SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
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PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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ALLEGHENY TECHNOLOGIES INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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[Allegheny Technologies Logo]
1000 Six PPG Place
Pittsburgh, PA 15222-5479
March 29, 2004
To our Stockholders:
We are pleased to invite you to attend the 2004 Annual Meeting of Stockholders.
The meeting will be held at 11:00 a.m., Eastern Time, on Thursday, May 6, 2004,
in the Grand Ballroom, 17th Floor, Omni William Penn Hotel, 530 William Penn
Place, Pittsburgh, Pennsylvania. The location is accessible to disabled persons.
This booklet includes the notice of meeting as well as the Company's proxy
statement. Enclosed with this booklet are the following:
- Proxy or voting instruction card (including instructions for telephone and
Internet voting)
- Proxy or voting instruction card return envelope (postage paid if mailed in
the U.S.)
A copy of the Company's Annual Report for the year 2003 is also enclosed.
Your Board of Directors recommends that you vote FOR Item A, the election of the
three nominees named in this proxy statement. This proxy statement also outlines
many of the corporate governance practices at ATI, discusses our compensation
practices and philosophy, and describes the Audit Committee's recommendation to
the Board regarding our 2003 financial statements. We encourage you to read
these materials carefully.
We urge you to vote promptly, whether or not you expect to attend the meeting.
If you are a stockholder of record and plan to attend the meeting, please mark
the appropriate box on the proxy card, or enter the appropriate information by
telephone or Internet, so that we can send your admission ticket to you before
the meeting.
We look forward to seeing as many of you as possible at the 2004 Annual Meeting.
Sincerely,
/s/ Robert P. Bozzone
Robert P. Bozzone
Chairman
/s/ L. Patrick Hassey
L. Patrick Hassey
President and Chief Executive Officer
ALLEGHENY TECHNOLOGIES INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MEETING DATE: Thursday, May 6, 2004
TIME: 11:00 a.m., Eastern Time
PLACE: Grand Ballroom
17th Floor
Omni William Penn Hotel
530 William Penn Place
Pittsburgh, Pennsylvania
RECORD DATE: March 12, 2004
AGENDA
1) Election of a class of three directors; and
2) Transaction of any other business properly brought before the meeting.
STOCKHOLDER LIST
A list of stockholders entitled to vote will be available during business hours
for 10 days prior to the meeting at the Company's executive offices, 1000 Six
PPG Place, Pittsburgh, Pennsylvania 15222-5479, for examination by any
stockholder for any legally valid purpose.
ADMISSION TO THE MEETING
Holders of Allegheny Technologies stock or their authorized representatives by
proxy may attend the meeting. If you are a stockholder of record and you plan to
attend the meeting, you may obtain an admission ticket from us by mail by
checking the box on the proxy card indicating your planned attendance and
returning the completed proxy card promptly, or by entering the appropriate
information by telephone or the Internet. If your shares are held through an
intermediary such as a broker or a bank, you should present proof of your
ownership at the meeting. Proof of ownership could include a proxy from your
bank or broker or a copy of your account statement.
The approximate date of the mailing of this proxy statement and card as well as
a copy of ATI's 2003 Annual Report is March 29, 2004. For further information
about Allegheny Technologies, please visit our web site at
www.alleghenytechnologies.com.
On behalf of the Board of Directors:
/s/ Jon D. Walton
Jon D. Walton
Executive Vice President, Chief Legal and
Compliance Officer and Corporate Secretary
Dated: March 29, 2004
PROXY STATEMENT
TABLE OF CONTENTS
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PAGE
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Questions and Answers....................................... 1
Our Corporate Governance.................................... 3
Corporate Governance Guidelines........................... 3
Number and Independence of Directors...................... 3
Director Terms............................................ 4
Director Attendance at Annual Meetings.................... 4
Committees of the Board of Directors...................... 4
Board and Committee Membership............................ 6
Director Compensation..................................... 6
Corporate Guidelines for Business Conduct and Ethics...... 7
Nomination of Directors................................... 7
Stockholder Communications with Directors................. 8
2005 Annual Meeting and Stockholder Proposals............. 8
Election of Directors -- Item A on Proxy Card............... 9
Other Business.............................................. 12
Stock Ownership Information................................. 12
Section 16(a) Beneficial Ownership Reporting Compliance... 12
Five Percent Owners of Common Stock....................... 12
Stock Ownership of Management............................. 13
Relationship with Independent Public Accountants............ 14
Report of Audit Committee................................... 15
Report on Executive Compensation............................ 16
Executive Compensation...................................... 21
Summary Compensation Table................................ 21
Stock Options............................................. 23
Long-Term Incentive Program............................... 24
Pension Plans............................................. 25
Employment and Change in Control Agreements............... 27
Cumulative Total Stockholder Return......................... 28
Certain Transactions........................................ 29
Other Information........................................... 29
Annual Report on Form 10-K................................ 29
Proxy Solicitation........................................ 29
Appendix A--Audit Committee Charter......................... A-1
YOUR VOTE IS IMPORTANT
PLEASE VOTE AS SOON AS POSSIBLE. YOU CAN HELP THE COMPANY REDUCE EXPENSES BY
VOTING YOUR SHARES BY TELEPHONE OR INTERNET; YOUR PROXY CARD CONTAINS THE
INSTRUCTIONS. OR, COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT AS SOON
AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
PROXY STATEMENT FOR
2004 ANNUAL MEETING OF STOCKHOLDERS
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QUESTIONS AND ANSWERS
You can help the Company save money by electing to receive future proxy
statements and annual reports over the Internet instead of by mail. See question
10 below.
1. WHO IS ENTITLED TO VOTE?
If you held shares of Allegheny Technologies Incorporated ("ATI" or the
"Company") common stock at the close of business on March 12, 2004, you may vote
at the annual meeting. On that day, 81,089,277 shares of our Common Stock were
outstanding. Each share is entitled to one vote.
In order to vote, you must either designate a proxy to vote on your behalf or
attend the meeting and vote your shares in person. The Board of Directors
requests your proxy so that your shares will count toward a quorum and be voted
at the meeting.
2. HOW DO I CAST MY VOTE?
There are four different ways you may cast your vote this year. You may vote by:
- telephone, using the toll-free number listed on each proxy or voting
instruction card;
- the Internet, at the address provided on each proxy or voting instruction
card;
- marking, signing, dating and mailing each proxy or voting instruction card and
returning it in the envelope provided. If you return your signed proxy card
but do not mark the boxes showing how you wish to vote, your shares will be
voted FOR the nominees named in this proxy statement; or
- attending the meeting and voting your shares in person, if your shares are
registered directly in your name on the Company's books and not held through a
broker, bank or other nominee.
If you hold stock in your name on the Company's books, you can vote by telephone
or electronically through the Internet by following the instructions provided on
the proxy card. You will need to use the individual control number that is
printed on your proxy card in order to authenticate your ownership.
The deadline for voting by telephone or the Internet is 11:59 p.m., Eastern
time, May 5, 2004.
If your shares are held in "street name" (that is, they are held in the name of
broker, bank or other nominee), or your shares are held in one of the Company's
savings or retirement plans, you will receive instructions with your materials
that you must follow in order to have your shares voted. For voting procedures
for shares held in the Company's savings or retirement plans, see the question 6
below.
3. HOW DO I REVOKE OR CHANGE MY VOTE?
You may revoke your proxy or change your vote at any time before it is voted at
the meeting by:
- notifying the Corporate Secretary at the Company's executive office;
- transmitting a proxy dated later than your prior proxy either by mail,
telephone or Internet; or
- attending the annual meeting and voting in person or by proxy (except for
shares held through a broker, bank or other nominee or in the Company's
savings or retirement plans).
The latest-dated, timely, properly completed proxy that you submit, whether by
mail, telephone or the Internet, will count as your vote. If a vote has been
recorded for your shares and you submit a proxy card that is not properly signed
and dated, the previously recorded vote will stand.
4. WHAT SHARES ARE INCLUDED ON THE PROXY OR VOTING INSTRUCTION CARD?
The shares on your proxy or voting instruction card represent those shares
registered directly in your name, those held on account in the Company's
dividend reinvestment plan and shares held in the Company's savings and
retirement plans. If you do not cast your vote, your shares (except those held
in the Company's savings and retirement plans) will not be voted. See question 6
for an explanation of the voting procedures for shares in the Company's savings
and retirement plans.
5. WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY OR VOTING INSTRUCTION CARD?
If your shares are registered differently and are in more than one account, you
will receive more than one card. Please complete and return all of the proxy or
voting instruction cards you receive
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(or vote by telephone or the Internet all of the shares on all of the proxy or
voting instruction cards received) in order to ensure that all of your shares
are voted.
6. HOW ARE SHARES I HOLD IN A COMPANY SAVINGS OR RETIREMENT PLAN VOTED?
If you hold ATI Common Stock in one of the Company's savings or retirement
plans, you may tell the plan trustee how to vote the shares of Common Stock
allocated to your account. You may either sign and return the voting instruction
card provided by the plan or transmit your instructions by telephone or the
Internet. If you do not transmit instructions, your plan shares will be voted as
the plan administrator directs or as otherwise provided in the plan.
7. HOW ARE SHARES HELD BY A BROKER, BANK OR OTHER NOMINEE VOTED?
If you hold your shares of ATI Common Stock in a broker, bank or other nominee
account, you are a "beneficial owner" of the shares. In order to vote your
shares, you must give voting instructions to your broker, bank or other
intermediary who is the "nominee holder" of your shares. The Company asks
brokers, banks and other nominee holders to obtain voting instructions from the
beneficial owners of shares that are registered in the nominee's name. Proxies
that are transmitted by nominee holders on behalf of beneficial owners will
count toward a quorum and will be voted as instructed by the nominee holder.
8. WHAT IS A QUORUM?
A majority of the outstanding shares, present or represented by a proxy,
constitutes a quorum. There must be a quorum for the meeting to be held and a
proposal must receive more than 50% of the shares voting to be adopted. You are
part of the quorum if you have voted by proxy or voting instruction card.
Abstentions, broker non-votes and votes withheld from director nominees count as
"shares present" at the meeting for purposes of determining a quorum.
Abstentions and broker non-votes do not count in the voting results. A broker
non-vote occurs when a broker, bank or other nominee holder does not vote on a
particular item because the nominee holder does not have discretionary authority
to vote on that item and has not received instructions from the beneficial owner
of the shares. Broker non-votes will not affect the outcome of any of the
matters being voted upon at the meeting, and they are not counted as shares
voting with respect to the matter on which the broker has not voted expressly.
9. IS MY VOTE CONFIDENTIAL?
The Company maintains a policy of keeping stockholder votes confidential.
10. CAN I, IN THE FUTURE, RECEIVE MY PROXY STATEMENT AND ANNUAL REPORT OVER THE
INTERNET?
Stockholders can elect to view future Company proxy statements and annual
reports over the Internet instead of receiving paper copies in the mail and thus
can save the Company the cost of producing and mailing these documents. Costs
normally associated with electronic access, such as usage and telephonic
charges, will be borne by you.
If you are a registered stockholder, you can choose to receive future annual
reports and proxy statements electronically by following the prompt if you
choose to vote over the Internet. If you hold your Company stock in nominee name
(such as through a broker), check the information provided by your nominee for
instructions on how to elect to view future proxy statements and annual reports
over the Internet.
Stockholders who choose to view future proxy statements and annual reports over
the Internet will receive instructions containing the Internet address of those
materials, as well as voting instructions, approximately four weeks before
future meetings.
If you enroll to view the Company's future annual reports and proxy statements
electronically and vote your proxy over the Internet, your enrollment will
remain in effect for all future stockholders' meetings unless you cancel it. To
cancel, registered stockholders should access www.melloninvestor.com/ISD and
follow the instructions to cancel your enrollment. You should retain your
control number appearing on your enclosed proxy card. If you hold your Company
stock in nominee name, check the information provided by your nominee holder for
instructions on how to cancel your enrollment.
If at any time you would like to receive a paper copy of the annual report or
proxy statement, please write to Allegheny Technologies Incorporated, Corporate
Secretary, 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479.
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OUR CORPORATE GOVERNANCE
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CORPORATE GOVERNANCE GUIDELINES
During 2003, ATI's Board of Directors reviewed the principal elements of the
Company's governance structure, including various governance practices and
policies previously adopted by the Board, the Company's guidelines for business
conduct and ethics, and the charters of all Board Committees. The Board's
objectives were to ensure that these elements of corporate governance continued
to reflect high standards of corporate governance and behavior, and conformed
fully to the requirements of the Sarbanes-Oxley Act of 2002, including the
listing standards of the New York Stock Exchange (the "NYSE").
After the NYSE finalized its listing standards in November 2003, the Board
adopted Corporate Governance Guidelines (the "ATI Corporate Governance
Guidelines"), which reflect many practices that had previously guided the Board.
The ATI Corporate Governance Guidelines are designed to assist the Board in the
exercise of its duties and responsibilities to the Company. They reflect the
Board's commitment to monitor the effectiveness of decision making at the Board
and management level, with a view to achieving ATI's strategic objectives. They
are subject to modification by the Board from time to time.
The Board also approved and adopted revised charters for the Audit Committee
(included in Appendix A), the Nominating and Governance Committee, and the
Personnel and Compensation Committee and Stock Incentive Award Subcommittee. You
can find the Company's Corporate Governance Guidelines, the Corporate Guidelines
for Business Conduct and Ethics, and the charters of all Board Committees on our
web site at www.alleghenytechnologies.com.
NUMBER AND INDEPENDENCE OF DIRECTORS
The Board of Directors determines the number of directors. The Board currently
consists of 11 members.
Paul S. Brentlinger, C. Fred Fetterolf and William G. Ouchi are retiring as
members of the Board at the 2004 Annual Meeting. George J. Kourpias also
resigned from the Board effective December 31, 2003, due to health reasons. The
Company wishes to thank each of these individuals for the contributions they
have made to the Board of Directors.
In accordance with the ATI Corporate Governance Guidelines, a substantial
majority of ATI's directors are, and at least a majority of ATI's directors will
be, "independent" under the NYSE definition of independence and the Company's
categorical board independence standards, which are set forth in the ATI
Corporate Governance Guidelines. A director is "independent" only if the
director is a non-management director and, in the Board's judgment, does not
have a material relationship with the Company or its management. Following a
review of relevant information and a recommendation of the Nominating and
Governance Committee, the Board has determined that nine of the Company's 11
current directors meet the categorical independence standards set forth in the
ATI Corporate Governance Guidelines and are independent and that, upon the
election of the three nominees named below, eight of the Company's ten directors
will meet the categorical independence standards set forth in the ATI Corporate
Governance Guidelines and will be independent.
In addition to the independence and other general criteria set forth in the ATI
Corporate Governance Guidelines, nominees for director are generally selected on
the basis of the following criteria: their business or professional experience,
recognized achievement in their respective fields, their integrity and judgment,
their ability to devote sufficient time to the affairs of the Company, the
diversity of their backgrounds and the skills and experience that their
membership adds to the overall competencies of the Board, and the needs of the
Company from time to time. Nominees should also represent the interests of all
stockholders. In accordance with the retirement policy for directors set forth
in the ATI Corporate Governance Guidelines, a person who is 72 years or older
cannot be elected to serve on the Board.
3
DIRECTOR TERMS
The directors are divided into three classes and the directors in each class
generally serve for a three-year term unless the director is unable to serve due
to death, retirement or disability. The term of one class of directors expires
each year at the annual meeting of stockholders. The Board may fill a vacancy by
electing a new director to the same class as the director being replaced. The
Board may also create a new director position in any class and elect a director
to hold the newly created position until the term of the class expires.
DIRECTOR ATTENDANCE AT ANNUAL MEETINGS
We typically schedule a Board meeting in conjunction with our Annual Meeting of
Stockholders and expect that our Directors will attend, absent a valid reason,
such as a schedule conflict. Last year, 12 of the 13 individuals then serving as
Directors attended our annual meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
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STANDING COMMITTEES
The Board of Directors has the following standing committees: Audit Committee,
Finance Committee, Nominating and Governance Committee, Personnel and
Compensation Committee and Stock Incentive Award Subcommittee of the Personnel
and Compensation Committee (sometimes called the "Compensation Committees"),
Executive Committee and Technology Committee.
Only independent directors are permitted to serve on the Audit Committee, the
Compensation Committees, and the Nominating and Governance Committee. In
addition, all current members of the Finance Committee are independent. Audit
Committee members must meet an additional independence standard under the NYSE
rules. Specifically, Audit Committee members may not receive any compensation
from the Company other than their directors' compensation.
Each committee has a written charter that describes its responsibilities. Each
of the Audit Committee, the Compensation Committees, and the Nominating and
Governance Committee has the authority, as it deems appropriate, to
independently engage outside legal, accounting or other advisors or consultants.
In addition, each committee annually conducts a review and evaluation of its
performance. The current charters of each committee are published on our web
site at www.alleghenytechnologies.com and will be mailed to stockholders upon
written request.
AUDIT COMMITTEE
The current members of the Audit Committee are Frank V. Cahouet (Chairman), Paul
S. Brentlinger (Vice Chairman), Diane C. Creel, James C. Diggs, and William G.
Ouchi. The Board of Directors has determined that these committee members have
no financial or personal ties to the Company (other than director compensation
and equity ownership as described in this proxy statement) and meet the NYSE
standards for independence. In addition, the Board of Directors has determined
that at least one member of the Audit Committee meets the NYSE standard of
having accounting or related financial management expertise.
The Board of Directors has also determined that Frank V. Cahouet meets the SEC
criteria of an "audit committee financial expert." Mr. Cahouet's extensive
background and experience includes serving as the chief executive officer of two
publicly traded banking companies, where he actively supervised the chief
financial officer and participated extensively in dealing with accounting,
auditing, internal control, and risk management issues. He also served as chief
financial officer of a publicly traded banking company. The Board of Directors
has also determined that Paul S. Brentlinger, who is retiring from the Board of
Directors at the Annual Meeting, meets the SEC criteria of an "audit committee
financial expert."
The Audit Committee assists the Board's oversight of the integrity of ATI's
financial statements, ATI's compliance with legal and regulatory requirements,
the qualifications and independence of ATI's independent auditors, and
4
the performance of ATI's internal audit function and independent auditors. The
Committee has the authority and responsibility for the appointment, retention,
compensation and oversight of ATI's independent auditors, including pre-approval
of all audit and non-audit services to be performed by the independent auditors.
The independent auditors and the internal auditors have full access to the
Committee and meet with the Committee, with, and on a routine basis without,
management being present, to discuss all appropriate matters.
The Audit Committee report is at page 15. The charter of the Audit Committee is
attached as Appendix A.
FINANCE COMMITTEE
The Finance Committee makes recommendations and provides guidance to the Board
regarding major financial policies of the Company. It also serves as named
fiduciary of the employee benefit plans maintained by the Company.
NOMINATING AND GOVERNANCE COMMITTEE
The Nominating and Governance Committee is responsible for overseeing corporate
governance matters. It oversees the annual evaluation of the Company's Board and
its committees. It also recommends to the Board individuals to be nominated as
directors. This includes evaluation of new candidates as well as evaluation of
current directors who are being considered for re-election. This Committee is
also responsible for administering ATI's director compensation programs. The
Committee also performs other duties as are described in the ATI Corporate
Governance Guidelines.
PERSONNEL AND COMPENSATION COMMITTEE
The Personnel and Compensation Committee, together with the Stock Incentive
Award Subcommittee, establishes and annually reassesses the executive
compensation program. Their Report on Executive Compensation begins on page 16.
The Personnel and Compensation Committee reviews and approves corporate goals
and objectives relevant to CEO compensation, evaluates the CEO's performance in
light of those goals and objectives and, together with the Stock Incentive Award
Subcommittee, determines and approves the CEO's compensation level (either as a
committee or together with the other independent directors, as directed by the
Board) based on this evaluation. The Personnel and Compensation Committee,
together with the Stock Incentive Award Subcommittee, also makes recommendations
to the Board with respect to non-CEO compensation, incentive compensation plans
and equity-based plans. The Personnel and Compensation Committee also
administers ATI's incentive compensation plans, except to the extent the Stock
Incentive Award Subcommittee administers them.
None of the members of the Personnel and Compensation Committee is an employee
of the Company and each member is an "outside director" for the purposes of the
corporate compensation provisions contained in Section 162(m) of the Internal
Revenue Code.
STOCK INCENTIVE AWARD SUBCOMMITTEE
The Stock Incentive Award Subcommittee is responsible for administering and
making awards under ATI's stock-based incentive compensation programs for the
Company's officers.
None of the members of the Subcommittee is an employee of the Company. Each
member is a "non-employee director" for the purposes of Rule 16b-3 of the
Securities and Exchange Commission and an "outside director" for the purposes of
the compensation provisions of the Internal Revenue Code.
EXECUTIVE COMMITTEE
The Executive Committee acts on behalf of the Board when an emergency arises or
scheduling makes it otherwise difficult for the full Board to convene or on
specific actions that the Board refers to this committee.
TECHNOLOGY COMMITTEE
The Technology Committee reviews changing technologies and evaluates how they
affect the Company and its technical capabilities.
5
BOARD AND COMMITTEE MEMBERSHIP
During 2003, the Board of Directors held seven meetings. The Board's committees
consisted of the seven standing committees described above. In 2003, all
directors attended at least 75% of the Board meetings and committee meetings of
which they were members, and average attendance at Board and committee meetings
was approximately 96%.
The non-management directors meet separately from the other directors in
regularly scheduled executive sessions without members of management (except to
the extent the non-management directors request the attendance of a member of
management). The Chairman of the Board, if non-management, serves as Chair of
these meetings. If the Chairman is not non-management or the Chairman so
chooses, the position of Chair rotates on a per meeting basis, in the order
specified in the ATI Corporate Governance Guidelines, among the non-management
Chairs of the Board's committees.
The table below identifies the directors that the Board has determined to be
independent and provides Board committee membership as of March 12, 2004. The
table also indicates the number of meetings held by each of the Board committees
in 2003.
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STOCK
NOMINATING PERSONNEL INCENTIVE
AND AND AWARD
DIRECTOR INDEPENDENT AUDIT(1) FINANCE GOVERNANCE COMPENSATION SUBCOMMITTEE(2) EXECUTIVE TECHNOLOGY
------------------------------------------------------------------------------------------------------------------------------
R. P. Bozzone......... X(3)
P. S. Brentlinger..... X X X X(3)
F. V. Cahouet......... X X(3) X(3) X X
D. C. Creel........... X X X X X X(3)
J. C. Diggs........... X X X X X
C. F. Fetterolf....... X X X X
L. P. Hassey.......... X
W. C. McClelland...... X X(3) X X X
W. G. Ouchi........... X X X X X X
C. J. Queenan, Jr. ... X X(3) X
J. E. Rohr............ X X X
Number of Meetings
in 2003............. -- 14 8 7 8 8 0 1
(1) All members of the Audit Committee are "independent" as defined in the NYSE
listing standards
(2) Subcommittee of the Personnel and Compensation Committee
(3) Committee Chairperson
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid an annual retainer fee
of $28,000. Directors also are paid $1,500 for each Board meeting and $1,000 for
each committee meeting attended. Each non-employee chairman of a committee is
paid an annual fee of $5,000. Directors who are employees of the Company do not
receive any compensation for their services on the Board or its committees. Mr.
Bozzone's compensation as Chairman of the Board is a monthly cash retainer of
$11,600 in lieu of Board retainer and meeting fees.
The non-employee directors also participate in the 1996 Non-Employee Director
Stock Compensation Plan ("Director Stock Plan"). The purpose of the Director
Stock Plan is to provide non-employee directors with an increased personal
interest in the Company's performance.
Under the Director Stock Plan, options to purchase 1,000 shares of Common Stock
are granted to non-employee directors at the conclusion of each annual meeting
of stockholders. The purchase price of the Common Stock covered by these annual
options is the fair market value of the Common Stock on the date the option is
granted.
6
The Director Stock Plan also provides that each non-employee director is to
receive at least 25% of the annual retainer fee in the form of Common Stock
and/or options to acquire Common Stock. Each director may elect a greater
percentage. The directors also may elect to receive all or a percentage of their
meeting fees in the form of Common Stock and/or options to acquire Common Stock.
Options granted under this part of the Director Stock Plan are intended to
provide each electing director with options having an exercise value on the date
of grant equal to the foregone fees; that is, the difference between the
exercise price and the market price of the underlying shares of Common Stock on
the date of grant is intended to be equal to the foregone fees.
In order to continue to attract and retain non-employee directors of exceptional
ability and experience, the Company also maintains a Fee Continuation Plan for
Non-Employee Directors. Under the Plan, benefits are payable to a person who
serves as a non-employee director for at least five years. The annual benefit
equals the retainer fee in effect when the director retires from the Board.
Benefits are paid for each year of the participant's credited service as a
director (as defined in the Plan) up to a maximum of ten years.
CORPORATE GUIDELINES FOR BUSINESS CONDUCT AND ETHICS
ATI has a code of ethics and business conduct, which we refer to as the
Corporate Guidelines for Business Conduct and Ethics, that applies to all
directors, officers and employees, including our principal executive officer,
our principal financial officer, and our controller and chief accounting
officer. ATI has had a code of conduct for many years. We require all directors,
officers and employees to adhere to these Corporate Guidelines in addressing
legal and ethical issues encountered in their work. The Corporate Guidelines
require that our directors, officers and employees avoid conflicts of interest,
comply with all laws, conduct business in an honest and ethical manner and
otherwise act with integrity in all of their actions by or on behalf of the
Company. Our Corporate Guidelines include a code of ethics specifically for our
Chief Executive Officer, our Chief Financial Officer and all other financial
officers and executives (the "Code of Ethics"), which supplements the general
principles set forth in the Corporate Guidelines and is intended to promote
honest and ethical conduct, full and accurate reporting, and compliance with
laws as well as other matters.
During 2003, our employees were required to certify that they reviewed and
understood the Corporate Guidelines. In addition, all officers and managers are
required to certify as to their compliance with the standards set forth in the
Corporate Guidelines.
The Company encourages employees to communicate concerns before they become
problems. We believe that building and maintaining trust, respect and
communications between employees and management and between fellow employees is
critical to the overriding goal of efficiently producing high quality products,
providing the maximum level of customer satisfaction, and ultimately fueling
profitability and growth. Only the Audit Committee of the Board of Directors can
amend or grant waivers from the provisions of the Guidelines relating to the
Company's executive officers and directors and any such amendments or waivers
will be promptly posted on our web site at www.alleghenytechnologies.com.
A copy of the Corporate Guidelines for Business Conduct and Ethics, which
includes the Code of Ethics, is posted on our web site at
www.alleghenytechnologies.com/isd and will be mailed to stockholders upon
written request.
NOMINATION OF DIRECTORS
The Board is responsible for recommending director nominees to the stockholders
and for selecting directors to fill vacancies between stockholder meetings. The
Nominating and Governance Committee recommends candidates to the Board.
Stockholders may nominate candidates for election to the Board by following the
procedures described in ATI's certificate of incorporation.
Stockholder-recommended candidates will not be evaluated on a different basis
from other candidates. The provisions of ATI's certificate of incorporation
generally require that notice be received by the Corporate Secretary, who will
forward the information to the Nominating and Governance Committee of the
7
Board of Directors for the Committee's consideration, not less than 75 days and
not more than 90 days before the first anniversary of the date of the preceding
year's annual meeting. For our annual meeting in the year 2005, we must receive
this notice on or after February 5, 2005 and on or before February 20, 2005. The
notice must contain certain information about the nominee, including his or her
age, address, occupation and share ownership, as well as the name, address and
share ownership of the stockholder giving notice.
Stockholders may obtain a copy of the full text of the provisions of our
certificate of incorporation by writing to the Corporate Secretary, Allegheny
Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479. A copy
of our certificate of incorporation has been filed with the Securities and
Exchange Commission. A copy of our certificate of incorporation can also be
viewed on our web site at www.alleghenytechnologies.com.
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
We provide a process for stockholders to communicate with the Board of Directors
or any individual director. ATI stockholders who want to communicate with the
Board or any individual Director can write to:
Allegheny Technologies Incorporated
Corporate Secretary
Board Administration
1000 Six PPG Place
Pittsburgh, PA 15222-5479
Your letter should indicate that you are an ATI stockholder. Depending on the
subject matter, the Corporate Secretary will:
- forward the communication to the Director or Directors to whom it is
addressed;
- attempt to handle the inquiry directly as, for example, where it is a request
for information about the Company or it is a stock-related matter; or
- not forward the communication if it is primarily commercial in nature or it
relates to an improper or irrelevant topic.
At each Board meeting, the Corporate Secretary will present a summary of all
communications received since the last meeting that were not forwarded and make
those communications available to the Directors on request.
2005 ANNUAL MEETING AND STOCKHOLDER PROPOSALS
Under Rule 14a-8 of the Securities and Exchange Commission, proposals of
stockholders intended to be presented at the 2005 Annual Meeting of Stockholders
must be received no later than November 23, 2004 for inclusion in the proxy
statement and proxy card for that meeting. In addition, the Company's
certificate of incorporation provides that in order for nominations or other
business to be properly brought before an annual meeting by a stockholder, the
stockholder must give timely notice thereof in writing to the Corporate
Secretary. To be timely, the provisions of ATI's certificate of incorporation
generally require that notice be received by the Corporate Secretary not less
than 75 days and not more than 90 days before the first anniversary of the date
of the preceding year's annual meeting. For our annual meeting in the year 2005,
we must receive this notice on or after February 5, 2005 and on or before
February 20, 2005. The notice must contain certain information, including
information about the proposal and the interest, if any, of the stockholder who
is making the proposal, as well as the name, address and share ownership of the
stockholder giving notice.
Stockholders may obtain a copy of the full text of the provisions of our
certificate of incorporation by writing to the Corporate Secretary, Allegheny
Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479. A copy
of our certificate of incorporation has been filed with the Securities and
Exchange Commission. A copy of our certificate of incorporation can also be
viewed on our web site at www.alleghenytechnologies.com.
8
ELECTION OF DIRECTORS -- ITEM A ON PROXY CARD
--------------------------------------------------------------------------------
The Board of Directors has nominated for election this year three directors,
including one incumbent director whose term expires at the 2004 Annual Meeting.
H. Kent Bowen was recommended for nomination to the Board by the President and
Chief Executive Officer. John D. Turner was recommended for nomination to the
Board by a non-management director.
The three nominees who receive the highest number of votes cast will be elected.
If you sign and return your proxy card, the individuals named as proxies on the
card will vote your shares for the election of the three nominees named below,
unless you provide other instructions. You may withhold authority for the
proxies to vote your shares on any or all of the nominees by following the
instructions on your proxy card. If a nominee becomes unable to serve, the
proxies will vote for a Board-designated substitute or the Board may reduce the
number of directors.
Background information about the nominees and continuing directors, including
their business experience during the past five years, follows.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE ELECTION OF THE THREE NOMINEES.
NOMINEES - TERM TO EXPIRE AT THE 2007 ANNUAL MEETING (CLASS II)
L. PATRICK HASSEY
Age: 58
Director Since: 2003
Principal Occupation: President and Chief Executive Officer. The Board of
Directors plans to name Mr. Hassey Chairman following the
2004 Annual Meeting.
Recent Business Experience: Mr. Hassey was Executive Vice President and a member of
the corporate executive committee at Alcoa Inc. from
November 2002 until his early retirement in February 2003.
He had served as Executive Vice President of Alcoa and
Group President of Alcoa Industrial Components from May
2000 to October 2002. Prior to May 2000, he served as
Executive Vice President of Alcoa and President of Alcoa
Europe, Inc.
H. KENT BOWEN
Age: 62
Principal Occupation: Bruce V. Rauner Professor of Business Administration,
Harvard University, Graduate School of Business
Administration, where his research and teaching is in the
field of operations and technology management.
Recent Business Experience: Prior to 1992, he was the Ford Professor of Engineering
and co-founder of the Leaders for Manufacturing Program at
the Massachusetts Institute of Technology.
Other Directorships: Align Technology, Inc. and Ceramics Process Systems
Corporation.
9
JOHN D. TURNER
Age: 58
Recent Business Experience: Chairman and Chief Executive Officer of Copperweld
Corporation, a manufacturer of tubular and bimetallic wire
products and a wholly-owned subsidiary of The LTV
Corporation, an integrated steel producer, from December
2001 until his retirement in March 2003. He served as
President of LTV Copperweld from 1999 to 2001 and
Executive Vice President and Chief Operating Officer of
The LTV Corporation from February to December 2001. Prior
to November 1999, he had served as President and Chief
Executive Officer of Copperweld since 1988.
Other Directorships: Matthews International Corporation and Duquesne Light
Holdings, Inc.
CONTINUING DIRECTORS - TERM TO EXPIRE AT THE 2005 ANNUAL MEETING (CLASS III)
ROBERT P. BOZZONE
Age: 70
Director Since: 1996
Recent Business Experience: Mr. Bozzone was Chairman, President and Chief Executive
Officer of the Company from December 2000 until July 2001.
He has served as Non-Executive Chairman since July 2001.
He served as Vice Chairman of the Company beginning in
August 1996 and was Vice Chairman of Allegheny Ludlum
Corporation from August 1994 to August 1996. Previously,
he was President and Chief Executive Officer of Allegheny
Ludlum Corporation. Mr. Bozzone plans to retire as
Chairman following the Annual Meeting. He will remain a
member of the Board of Directors.
Other Directorships: Duquesne Light Holdings, Inc. (Chairman of the Board),
Teledyne Technologies Incorporated and Water Pik
Technologies, Inc. (Chairman of the Board).
FRANK V. CAHOUET
Age: 71
Director Since: 1996
Recent Business Experience: Mr. Cahouet was Chairman, President and Chief Executive
Officer of Mellon Financial Corporation, a bank holding
company, and Mellon Bank, N.A., a banking corporation,
until his retirement in December 1998.
Other Directorships: Avery Dennison Corporation, Korn/Ferry International,
Saint-Gobain Corporation and Teledyne Technologies
Incorporated.
JAMES C. DIGGS
Age: 55
Director Since: 2001
Principal Occupation: Senior Vice President and General Counsel of PPG
Industries, Inc., a producer of coatings, glass and
chemicals, since 1997.
10
W. CRAIG MCCLELLAND
Age: 69
Director Since: 1996
Recent Business Experience: Mr. McClelland was Chairman and Chief Executive Officer of
Union Camp Corporation, a fine paper, packaging, chemicals
manufacturer and land resources company, prior to his
retirement in 1999.
Other Directorships: International Paper Company and Water Pik Technologies,
Inc.
CHARLES J. QUEENAN, JR.
Age: 73
Director Since: 1996
Recent Business Experience: Mr. Queenan was a partner of Kirkpatrick & Lockhart LLP.,
attorneys at law, prior to his retirement in 1996.
Other Directorships: Crane Co., Teledyne Technologies Incorporated and Water
Pik Technologies, Inc.
CONTINUING DIRECTORS - TERM TO EXPIRE AT THE 2006 ANNUAL MEETING (CLASS I)
DIANE C. CREEL
Age: 55
Director Since: 1996
Principal Occupation: Chairman, Chief Executive Officer and President of
Ecovation Inc. (formerly AnAerobics, Inc.), a waste stream
technology company using patented technologies, since May
2003.
Recent Business Experience: Chief Executive Officer and President of Earth Tech, an
international consulting engineering firm and a unit of
Tyco International Ltd. from 1996 to May 2003.
Other Directorships: Board of the Corporations and Trusts which comprise the
Fixed Income Funds of the American Funds Group of Capital
Research Management, Goodrich Corporation and Teledyne
Technologies Incorporated.
JAMES E. ROHR
Age: 55
Director Since: 1996
Principal Occupation: Chairman and Chief Executive Officer, The PNC Financial
Services Group, Inc.
Recent Business Experience: Mr. Rohr has been Chairman and Chief Executive Officer of
The PNC Financial Service Group, Inc. since May 2000. He
had served as President from 1992-2002 and assumed the
position of Chief Executive Officer in May of 2000. He was
named Chairman in May 2001.
Other Directorships: Blackrock, Inc., Equitable Resources, Inc. and The PNC
Financial Services Group, Inc.
11
OTHER BUSINESS
--------------------------------------------------------------------------------
The Company knows of no business that may be presented for consideration at the
meeting other than the item indicated in the Notice of Annual Meeting. If other
matters are properly presented at the meeting, the persons designated as proxies
on your proxy card may vote at their discretion.
Following adjournment of the formal business meeting, L. Patrick Hassey,
President and Chief Executive Officer, will address the meeting and will hold a
general discussion period during which the stockholders will have an opportunity
to ask questions about the Company and its business.
STOCK OWNERSHIP INFORMATION
--------------------------------------------------------------------------------
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require the Company to
disclose late filings of reports of stock ownership (and changes in stock
ownership) by its directors and statutory insiders. To the best of the Company's
knowledge, all filings by these individuals were made on a timely basis in 2003.
FIVE PERCENT OWNERS OF COMMON STOCK
As of February 16, 2004, the Company had received notice that the individuals
and entities listed in the following table are beneficial owners of five percent
or more of Company Common Stock. In general, "beneficial ownership" includes
those shares a person has the power to vote or transfer, and options to acquire
Common Stock that are exercisable currently or within 60 days.
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership Class
----------------------------------------------------------------------------------------------------
Citigroup, Inc. ......................................... 7,766,304(a) 9.6%
399 Park Avenue
New York, NY 10043
Richard P. Simmons....................................... 7,557,429(b) 9.3%
Birchmere
Quaker Hollow Road
Sewickley, PA 15143
The Singleton Group LLC.................................. 5,775,000(c) 7.1%
335 North Maple Drive, Suite 177
Beverly Hills, CA 90210
----------------------------------------------------------------------------------------------------
(a) Based upon a Schedule 13G filing under the Securities Exchange Act of 1934
made by Citicorp, Inc. and three affiliated companies on February 13, 2004,
as of December 31, 2003, Citicorp, Inc. beneficially owned, and had shared
power to direct the voting and disposition of, 7,766,304 shares of Common
Stock, of which Citigroup Global Markets Holdings Inc., Citigroup Financial
Products Inc. and Citigroup Global Markets Inc. beneficially owned, and had
shared power to direct the voting and disposition of, 7,649,230 shares,
6,034,321 shares and 5,792,646 shares, respectively.
(b) Based upon a Schedule 13D/A filing made by Mr. Simmons dated May 22, 2003,
as of that date, Mr. Simmons beneficially owned all of these shares. The
amount shown includes options to acquire 71,584 shares that are exercisable
within 60 days of March 12, 2004 under Company incentive stock plans.
(c) As of December 31, 2000, The Singleton Group LLC, Caroline W. Singleton,
William W. Singleton and Donald E. Rugg held shared voting and dispositive
power with respect to 5,775,000 shares as indicated in the Schedule 13G, as
amended, filed by Caroline W. Singleton. As indicated in a Schedule 13G
filed in April 2000, Donald E. Rugg also held sole voting and dispositive
power with respect to 158 shares.
12
STOCK OWNERSHIP OF MANAGEMENT
The following table shows the shares of Common Stock reported to the Company as
beneficially owned as of March 12, 2004 by the nominees for director, the
continuing directors and each officer named in the Summary Compensation Table.
Shares Shares That
Beneficially May Be Acquired Total
Beneficial Owner Owned Within 60 Days Shares
------------------------------------------------------------------------------------------------
Robert P. Bozzone.............................. 2,703,089 25,000 2,728,089(1)
H. Kent Bowen.................................. 0 0 0
Frank V. Cahouet............................... 96 52,612 52,708
Diane C. Creel................................. 3,602 21,287 24,889
James C. Diggs................................. 1,982 2,000 3,982
Richard J. Harshman............................ 49,032 45,829 94,861
L. Patrick Hassey.............................. 68,265 120,000 188,265
James L. Murdy................................. 0 88,333 88,333
Douglas A. Kittenbrink......................... 53,628 49,996 103,624
W. Craig McClelland............................ 16,822 5,268 22,090
Charles J. Queenan, Jr. ....................... 357,793 5,268 363,061
James E. Rohr.................................. 7,943 5,268 13,211
Jack W. Shilling............................... 62,320 49,996 112,316
John D. Turner................................. 0 0 0
Jon D. Walton.................................. 83,011 49,996 133,007
------------------------------------------------------------------------------------------------
All directors, nominees, named officers and
other statutory insiders as a group (16)....... 3,436,037 548,348 3,984,385
------------------------------------------------------------------------------------------------
(1) The percentage of outstanding shares is 4.9% for the group. Except for Mr.
Bozzone, who holds 3.4% of the outstanding shares, the percentage of
outstanding shares held by each director, nominee and named officer in the
table is less than 1%.
The table includes shares held as of March 12, 2004 in the Company's 401(k)
plans for the accounts of Messrs. Bozzone, Kittenbrink, Shilling and Walton and
shares held jointly with the named individuals' spouses. The table also includes
the following shares where beneficial ownership is disclaimed: 120,000 shares
owned by Mr. Bozzone's wife; 1,534 shares owned by Mr. Kittenbrink's children;
27,050 shares owned by Mr. Queenan's wife; 3,700 shares owned by Mr. Walton's
wife; and 254 shares held by the spouses of other statutory insiders.
13
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
The Audit Committee of the Board of Directors has reappointed Ernst & Young LLP
as the independent public accounting firm to audit our financial statements for
the fiscal year 2004. In making this appointment, the Audit Committee considered
whether the audit and non-audit services Ernst & Young LLP provides are
compatible with maintaining the independence of our outside auditors.
Ernst & Young LLP has served as independent auditors for the Company since
August 15, 1996 and served as independent auditors for Allegheny Ludlum
Corporation since 1980. They have unrestricted access to the Audit Committee to
discuss audit findings and other financial matters. The Audit Committee believes
that Ernst & Young LLP is knowledgeable about the Company's operations and
accounting practices and is well qualified to act in the capacity of independent
auditors.
The Audit Committee has adopted a policy that sets forth the manner in which the
Audit Committee will review and approve all services to be provided by Ernst &
Young LLP before the firm is retained. Under this policy, the engagement terms
and fees of all audit services and all audit-related services are subject to the
specific pre-approval of the Audit Committee. In addition, while the Committee
believes that the independent auditor may be able to provide tax services to the
Company without impairing the auditor's independence, going forward, absent
unusual circumstances, the Audit Committee does not expect to retain the
independent auditor to provide tax services. Under the policy, the Committee has
delegated limited pre-approval authority to the Chairman of the Committee with
respect to permitted, non-tax related services; the Chairman is required to
report any pre-approval decisions to the Audit Committee at its next scheduled
meeting. The Audit Committee pre-approved all non-audit services provided by
Ernst & Young LLP in 2003 and 2002.
The fees billed by Ernst & Young LLP for the indicated services performed during
2003 and 2002 were as follows:
------------------------------------------------------
SERVICE 2003 2002
----------------------------------------------
Audit fees $1,538,000 $1,309,000
Audit-related fees 206,000 294,000
Tax fees 470,000 312,000
All other fees -- --
Total $2,214,000 $1,915,000
----------------------------------------------
"Audit fees" consisted of fees related to the annual audit of the Company's
consolidated financial statements and review of the financial statements in our
Quarterly Reports on Form 10-Q, consultations regarding generally accepted
accounting principles, and audit and attestation services related to statutory
or regulatory filings.
"Audit-related fees" consisted of fees related to the audits of employee benefit
plans and Sarbanes-Oxley planning.
"Tax fees" consisted of fees related to international tax compliance,
international tax advice and federal and state tax advice.
Representatives of Ernst & Young LLP will be present at the Annual Meeting. They
will be given the opportunity to make a statement if they desire to do so, and
they will be available to respond to appropriate questions following the
Meeting.
14
REPORT OF AUDIT COMMITTEE
--------------------------------------------------------------------------------
The following is the report of the Audit Committee with respect to the Company's
audited financial statements for the year ended December 31, 2003, which include
the consolidated balance sheets of the Company as of December 31, 2003 and 2002,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2003,
and the notes thereto (collectively, the "Financial Statements").
Management is responsible for the Company's internal controls and financial
reporting process. Ernst & Young LLP ("Ernst & Young"), the Company's
independent auditors, are responsible for performing an independent audit of the
Company's Financial Statements in accordance with generally accepted auditing
standards and for issuing a report. One of the Audit Committee's
responsibilities is to monitor and oversee these processes.
The Audit Committee has reviewed, met and held discussions with the Company's
management, internal auditors, and the independent auditors regarding the
Financial Statements, including a discussion of quality, not just acceptability,
of the Company's accounting principles, and Ernst & Young's judgment regarding
these matters.
The Audit Committee discussed with the Company's internal auditors and
independent auditors the overall scope and plans for their respective audits.
The Audit Committee met with the internal auditors and independent auditors,
with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting. The Audit Committee has
also discussed with Ernst & Young matters required to be discussed by applicable
auditing standards.
The Audit Committee has received the written disclosures and the letter from
Ernst & Young required by the Independence Standards Board and has also
considered the compatibility of non-audit services with Ernst & Young's
independence. This information was also discussed with Ernst & Young.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the Financial Statements be included
in the Company's Annual Report on Form 10-K for the year ended December 31, 2003
as filed with the Securities and Exchange Commission.
SUBMITTED BY:
AUDIT COMMITTEE, whose members are:
Frank V. Cahouet, Chairman
Paul S. Brentlinger, Vice Chairman
Diane C. Creel
James C. Diggs
William G. Ouchi
15
REPORT ON EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
The Personnel and Compensation Committee and Stock Incentive Award Subcommittee
(together referred to as the "Committee") furnish this report on executive
compensation. In discussions of stock awards to the named officers in the
Summary Compensation Table and other statutory insiders, the term "Committee"
refers to the Stock Incentive Award Subcommittee.
EXECUTIVE COMPENSATION CHARACTERISTICS
The Committee believes that total executive compensation at the Company should
have the following characteristics:
- It is to be competitive in the aggregate, using a set of business and labor
market competitors, including data supplied by Hewitt Associates, a nationally
recognized executive compensation consulting firm, to gauge the competitive
marketplace. Competitive for these purposes is a target base compensation at
the 50th percentile (median) for comparable positions.
- It is to be performance oriented, with a substantial portion of total
compensation tied to internal and external measures of Company performance.
Superior performance should increase total compensation opportunities to well
above the 50th percentile level.
- It is to link compensation to the interests of stockholders by promoting
performance that will enhance stockholder value and providing stock-based
incentives.
- It is to promote long-term careers with the Company.
COMPENSATION POLICIES AND PROGRAMS
Consistent with the characteristics outlined above, the Committee has adopted
the following policies and programs:
Base salary for all management positions will be at the industry or market
median for comparable positions unless there are sound reasons for significant
variations. The Committee's judgment is the guiding factor in determinations of
base salary, as well as other compensation issues.
Short-term incentives under the Annual Incentive Plan ("AIP") are designed to
provide the opportunity to earn a competitive (50th percentile) award, based on
the achievement of predefined performance measures. Under the general provisions
of the AIP, no compensation is earned if performance falls below preset
thresholds but up to 200% of the target award is paid in the case of significant
overachievement. The performance measures are based on financial performance
achievement and have included achievement of individual performance goals, with
a majority of the award based on financial performance. Discretionary
adjustments of plus or minus 20% are allowed in cases of individual achievement,
so long as aggregate adjustments do not exceed plus 5%.
Long-term incentives: 2003 was a transition year for the Company's long-term
incentive compensation programs, in large part due to the effects of the
Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") on the Company's Stock Acquisition
and Retention Program as discussed below.
In 2002, long-term incentives at the Company consisted of three components:
(1) Stock options -- Historically, stock options had been awarded to key
employees approved by the Committee, based on the participant's salary grade. An
annual number of options to be granted during the year were set at levels
generally perceived to be competitive. By the end of 2002, options to purchase
7.9 million shares were outstanding. Over 3.6 million of the options had an
exercise price of $20.00 or more and none of the options outstanding were
"in-the-money."
(2) Total Shareholder Return Incentive Compensation Program -- Under the Total
Shareholder Return Incentive Compensation Program ("TSRP"), participants receive
an award of an opportunity to earn a target number of shares that are earned
based on a comparison of the Company's total shareholder return ("TSR") for a
three-year performance period with the TSR during such period of a peer group of
companies approved by the Board of Directors. The peer group, which consists of
publicly held companies that engage in metals or metals-related businesses, is
not the same as the peer
16
group indexes used in the performance graph on page 28.
Participants in the TSRP can earn from 50% (at threshold) to a maximum of 200%
of the targeted number of shares, depending on the percentile rank of the
Company's TSR for the performance period as compared to the TSR of the peer
group of companies for the same period. Performance below threshold will earn
0%. Certificates for the earned number of shares of Common Stock, if any, are
issued to the participants after the end of the performance period.
(3) Stock Acquisition and Retention Program -- The Stock Acquisition and
Retention Program ("SARP"), which was initially implemented in 1994 following
stockholder approval of the plan, was designed to encourage key executives to
acquire and retain Common Stock. Under the SARP, certain executives could
purchase shares of Common Stock in exchange for a fully amortizable,
interest-bearing promissory note payable to the Company and the Company would
match the purchase with a grant of a certain number of shares of restricted
Common Stock. Dividends paid on the purchased and restricted shares were applied
to make payments on the notes.
After the enactment of Sarbanes-Oxley in July 2002, the Committee effectively
terminated the SARP for all participants so that no further loans or purchases
could be made. The Committee also decided that loans outstanding at the
effective date of Sarbanes-Oxley would remain in effect on the same terms and
conditions as in effect prior to the effective date of Sarbanes-Oxley, and the
executives would continue to make monthly payments on the notes in accordance
with their terms, until the Committee could determine an appropriate long-term
incentive plan to cause the Company's program to be competitive.
The enactment of Sarbanes-Oxley effectively frustrated the purposes of the SARP.
The immediate effect of Sarbanes-Oxley was to prevent new loans to senior
executives. The termination of the SARP in light of Sarbanes-Oxley prevented
formerly SARP-eligible executives from continuing participation in a program
with a long-term orientation and, therefore, from participating in the
subsequent recovery of the price of the Company's Common Stock. In addition,
having the SARP in place significantly limited the ability of the Committee to
design and implement an appropriate long-term incentive program.
In 2002, the Committee was advised by its consultant that, due to the suspension
of SARP, the long-term compensation portion of the Company's compensation
program was no longer competitive. Through 2002 and 2003, the Committee
continued to evaluate appropriate replacement long-term incentive compensation
programs.
Stock ownership guidelines: In January 2000, the Company adopted stock ownership
guidelines for its key executives. The guidelines, which call for a minimum
level of stock ownership based on the executive's base salary, are designed to
further link these executives' interests to increased stockholder value. The
guidelines were adopted in contemplation of the continuation of the SARP. In
light of the termination of the SARP as described below, these guidelines were
under review.
COMPENSATION IN 2003
In 2003, the Company continued to face difficult business conditions. The
Company's long-term incentive compensation programs continued to be in
transition. These events had the following effects on the compensation of the
Company's executives, including the executives named in the Summary Compensation
Table (the "named officers"), other than L. Patrick Hassey who became the
President and Chief Executive Officer of the Company on October 1, 2003:
AIP for 2003: In its consideration of performance targets for the 2003 AIP, the
Committee took into account the challenging economic conditions facing the
Company as well as the Company's cost reduction and expense containment programs
and management's action plan. The Committee also considered the adverse effects
on employee morale should the Committee not establish an AIP for 2003. The
Committee established goals that, individually and in the aggregate, represented
substantial challenges to management. For 2003, 50% of the award for AIP
participants was based on the achievement of predetermined levels of operating
income, 20% was based on cost reductions, 20% was based on managed working
capital
17
achievements, and 10% was tied to the achievement of specific individual
objectives. No payments would be made to corporate officers and other corporate
executives under the 2003 AIP if operating profit, as defined by the Committee,
was less than $115 million.
After the 2003 fiscal year ended, the Committee determined that, in the
aggregate, management had achieved 98% of the cost reduction goals and 95% of
the managed working capital targets under the 2003 AIP. Some individual
operating companies achieved targeted operating income. However, since the
minimum level of operating profit was not achieved, the Committee determined
that no awards would be paid to the corporate officers and the other corporate
executives under the AIP. Payments were made to participants at individual
operating companies that earned their targeted operating profit in 2003 on the
terms described in the plan.
Stock option program: In connection with the design of a long-term incentive
plan in light of the suspension of the SARP as well as the broad and on-going
discussion about stock options as a compensation device, the Committee
considered various ways to design a competitive stock-based long-term incentive
program. In late 2002, the Committee determined that options would form a part
of the ATI long-term compensation program for 2003 and determined a level of
annual grants for eligible employees at competitive levels. These options were
granted in January and February 2003 at annual grant levels deemed competitive.
TSRP: The Committee determined that there would be a new TSRP performance period
starting on January 1, 2003 and ending on December 31, 2005. Under the terms of
the TSRP, the Committee selected the eligible participants, established a target
number of performance shares for each participant and constructed the peer group
of companies for that performance period.
The first three-year performance period under the TSRP, for 2001 through 2003,
expired on December 31, 2003. At that time, the Company's percentile ranking was
31.03% compared to the total shareholder return (as defined in the TSRP) of the
peer group of companies identified under the TSRP for that performance period.
Since the percentile ranking was below the minimum 35% percentile, no amount was
paid under the TSRP for the 2001-2003 performance period.
Restricted share award: In March 2003, the Committee made awards of restricted
shares of Common Stock relating to calendar year 2002 to certain executives of
the Company who would have been eligible to make elections under the SARP in
2002 had the SARP not been suspended in August 2002. These awards were
calibrated to equal the opportunities lost in the third and fourth quarters of
2002 by former SARP participants who could not continue in the SARP because of
its suspension. The restrictions on the stock lapse on the earliest of (1) March
13, 2008, if the executive is then an employee of ATI, (2) the end of the fiscal
year for which ATI first reports positive earnings on an earnings per share
basis, or (3) the executive's death, disability or retirement or resignation for
good reason (as defined in the restricted stock agreement). Until the SARP was
terminated, dividends paid on the restricted shares were applied to pay any
outstanding SARP loans.
SARP termination: In August 2003, the Committee elected to complete the
termination of the SARP. Participants were permitted to sell shares purchased
with SARP loan proceeds in the open market on the condition that the proceeds of
the sales would be used to repay the then outstanding SARP loans. The proceeds
were insufficient in all cases to fully pay the outstanding SARP loan balances.
The Committee directed that the SARP participants be paid a cash termination
payment (the "SARP Termination Payment") equal in the respective amounts to the
sum of (1) the shortfall of the sales proceeds over loan amounts and (2)
federal, state and local income tax effects of the income described in (1). In
connection with the winding up of the SARP, on September 11, 2003, an aggregate
of 691,339 shares, previously purchased under the SARP between 1995 and the
effective date of Sarbanes-Oxley, were sold by participants to a financial
institution in a market transaction; all net proceeds from the sales of these
shares were received by the Company and used to reduce balances due under SARP
promissory notes. In addition, an aggregate of 501,970 restricted shares granted
to the participants under the SARP in prior years
18
as well as options to purchase an aggregate of 836,466 shares of Common Stock
previously granted were forfeited by SARP participants. The Company paid the
participants the cash SARP Termination Payment, which was then used by each
participant, net of individual tax consequences, to repay to the Company all
remaining balances owing on the SARP loans. The Committee also determined that
no equity compensation would be granted to SARP participants for at least six
months. The amount of the SARP Termination Payment used to pay the outstanding
loan balances is shown as "All Other Compensation" and the amount of the tax
gross-up is included in "Other Annual Compensation" in the Summary Compensation
Table below.
Increase in shares available for long-term incentive compensation programs: As
the Committee evaluated appropriate long-term compensation programs for the
Company's executives, it was concerned about the number of outstanding stock
options that were significantly "out-of-the-money." In February 2003, the
Committee directed management to develop a plan for Committee review to reduce
the option overhang by surrendering options. In September 2003, the Committee
approved an offer to permit individuals who held options to purchase Common
Stock with exercise prices of $20.00 or more to voluntarily surrender their
options in exchange for a cash payment of $0.10 per option; since the named
officers had forfeited their stock options in connection with the termination of
the SARP, they were not eligible to participate in this program. Options to
purchase approximately 1.8 million option shares were surrendered to the Company
under this program. As a result of these actions, together with the forfeiture
of shares of restricted stock and stock options that occurred as a result of the
termination of the SARP, the Committee believes that a sufficient number of
shares are available to establish an effective, forward looking long-term
incentive program.
The long-term incentive plan for 2004 does not include grants of additional
options but does include a continuation of the TSRP program and a grant of
performance- and time-based restricted shares, in all cases at levels deemed
competitive after a review of industry levels. In addition, the Committee has
revised the stock ownership guides for the Company's key executives, as follows:
CEO 3 times salary
Executive Officers 2 times salary
Other Key Executives 1 times salary
The executives have until September 2008 to reach the targeted ownership levels.
COMPENSATION OF CHIEF EXECUTIVE OFFICER -- L. PATRICK HASSEY
L. Patrick Hassey became the Company's President and Chief Executive Officer on
October 1, 2003. Under the terms of his employment agreement, Mr. Hassey is paid
an annual base salary of at least $850,000, which, according to the Committee's
consulting firm, is within the competitive range. Under the agreement, Mr.
Hassey received (a) a target level bonus for the October 1, 2003 to December 31,
2003 time period, and participation in the Company's Annual Incentive Program
("AIP") thereafter; (b) a sign on and retention bonus in the aggregate,
after-tax amount of $500,000 designed to cover the costs of his relocation to
Pittsburgh, Pennsylvania; and (c) an initial grant of 120,000 stock options,
which was the target award under the Company's stock option program and which
vested on the date he became the Company's President and Chief Executive
Officer. In addition, Mr. Hassey participates in the TSRP and will participate
in any successor to the SARP, when and if adopted, and participates in the
Supplemental Pension Plan on the terms outlined below.
COMPENSATION OF FORMER CHIEF EXECUTIVE OFFICER -- JAMES L. MURDY
James L. Murdy retired as the Company's President and Chief Executive Officer
effective September 30, 2003.
The amount of the base salary payable to Mr. Murdy in 2003 and the other terms
of his compensation (other than amounts relating to the SARP termination) were
established in July 2001, when Mr. Murdy became the Company's President and
Chief Executive Officer. In April 2003, Mr. Murdy's base salary was reduced by
10%, in view of the difficult
19
business and economic conditions impacting the Company.
For reasons discussed above, no amount was paid to Mr. Murdy or any other
corporate executive under the AIP for 2003 and no amounts were paid to Mr. Murdy
or any other participant under the TSRP for the 2001-2003 performance period.
In December 2002, Mr. Murdy received an award of an opportunity to earn shares
under the TSRP for the 2003-2005 performance period. In January and February
2003, Mr. Murdy received a target level award of options to purchase a total of
120,000 shares of Common Stock under the Company's stock option program, which
become exercisable in three annual installments. In March 2003, Mr. Murdy
received a grant of 126,882 restricted shares of Common Stock relating to
calendar year 2002 under the grants to Company executives who would have been
eligible to make elections under the SARP in 2002 had the SARP not been
suspended in August 2002.
In September 2003, Mr. Murdy's participation in the SARP was terminated on the
terms described above. As a result of this termination, 107,592 shares of Common
Stock Mr. Murdy had purchased under the SARP were sold in a market transaction;
the net proceeds of this sale were paid to the Company and reduced the balances
due under Mr. Murdy's SARP promissory notes. In addition, Mr. Murdy forfeited
71,031 shares of restricted stock previously awarded to him under the SARP and
options to purchase 97,819 shares. As a result of the SARP termination, Mr.
Murdy was deemed to have received the $927,280 used to repay the Company all
remaining balances owing on his SARP loans, which is included in "All Other
Compensation," and $631,698 for the associated tax gross-up, which is included
in "Other Annual Compensation" in the Summary Compensation Table below.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(a) of the Internal Revenue Code imposes limits on tax deductions for
annual compensation paid to a chief executive officer and other highly
compensated officers unless the compensation qualifies as "performance-based" or
is otherwise exempt under the law. The Company's Incentive Plan is intended to
meet the deductibility requirements of the regulations promulgated under Section
162(m). The Committee, however, may determine in any year, as it did in 2003 in
connection with the one-time sign on and retention bonus and the SARP
Termination Payment, that it would be in the best interests of the Company for
certain awards to be paid to the named officers that would not satisfy the
requirements of Section 162(m) for deductibility.
SUBMITTED BY:
PERSONNEL AND COMPENSATION
COMMITTEE, whose members are:
Charles J. Queenan, Jr., Chairman
Diane C. Creel, Vice Chair
C. Fred Fetterolf
W. Craig McClelland
William G. Ouchi
STOCK INCENTIVE AWARD
SUBCOMMITTEE, whose members are:
Diane C. Creel, Chairman
C. Fred Fetterolf
W. Craig McClelland
William G. Ouchi
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Personnel and Compensation Committee or Stock Incentive Award
Subcommittee is an officer or employee of the Company. Mr. Queenan serves as
senior counsel to a law firm that provided services to the Company during 2003
and 2004. Mr. Queenan does not participate in that firm's earnings or profits.
No other member of the Committee has a current or prior relationship, and no
officer who is a statutory insider of the Company has a relationship to any
other company required to be described under the Securities and Exchange
Commission rules relating to disclosure of executive compensation.
20
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth information about the
compensation paid by the Company to the Chief Executive Officer and to each of
the other four most highly compensated officers required to file reports under
Section 16 of the Securities Exchange Act of 1934, as of December 31, 2003, and
to James L. Murdy who served as President and Chief Executive Officer prior to
his retirement on September 30, 2003 (the "named officers").
Amounts for 2003 include the following one-time payments made on the termination
of the SARP (see Report on Executive Compensation above): (1) amounts used to
pay taxes the executives incurred on the termination of the SARP are included in
Other Annual Compensation, and (2) amounts used to pay the Company outstanding
loan balances under the SARP are included in All Other Compensation. The Table
does not reflect the forfeitures of shares of restricted stock and stock options
that occurred in the SARP termination, as described more fully in the Report on
Executive Compensation above and in note (6) below. Most of the remaining
amounts in All Other Compensation represent accruals on the Company's financial
statements for possible future payments to the named officers under the
Supplemental Pension Plan.
Annual Compensation Long-Term Compensation
--------------------------------- --------------------------------------
Awards Payouts
------ -------
Other Securities
Annual Under-
Name and Compen- Restricted lying LTIP All Other
Principal Salary Bonus sation Stock Options Payouts Compensation
Positions(1) Year ($)(2) ($)(3) ($)(4) Award($)(5) (Shares)(7) ($)(8) ($)(9)
-------------------------------------------------------------------------------------------------------------------------------
L. Patrick Hassey 2003 212,500 670,000 352,680 0 120,000 0 124,314
President and
Chief Executive Officer
James L. Murdy 2003 455,000 0 649,586 295,001 120,000 0 1,611,237
Former President and 2002 585,000 0 54,332 325,000(6) 180,000 48,287 683,169
Chief Executive Officer 2001 530,000 350,000 23,519 180,000(6) 35,000 46,193 1,100,968
Richard J. Harshman 2003 305,000 0 329,222 59,999 40,000 0 517,687
Executive Vice President-Finance 2002 300,000 0 58,160 300,000(6) 60,000 18,896 129,783
and Chief Financial Officer 2001 257,500 125,000 20,389 22,462(6) 12,500 18,077 61,552
Douglas A. Kittenbrink 2003 336,872 0 387,971 70,001 40,000 0 615,952
Executive Vice President, 2002 350,000 0 57,073 268,000(6) 60,000 16,983 169,361
ATI Business Systems and 2001 312,500 175,000 27,910 56,245(6) 15,000 16,246 103,152
Group President, Engineered
Products Segment
Jack W. Shilling 2003 385,003 0 527,065 80,001 40,000 0 961,936
Executive Vice President, 2002 400,000 0 62,165 400,000(6) 60,000 28,837 316,869
Corporate Development and 2001 365,000 200,000 27,192 52,487(6) 15,000 27,586 323,500
Chief Technical Officer
Jon D. Walton 2003 327,253 0 522,768 67,999 40,000 0 905,671
Executive Vice President, 2002 340,000 0 60,478 340,000(6) 60,000 36,042 357,605
Human Resources, 2001 320,000 175,000 22,306 29,962(6) 15,000 34,479 260,896
Chief Legal and Compliance
Officer
The named officers received the following cash compensation for their employment
in 2003: Mr. Hassey, $882,500; Mr. Murdy, $455,000; Mr. Harshman, $305,000; Mr.
Kittenbrink, $336,872; Dr. Shilling, $385,003; and Mr. Walton, $327,253. In
addition, effective April 1, 2003, the Company cancelled various benefits
previously provided to Company executives, including financial planning
assistance, business-related health and country club memberships, and use of a
Company-supplied car.
(1) Mr. Hassey became President and Chief Executive Officer on October 1, 2003.
Prior to October 1, 2003, Mr. Hassey was an outside consultant to ATI
executive management. He also served as a non-employee director of the
Company from July 1 through September 30, 2003. Mr. Murdy retired as
President and Chief Executive Officer on September 30, 2003. The other named
officers were named to their respective offices in October 2003.
21
(2) Includes cash compensation deferred pursuant to the savings portion of the
Company's Retirement Savings Plan, a qualified defined contribution plan
under Section 401(a) of the Internal Revenue Code. In April 2003, in view of
the difficult business and economic conditions impacting the Company, Mr.
Murdy's base salary was reduced by 10% and the base salaries of the other
named officers who were then employed by the Company were reduced by 5%.
(3) Includes payments under the Company's Annual Incentive Plan and, for Mr.
Hassey, the amount of the sign on and retention bonus payable to him under
his employment agreement. See Employment Agreement and Change in Control
Agreements below.
(4) In accordance with applicable regulations, for 2001 and 2003, the amounts do
not include perquisites and other personal benefits received individually by
the named officers because the aggregate value of such benefits did not
exceed the lesser of $50,000 or 10% of the total annual salary and bonus for
the named officers. For 2003, includes amounts reimbursed for the payment of
taxes substantially all of which, for Mr. Hassey, related to the sign on and
retention bonus designed to cover the costs of his relocation to Pittsburgh,
Pennsylvania, and for the other named officers, related to amounts received
in the SARP termination which were then used to repay to the Company
balances outstanding on the SARP loans. See Report on Executive Compensation
above.
(5) Represents the market price on the award date of shares of restricted Common
Stock awarded to the named officers. For 2002 and 2001, represented
restricted shares issued under the SARP, which was effectively terminated in
2002 and wound up in 2003 due to the enactment of Sarbanes-Oxley. Dividends
are paid on the restricted shares. Until the SARP was terminated, dividends
paid on the restricted shares were applied to the principal balance of any
outstanding SARP loans. The total number of restricted shares held by the
named officers on December 31, 2003 and the closing market price of such
shares (if unrestricted) on the last business day of 2003 were Mr. Harshman,
25,806 shares ($341,155); Mr. Kittenbrink, 30,108 shares, ($398,028); Dr.
Shilling, 34,409 shares ($454,887); and Mr. Walton, 29,247 shares
($386,645). The restrictions on the stock awarded to Mr. Murdy terminated on
his retirement as President and Chief Executive Office on September 30,
2003. See Report on Executive Compensation above for a discussion of the
SARP termination.
(6) The restricted shares reported for 2002 and 2001 were included in the
restricted shares the named officers forfeited in connection with the SARP
termination. See Report on Executive Compensation above. In connection with
the SARP termination, the number of restricted shares and stock options
forfeited were as follows: Mr. Murdy, 71,031 shares and 97,819 options; Mr.
Harshman, 43,998 shares and 33,634 options; Mr. Kittenbrink, 46,438 shares
and 55,997 options; Dr. Shilling, 62,329 shares and 62,554 options; and Mr.
Walton, 54,481 shares and 89,316 options.
(7) Reflects options granted under the Company's Incentive Plan. The amount
shown represents the number of shares the named officer could purchase by
exercising the options. Does not include options to purchase 1,000 shares of
Common Stock that Mr. Hassey received as compensation for his service as a
non-employee director prior to October 1, 2003.
(8) For 2001 and 2002, the amounts shown include cash and the closing market
price of Common Stock distributed under the Performance Share Plan for the
1999 - 2000 award period. This plan was discontinued and replaced by the
Total Shareholder Return Incentive Compensation Plan (the "TSRP") in 2001.
No amount was paid under the TSRP for the 2001-2003 performance period.
(9) For 2003, the principal amount of All Other Compensation consists of amounts
the named officers received on the termination of the SARP, the long-term
incentive plan terminated in light of Sarbanes-Oxley, which were then used
to repay to the Company balances outstanding on the SARP loans, which
amounts were: Mr. Murdy, $927,280; Mr. Harshman, $457,658; Mr. Kittenbrink,
$546,676; Dr. Shilling, $752,928 and Mr. Walton, $737,562. Also includes
annual accruals by the Company for possible future payments to the named
officers under the Supplemental Pension Plan described under "Pension Plans"
on page 25. For 2003, the amounts accrued were: Mr. Hassey, $103,250; Mr.
Murdy, $629,266; Mr. Harshman, $25,311; Mr. Kittenbrink, $34,211; Dr.
Shilling, $164,331 and Mr. Walton, $128,118. Following his retirement, in
2003, Mr. Murdy received payments of $108,333 under the Supplemental Pension
Plan. Includes 2003 Company contributions pursuant to the retirement portion
of the Company's Retirement Savings Plan to the named officers in the amount
of $13,520 each and the Company's matching contributions pursuant to the
savings portion of that Plan in the amount of $3,542 for Mr. Hassey and in
the amount of $6,000 for the each of other named officers. Includes 2003
Company contributions to the Benefit Restoration Plan, as follows: Mr.
Hassey, $2,583; Mr. Murdy, $27,475; Mr. Harshman, $13,025; Mr. Kittenbrink,
$14,687; Dr. Shilling, $21,425; and Mr. Walton, $15,361. Under the Benefit
Restoration Plan, the Company supplements the payments received by
participants under the pension provisions described under "Pension Plans" on
page 25 and the Retirement Savings Plan by making payments to or accruing
benefits on behalf of the participants in amounts that are equivalent to the
portion of the payments or benefits that cannot be paid or accrued under
such plans due to limitations imposed by the Internal Revenue Code. Includes
the premium cost of group insurance coverage in excess of $50,000 as
follows: Mr. Hassey, $1,419; Mr. Murdy, $6,996; Mr. Harshman, $973; Mr.
Kittenbrink, $1,128; Dr. Shilling, $3,732; and Mr. Walton, $4,810. Also
includes the Company cash contribution under the employee stock purchase
plan, as follows: Mr. Murdy, $700; Mr. Harshman, $1,200; and Mr. Walton,
$300. Does not include consulting fees of $119,000 or directors fees of
$15,004 earned by Mr. Hassey prior to his employment by the Company.
22
STOCK OPTIONS
The first table sets forth information regarding options granted during 2003
under the Company's Incentive Plan.
The second table indicates that none of the named officers exercised stock
options during 2003 and sets forth the unexercised options held at December 31,
2003.
Option Grants In Last Fiscal Year
--------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS(1) PRICE APPRECIATION FOR OPTION TERM(3)
-------------------------------------------------------------------------------------- --------------------------------------
% OF TOTAL
OPTIONS OPTIONS
GRANTED GRANTED TO EXERCISE OR
(# OF EMPLOYEES BASE PRICE EXPIRATION 0% 5% 10%
NAME SHARES)(2) IN 2003 ($/SHARE) DATE ($)(4) ($) ($)
---- ------------ ------------ ------------- ----------------- ------ -------- ----------
L. P. Hassey.......... 120,000 5.6% 6.73 10/01/2013 0 507,895 1,287,106
J. L. Murdy........... 30,000 1.4% 5.700 1/24/2013 0 107,541 272,530
90,000 4.2% 3.625 2/12/2013 0 205,177 519,958
R. J. Harshman........ 10,000 0.5% 5.700 1/24/2013 0 35,847 90,843
30,000 1.4% 3.625 2/12/2013 0 68,392 173,319
D. A. Kittenbrink..... 10,000 0.5% 5.700 1/24/2013 0 35,847 90,843
30,000 1.4% 3.625 2/12/2013 0 68,392 173,319
J. W. Shilling........ 10,000 0.5% 5.700 1/24/2013 0 35,847 90,843
30,000 1.4% 3.625 2/12/2013 0 68,392 173,319
J. D. Walton.......... 10,000 0.5% 5.700 1/24/2013 0 35,847 90,843
30,000 1.4% 3.625 2/12/2013 0 68,392 173,319
-------------------------------------------------------------------------------------------------------------------------------
(1) Stock options generally become exercisable in three annual installments
beginning one year after the date of grant. Options include the right to pay
the exercise price in cash, Common Stock or a combination, and the right to
have shares withheld by the Company to pay withholding tax obligations due
on the exercise.
(2) Options were granted on January 24, 2003, and February 12, 2003, to the
named officers except for Mr. Hassey who was granted options effective
October 1, 2003, when he became President and Chief Executive Officer. Does
not include options to purchase 1,000 shares of Common Stock that Mr. Hassey
received as compensation for his service as a non-employee director prior to
October 1, 2003.
(3) These assumed "potential realizable values" are mathematically derived from
certain prescribed rates of stock price appreciation. The actual value of
these option grants depends on the future performance of the Common Stock
and overall stock market conditions. The values reflected in this table may
not be achieved.
(4) No gain to the optionees is possible without stock price appreciation, which
will benefit all stockholders commensurately.
23
Aggregated Option Exercises In 2003 And Fiscal Year-End Option Values at
December 31, 2003
--------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/03 (#) OPTIONS AT 12/31/03 ($)(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
L. P. Hassey(2).................. 0 0 120,000 1,000 792,600 6,605
J. L. Murdy...................... 0 0 93,333 81,667 287,550 575,100
R. J. Harshman................... 0 0 38,165 48,173 95,842 191,708
D. A. Kittenbrink................ 0 0 36,663 43,337 95,842 191,708
J. W. Shilling................... 0 0 36,663 43,337 95,842 191,708
J. D. Walton..................... 0 0 36,663 43,337 95,842 191,708
(1) The "value" of unexercised options is calculated by subtracting the exercise
price per share from $13.335, which was the average of the high and low
sales prices of a share of Company Common Stock on the New York Stock
Exchange on the last business day of 2003.
(2) Includes options to purchase 1,000 shares of Common Stock that Mr. Hassey
received as compensation for his service as a non-employee director prior to
October 1, 2003.
In connection with the termination of the SARP, named officer participants
forfeited 339,320 options previously granted to them.
LONG-TERM INCENTIVE PROGRAM
The following table sets forth information about awards for the 2003-2005
performance period established in 2003 under the Total Shareholder Return
Incentive Compensation Program ("the TSRP").
The amounts included in the Estimated Future Payouts columns represent the
potential issuance of Common Stock to the named officers depending on the level
of achievement (i.e., threshold, target or maximum) of the performance goals for
the three-year performance period. Participants will not receive any shares of
Common Stock under the program if the Company does not achieve the threshold
level of performance objectives during the performance period.
Total Shareholder Return Incentive Compensation Program -- Awards In 2003
--------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK PRICE-BASED PLANS
NUMBER OF OTHER PERIOD UNTIL -----------------------------------
SHARES, UNITS MATURATION OR THRESHOLD TARGET MAXIMUM
NAME OR OTHER RIGHTS PAYOUT(1) (#) (#) (#)
---- --------------- --------------------- ---------- ------- --------
L. P. Hassey.......................... 61,893(2) 2003-2005 30,947(2) 61,893(2) 123,786(2)
J. L. Murdy........................... 63,107(3) 2003-2005 31,554(3) 63,107(3) 126,214(3)
R. J. Harshman........................ 24,272 2003-2005 12,136 24,272 48,544
D. A. Kittenbrink..................... 28,317 2003-2005 14,159 28,317 56,634
J. W. Shilling........................ 32,362 2003-2005 16,181 32,362 64,724
J. D. Walton.......................... 27,508 2003-2005 13,754 27,508 55,016
(1) The amount of the award is based on base salary at the beginning of the
performance period. At the time the award opportunity was set, the awards
were denominated in shares of Common Stock (with the number of shares based
on average price of a share of Common Stock on the New York Stock Exchange
for a fixed period immediately prior to the beginning of the performance
period).
(2) Amounts were pro-rated because Mr. Hassey's employment began on October 1,
2003.
(3) Following his retirement on September 30, 2003, the award payable to Mr.
Murdy was reduced by 75% to a threshold award of 7,889 shares, a target
award of 15,777 shares and a maximum award of 31,554 shares.
24
PENSION PLANS
The Company maintains a qualified defined benefit pension plan, called the
Allegheny Technologies Incorporated Pension Plan ("ATI Pension Plan"), which has
a number of benefit formulas that apply separately to various groups of
employees and retirees. In general, the variances among formulas are determined
by work location and job classification. Major differences include whether the
employee was employed by Allegheny Ludlum Corporation ("Allegheny Ludlum") or
Teledyne, Inc. ("TDY") at the time those corporations engaged in a business
combination to form the Company in 1996 and whether the employee is an executive
officer of the Company. Mr. Hassey does not participate in the ATI Pension Plan.
The benefits payable from a qualified defined benefit plan are limited by the
Internal Revenue Code. The Company has established non-qualified plans to
restore benefits to employees affected by those limitations. Messrs. Hassey,
Kittenbrink and Walton do not participate, and Mr. Murdy did not participate, in
the defined benefit portion of the restoration plans.
The following table shows the estimated annual benefits calculated on a straight
life annuity basis payable under the provisions of the ATI Pension Plan
generally applicable to Allegheny Ludlum employees with the corresponding
defined benefit portion of the benefit restoration plan for salaried
participants in specified compensation and years of service classifications upon
attainment of age 65:
ESTIMATED ANNUAL PENSION BENEFITS FOR
REPRESENTATIVE YEARS OF CONTINUOUS SERVICE*
-------------------------------------------------------------------------
REMUNERATION 20 25 30 35 40 45
------------ -------- ---------- ---------- ---------- ---------- ----------
$ 200,000 $ 63,416 $ 79,270 $ 95,124 $ 110,978 $ 126,832 $ 126,832
300,000 95,416 119,270 143,124 166,978 190,832 190,832
400,000 127,416 159,270 191,124 222,978 254,832 254,832
500,000 159,416 199,270 239,124 278,978 318,832 318,832
600,000 191,416 239,270 287,124 344,978 382,832 382,832
800,000 255,416 319,270 383,124 446,978 510,832 510,832
1,000,000 319,416 399,270 479,124 558,978 638,832 638,832
1,500,000 479,416 599,270 719,124 838,978 958,832 958,832
2,000,000 639,416 799,270 959,124 1,118,978 1,278,832 1,278,832
2,500,000 799,416 999,270 1,199,124 1,398,978 1,598,832 1,598,832
* The set of formulas used to determine retirement benefits under the pension
provisions applicable to employees of Allegheny Ludlum considers the
participant's annual eligible earnings in the highest five consecutive years
of the last ten years prior to retirement at an accrual rate per year of
service not to exceed limitations under applicable law multiplied by years of
service recognized under the ATI Pension Plan. Eligible earnings include base
salary, including tax-deferred contributions by the employee under the
Company's savings plans, and awards, when received, under the Company's
short-term incentive plans. Benefits are integrated with social security.
25
The following table shows the estimated annual benefits calculated on a straight
life annuity basis payable under the provisions of the ATI Pension Plan
generally applicable to TDY employees with the corresponding defined benefit
portion of the benefit restoration plan for salaried participants in specified
compensation and years of service classifications upon attainment of age 65:
ESTIMATED ANNUAL PENSION BENEFITS FOR
REPRESENTATIVE YEARS OF CONTINUOUS SERVICE FOR TDY*
-------------------------------------------------------------------------
REMUNERATION 20 25 30 35 40 45
------------ -------- ---------- ---------- ---------- ---------- ----------
$ 200,000 59,983 74,979 89,975 104,970 119,966 134,962
300,000 92,983 116,229 139,475 162,720 185,966 209,212
400,000 125,983 157,479 188,975 220,470 251,966 283,462
500,000 158,983 198,729 238,475 278,220 317,966 357,712
600,000 191,983 239,979 287,975 335,970 383,966 431,962
800,000 257,983 322,479 386,975 451,470 515,966 580,462
1,000,000 323,983 404,979 485,975 566,970 647,966 728,962
1,500,000 488,983 611,229 733,475 855,720 977,966 1,100,212
2,000,000 653,983 817,479 980,975 1,144,470 1,307,966 1,471,462
2,500,000 818,983 1,023,729 1,228,475 1,433,220 1,637,966 1,842,712
* The formula considers the participant's annual eligible earnings in the
highest five consecutive years of the last ten years prior to retirement, and
the participant's years of service, except for employee participants in the
corporate headquarters, which uses years of service to 1998. Eligible
earnings include base salary, including tax-deferred contributions by the
employee under the Company's savings plans, and awards, when received, under
the Company's short-term incentive plans. Benefits are integrated with social
security.
Certain executive officers of the Company, excluding Mr. Hassey, participate in
the ATI Pension Plan at specified, actuarially determined accrual rates per year
that do not exceed annual accrual rates permitted under the Internal Revenue
Code. The monthly straight life annuity value is determined by multiplying (1)
the highest rate of monthly compensation in the five years prior to retirement
after giving effect to applicable limitations on compensation imposed by Section
401(a)(17) of the Internal Revenue Code by (2) the specified accrual rate and
then by (3) years of service not in excess of 30. Benefits are not subject to
offset for Social Security or other third party benefits. These benefits are
subject to further reduction to comply with any applicable limitation under the
Internal Revenue Code. Mr. Murdy retired on September 30, 2003 with 15.33 years
of credited service under the ATI Pension Plan. As of December 31, 2003,
credited years of service recognized under the ATI Pension Plan were 30.92 for
Dr. Shilling, 11.67 for Mr. Kittenbrink, 17.83 for Mr. Walton and 25.67 for Mr.
Harshman.
In addition, the Company has established a Supplemental Pension Plan that
provides certain key employees of the Company and its subsidiaries, including
the named officers (or their beneficiaries in the event of death), with monthly
payments in the event of retirement, disability or death, equal to 50% of
monthly base salary as of the date of retirement, disability or death. Monthly
retirement benefits start following the end of the two-month period after the
later of (1) age 62, if actual retirement occurs prior to age 62 but after age
58 with the approval of the Board of Directors, or (2) the date actual
retirement occurs and generally continue for a 118-month period. With respect to
Mr. Hassey, one year of payments is accrued for each year of service, to a
maximum of 10 years. The plan describes the events that will terminate an
employee's participation in the plan. In 2003, following his retirement as
President and Chief Executive Officer, Mr. Murdy received payments of $108,333
under the Supplemental Pension Plan. Since the payment of benefits to the
employee participants is contingent on future events, the amount to be paid in
the future with respect to such officers cannot be determined at this time.
26
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
In August 2003, the Company entered into an employment agreement with L. Patrick
Hassey in connection with his employment as President and Chief Executive
Officer, effective October 1, 2003. Under the terms of his employment agreement,
Mr. Hassey is paid an annual base salary of at least $850,000. Under the
agreement, for 2003, Mr. Hassey received (a) a target level bonus for the
October 1, 2003 to December 31, 2003 time period, and participation in the
Company's Annual Incentive Program thereafter; (b) a sign on and retention bonus
in the aggregate, after-tax amount of $500,000 designed to cover the costs of
his relocation to Pittsburgh, Pennsylvania; and (c) an initial grant of 120,000
stock options, which was the target award amount under the Company's stock
option program and which vested on the date he became the Company's President
and Chief Executive Officer. In addition, Mr. Hassey is entitled to participate
in the Company's other executive compensation programs, including the TSRP and
the Supplemental Pension Plan on the terms outlined above, and will participate
in any successor to SARP, when and if adopted. The agreement provides that if
the Company terminates Mr. Hassey's employment for reasons other than cause or
he resigns for good reason (as such terms are defined in the employment
agreement), Mr. Hassey will receive a cash severance payment equal to three
times the sum of his annual base salary plus the amount of AIP payable for the
year at the greater of actual-to-date performance or target; all accrued
benefits; acceleration of the vesting of stock options and stock-based rights;
earned but not yet paid TSRP or other equity-based awards; unless such
termination or resignation occurs after a change of control. If such termination
or resignation occurs within one year after a change of control, Mr. Hassey will
receive payments with respect to the TSRP for the completed and uncompleted
performance periods, equity-based awards will vest at the target level of
performance, and he will be reimbursed for taxes, including excise taxes,
assessed.
The Company entered an employment agreement with Mr. Walton in connection with
the combination of Allegheny Ludlum and Teledyne in 1996. The agreement provides
for the payment of base salary as well as for eligibility to participate in
incentive compensation, equity, employee and fringe benefit plans offered to
senior executives of the Company. By its terms, the agreement renews
automatically each month absent notice from one party to the other, so that the
then remaining term is one year. The agreement generally terminates prior to the
expiration date without breach by any party in the event of Mr. Walton's death,
disability or voluntary resignation. The Company may also terminate the
agreement for cause without breach by it. Mr. Walton may resign for good reason
(which is defined to include demotion, reduction in base pay or movement of
corporate headquarters) and receive severance payments equal to the base pay and
bonus, determined based on actual financial results, as well as continued
participation in certain compensation and employee benefit plans, for one year,
including certain supplemental pension benefits.
In 2000, the Company entered into change in control severance agreements, as
amended, with the named officers other than Mr. Hassey and other key employees
to assure the Company that it will have the continued support of the executive
and the availability of the executive's advice and counsel notwithstanding the
possibility, threat or occurrence of a change in control (as defined in the
agreement). In general, the agreements provide for the payment of severance
benefits if a change in control occurs and within 24 months after the change in
control either the Company terminates the executive's employment with the
Company without cause (as defined) or the executive terminates employment with
the Company for good reason (as defined). Severance compensation includes a
multiple of base salary (three for Messrs., Harshman, Kittenbrink, Shilling, and
Walton), certain accrued benefits, a prorated payment of an incentive bonus
equal to that which would have been paid had the Company achieved 120% of
target, a lump-sum payment under the long-term incentive program based on the
Company's performance for completed years and for future years assuming that the
Company would have achieved 120% of target, the continuation of welfare benefits
for 36 months and reimbursement for outplacement services. The agreements also
provide for the vesting of outstanding options and provided for the lifting of
restrictions on stock awarded under the SARP. The agreements have a term of
three years, which three-year term will continue to be extended until either
party gives written notice
27
that it no longer wants to continue to extend the term. If a change of control
occurs during the term, the agreements will remain in effect for the longer of
three years or until all obligations of the Company under the agreements have
been fulfilled. In 2003, the Change of Control Agreement between the Company and
Mr. Murdy, which would otherwise expire on the date of his retirement, was
amended to continue into retirement the provision that, in the event of a change
of control, Mr. Murdy's then balance under the Supplemental Pension Plan would
be paid in a single, lump sum cash payment.
CUMULATIVE TOTAL STOCKHOLDER RETURN
--------------------------------------------------------------------------------
The graph set forth below shows the cumulative total stockholder return (i.e.,
price change plus reinvestment of dividends) on the Common Stock from December
31, 1998 through December 31, 2003 as compared to the S&P 500 Index and the S&P
Iron & Steel Index. The graph assumes that $100 was invested on December 31,
1998.
[GRAPH]
ALLEGHENY TECHNOLOGIES INC S&P 500 INDEX IRON & STEEL-500
-------------------------- ------------- ----------------
Dec-98 100 100 100
Dec-99 64.62 121.04 109.99
Dec-00 47.57 110.02 69.14
Dec-01 52.47 96.95 88.74
Dec-02 20.62 75.52 67.76
Dec-03 45.74 97.18 114.92
On November 29, 1999, the Company completed the transformation, which included
the spin-offs of Teledyne Technologies Incorporated (NYSE: TDY) and Water Pik
Technologies, Inc. (NYSE: PIK). In the spin-offs, holders of record on November
22, 1999 received one Teledyne Technologies share for each seven shares of
Company Common Stock and one Water Pik share for each twenty shares of Company
Common Stock, based on the number of shares of Company Common Stock they held
prior to the one-for-two reverse stock split. Therefore, the value illustrated
above from the period December 1999 through December 2003, does not include
Teledyne Technologies and Water Pik Technologies.
28
CERTAIN TRANSACTIONS
--------------------------------------------------------------------------------
Certain Relationships. The Company does business with entities on whose boards
certain of the Company's directors serve. The Board, through the Nominating and
Governance Committee, has reviewed each of these relationships and has concluded
that each are done in the normal course of business, that none interferes with
the exercise of independent judgment by any of the Company's independent
directors, and none requires any additional disclosure.
Family Relationship. Terry L. Dunlap, President of Allegheny Ludlum Corporation,
is a member of the immediate family of Robert P. Bozzone, Chairman. During 2003,
Mr. Dunlap received cash compensation of $221,375 and participated in various
compensation programs described in this proxy statement.
Kirkpatrick & Lockhart LLP. The Company retained the law firm of Kirkpatrick &
Lockhart LLP to perform services for the Company during 2003 and 2004. Charles
J. Queenan, Jr., a member of the Company's Board of Directors, is senior counsel
to that law firm. See "Compensation Committee Interlocks and Insider
Participation" on page 20.
Loans under Stock Acquisition and Retention Program. Under the terms of the
Company's Stock Acquisition And Retention Program ("SARP"), prior to the
effective date of Sarbanes-Oxley, eligible participants were entitled to deliver
a fully amortizable, interest-bearing promissory note, payable to the Company,
as payment for the purchase price of shares of Common Stock purchased under the
program. Each note had a term of not more than 10 years and was secured by the
shares of Common Stock being purchased with the note. Interest accrued on the
notes at a rate, as determined on the applicable purchase date, equal to the
lesser of the average borrowing rate of the Company or the prime lending rate of
PNC Bank, but not lower than the minimum rate necessary to avoid imputed
interest under applicable federal income tax laws. The SARP was terminated in
2003 and all notes were fully repaid on termination of the SARP. The largest
amount of indebtedness outstanding under the programs during the 2003 fiscal
year were $1,755,691 for Mr. Murdy, $833,581 for Mr. Harshman, $969,479 for Mr.
Kittenbrink, $1,373,347 for Dr. Shilling, $1,311,779 for Mr. Walton, and $93,077
for Mr. Dunlap, President of Allegheny Ludlum Corporation, and a member of Mr.
Bozzone's immediate family. No amounts of indebtedness were outstanding as of
December 31, 2003.
OTHER INFORMATION
--------------------------------------------------------------------------------
ANNUAL REPORT ON FORM 10-K
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, CAN BE
OBTAINED WITHOUT CHARGE FROM THE CORPORATE SECRETARY AT 1000 SIX PPG PLACE,
PITTSBURGH, PENNSYLVANIA 15222-5479 OR (412) 394-2800.
PROXY SOLICITATION
The Company pays the cost of preparing, assembling and mailing this
proxy-soliciting material. We will reimburse banks, brokers and other nominee
holders for reasonable expenses they incur in sending these proxy materials to
our beneficial stockholders whose stock is registered in the nominee's name.
The Company has engaged Morrow & Company, Inc. to help solicit proxies from
brokers, banks and other nominee holders of the Common Stock at a cost of $8,000
plus expenses. Our employees may also solicit proxies for no additional
compensation.
On behalf of the Board of Directors:
/s/ Jon D. Walton
Jon D. Walton
Executive Vice President, Chief Legal and Compliance Officer and Corporate
Secretary
Dated: March 29, 2004
29
APPENDIX A
AUDIT COMMITTEE CHARTER
The Board of Directors shall appoint annually the Audit Committee (the
"Committee") and appoint its Chairman. Members of the Committee shall serve at
the will of the Board of Directors.
COMPOSITION
The Committee shall be comprised of three or more directors, and shall meet the
size, independence and financial literacy and expertise requirements of the New
York Stock Exchange ("NYSE"), of Section 10A(m)(3) of the Securities and
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations
promulgated by the Securities and Exchange Commission ("SEC"), as may be in
effect from time to time. The Board of Directors shall endeavor to appoint at
least one member to the Committee who is an "audit committee financial expert"
as defined by the SEC.
Committee members shall not simultaneously serve on the audit committees of more
than two other companies without first obtaining approval from the Company's
Board of Directors.
PURPOSE
The Committee's primary purpose shall be to assist the Board of Directors'
oversight of (i) the integrity of the financial statements of the Company, (ii)
the Company's compliance with legal and regulatory requirements, (iii) the
qualifications and independence of the Company's independent accountants engaged
for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company ("independent accountants") and
(iv) the performance of the Company's internal audit function and independent
accountants. The Committee shall also prepare the audit committee report
required by the SEC to be included in the Company's annual proxy statement. The
Committee shall also perform such other duties and responsibilities set forth in
and consistent with this Charter.
AUTHORITY
The Committee shall have the authority to review and investigate any matter or
activity involving financial accounting, reporting, conflict of interest, or
internal controls of the Company. The Committee shall have the authority to
obtain advice and assistance from outside legal, accounting or other advisors
without seeking approval from the Board of Directors. The Company shall provide
appropriate funding to the Committee for payment of (i) the compensation of any
registered accounting firm engaged for the purpose of preparing or issuing an
audit report or performing other audit, review or attest services for the
Company, (ii) compensation to any advisors employed by the Committee and (iii)
the Committee's ordinary administrative expenses that are necessary or
appropriate in carrying out its duties.
DUTIES AND RESPONSIBILITIES
The Committee shall:
1. Lead the Board of Directors in fulfilling its statutory and fiduciary
responsibilities for fiscal examinations of the Company and in monitoring
management's and the independent accountants' participation in the Company's
accounting and financial reporting process.
2. Review the Company's administrative, operational and internal accounting
controls and its prescribed fiscal procedures, financial controls and codes
of conduct with the independent accountants and the Company's financial
management.
3. Exercise sole authority to appoint, retain, compensate, oversee, evaluate
and terminate the Company's independent accountants considering, among other
things, the independence and effectiveness of the independent accountants.
The Committee shall resolve all disagreements between the Company's
management and the independent accountants regarding financial accounting.
The independent accountants shall report directly to the Committee. The
Committee shall exercise sole authority to pre-approve all auditing services
and permitted non-audit services
A-1
(including the fees and terms thereof) to be performed for the Company by
its independent accountants, subject to the de minimis exception for
non-audit services described in Section 10A(i)(1)(B) of the Exchange Act
which are approved by the Committee prior to the completion of the audit.
The Committee shall not engage the independent accountants to perform
non-audit services prohibited by law or regulation. The Committee shall
consult with management but shall not delegate these responsibilities to
management, and shall be directly responsible for the resolution of disputes
between management and the independent accountants regarding financial
reporting. The Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority
to grant pre-approvals of audit and permitted non-audit services, provided
that decisions of such subcommittees to grant pre-approvals shall be
presented to the full Committee at its next scheduled meeting.
4. At least annually, obtain and review a report from the Company's independent
accountants describing (a) the accountants' internal quality-control
procedures, (b) any material issues raised by the most recent
quality-control review, or peer review, of the accountants, or by any
inquiry or investigation by governmental or professional authorities within
the preceding five years respecting one or more independent audits carried
out by the accountants, and any steps taken to deal with these issues, and
(c) all relationships between the independent accountants and the Company
(to be used as an aid in assessing the accountants' independence). Obtain
the written statement from the independent accountants that the accountants
are required to furnish to the Committee under Independence Standards Board
Standard No. 1. At least annually, present its conclusions with respect to
the independent accountants to the Board of Directors.
5. Obtain from the independent accountants assurance that Section 10A of the
Exchange Act has been adhered to.
6. Review the report from the independent accountants required by Section 10A
of the Exchange Act describing, as to any audit it performs:
(a) all critical accounting policies and practices to be used;
(b) all alternative treatments of financial information within GAAP that
have been discussed with management, ramifications of the use of such
alternatives, and the treatment preferred by the independent
accountants; and
(c) other material written communications between the independent
accountants and management, such as any management letter or schedule
of unadjusted differences.
7. Set clear Company policies as to the hiring of employees or former employees
of the Company's independent accountants.
8. Discuss the Company's earnings press releases (paying particular attention
to any use of "pro forma" or "adjusted" non-GAAP information), as well as
financial information and earnings guidance provided to analysts and rating
agencies, in the manner required by the NYSE. This discussion may be done
generally, such as discussing the types of information to be disclosed and
the types of presentations to be made. Prior to the issuance of the
Company's release of quarterly and annual earnings, the Committee shall
review with the independent accountants, the senior internal audit executive
and management of the Company the results of each quarterly review and
annual audit and any other matters required to be communicated to the
Committee by the independent accountants under generally accepted auditing
standards.
9. Review and discuss with management, the senior internal audit executive and
the independent accountants the Company's annual audited financial
statements and quarterly financial statements, as well as related SEC
reports, including the Company's disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of Operations," for their
adequacy and compliance with generally accepted accounting, reporting and
disclosure principles. Discuss with the independent accountants its
independent judgment about the quality and acceptability of accounting
principles that were used, the reasonableness of significant judgments that
were used, and the clarity of the disclosure in the financial statements.
Recommend to the Board of Directors
A-2
whether, based on discussions with management, the senior internal audit
executive and the independent accountants, the financial statements shall be
included in the Company's Annual Report on Form 10-K.
10. Provide annually to the Board of Directors (a) the report of the Committee,
for inclusion in the Company's annual meeting proxy statement, which
includes the written statement required to be made by the Committee in order
to comply with proxy reporting obligations and (b) such written affirmation
regarding the Committee as is required currently by the NYSE.
11. Review the scope and staffing of the annual audit plan and other activities
and proposed fees of the independent accountants.
12. Review the scope and staffing of the annual internal audit plan and other
activities of the Company's internal audit function.
13. Evaluate the effectiveness of the Company's internal and external audit
efforts, accounting and financial controls, policies and procedures, and
compliance with business ethics policies and practices through a review of
reports by, and at regular meetings with, the internal auditors, the
independent accountants and management, as appropriate. Periodically meet
separately with management, the internal auditors and the independent
accountants.
14. Discuss with the independent accountants matters relating to the scope and
results of the independent accountants' audit that the independent
accountants are required to provide to the Committee under Statement on
Auditing Standards No. 61 as amended by Statement on Auditing Standards No.
90, and applicable professional standards.
15. Regularly review with the independent accountants any audit problems or
difficulties and management's response, including any restrictions on the
scope of the independent accountants' activities, restrictions on access to
requested information and any significant disagreements with management.
Review with the independent accountants: (a) any accounting adjustments that
were noted or proposed by the independent accountants but were "passed," (b)
any communications between the audit team and the accounting firm's national
office respecting auditing or accounting issues presented by the engagement,
(c) any "management" or "internal control" letter issued, or proposed to be
issued, by the accountants to the Company and (d) the responsibilities,
budget and staffing of the Company's internal audit function.
16. Discuss with management the Company's major financial risk exposures and the
steps management has taken to monitor and control such exposures, including
the Company's risk assessment and risk management guidelines and policies.
17. Review: (a) major issues regarding accounting principles and financial
statement presentations, including any significant changes in the Company's
selection or application of accounting principles, and major issues as to
the adequacy of the Company's internal controls and any specific audit steps
adopted in light of material control deficiencies; (b) analyses prepared by
management and/or the independent accountants setting forth significant
financial reporting issues and judgments made in connection with the
preparation of financial statements, including analyses of the effects of
alternative GAAP methods on the financial statements; (c) the effect of
regulatory and accounting initiatives, as well as off-balance sheet
structures, if any, on the financial statements of the Company; and (d)
disclosures made to the Committee and independent accountants by the
Company's CEO and CFO during their certification process for the Form 10-K
and Form 10-Q about any significant deficiencies in the design or operation
of internal controls or material weaknesses therein and any fraud, whether
or not material, involving management or other employees who have a
significant role in the Company's internal controls.
18. Review the appointment and replacement of the senior internal auditing
executive of the Company.
19. Establish procedures for (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls, or auditing matters, and (b) the
A-3
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
20. Discuss with the Company's General Counsel (a) legal matters that may have a
material impact on the financial statements, (b) the Company's compliance
policies, (c) any material reports or inquiries received from regulators or
governmental agencies and (d) any reports of material violations of
securities laws or breaches of fiduciary duty.
21. Review reports and disclosures of insider and affiliated party transactions.
22. Annually, review and reassess the adequacy of the Committee Charter and
submit it and recommend any proposed changes to the Board of Directors for
approval.
23. Annually review the performance of the Committee.
LIMITATION OF COMMITTEE'S ROLE
Notwithstanding that the Committee has the duties and responsibilities and
powers set forth in this Charter, it is not the duty of the Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. Management is responsible for
preparing the Company's financial statements and the independent accountants are
responsible for auditing those financial statements.
MEETINGS
The Committee shall hold at least four meetings each year and others as deemed
necessary by its chairman. The Committee shall report regularly to the Board of
Directors.
Date adopted: December 11, 2003
A-4
IF YOU SIGN AND RETURN THIS CARD BUT DO NOT SPECIFY A Please
VOTE, THE PROXIES WILL VOTE FOR ITEM A AND IN THEIR Mark Here
DISCRETION ON OTHER MATTERS. for Address [ ]
Change or
Comments
SEE REVERSE SIDE
The Board of Directors recommends a vote FOR Item A:
A. Election of the three nominees as directors:
FOR
the nominees (except WITHHELD
as indicated) from all nominees
[ ] [ ]
01 L. Patrick Hassey, 02 H. Kent Bowen, 03 John D. Turner
(To withhold authority to vote for any nominee(s), write the name(s) of the
nominee(s) in the space that follows:)
----------------------------------------------------------------------------
Please check here to request an admission [ ]
ticket to the Meeting.
CONSENTING TO RECEIVE ALL FUTURE ANNUAL MEETING MATERIALS AND SHAREHOLDER
COMMUNICATIONS ELECTRONICALLY IS SIMPLE AND FAST! Enroll today at
www.melloninvestor.com/ISD for secure online access to your proxy materials,
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Signature Signature Date
------------------------ ---------------------- ------
Please sign EXACTLY as your name appears above.
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN TIME
THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES
TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED,
SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE MAIL
HTTP://WWW.EPROXY.COM/ATI 1-800-435-6710 Mark, sign and date
Use the Internet to vote your proxy. Use any touch-tone telephone to your proxy card
Have your proxy card in hand when OR vote your proxy. Have your proxy OR and
you access the web site. card in hand when you call. return it in the
enclosed postage-paid
envelope.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT
ON THE INTERNET AT HTTP://WWW.ALLEGHENYTECHNOLOGIES.COM
ALLEGHENY TECHNOLOGIES INCORPORATED
PROXY FOR 2004 ANNUAL MEETING
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ALLEGHENY TECHNOLOGIES INCORPORATED
The undersigned hereby appoints Richard J. Harshman, Mary W. Snyder and Jon D.
Walton or any of them, each with power of substitution and revocation, proxies
or proxy to vote all shares of Common Stock which the registered stockholder
named herein is entitled to vote with all powers which the stockholder would
possess if personally present, at the Annual Meeting of Stockholders of
Allegheny Technologies Incorporated on May 6, 2004, and any adjournments
thereof, upon the matter set forth on the reverse side of this card, and, in
their discretion, upon such other matters as may properly come before such
meeting.
STOCKHOLDERS MAY VOTE BY TOLL-FREE TELEPHONE OR INTERNET BY FOLLOWING THE
INSTRUCTIONS ON THE REVERSE SIDE OR STOCKHOLDERS MAY VOTE BY COMPLETING, DATING
AND SIGNING THIS PROXY CARD AND RETURNING IT PROMPTLY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
IF YOU WISH TO USE THIS CARD TO VOTE YOUR SHARES, PLEASE VOTE,
DATE AND SIGN ON THE REVERSE SIDE.
--------------------------------------------------------------------------------
ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
Dear Stockholder,
Enclosed are materials relating to the Allegheny Technologies 2004 Annual
Meeting of Stockholders. The Notice of the Meeting and Proxy Statement
describe the formal business to be transacted at the meeting.
Your vote is important. Please vote your proxy promptly whether or not you
expect to attend the meeting. You may vote by toll-free telephone, by Internet
or by signing and returning the proxy card (above) in the enclosed
postage-paid envelope.
/s/ Jon D. Walton
Jon D. Walton
Executive Vice President, Chief Legal and
Compliance Officer and Corporate Secretary
-----------------------------------------------------------------------------
EASY WAYS TO SAVE THE COMPANY MONEY
1. Please consider voting by Telephone (1-800-435-6710); or
Internet (http://www.eproxy.com/ati).
2. Please consider consenting to view the Company's future Annual Reports and
Proxy Statements electronically, via the Internet. In order to consent go
to Allegheny Technologies' Transfer Agent's website,
http://vault.melloninvestor.com/ISD, and follow the prompts.
IF YOU SIGN AND RETURN THIS CARD BUT DO NOT SPECIFY A Please
VOTE, THE PROXIES WILL VOTE FOR ITEM A AND IN THEIR Mark Here
DISCRETION ON OTHER MATTERS. for Address [ ]
Change or
Comments
SEE REVERSE SIDE
The Board of Directors recommends a vote FOR Item A:
A. Election of the three nominees as directors:
FOR
the nominees (except WITHHELD
as indicated) from all nominees
[ ] [ ]
01 L. Patrick Hassey, 02 H. Kent Bowen, 03 John D. Turner
(To withhold authority to vote for any nominee(s), write the name(s) of the
nominee(s) in the space that follows:)
----------------------------------------------------------------------------
Please check here to request an admission [ ]
ticket to the Meeting.
CONSENTING TO RECEIVE ALL FUTURE ANNUAL MEETING MATERIALS AND SHAREHOLDER
COMMUNICATIONS ELECTRONICALLY IS SIMPLE AND FAST! Enroll today at
www.melloninvestor.com/ISD for secure online access to your proxy materials,
statements, tax documents and other important shareholder correspondence.
Signature Signature Date
------------------------ ---------------------- ------
Please sign EXACTLY as your name appears above.
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN TIME
MAY 3, 2004.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE
YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED,
SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE MAIL
HTTP://WWW.EPROXY.COM/ATI 1-800-435-6710 Mark, sign and date
Use the Internet to vote your proxy. Use any touch-tone telephone to your proxy card
Have your proxy card in hand when OR vote your proxy. Have your proxy OR and
you access the web site. card in hand when you call. return it in the
enclosed postage-paid
envelope.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT
ON THE INTERNET AT HTTP://WWW.ALLEGHENYTECHNOLOGIES.COM
ALLEGHENY TECHNOLOGIES INCORPORATED
VOTING INSTRUCTION CARD FOR 2004 ANNUAL MEETING
o Personal Retirement and 401(k) Savings Account Plan
o Retirement Savings Plan
o Savings and Security Plan of the Lockport and Waterbury Facilities
o The 401(k) Savings Account Plan of the Washington Plate Plant
o The 401(k) Plan
o Allegheny Rodney (ALstrip) Profit Sharing Plan
o TDY Industries, Inc. Profit Sharing Plan for certain employees of
Metalworking Products
The undersigned hereby directs Mellon Bank, N.A., the Trustee of the above
Plans, to vote the full number of shares of Common Stock allocated to the
account of the undersigned under the Plans, at the Annual Meeting of
Stockholders of Allegheny Technologies Incorporated on May 6, 2004, and any
adjournments thereof, upon the matter set forth on the reverse of this card,
and, in its discretion, upon such other matters as may properly come before such
meeting.
PLAN PARTICIPANTS MAY GIVE DIRECTIONS BY TOLL-FREE TELEPHONE OR INTERNET BY
FOLLOWING THE INSTRUCTIONS ON THE REVERSE SIDE OR PARTICIPANTS MAY GIVE
DIRECTIONS BY COMPLETING, DATING AND SIGNING THIS CARD AND RETURNING IT PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
IF YOU WISH TO USE THIS CARD TO VOTE YOUR SHARES, PLEASE VOTE, DATE AND SIGN ON
THE REVERSE SIDE.
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ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
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FOLD AND DETACH HERE
o Personal Retirement and 401(k) Savings Account Plan
o Retirement Savings Plan
o Savings and Security Plan of the Lockport and Waterbury Facilities
o The 401(k) Savings Account Plan of the Washington Plate Plant
o The 401(k) Plan
o Allegheny Rodney (ALstrip) Profit Sharing Plan
o TDY Industries, Inc. Profit Sharing Plan for certain employees of
Metalworking Products
As a Plan participant, you have the right to direct Mellon Bank, N.A., the Plan
Trustee, how to vote the shares of Allegheny Technologies Common Stock that are
allocated to your Plan account and shown on the attached voting instruction
card. The Trustee will hold your instructions in complete confidence except as
may be necessary to meet legal requirements.
You may vote by telephone, Internet or by completing, signing and returning the
voting instruction card (above). A postage-paid return envelope is enclosed.
The Trustee must receive your voting instructions by May 3, 2004. If the Trustee
does not receive your instructions by May 3, 2004, the plan administrator may
instruct the Trustee to vote your shares as the administrator directs.
You will receive a separate set of proxy solicitation materials for any shares
of Common Stock you own other than your Plan shares. Your non-plan shares must
be voted separately from your Plan shares.
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EASY WAYS TO SAVE THE COMPANY MONEY
1. Please consider voting by Telephone (1-800-435-6710); or Internet
(http://www.eproxy.com/ati).
2. Please consider consenting to view the Company's future Annual Reports and
Proxy Statements electronically, via the Internet. In order to consent go to
Allegheny Technologies' Transfer Agent's website,
http://vault.melloninvestor.com/ISD, and follow the prompts.