Six Months Ended June 30,
                                              2008                      2007
                                                  Operating                 Operating
                                     Revenue       Profit       Revenue      Profit
          High Performance Metals       35 %            55 %        36 %          50 %

          Flat-Rolled Products          56 %            42 %        56 %          47 %

          Engineered Products            9 %             3 %         8 %           3 %

Sales for the second quarter 2008 were $1.46 billion, 0.7% lower than the second quarter 2007. Compared to the second quarter 2007, sales increased 4% in the Flat-Rolled Products segment, and 12% for the Engineered Products segment but declined 10% in the High Performance Metals segment. Our diversified global markets and products provided balance in the first half of 2008. Direct international sales increased to a quarterly record of $395.4 million, and represented 27% of our total sales. We believe that more than 50% of our sales are driven by demand from global markets when we consider exports of our customers.
Demand from the aerospace and defense market was good and comprised 27% of first half 2008 sales, down slightly from last year due primarily to declines in average selling prices. Demand continues to grow from the global infrastructure markets: chemical process, oil and gas, and electrical energy. So far in 2008, we have signed long-term agreements (LTAs) in these same markets that have the potential to deliver over $1.3 billion in revenue over the life of the LTAs, which are generally 3-5 years, and we are working on several additional LTAs. Demand was weak from the U.S. automotive and housing markets. ATI titanium product shipments, including ATI-produced products for our Uniti titanium joint venture, were nearly 24 million pounds in the first half of 2008, a 19% increase over the same period of last year, as we leverage our manufacturing capabilities across both our High Performance Metals and Flat-Rolled Products segments and demonstrate our ability to supply diversified global markets with both long and flat-rolled products.
Segment operating profit for the second quarter 2008 decreased 24%, compared to the second quarter 2007, to $273.1 million, or 18.7% of sales. Segment operating profit for the first six months of 2008 decreased 27% compared to the first six months of 2007, to $511.4 million, or 18.2% of sales. The decreases in operating profit were primarily due to lower and less volatile raw material costs on products which use raw material indices or surcharge pricing mechanisms, where these pricing mechanisms were in better balance with manufacturing cycle times compared to the prior year periods, more competitive pricing for certain products, and product mix. Segment operating profit as a percentage of sales for the three month and six month periods ended June 30, 2008 and 2007 were:

                                       Three Months Ended         Six Months Ended
                                            June 30,                  June 30,
                                        2008          2007        2008         2007
          High Performance Metals        29.9 %       32.3 %       28.6 %      33.6 %
          Flat-Rolled Products           13.3 %       20.7 %       13.4 %      20.6 %
          Engineered Products             9.0 %        9.8 %        7.0 %      10.6 %

Our measure of segment operating profit, which we use to analyze the performance and results of our business segments, excludes income taxes, corporate expenses, net interest expense, retirement benefit expense, and other costs net of gains on asset sales. We believe segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level.
Results for the second quarter 2008 included a LIFO inventory valuation reserve charge of $3.4 million. For the same 2007 period, the LIFO inventory valuation reserve charge was $21.7 million. Raw material cost inflation for chromium, molybdenum oxide and iron scrap was partially offset by raw material cost decreases in nickel and nickel-bearing scrap, and titanium scrap. For the first six months of 2008, LIFO inventory valuation reserve charges were $4.7 million, compared to $42.6 million for the comparable 2007 period.
Second quarter and first half 2008 gross cost reductions, before the effects of inflation, totaled $36 million and $69 million, respectively, as we remained focused on reducing costs through improving operating efficiencies.
In the first quarter 2007, we entered into four-year labor agreements with United Steelworkers represented employees at ATI Allegheny Ludlum and at ATI's Albany, OR titanium operations. As a result of the new agreements, we recognized a non-recurring charge of $5.8 million, or $3.7 million after-tax, in the first half 2007, which is primarily reflected in the operating results of the High Performance Metals and Flat-Rolled Products business segments.
Income before tax for the second quarter 2008 was $250.1 million, a decrease of $75.8 million compared to the second quarter 2007. Net income for the second quarter 2008 was $168.9 million, or $1.66 per share, compared to the second quarter 2007 of $206.5 million, or $2.00 per share. Second quarter 2008 results include an income tax provision of $81.2 million, or 32.5% of income before tax, compared to an income tax provision of $119.4 million, or 36.6% of income before tax, for the comparable 2007 quarter. The 2008 second quarter included a favorable one-time net tax benefit of $11.2 million, primarily associated with tax refunds and credits related to prior years.
Income before tax for the first six months of 2008 was $470.0 million, a 25% decrease over the first six months of 2007. Net income for the six months ended June 30, 2008 was $310.9 million, or $3.06 per share, compared to $404.3 million, or $3.93 per share for the first half of 2007. First half 2008 results include an income tax provision of $159.1 million, or 33.9% of income before tax, which included the favorable one-time net tax benefit of $11.2 million in the second quarter and a discrete benefit of $2.6 million in the first quarter related to foreign taxes. Results for the first six months of 2007 include an income tax provision of $226.2 million, or 35.9% of income before tax, and benefited from a $4.2 million reduction in the valuation allowances associated with state deferred tax assets recorded in the first quarter 2007.
In the first six months of 2008, our strong cash flow supported investments of over $500 million in capital expenditures and managed working capital, dividend payments of over $36 million, and share repurchases of over $88 million. We ended the quarter with $310 million of cash on hand.
Aerospace and infrastructure continue to drive our results, and we believe these markets are in a period of long-term growth. Our strategy is to deliver earnings stability and growth as we move through this extended cycle.
Looking forward, we expect the normal third quarter seasonal slowdown. We believe we are well-positioned to continue to achieve good performance in this uncertain U.S. economy due to our product and market diversification and our global reach. At this point, we expect full-year 2008 earnings per share to be in the range of $5.80 to $6.10. This would be the second best year in ATI's history.

High Performance Metals Segment
Second quarter 2008 sales were $504.5 million, 10% lower than second quarter 2007 primarily due to lower shipments and selling prices for titanium and titanium alloys, and nickel-based and specialty alloys, which partially offset improved exotic alloy shipments and pricing. Demand for our titanium alloys, nickel-based superalloys, and specialty alloys was good for jet engine applications. Demand for our airframe titanium alloys was steady. Demand for our exotic alloys was strong from the chemical process industry and is growing from the nuclear energy market. Segment operating profit in the quarter was $150.8 million, or 29.9% of sales, a $29.4 million decrease compared to the second quarter 2007. The second quarter 2008 results included a closer matching of raw material costs with raw material indices included in the selling prices due to less volatile raw material cost, primarily nickel and nickel-bearing scrap. The second quarter 2007 benefited from the rapid increase in the cost of nickel during the first half of 2007, which resulted in higher raw material indices compared to costs due to the long manufacturing cycle times of some of our products. The second quarter 2008 benefited from a $14.7 million reduction in the LIFO inventory valuation reserve, primarily due to lower titanium scrap costs. The second quarter 2007 had a LIFO inventory valuation reserve charge of $1.6 million. Results for the 2008 second quarter benefited from $17.1 million of gross cost reductions, bringing first half 2008 gross cost reductions to $31.4 million.
Certain comparative information on the segment's major products for the three months ended June 30, 2008 and 2007 is provided in the following table:

                                                 Three Months Ended
                                                      June 30,              %
                                                 2008          2007       Change
          Volume (000's pounds):
          Titanium mill products                  7,707        7,809        (1 )%
          Nickel-based and specialty alloys      11,493       11,837        (3 )%
          Exotic alloys                           1,465        1,426         3 %

          Average prices (per pound):
          Titanium mill products               $  26.34     $  31.75       (17 )%
          Nickel-based and specialty alloys    $  18.30     $  19.75        (7 )%
          Exotic alloys                        $  48.64     $  38.66        26 %

Shipments of titanium mill products decreased slightly due to lower shipments to distributors. Shipments of nickel-based and specialty alloys declined primarily due to product mix and inventory management actions at distributors. Shipments of exotic alloys increased primarily due to strong demand for zirconium from the chemical process industry and growing demand from the nuclear energy market.
For the six months ended June 30, 2008, segment sales decreased 5% to $985 million. Operating profit was $282.2 million for the six months ended June 30, 2008, or 28.6% of sales, compared to $347.7 million, or 33.6% of sales, for the comparable prior year to date period. Shipments of titanium mill products increased primarily due to higher aerospace airframe volume. Shipments of nickel-based and specialty alloys declined primarily due to product mix and inventory management actions at distributors. The first half 2008 results also included a closer matching of raw material costs with raw material indices included in the selling prices due to less volatile raw material cost, primarily nickel and nickel-bearing scrap. The first half 2007 benefited from the rapid increase in the cost of nickel, which resulted in higher raw material indices compared to costs due to the long manufacturing cycle times of some of our products. Results for the first half of 2008 included a LIFO inventory valuation reserve benefit of $13.4 million, compared to a charge of $8.2 million in the 2007 period.

Certain comparative information on the segment's major products for the six months ended June 30, 2008 and 2007 is provided in the following table:

                                                  Six Months Ended
                                                      June 30,              %
                                                  2008         2007       Change
           Volume (000's pounds):
           Titanium mill products                16,477       14,877        11 %
           Nickel-based and specialty alloys     21,030       22,189        (5 )%
           Exotic alloys                          2,829        2,411        17 %

           Average prices (per pound):
           Titanium mill products              $  25.92     $  32.29       (20 )%
           Nickel-based and specialty alloys   $  18.42     $  18.89        (2 )%
           Exotic alloys                       $  46.70     $  40.65        15 %

In April 2008, we entered into a new labor agreement with the United Steelworkers represented employees at ATI's Wah Chang operations. The new agreement expires on March 31, 2013. The new agreement provides for profit sharing above specified minimum pre-tax profit for ATI's Wah Chang operations and is capped to provide for no more than $9 million of profit sharing payments under this provision over the five-year life of the contract. Any profit sharing payments under this provision are contributed to an independently administered VEBA (Voluntary Employee Benefit Association) trust. As a result of this new agreement, we expect to recognize additional retirement benefit expense of approximately $8 million in 2008.
Flat-Rolled Products Segment
Second quarter 2008 sales were $834.1 million, 4% higher than the second quarter 2007, due primarily to increased shipments, including higher foreign sales, partially offset by lower raw material surcharges. Direct international sales increased $38.9 million to 26.5% of total 2008 segment sales. Demand was strong for our industrial titanium sheet, grain-oriented electrical steel, and nickel-based and specialty alloy products from the chemical process industry, oil and gas markets, and electrical energy markets. Shipments of our standard stainless products improved due to better inventory balance at our U.S. service center customers, good demand from the chemical process industry, oil and gas, and electrical energy markets, and improved international shipments. Shipments of standard stainless products increased 20% while total high-value products shipments increased 10%. Within high-value products, shipments of industrial titanium sheet and grain-oriented electrical steel improved, significantly exceeding year-ago levels, offsetting lower shipments of a specialty alloy for a large project last year. Average transaction prices for all products were 10% lower, primarily due to lower raw material surcharges, product mix, and more competitive prices for standard stainless sheet and plate.
Segment operating profit was $111.3 million or 13.3% of sales, a decrease of $55 million compared to the second quarter 2007, primarily as a result of lower average base selling prices for standard stainless products and the timing difference between raw material surcharges and costs. The second quarter 2008 results included a closer matching of raw material costs with raw material surcharges included in the selling prices due to less volatile raw material cost, primarily nickel and nickel-bearing scrap. The second quarter 2007 benefited from the rapid increase in the cost of nickel during the first half of 2007, which resulted in higher raw material surcharges compared to costs due to the long manufacturing cycle times of some of our products. The negative impacts described above were partially offset by increased shipments and higher selling prices for our grain-oriented electrical steel, increased shipments of our flat-rolled titanium products, increased shipments of standard grade sheet products, and the benefits of gross cost reductions. Raw material cost inflation, primarily chromium, molybdenum oxide, and iron scrap, resulted in a LIFO inventory valuation reserve charge of $16.4 million in the second quarter 2008. The second quarter 2007 included a LIFO inventory valuation charge of $20.2 million.
Results benefited from $17.0 million in gross cost reductions, bringing first half 2008 gross cost reductions in this segment to $33.2 million. We continue to benefit from the ongoing transformation of this segment. Product, market and geographic diversification have greatly improved. In addition, the segment is benefitting from approximately $400 million in gross cost reductions since 2003.

Comparative information on the segment's products for the three months ended June 30, 2008 and 2007 is provided in the following table:

                                             Three Months Ended
                                                  June 30,               %
                                             2008          2007        Change
              Volume (000's pounds):
              High value                    132,999       120,869        10 %
              Standard                      179,864       149,437        20 %

              Total                         312,863       270,306        16 %

              Average prices (per lb.):
              High value                  $    3.21     $    3.34        (4 )%
              Standard                    $    2.22     $    2.63       (16 )%
              Combined Average            $    2.64     $    2.95       (10 )%

For the six months ended June 30, 2008, Flat-Rolled Products sales were unchanged at $1.6 billion, compared to the six months ended June 30, 2007, however segment operating profit declined $114 million to $212.5 million, or 13.4% of sales, compared to $326.5 million, or 20.6% of sales, for the prior year-to-date period. Average prices for the first half 2008, which include surcharges, were 8% lower than the same period of last year. Demand was strong from the segment's largest markets: chemical process industry, oil and gas, and electrical energy, which accounted for 54% of year-to-date segment sales. The first half 2008 results included a closer matching of raw material costs with raw material surcharges included in the selling prices due to less volatile raw material cost, primarily nickel and nickel-bearing scrap. The first half 2007 benefited from the rapid increase in the cost of nickel, which resulted in higher raw material surcharges compared to costs due to the long manufacturing cycle times of some of our products. Segment results for the 2008 year-to-date period included a LIFO inventory reserve charge of $16.4 million, compared to a prior year LIFO inventory reserve charge of $34.2 million in 2007, due primarily to raw material cost inflation for chromium, molybdenum oxide, and iron scrap.
Comparative information on the segment's products for the six months ended June 30, 2008 and 2007 is provided in the following table:

                                              Six Months Ended
                                                  June 30,               %
                                             2008          2007        Change
              Volume (000's pounds):
              High value                    252,791       248,677         2 %
              Standard                      350,484       311,117        13 %

              Total                         603,275       559,794         8 %

              Average prices (per lb.):
              High value                  $    3.21     $    3.28        (2 )%
              Standard                    $    2.15     $    2.46       (13 )%
              Combined Average            $    2.59     $    2.82        (8 )%

Engineered Products Segment
Sales for the second quarter 2008 of $122.6 million were 12% higher than the second quarter 2007. Demand for our tungsten and tungsten carbide products improved from the aerospace and defense, electrical energy and mining markets. Demand was stable for our forged products from the construction and mining, and oil and gas markets. Demand for our cast products was strong from the electrical energy market, particularly for wind and gas turbine components. Demand from the aerospace market remained very strong for our titanium precision metal processing conversion services. Segment operating profit in the second quarter 2008 was essentially flat at $11.0 million, or 9.0% of sales, compared to $10.7 million, or 9.8% of sales, for the comparable 2007 period. The increase in 2008 operating profit due to the higher sales level was offset by start-up expenses with our Alpena, MI casting operation, and the negative impact of higher raw material costs which resulted in a LIFO inventory valuation reserve charge of $1.7 million. The second quarter 2007 included a LIFO inventory valuation reserve benefit of $0.1 million. Prior year results were also impacted by start-up costs of our operation to internally produce ammonium paratungstate (APT), a key raw material of the tungsten and tungsten carbide products.

Results benefited from $2.2 million of gross cost reductions, bringing year-to-date gross cost reductions in this segment to $4.0 million.
For the six months ended June 30, 2008, sales increased 8% to $238.1 million, and operating profit was $16.7 million, or 7.0% of sales, compared to $23.3 million, or 10.6% of sales in 2007. Operating results for the first half of 2008 include LIFO inventory valuation reserve charges of $1.7 million, whereas the first six months of 2007 include LIFO inventory valuation reserve charges of $0.2 million. Operating results for the first half 2008 were affected by higher raw material costs, operational execution issues, and start-up expenses associated with our Alpena, MI casting operation. First half 2007 results were negatively impacted by higher purchased raw material costs and APT plant start-up costs.
We expect slowly improving operating results in the Engineered Products segment. The product mix in our tungsten products business is improving and sales are growing in the aerospace and defense, electrical energy, and mining markets. We also expect to see improved sales to the oil and gas market beginning in the second half of 2008. Also, our new casting shop in Alpena, MI is expected to complete qualifications in the third quarter for wind energy production, and ramp up in the second half of 2008. Demand for our castings is robust in wind energy applications.
Corporate Items
Corporate expenses decreased to $15.4 million for the second quarter of 2008, compared to $17.4 million in the year-ago period. For the six months ended June 30, 2008, corporate expenses were $33.1 million compared to $38.4 million in the prior year-to-date period. Changes in corporate expenses for the quarter and six month periods are primarily due to lower expenses associated with annual and long-term performance-based cash incentive compensation programs.
Net interest expense in the second quarter 2008 decreased to $1.3 million from $2.6 million for the same period last year. For the six months ended June 30, 2008, net interest expense was $1.1 million compared to $6.9 million in the prior year-to-date period. The declines in net interest expense in 2008 were primarily due to interest capitalization on capital projects. As a result of capitalization of interest costs, interest expense was reduced by $11.6 million in the first six months of 2008, and by $3.2 million in the first six months of 2007.
Other expense, net of gains on asset sales, includes charges incurred in connection with closed operations, pretax gains and losses on the sale of surplus real estate and other assets, and other non-operating income or expense. These items are presented primarily in selling and administration expenses, and in other income (expense) in the statement of income and resulted in other expense of $3.0 million for the second quarter of 2008 and $3.8 million for the second quarter of 2007. For the six months ended June 30, 2008, other expense, net of gains on asset sales was $3.9 million, compared to $6.6 million for the comparable 2007 period.
Retirement benefit expense decreased to $3.3 million in the second quarter 2008, compared to $7.5 million in the second quarter 2007, primarily as a result of higher than expected returns on plan assets in 2007 and the positive benefits of voluntary pension contributions made over the last several years. In April 2008, we entered into a new five-year labor agreement with USW represented employees at our ATI Wah Chang operation. As a result, retirement benefit expense will be approximately $8 million for the full year 2008 due to the establishment of a VEBA for certain post-retirement benefits. This expense is being recognized over the last three quarters of 2008, with $3.3 million included in the second quarter 2008. For the second quarter 2008, the amount of retirement benefit expense included in cost of sales was $2.1 million, and the amount included in selling and administrative expenses was $1.2 million. For the second quarter 2007, the amount of retirement benefit expense included in cost of sales was $5.1 million, and the amount included in selling and administrative expenses was $2.4 million.
For the six months ended June 30, 2008, retirement expense was $3.3 million, compared to $15.1 million in the same period of 2007. Retirement benefit expense increased cost of sales for the six months ended June 2008 by $1.8 million, and increased selling and administrative expenses by $1.5 million. For the six months ended June 2007, retirement benefit expenses increased cost of sales by $10.1 million and increased selling and administrative expenses by $5.0 million.

Income Taxes
Results for the second quarter 2008 included a provision for income taxes of $81.2 million, or 32.5% of income before tax, for U.S. Federal, foreign and state income taxes. The second quarter 2007 included a provision of $119.4 million, or 36.6% of income before tax. The second quarter 2008 tax provision included a favorable one-time net tax benefit of $11.2 million, . . .