Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. Actual results or performance could differ materially from those encompassed within such forward-looking statements as a result of various factors, including those described below. Net income and net income per share amounts referenced below are attributable to Allegheny Technologies Incorporated and Subsidiaries.

Overview of 2012 Financial Performance

Our financial performance in 2012 reflected the challenging business conditions resulting from global economic uncertainties and fiscal policy issues. Sales in 2012 decreased 3% to $5.03 billion, compared to $5.18 billion for 2011. Direct international sales for 2012 were $1.80 billion and represented 36% of our total sales. For 2012, the High Performance Metals segment generated 52%, the Flat-Rolled Products segment generated 42%, and the Engineered Products segment generated 6% of our direct international sales. While first half 2012 results were generally in line with our expectations of gradually improving market conditions, conservative inventory management actions throughout the supply chains of most of our major end markets in response to uncertain global economic conditions in the second half of 2012 resulted in lower sales and profitability compared to 2011. Net income attributable to ATI for 2012 decreased to $158.4 million, or $1.43 per share, compared to $214.3 million, or $1.97 per share, for 2011. Results for 2012 included an $8.8 million net of tax charge for asset write-downs associated with consolidating our iron casting facilities in our Engineered Products business segment. Results for 2011 included $29.6 million, net of tax, for expenses associated with our acquisition of Ladish Co. Inc. (now ATI Ladish) in May 2011 and other charges.

Our 2012 results reflect ATI's position as a globally focused, diversified high-value specialty metals company with strong cash flow and liquidity, and a solid balance sheet. The aerospace and defense market and the global infrastructure markets, specifically oil and gas, chemical process industry, electrical energy, and the medical market, represented 67% of ATI's 2012 sales. For 2012, sales to the aerospace and defense market grew by $140.4 million, or 9%, to $1.62 billion and represented 32% of our sales. Sales in 2012 to the oil and gas and chemical process industry markets were $956 million and represented 19% of ATI sales.

In our High Performance Metals segment, sales in 2012 increased 12% to $2.19 billion, with sales to the aerospace and defense market up $159.1 million, or 13%, primarily due to a full year of ATI Ladish sales. Sales to the oil and gas market remained strong, reflecting the trend toward directional drilling, deep water projects and sour gas projects. Medical market demand also remained strong. Operating profit for the High Performance Metals segment was $371.6 million, or 17.0% of sales, a 2% increase compared to 2011, due primarily to higher shipments for our nickel-based and specialty alloys products, lower start-up costs associated with our Rowley, UT premium-titanium sponge facility, and the benefits from our gross cost reductions.

In our Flat-Rolled Products segment, sales decreased 14% to $2.35 billion, primarily as a result of lower raw material surcharges and reduced base prices for most products. Total product shipments increased 4% for the full year 2012, as shipments of standard stainless products increased 12% while shipments of high-value products decreased 4%. Volatile raw material costs and the resulting impact on surcharges affected demand during the second half of the year as customers managed inventory levels and the timing of purchases. Operating profit for the Flat-Rolled Products segment decreased to $126.9 million, or 5.4% of sales, due to lower base prices for most products and inventory costs not aligning with raw material surcharges.

In our Engineered Products segment, 2012 sales decreased 2% to $491.7 million. While demand remained strong from the oil and gas and construction and mining markets, demand weakened from the electrical energy and the machine and cutting tools markets. Segment operating profit for 2012 improved to $39.4 million, a 16% increase compared to 2011 primarily due to improved results for our tungsten-based products and industrial forgings.

For 2012, total segment operating profit decreased 12% to $537.9 million compared to $612.0 million for 2011.

During 2012, we strengthened our positions in key global growth markets, continued to enhance our manufacturing capabilities, reduced costs, and maintained our strong balance sheet. We also realized continued success in implementing the ATI Business System, which is continuing to drive lean manufacturing throughout our operations. Our accomplishments during 2012 from these important efforts included:

• Continued growth of our global market presence as direct international sales increased to 36% of our total sales, at $1.8 billion. We believe at least 50% of ATI's 2012 sales were driven by global markets when we consider exports by our customers.

• We continued to realize significant benefits from our strategic focus on key high value specialty products, including titanium and titanium alloys, precision castings and forgings, nickel-based alloys and specialty alloys, zirconium and related alloys, and grain-oriented electrical steel. In 2012, sales of these key high value products represented 79% of our total sales.

• Continued improvement in our positions with key customers in the aerospace, oil and gas, electrical energy, and medical markets as we entered into new long-term agreements for our Mission Critical Metallicsฎ. During 2012, we concluded long-term sourcing agreements with new or existing customers which are expected to benefit future years revenues by over $2.5 billion.

• Continued expansion of our industry leading technology portfolio by making important research and development investments. ATI 718Plus ฎ alloy, our groundbreaking nickel-based superalloy, continued to gain acceptance in the marketplace and is being used on legacy and next-generation aero-engines. Rene 65 alloy, a future generation alloy, is the newest nickel-based superalloy for the aerospace market in our portfolio. Our ATI 2003ฎ Lean Duplex Alloy was recently selected for offshore topside structural components use on a North Sea project in the oil and gas market.

• Our ATI 425ฎ alloy has been qualified for rotary blade applications such as abrasion strips, and continues to be evaluated for numerous airframe applications including fastener stock, hydraulic tubing, and hot- and superplastic-formed parts.

• We continued to build a foundation for profitable growth. Since 2004, we have transformed ATI by investing over $3.7 billion in capital expenditures and acquisitions, of which $382 million was spent in 2012. These strategic capital investments support the expected long-term growth in our markets, especially for titanium and titanium alloys, nickel-based alloys and superalloys, vacuum melted specialty alloys, and precision forgings and castings. Virtually all of these investments have been in the United States, with the enhancement and expansion of our internal capabilities being self-funded. Significant among these investments are:

• The design and construction of a new advanced specialty metals Hot-Rolling and Processing Facility (HRPF) at our existing Flat-Rolled Products segment Brackenridge, PA site for approximately $1.16 billion. The HRPF construction is progressing on schedule and on budget. Construction is expected to be completed with assets ready for service by the end of 2013, and formal commissioning is expected to occur in the first half of 2014. The HRPF is designed to be the most powerful mill in the world for production of specialty metals. It is designed to produce thinner and wider hot-rolled coils of exceptional quality at reduced cost with shorter lead times, and require lower working capital requirements. When completed, we believe ATI's new HRPF will provide unsurpassed manufacturing capability and versatility in the production of a wide range of flat-rolled specialty metals. We expect improved productivity, lower costs, and higher quality for our diversified product mix of flat-rolled specialty metals, including nickel-based and specialty alloys, titanium and titanium alloys, zirconium alloys, Precision Rolled Strip ฎ products, and stainless sheet and coiled plate products. It is designed to roll and process exceptional quality hot bands of up to 78.62 inches, or 2 meters, wide.

• The acquisition of ATI Ladish on May 9, 2011 for $897.6 million. ATI Ladish results are included in the High Performance Metals segment from the date of the acquisition. ATI Ladish engineers, produces and markets high-strength, high technology forged and cast metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets, for both domestic and international customers. ATI is now a fully integrated supplier, from raw material (for titanium) and melt through highly engineered technically complex parts, creating a more stable and sustainable supply chain for aerospace, defense and industrial markets. In the first full year as part of ATI, ATI Ladish recorded its best revenue year ever and has been accretive to ATI's results of operations for the full 2012 year.

• We continued to enhance our capabilities as the world's leader in titanium plasma arc melting (PAM) with the qualification during 2012 of our fourth PAM furnace. With the expansion of our High Performance Metals segment production capabilities in North Carolina, ATI remains the world's leading PAM melter for the most critical and demanding jet engine applications.

We currently expect 2013 capital expenditures to be approximately $550 million, which includes approximately $450 million relating to the HRPF project. We expect 2013 to be our peak year for capital expenditures. Our objective is to fund these capital expenditures with cash on hand and cash flow generated from our operations, and if needed, by using a portion of our $400 million unsecured domestic revolving credit facility.

• We realized significant cash generation in 2012, despite a decline in profitability, with cash flow from operations of $428 million, which represented the third best year in our history. We utilized our cash in 2012 to invest $382 million in capital expenditures, primarily for the HRPF project, and return $77 million to our stockholders as dividends.

• We continued to maintain our strong balance sheet. Cash on hand at the end of 2012 was $305 million, and our percentages of net debt to total capitalization and total debt to total capitalization were 32.2% and 37.4%, respectively. Our U.S. defined benefit pension plan is sufficiently funded such that we are not required to make any contributions to this plan for 2013.

• Our safety focus continued across all of ATI's operations. Our OSHA Total Recordable Incident Rate was 2.71 and our Lost Time Case Rate was 0.58 per 200,000 hours worked, which we believe to be competitive with world class performance.

• We realized continued success from the ATI Business System, which continues to drive lean manufacturing throughout our operations. In addition to the safety performance discussed above, we realized over $114 million in gross cost reductions in 2012, which exceeded our goal of $100 million. We have targeted additional gross cost reductions of at least $100 million in 2013.

• To further improve our operating efficiency, we consolidated operations in our Engineered Products segment, resulting in the closure of our iron casting facility in Alpena, MI, which resulted in an $8.8 million, after-tax, non-cash asset impairment charge in the fourth quarter of 2012. In our Flat-Rolled Products segment, we are consolidating service center operations, which is on schedule to be completed in the first quarter of 2013. In our High Performance Metals segment, we took steps to size our primary zirconium operations to improve its cost structure based on the current demand profile in the nuclear electrical energy market.

Our focus is to continue to deliver value for our customers and profitable growth for our stockholders. We believe market conditions remain favorable for strong secular growth over the next 3 to 5 years in many of our key global markets. Aerospace build rates are expected to continue to increase and OEM backlogs remain at record levels. Demand for ATI's new products is expected to grow substantially as new technology airframe and jet engine deliveries increase. Demand for our products generally leads a change to a production build schedule by approximately 6 to 12 months. In addition, demand for jet engine spare parts is projected to begin to modestly improve, compared to the second half of 2012, as we move through 2013.

Global oil and gas exploration and production forecasts project spending to set a new record, and upstream capital spending, especially in the U.S., is expected to grow. ATI benefits from the trend toward horizontal and directional drilling, deep water projects, and sour gas projects. In the chemical processing industry, ATI benefits from projects requiring specialty metals that can withstand highly corrosive and high temperature environments.

In the electrical energy market, we expect to benefit from growing global demand for safe, clean and efficient electrical energy. Our specialty metals are used in nuclear, coal, and natural gas power generation, including pollution control equipment and spent nuclear fuel storage. Our products are also used to manufacture power generation equipment used for renewable energy sources, particularly in wind, solar and geothermal power applications. Demand for our products from the medical market is expected to remain strong because of the aging populations in developed countries and the growth of advanced medical procedures in developing countries requiring the products that we produce. We also expect to benefit from our ongoing market and product development activities aimed at introducing innovative new ATI alloys and extending our reach into our key global markets with product forms that are new to ATI. We intend to use these improving market conditions to continue to positively differentiate ATI as a uniquely positioned, diversified, technology-driven global specialty metals producer.

Results of Operations

Sales were $5.03 billion in 2012, $5.18 billion in 2011, and $4.05 billion in 2010. Direct international sales represented approximately 36% of 2012 sales, 35% of 2011 sales, and 32% of 2010 sales.

Segment operating profit was $537.9 million in 2012, $612.0 million in 2011, and $356.5 million in 2010. 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, closed company expenses and restructuring costs, if any. We believe segment operating profit, as defined, provides an appropriate measure of controllable operating results at the business segment level.

Income before tax was $244.0 million in 2012, $339.4 million in 2011, and $125.7 million in 2010. Net income attributable to ATI was $158.4 million in 2012, $214.3 million for 2011, and $70.7 million for 2010. Results for 2012 included after-tax charges of $8.8 million, or $0.08 per share, for an asset impairment charge related to the closure of our Alpena, MI iron casting facility. Results for 2011 include after-tax charges of $29.6 million, or $0.26 per share, for Ladish acquisition expenses, accelerated recognition of equity compensation due to executive retirements, and restructuring and start-up expenses.

We operate in three business segments: High Performance Metals, Flat-Rolled Products and Engineered Products. These segments represented the following percentages of our total revenues and segment operating profit for the years indicated:

                                              2012                             2011                             2010
                                                   Operating                        Operating                        Operating
                                    Revenue          Profit          Revenue          Profit          Revenue          Profit
High Performance Metals                   43 %             69 %            38 %             59 %            33 %             72 %

Flat-Rolled Products                      47 %             24 %            52 %             35 %            58 %             24 %

Engineered Products                       10 %              7 %            10 %              6 %             9 %              4 %

Comparative information for our overall revenues (in millions) by end market and their respective percentages of total revenues is as follows:

Market                                       2012                     2011                     2010
Aerospace & Defense                   $ 1,621.4        32 %    $ 1,481.0        29 %    $ 1,027.5        25 %
Oil & Gas/Chemical Process Industry       955.8        19 %      1,107.0        21 %        787.8        19 %
Electrical Energy                         599.5        12 %        778.8        15 %        670.9        17 %
Medical                                   223.7         4 %        253.0         5 %        234.5         6 %

Subtotal - Key Markets                  3,400.4        67 %      3,619.8        70 %      2,720.7        67 %
Construction/Mining                       390.0         8 %        321.6         6 %        274.3         7 %
Automotive                                389.5         8 %        386.8         7 %        319.7         8 %
Transportation                            222.4         4 %        233.7         4 %        169.8         4 %
Food Equipment & Appliances               215.6         4 %        243.0         5 %        277.8         7 %
Electronics/Computers/Communication       170.0         3 %        161.1         3 %        130.4         3 %
Machine & Cutting Tools                   126.9         3 %        136.3         3 %         97.8         2 %
Conversion Services and Other             116.7         3 %         80.7         2 %         57.3         2 %

Total                                 $ 5,031.5       100 %    $ 5,183.0       100 %    $ 4,047.8       100 %

We are one of the largest and most diversified specialty metals producers in the world. Our high-value products include titanium and titanium alloys, nickel-based alloys and specialty steels, precision forgings and castings, zirconium and related alloys, precision and engineered stainless steel strip, tungsten-based materials and cutting tools, and grain-oriented electrical steel. Our standard products include specialty stainless sheet, stainless steel sheet, stainless steel plate, and large iron castings. Our specialty metals are produced in a wide range of alloys and product forms and are selected for use in applications that demand metals having exceptional hardness, toughness, strength, resistance to heat, corrosion or abrasion, or a combination of these characteristics.

Comparative information for our major high-value and standard products based on their percentages of our total revenues is as follows:

         For the Years Ended December 31,           2012       2011       2010
         High-Value Products
         Nickel-based alloys and specialty alloys      25 %       25 %       21 %
         Titanium and titanium alloys                  13 %       14 %       15 %
         Precision forgings and castings               13 %        9 %        3 %
         Precision and engineered strip                11 %       12 %       13 %
         Tungsten-based materials                       7 %        7 %        6 %
         Zirconium and related alloys                   6 %        5 %        7 %
         Grain-oriented electrical steel                4 %        6 %        8 %

         Total High-Value Products                     79 %       78 %       73 %
         Standard Products
         Specialty stainless sheet                      9 %       10 %       13 %
         Stainless steel sheet                          8 %        9 %       11 %
         Stainless steel plate                          2 %        2 %        2 %
         Iron castings and other                        2 %        1 %        1 %

         Total Standard Products                       21 %       22 %       27 %

         Grand Total                                  100 %      100 %      100 %

Information with respect to our business segments is presented below.

High Performance Metals

(In millions)                            2012           % Change          2011           % Change          2010
Sales to external customers            $ 2,190.6               12 %     $ 1,955.9               46 %     $ 1,337.5

Operating profit                           371.6                2 %         364.5               41 %         257.8

Operating profit as a percentage of
sales                                       17.0 %                           18.6 %                           19.3 %

Direct international sales as a
percentage of sales                         43.1 %                           40.1 %                           32.8 %

Our High Performance Metals segment produces, converts and distributes a wide range of high performance alloys, including titanium and titanium-based alloys, nickel- and cobalt-based alloys and superalloys, zirconium and related alloys including hafnium and niobium, advanced powder alloys and other specialty metals, in long product forms such as ingot, billet, bar, rod, wire, shapes and rectangles, and seamless tubes, plus precision forgings and castings, and machined parts. These products are designed for the high performance requirements of such major end markets as aerospace and defense, electrical energy, oil and gas, chemical process industry, and medical. The operating units in this segment are ATI Allvac, ATI Allvac Ltd (U.K.), ATI Ladish, ATI Wah Chang and ATI Powder Metals.

2012 Compared to 2011

Sales for the High Performance Metals segment for 2012 increased 12%, to $2.19 billion, with sales to the aerospace and defense markets up $159.1 million, or 13%, due primarily to a full year of ATI Ladish sales which offset reduced demand in the 2012 second half in the jet engine aftermarket. Sales to the oil and gas market remained strong, reflecting the trend toward directional drilling, deep water projects and sour gas projects. Medical market demand remained strong for implants and imaging equipment. Comparative information for our High Performance Metals segment revenues (in millions) by market, the respective percentages of overall segment revenues for the years ended 2012 and 2011, and the percentage change in revenues by market for 2012 is as follows:

Market                                              2012                     2011                   Change
Aerospace:
Jet Engines                                  $   719.6        33 %    $   667.7        34 %    $  51.9         8 %
Airframes                                        388.6        18 %        304.3        15 %       84.3        28 %
Government                                       198.6         9 %        188.8        10 %        9.8         5 %

Total Aerospace                                1,306.8        60 %      1,160.8        59 %      146.0        13 %
Oil & Gas/Chemical Process Industry              211.2        10 %        180.2         9 %       31.0        17 %
Medical                                          188.4         9 %        182.2         9 %        6.2         3 %
Electrical Energy                                166.3         7 %        177.4         9 %      (11.1 )      (6 %)
Defense                                          111.3         5 %         98.2         5 %       13.1        13 %
Construction/Mining                               66.6         3 %         36.1         2 %       30.5        84 %
Other                                            140.0         6 %        121.0         7 %       19.0        16 %

Total                                        $ 2,190.6       100 %    $ 1,955.9       100 %    $ 234.7        12 %

Comparative information for the High Performance Metals segment's major product categories, based on their percentages of 2012 and 2011 segment revenues is as follows:

             For the Years Ended December 31,           2012       2011
             High-Value Products
             Nickel-based alloys and specialty alloys      36 %       38 %
             Titanium and titanium alloys                  26 %       30 %
             Precision forgings and castings               25 %       17 %
             Zirconium and related alloys                  13 %       15 %

             Total High-Value Products                    100 %      100 %

In 2012 and 2011, the aerospace market represented 60% and 59%, respectively, of the revenues of the segment with the majority of the sales to the jet engine market. Aerospace has historically represented a significant market for our High Performance Metals segment, especially for premium quality specialty metals used in the manufacture of jet engines for the original equipment and spare parts markets. In May 2011, we expanded our product capabilities with the acquisition of ATI Ladish, which engineers, produces and markets high-strength, high technology forged and cast metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets, for both domestic and international customers. ATI is now a fully integrated supplier, from raw material (for titanium) and melt through highly engineered technically complex parts, creating a more stable and sustainable supply chain for aerospace, defense and industrial markets. In addition, we have become a larger supplier of specialty metals used in airframe construction. In 2012 and 2011, sales of our material into the airframe market represented . . .