Nine Months Ended September 30,
                                             2008                        2007
                                                  Operating                  Operating
                                    Revenue        Profit        Revenue      Profit
         High Performance Metals        36 %           56 %          37 %          53 %

         Flat-Rolled Products           56 %           41 %          55 %          44 %

         Engineered Products             8 %            3 %           8 %           3 %

Sales for the third quarter 2008 were $1.39 billion, 4.3% higher than the third quarter 2007. Compared to the third quarter 2007, sales increased 8% in the Flat-Rolled Products segment, and 12% for the Engineered Products segment but declined 2% in the High Performance Metals segment. Direct international sales increased to a quarterly record of $402.1 million, and represented 29% 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.
The aerospace and defense markets, and the global infrastructure markets, namely chemical process industry, oil and gas, electrical energy, and the medical markets, have been driving our performance. These markets accounted for nearly 70% of sales in the nine months ended September 30, 2008. The aerospace and defense market comprised 28% of sales for the nine months 2008, down slightly from the same period of last year due primarily to declines in average selling prices. There has been a labor strike at The Boeing Company, a significant customer, which commenced in September 2008. On October 27, 2008, it was announced that tentative terms for a labor contract had been reached between Boeing and the International Association of Machinists and Aerospace Workers. These conditions created a period of short-term uncertainty regarding the length of the labor disruption and associated negative impact on demand in the aerospace supply chain for both airframe and aero engine related programs. Long-term demand is expected to be strong in the aerospace market due to the high levels of backlogs at our airframe and jet engine customers. Demand continued to be strong from the global infrastructure markets: chemical process industry, oil and gas, and electrical energy. 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 over 36 million pounds in the nine months 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 third quarter 2008 decreased 23%, compared to the third quarter 2007, to $248.4 million, or 17.8% of sales. Segment operating profit for the nine months 2008 decreased 26% compared to the 2007 period, to $759.8 million, or 18.1% of sales. The decreases in operating profit were primarily due to rapidly declining raw material costs, which resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material indices or surcharge pricing mechanisms, as well as more

competitive pricing for certain products, and product mix. Segment operating profit as a percentage of sales for the three month and nine month periods ended September 30, 2008 and 2007 were:

                                       Three Months Ended         Nine Months Ended
                                         September 30,              September 30,
                                        2008          2007         2008         2007
          High Performance Metals        27.4 %       37.3 %        28.2 %      34.8 %
          Flat-Rolled Products           13.4 %       17.3 %        13.4 %      19.6 %
          Engineered Products             5.2 %        6.9 %         6.4 %       9.4 %

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 third quarter 2008 included a LIFO inventory valuation reserve benefit of $41.0 million due to declining raw material costs, primarily nickel and nickel-bearing scrap, and titanium scrap. For the same 2007 period, the LIFO inventory valuation reserve benefit was $61.2 million. For the first nine months of 2008, LIFO inventory valuation reserve benefit was $36.3 million, compared to a benefit of $18.6 million for the comparable 2007 period.
Third quarter and first nine months 2008 gross cost reductions, before the effects of inflation, totaled $35 million and $104 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 2007, which is primarily reflected in the year to date 2007 operating results of the High Performance Metals and Flat-Rolled Products business segments.
Income before tax for the third quarter 2008 was $228.0 million, a decrease of $66 million compared to the third quarter 2007. Net income for the third quarter 2008 was $144.1 million, or $1.45 per share, compared to the third quarter 2007 of $193.9 million, or $1.88 per share. Third quarter 2008 results include an income tax provision of $83.9 million, or 36.8% of income before tax, compared to an income tax provision of $100.1 million, or 34.0% of income before tax, for the comparable 2007 quarter. The 2007 third quarter included a favorable one-time net tax benefit of $8.1 million, primarily related to the reduction of a deferred tax valuation allowance for certain state tax credits expected to be realized in future periods.
Income before tax for the nine months ended September 30, 2008 was $698.0 million, a 25% decrease compared to the first nine months of 2007. Net income for the nine months ended September 30, 2008 was $455.0 million, or $4.51 per share, compared to $598.2 million, or $5.81 per share for the first nine months of 2007. Results for the first nine months of 2008 include an income tax provision of $243.0 million, or 34.8% of income before tax, which included the favorable one-time net tax benefit of $11.2 million in the second quarter. Results for the first nine months of 2007 include an income tax provision of $326.3 million, or 35.3% of income before tax, and benefited from a $12.1 million reduction in valuation allowances associated with state deferred tax assets.
In the first nine months of 2008, our strong cash flow supported investments of $185 million in managed working capital, $365 million of capital expenditures, nearly $242 million in share repurchases, and dividend payments of over $54 million. We ended the quarter with nearly $273 million of cash on hand.
We are focused on delivering solid financial results during this period of uncertainty. We now expect our fourth quarter 2008 results to be in the range of $1.00 to $1.10 per share, resulting in full year 2008 earnings of $5.51 to $5.61 per share. We expect 2008 fourth quarter volumes to be down and pricing to be very competitive for most of our products with the exceptions of grain-oriented electrical steel and our exotic alloys. The strike at The Boeing Company and the delay in their 787 aircraft production program has created uncertainty in the supply chain for both airframe and aero engine products. Demand is weak for our standard stainless sheet and plate products domestically and globally. With the exception of oil and gas, most markets for our standard stainless products are

soft with housing, appliance, and automotive being particularly weak. According to industry reports, service center inventories of standard stainless products were low in the third quarter. These inventory levels could trend lower in the 2008 fourth quarter as some customers take actions to avoid raw material cost risk. However, even in this weak market, we expect to ship approximately 300,000 tons of standard stainless products in 2008, which is the low end of our targeted range. We are proactively adjusting the production levels of some of our products and increasing our 2009 cost reductions to meet this changing economic environment. We expect strong cash flow in the fourth quarter 2008, including a significant reduction in managed working capital.
We believe the long-term growth opportunities of our major global end markets remain strong. We intend to continue to enhance our leadership position in specialty metals with a focus on near-term and long-term opportunities in the aerospace and defense, chemical processing industry, oil and gas, electrical energy generation and distribution, and medical markets. High Performance Metals Segment
Third quarter 2008 sales were $510.2 million, 2% lower than third quarter 2007 primarily due to lower shipments and selling prices for nickel-based and specialty alloys, and lower selling prices for titanium mill products, which was partially offset by increased shipments and higher prices for our exotic alloys, and higher titanium mill products shipments. Demand for our premium titanium alloys was good for jet engine applications. Demand for our titanium alloys was steady from airframe customers and improved from the biomedical market. Demand for our nickel-based alloys and specialty alloys was softer from the jet engine market and improved from the oil and gas and electrical energy markets. Demand for our exotic alloys was strong from the chemical process industry and was good from the aerospace and defense and nuclear energy markets.
Segment operating profit in the quarter was $139.6 million, or 27.4% of sales, a $54.6 million decrease compared to the third quarter 2007. The third quarter 2008 operating profit was compressed by rapidly declining raw material costs, primarily titanium and titanium scrap, and nickel and nickel-bearing scrap. This resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material indices included in the selling prices due to the long manufacturing cycle times of some of our products. This compression was partially offset by a $16.7 million reduction in the LIFO inventory valuation reserve, increased shipments and selling prices for zirconium products, higher titanium mill products shipments, and the benefits of gross cost reductions. The third quarter 2007 had a LIFO inventory valuation reserve benefit of $43.1 million. Results for the 2008 third quarter benefited from $18.2 million of gross cost reductions, bringing year to date 2008 gross cost reductions in this segment to $49.6 million.
Certain comparative information on the segment's major products for the three months ended September 30, 2008 and 2007 is provided in the following table:

                                                 Three Months Ended
                                                   September 30,            %
                                                 2008          2007       Change
          Volume (000's pounds):
          Titanium mill products                  8,707        7,815        11 %
          Nickel-based and specialty alloys      10,365       10,999        (6 )%
          Exotic alloys                           1,365        1,113        23 %

          Average prices (per pound):
          Titanium mill products               $  25.95     $  29.43       (12 )%
          Nickel-based and specialty alloys    $  18.82     $  20.49        (8 )%
          Exotic alloys                        $  49.91     $  45.16        11 %

The decline in the average selling price for titanium and titanium-based alloys, and nickel-based and specialty alloys was primarily due to lower raw material indices due to lower raw material costs and a more competitive pricing environment.
For the nine months ended September 30, 2008, segment sales decreased 4% to $1.50 billion. Operating profit was $421.8 million for the nine months ended September 30, 2008, or 28.2% of sales, compared to $541.9 million, or 34.8% 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 distribution customers. The nine months 2008 operating profit was impacted by a more competitive pricing environment for certain titanium mill products and nickel-based alloys and superalloys. In addition, year to date 2008 margins were compressed by rapidly declining raw material costs, primarily titanium and titanium scrap, and nickel and nickel-bearing scrap. This resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material indices included in the selling prices due to the long manufacturing cycle times of some of our products. These impacts were partially offset by increased shipments of titanium mill products, a $30.1 million reduction in the LIFO inventory valuation reserve, increased shipments and selling prices for exotic alloys, and the benefits of gross cost reductions. Results for the nine months 2007 included a LIFO inventory valuation reserve benefit of $34.9 million.
Certain comparative information on the segment's major products for the nine months ended September 30, 2008 and 2007 is provided in the following table:

                                                  Nine Months Ended
                                                    September 30,           %
                                                  2008         2007       Change
           Volume (000's pounds):
           Titanium mill products                25,184       22,692        11 %
           Nickel-based and specialty alloys     31,395       33,188        (5 )%
           Exotic alloys                          4,194        3,524        19 %

           Average prices (per pound):
           Titanium mill products              $  25.93     $  31.31       (17 )%
           Nickel-based and specialty alloys   $  18.55     $  19.42        (4 )%
           Exotic alloys                       $  47.74     $  42.07        13 %

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. Flat-Rolled Products Segment
Third quarter 2008 sales were $764.6 million, 8% higher than the third quarter 2007, due primarily to increased shipments, including higher foreign sales, partially offset by lower raw material surcharges. Direct international sales increased $41.0 million to 26.9% 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, and electrical energy markets. Shipments of standard stainless products increased 16% while total high-value products shipments increased 10%. Within high-value products, shipments of substantially all products, namely industrial titanium sheet, grain-oriented electrical steel, nickel-based alloys, and Precision Rolled Strip® products, exceeded year-ago levels. Average transaction prices for all products were 4% lower, primarily due to lower raw material surcharges, product mix, and more competitive prices for standard stainless products.
Segment operating profit was $102.7 million or 13.4% of sales, a decrease of $20.3 million compared to the third 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. Third quarter 2008 operating profit was negatively impacted by lower base prices for standard stainless sheet and plate products. In addition, third quarter 2008 operating profit was compressed by a rapid decline in raw material costs, primarily nickel and nickel bearing scrap. This resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material surcharges included in the selling prices due to the long manufacturing cycle times of some of our products. This compression was 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. Declining raw material costs, primarily for nickel and nickel scrap, resulted in a LIFO inventory valuation reserve benefit of $25.1 million in the third quarter 2008. The third quarter 2007 included a LIFO inventory valuation benefit of $18.2 million.

Results benefited from $14.3 million in gross cost reductions, bringing 2008 first nine months gross cost reductions in this segment to $47.5 million.
Comparative information on the segment's products for the three months ended September 30, 2008 and 2007 is provided in the following table:

                                          Three Months Ended
                                             September 30,             %
                                          2008          2007         Change
            Volume (000's pounds):
            High value                    133,322       121,674           16 %
            Standard                      130,888       113,083           10 %

            Total                         264,210       234,757           13 %

            Average prices (per lb.):
            High value                  $    3.44     $    3.37            2 %
            Standard                    $    2.27     $    2.57          (12 )%
            Combined Average            $    2.86     $    2.99           (4 )%

For the nine months ended September 30, 2008, Flat-Rolled Products sales increased 2%, to $2.35 billion, compared to the nine months 2007, however, segment operating profit declined 30%, or $134.3 million, to $315.2 million, or 13.4% of sales, compared to $449.5 million, or 19.6% of sales, for the prior year-to-date period. Average prices for the first nine months 2008, which include surcharges, were 7% 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. 2008 operating profit was negatively impacted by significantly lower base selling prices for standard stainless sheet and plate and by margin compression due to a rapid decline in raw material costs, primarily nickel and nickel bearing scrap. This resulted in higher cost material purchased earlier in the year flowing through cost of sales and not matching raw material surcharges included in the selling prices due to the long manufacturing cycle times of some of our products. These negative impacts were partially offset by increased shipment volumes for most products, higher selling prices for grain oriented electrical steel products and the benefits of gross cost reductions. Segment results for the 2008 year-to-date period included a LIFO inventory reserve benefit of $8.7 million, compared to a prior year LIFO inventory reserve charge of $16.0 million in 2007, due primarily to raw material cost deflation for nickel and nickel-bearing scrap.
Comparative information on the segment's products for the nine months ended September 30, 2008 and 2007 is provided in the following table:

                                           Nine Months Ended
                                             September 30,             %
                                          2008          2007         Change
            Volume (000's pounds):
            High value                    386,113       370,351            4 %
            Standard                      481,372       424,200           13 %

            Total                         867,485       794,551            9 %

            Average prices (per lb.):
            High value                  $    3.29     $    3.31            0 %
            Standard                    $    2.18     $    2.49          (12 )%
            Combined Average            $    2.68     $    2.87           (7 )%

Engineered Products Segment
Sales for the third quarter 2008 of $117.6 million were 12% higher than the third quarter 2007. Demand was solid for our forged products from the construction and mining, and oil and gas markets. Demand for our cast products was good from the electrical energy market, particularly for wind and gas turbine components. Demand for our tungsten and tungsten carbide products was down due to the work stoppage in the aerospace supply chain and shipments were down to the oil and gas and construction and mining markets due to disruptions after Hurricane Ike. Demand from the aerospace market remained good for our titanium precision metal processing conversion services.

Segment operating profit in the third quarter 2008 was $6.1 million, or 5.2% of sales, compared to $7.3 million, or 6.9% of sales, for the comparable 2007 period. An increase in operating profit due to increased sales was offset by $1.5 million 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 $0.8 million. The third quarter 2007 included a LIFO inventory valuation reserve charge 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 $2.7 million of gross cost reductions, bringing year-to-date gross cost reductions in this segment to $6.7 million.
For the nine months ended September 30, 2008, sales increased 9% to $355.7 million, and operating profit was $22.8 million, or 6.4% of sales, compared to $30.6 million, or 9.4% of sales in 2007. Operating results for the first nine months of 2008 include LIFO inventory valuation reserve charges of $2.5 million, whereas the first nine months of 2007 include LIFO inventory valuation reserve charges of $0.3 million. Operating results for the first nine months of 2008 were affected by higher raw material costs, operational execution issues, and start-up expenses associated with our Alpena, MI casting operation. Nine months 2007 results were negatively impacted by higher purchased raw material costs and APT plant start-up costs.
We expect to begin to see some improvement in 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, oil and gas, and mining markets. Also, our new casting shop in Alpena, MI is expected to complete qualifications in the fourth quarter for certain wind energy products, and ramp up production in 2009. Demand for our castings is robust in wind energy applications.
Corporate Items
Corporate expenses decreased to $13.4 million for the third quarter of 2008, compared to $18.5 million in the year-ago period. For the nine months ended September 30, 2008, corporate expenses were $46.5 million compared to $56.9 million in the prior year-to-date period. Changes in corporate expenses for the quarter and nine 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 third quarter 2008 increased to $1.7 million from $0.1 million for the same period last year. The increase in net interest expense was primarily due to less interest income. For the nine months ended September 30, 2008, net interest expense was $2.8 million compared to $7.0 million in the prior year-to-date period. The declines in net interest expense in the nine months 2008 were primarily due to interest capitalization on capital projects offsetting lower interest income. As a result of capitalization of interest costs, interest expense was reduced by $17.7 million in the first nine months of 2008, and by $6.0 million in the first nine 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 $2.8 million for the third quarter of 2008 and $4.3 million for the third quarter of 2007. For the nine months ended September 30, 2008, other expense, net of gains on asset sales was $6.7 million, compared to $10.9 million for the comparable 2007 period. The decreases for the three and nine month periods ended September 30, 2008 were primarily related to lower charges for environmental costs at closed operations.
Retirement benefit expense decreased to $2.5 million in the third quarter 2008, compared to $7.6 million in the third quarter 2007, primarily as a result of higher than expected returns on plan assets in 2007 and the positive benefits . . .