stifel, Nicolaus & Co., Inc.: Can you give us a little update on 425 other than sheet and Allegheny's opportunities in the fastener market?

I'm going to let Rich talk because I've been talking all this time.

I think as Pat said, we're very pleased with the level of interest in ATI 425 alloy, certainly on sheet, as well as plate. There are some other product forms that are being evaluated as well, but there are -- we are shipping product from an order standpoint, generally in trial orders as customers evaluate it for various applications. We think that, that will continue to grow in 2011. But 2012 is really the bigger opportunity, I would say, for some adoption of that alloy in production applications. The other thing that is being looked at, ATI 425 is being looked at, as well as some other ATI alloys. And titanium is in fastener stock. And we're actually selling product today in production quantities and working with the fastener companies to qualify those products and produce them in more meaningful quantities going forward. Stephen Levenson - Stifel, Nicolaus & Co., Inc.: Secondly, just looking for your opinion on what you think about the EPA, the enforcement of the Clean Air Act, pushing electricity from coal plants to IGTs, how that might impact Allegheny? And do you have the capacity to deliver the material for some of those big parts?

Well those, as you know, Steve, are large jet engines. So we really like that business. It's a little different of an alloy approach from us. Some of our 700-series alloys go into that. We will welcome that business. There's a couple things. When we look at the Clean Energy Act and we look at which portion of our business that it might affect, I think natural gas, your thought there is probably the bridge in power to nuclear sometime down the road, maybe some of the smaller nuclear modules that we've been hearing about. But in order to wait for that time to get those plans set, you have to bridge that with energy, especially if you're not permitting or building new coal-fired plants. So three things have to happen: One, you have to bridge it with natural gas, which is gas turbine business, which I think will be a very strong ramp again for x amount of time, and I couldn't tell you how long that could be. But it will bridge us to a nuclear power additions. And the other part of that is, if you're going to run the coal plants that exist and meet those same standards, then you need recuperation units and modernization of the coal facilities that are currently operating in the United States, probably as much as 70% of them. So any way this shakes out, it'll be good for ATI. And again, as we mentioned, our ability to diversify the mix and move our assets to different areas will move them to where they go. We would love to see some orders for some wind energy, some windmills for our casting business. Our Forging business is pretty full, and you could have some supply chain issues along the way because people haven't planned far enough ahead as these things all come together. So usually, in our circumstances, with the amount of new equipment we've put in, the amount of new capacities we've put, the amount of new melting we've put in, our ability to swing back into operation of our melting facilities and primary plants, I think we're looking forward to the challenge. Rich, you want to add something?

Yes, just to add on the land-based turbines. I think we are seeing some signs of life in that business. On the more advanced alloys, the high-nickel alloys has been in the doldrums for quite a while. Steve, as you know, it was one of the important considerations of our investment in the titanium and superalloy facility with the large press. And that is to handle both technically as well as size-wise the larger diameter ingots that are going into the more advanced land-based turbines. So I think we're in a very good position as that market begins to show some signs of life. And I agree with Pat that going forward, we think the land-based turbine market will be a good market.

Our next question comes from the line of Brian Yu with Citi.

I've got a couple questions regarding the guidance. First, Pat, maybe can tell us how much of the back half 2011 ramp is firm in the backlog versus anticipated? And I ask partly because the paragons for back half of 2010 for HPM didn't quite pan out because of factors outside your control. And then the second question is can you provide a margin target breakout between Flat-Rolled and HPM?

Usually, in these kind of markets, when we get rid of the startup cost and some of these idle facilities that we've been pushing into our segment margins, we should be returning to margins in our High Performance Metals that are at least 25%. And on the Flat-Rolled side, we would look at margins in the 10% to 12% range as we continue to move up the value chain and move some of this 20 million pounds of titanium into that business and nickel-based alloys, as well as improvements that we've made in our melt shops in eliminating one of our primary facilities down from three to two for those commodity-type products. So we should see those margins there. On the bookings side, let's go back to High Performance Metals. We're very sure of where we are as we move through the first half, and so we're beginning to book the second half. Obviously, some things would have to change the wrong way to change our projections. As we see the markets today, as we see them filling out, as we hear what our customers are saying and what their needs are going to be and as we look at our position in these markets with the capacities and the products that we make in those markets, we wouldn't have put the guidance out if we don't feel comfortable with it at this point.

And just a clarification, the 25% in HPM and 10% to 12% in Flat-Rolled Products, is that something that you're expecting to average this year, or is that more of a long-term target?

This year.

Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research.

I can't figure out what's better, $5 in the stock or $7 from Lombardi [ph].

We'll take both, John.

I'm trying to understand the $4 million or $5 million a month of start-up loss in '09 and '10 and going into '11. And I don't want to assign it all to Raleigh, Utah because if 2011 continued near that clip, the start-up lost would be 30% of CapEx. And I'd be getting into Ken Iverson, Keith Busse, Mark Millett pioneering thin slab casting kind of magnitudes or higher. But it's not chump change. Could you explain whether you wrote-off any machinery? It just didn't work the first time and you put something different in. Whether you wrote off software? How much was remake of a product? How much was idle people's salaries when you were waiting for the revenue? How much is non-sponge items? How much is because scrap is less than sponge in price? But it just -- it's more than chump change, and it'd help to understand it.

John, those are good questions. We can tell you that none of it was equipment write-offs, none. Because the equipment that we put in is what was designed. There has been some tweaking to the design, but that just affects the overall capitalization. I think you're right in saying that and surmising that not all of the start-up costs are associated with Raleigh. That's absolutely correct. We had a number of major -- the other big fixed asset that we brought on stream in 2010 was the Titanium and Superalloy Forge Facility. And there were start-up costs associated with that. I think when you look at 2010 in the first half of the year, Raleigh was running at about $4 million of start-up costs a quarter. That increased in the third quarter to almost double that, and then was even more increased by another factor of $4 million in the fourth quarter. And the issues for that, if you think about it, is with the delay in the ramp up, we were hiring people. We are hiring people. We're training people. So there's more people employed in the second half of the year than there was in the first half of the year, and the training associated with that. With one of our raw material supplier, we did have, just as we have take-or-pay arrangements with some of our customers, we had a take-or-pay arrangement with one of the suppliers of the raw material for producing titanium sponge. It was based on the level that we thought we were going to producing the sponge at in 2010. We didn't hit that level, so that's a production cost that increases our cost of producing sponge. And that was a big impact to us in the fourth quarter, primarily. The primary reason why the fourth quarter was $4 million higher than the third quarter in terms of the start up in Raleigh. So really, as we look at that start up, the key points that Pat has made, is we are producing -- we are very pleased with the chemistry of the sponge. More than industrial grade, from a chemistry standpoint, it is premium grade. What we're doing now is stabilizing that production, ensuring that it can be done in a repeatable basis. We are then ramping up, and will be ramping up, through the first half of 2011 into the second half. We're continuing to train our people as we bring them online. We are producing sponge today that we are using for industrial. And I think once we get really beyond the first quarter, we're not expecting any kind of significant start-up costs in Raleigh beyond the first quarter.

So the first quarter should be somewhere between zero and $8 million, if you take out that $4 million increment from the fixed charge.

Yes. I think if you -- $8 million is far too high. It won't be zero. I'd say somewhere in the $3 million to $4 million range.

Your next question comes from the line of Peter Volkner [ph], Blenheim Capital.

Could you talk a little bit more about the desal business? Is your exposure to that market really through the Uniti JV? And are you tied almost exclusively to Doosan or are there other contractors that you also could develop that business with? And I guess finally, just on that, I mean how do you think about that end market given that it's a growing market but the orders tend to be very, very lumpy?

Right now, we have the first order in. It's spread out evenly across a 14-month cycle. So that is a big order, and it's just the first one of some projected up to -- that we know about today are involved with about three different projects. They are from different people. Most of the work, though, is international, of course, as the United States is not producing these. It is with our partners. So we have the melting, about half the melting and all of the fabrication for the rolled scalp. And our partner, VSMPO, has the application for two. And then we also have outside suppliers that are interested in us in supplying stock for welded tubes. So it isn't just Doosan. It's Doosan and at least two to three other people.

And if I could add, your comment about the tie-in to Uniti, that only applies to titanium. I mean, there are other specialty metals that go into a desal plant that would be direct from one of ATI's operation, not associated with the Uniti joint venture.

So in this contract that's been announced in Saudi Arabia, are there other products that you guys are producing that are going into that contract outside of the one that's been announced?

Yes, there are other specialty metals that, in all likelihood, will be used. It's a massive project. So there are other aspects other than just titanium.

In terms of the scope of that project, do you think that's sort of a one-off? Or is it sort of the scale of what people are proposing in the current market?

There's two or three of those. This may be the largest one, but there's two or three more on the drawing board. And you could probably convince yourself, as you look around the world over the next decade, of about 10 of these.

Your next question comes from the line of Gautam Khanna with Cowen.

Maybe you could refresh us on what your year-end nickel price assumptions are as you determine your LIFO accruals for the year.

Well, we think maybe you could tell us what you think. But no, I think, Gautam, as we look at the fundamentals, which is really all we have to go on -- I mean, that and a number of the analysts on the call today, we read with great interest the research reports that they put out and what their expectations are for 2011 by quarter. And I think in general, the sense is that nickel today at over $11, $11.50 whatever it closed today, is overpriced. As a matter fact, some producers are even making that comment, believe it or not. So it's our sense that from a fundamental standpoint, that nickel would tend to trend down over the balance of 2011 and by the fourth quarter, be in the range of perhaps around $10, maybe a little bit lower than that. So to put a broader range, $9 to $10 in there. Where it ends up is anybody's guess. There's a lot of financial players in the LME market. Not only for nickel, but for other of the commodities as well. And that tends to be a pretty big driver in a very short time horizon of where the LME ends up. But we would expect it to go down. Our guidance that we gave from a segment operating profit standpoint assumes that LIFO is not a significant impact, one way or another, for ATI in 2011.

Just given the discussion of start-up costs and the idle facility costs and your margin targets by segment, how should we think about, what was it, $62 million of costs in 2010? What do we think it might end up being in 2011 in terms of start-up and idle facility?

Yes, I think a lot lower. When you look at the idle facility costs, really the only single idle facility cost we have is the Albany, Oregon titanium sponge plant. That's about roughly $4 million a quarter and most of that is depreciation. So it's a non-cash item. We've already commented on what we thought about Raleigh from a start-up standpoint. Other than that, I don't think -- we've got some idle facility costs coming through in the Engineered Products segment. But it's not significant. So I think those are really the two big items.

And just so I understand that, Raleigh you said would be $3 million to $4 million in Q1. You're saying Albany will be $16 million in '11. There'll be some tail to the Raleigh in Q2 until you're back up to full rate.

I would think not. I mean, our expectation is that we won't have anything beyond the first quarter in Raleigh.

So bottom line is it comes to around $20 million all in. Maybe a little bit more on Engineered Products all in.

Yes.

And can you talk about your base prices in titanium high performance in 2011? Or what the change might be relative to '10? I'm assuming comparable product mix; I understand that changes.

Well, what we've experienced so far, which we put into place, they're running 9% to 10% up.

And that affects how much of the business? I mean, obviously, some of it's under long-term agreement.

On the High Performance Metals side, it's probably 40% of the business. And with 20 million pounds on the Flat Rolled side, it's not a large portion of the business. But it is certainly an important part of the business.

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

I have a couple of questions on the titanium side. The forecast you gave us of the shipment volume, is it based on Boeing's keeping the delivery schedule as they have announced? Or it is irrelevant of that?

Well, Boeing and us, we have a contract. That contract is in place. And we've estimated the volumes that we'll be shipping them this year. So it's based on what we have in agreement with Boeing to ship along with our other markets that we've discussed so far. So we think it isn't a contingent type number based on the 787.

And the other thing, Pat, you always mentioned about 60 million pounds of titanium is sold at the peak of the cycle. You already will be shipping 50 million in 2011. Do you think that in 2012, '13 you will reach that point? Is that your projection right now?

Yes. I think we'll reach the point in some time in 2013, end of '12 to 2013. And of course, the upside in addition to that extra 10 million pounds, first you get the volume and then pricing comes. Because I think that will be our limit, and the market will be pulling as much titanium as it can find.

And of that 60 million, the Flat-Rolled will still be 20 million, you think?

I think the Flat-Rolled will be somewhere between 20 million, let's say, the same proportion of 3:1.

Your next question is a follow-up from the line of Brian Yu with Citi.

This is actually a question, I think, for Rich, a financial one. Just based on your revenue projections, how much additional build and working capital, if any, do you foresee?

I'm going to let Dale take that.

What you'll find if you go back and look at our history in terms of working capital and how that relates to our sales is that there's a relationship of around 32% to 34% of revenues get tied up in managed working capital, so you can do the math.

And then this was in the press release, there was a comment about some airframe delays. It doesn't seem like it's going to impact 2011, but any additional color you can add on that?

This was basically a tailing off of the Boeing requirements. We shipped more Boeing in the first three quarters than we did the fourth quarter for airframe. And as you recall, Boeing was winding down a bit on that program for a period of time. So I don't think it has any reflection on 2011.

Actually, I mean, it's just how they ended up loading the year. So it wasn't anything unusual from our perspective. It was how they loaded the year to the contractual minimum that they took.

There are no further questions in queue at this time. I will now like to hand the call back over to Mr. Pat Hassey for any closing remarks.

Well, thank you all for joining us today. We appreciate the questions. We appreciate your interest, and look forward to talking with you again at the end of the next quarter.

Thank you, everyone, and that concludes our call today.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.