ALLEGHENY TECHNOLOGIES INC
10-Q, 2000-11-03
SEMICONDUCTORS & RELATED DEVICES
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<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q
           (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
                                       OR
          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the Transition Period From _____ to _____

                         Commission File Number 1-12001

                       ALLEGHENY TECHNOLOGIES INCORPORATED
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


                 Delaware                                      25-1792394
      -------------------------------                     ----------------------
      (State or Other Jurisdiction of                       (I.R.S. Employer
      Incorporation or Organization)                      Identification Number)

           1000 Six PPG Place
        Pittsburgh, Pennsylvania                               15222-5479
----------------------------------------                  ----------------------
(Address of Principal Executive Offices)                       (Zip Code)

                                 (412) 394-2800
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)



   Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes     X                                                 No
     -------                                                  -----------

At October 27, 2000, the Registrant had outstanding 80,368,768 shares of its
Common Stock.




<PAGE>   2




                       ALLEGHENY TECHNOLOGIES INCORPORATED
                                  SEC FORM 10-Q
                        QUARTER ENDED SEPTEMBER 30, 2000


                                      INDEX

<TABLE>
<CAPTION>
                                                                                Page No.

<S>                                                                             <C>
PART I. - FINANCIAL INFORMATION

       Item 1.      Financial Statements                                             3

       Consolidated Balance Sheets                                                   3

       Consolidated Statements of Income                                             4

       Consolidated Statements of Cash Flows                                         5

       Notes to Consolidated Financial Statements                                    6

       Item 2.      Management's Discussion and Analysis
                    of Financial Condition and Results
                    of Operations                                                   13

       Item 3.      Quantitative and Qualitative
                    Disclosures About Market Risk                                   19

PART II. - OTHER INFORMATION

       Item 6.      Exhibits and Reports on Form 8-K                                21

       Signatures                                                                   22
</TABLE>



                                       2
<PAGE>   3





                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

              ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (In millions except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                  September 30,   December 31,
                                                                                      2000           1999
                                                                                      ----           ----
                                                                                   (Unaudited)
<S>                                                                                <C>            <C>
ASSETS
Cash and cash equivalents                                                          $     43.6     $     50.7
Accounts receivable                                                                     345.0          341.2
Inventories                                                                             608.5          558.3
Deferred income taxes                                                                    59.9           62.6
Prepaid expenses and other current assets                                                18.7           20.7
                                                                                   ----------     ----------
     Total Current Assets                                                             1,075.7        1,033.5
Property, plant and equipment                                                           898.9          912.4
Prepaid pension cost                                                                    600.5          503.7
Cost in excess of net assets acquired                                                   194.8          204.2
Other assets                                                                             92.0           96.8
                                                                                   ----------     ----------
     Total Assets                                                                  $  2,861.9     $  2,750.6
                                                                                   ==========     ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable                                                                   $    165.4     $    172.9
Accrued liabilities                                                                     190.6          214.4
Short-term debt and current portion of long-term
     debt                                                                                 6.1          152.7
                                                                                   ----------     ----------
     Total Current Liabilities                                                          362.1          540.0
Long-term debt                                                                          599.9          200.3
Accrued postretirement benefits                                                         530.2          544.8
Other                                                                                   306.4          265.3
                                                                                   ----------     ----------
     Total Liabilities                                                                1,798.6        1,550.4
                                                                                   ----------     ----------

STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.10: authorized-
     50,000,000 shares; issued-none                                                      --             --
Common stock, par value $0.10, authorized-500,000,000
     shares; issued-98,951,490 shares at September 30, 2000 and December 31,
     1999; outstanding-80,651,597 shares at September 30, 2000 and 90,368,196
     shares at December 31, 1999                                                          9.9            9.9
Additional paid-in capital                                                              481.1          481.0
Retained earnings                                                                     1,066.9          994.5
Treasury stock: 18,299,893 shares at
     September 30, 2000 and 8,583,294 shares
     at December 31, 1999                                                              (481.6)        (288.7)
Foreign currency translation losses                                                     (16.6)          (3.7)
Unrealized gains on securities                                                            3.6            7.2
                                                                                   ----------     ----------
     Total Stockholders' Equity                                                       1,063.3        1,200.2
                                                                                   ----------     ----------
Total Liabilities and Stockholders' Equity                                         $  2,861.9     $  2,750.6
                                                                                   ==========     ==========
</TABLE>


The accompanying notes are an integral part of these statements.


                                       3
<PAGE>   4




              ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                     (In millions except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended                   Nine Months Ended
                                                       September 30,                       September 30,
                                               ----------------------------        ------------------------------
                                                  2000             1999                2000               1999
                                               ---------        -----------        -----------        -----------

<S>                                            <C>              <C>                <C>                <C>
Sales                                          $   612.0        $     562.5        $   1,875.7        $   1,720.7

Costs and expenses:
  Cost of sales                                    490.5              471.3            1,516.0            1,392.6
  Selling and administrative expenses               45.0               56.7              149.0              159.1
  Interest expense, net                             11.0                2.3               25.3               19.7
                                               ---------        -----------        -----------        -----------
                                                   546.5              530.3            1,690.3            1,571.4

Earnings before other income                        65.5               32.2              185.4              149.3
Other income                                         0.8                0.4               14.7                3.6
                                               ---------        -----------        -----------        -----------

Income from continuing operations
  before income taxes                               66.3               32.6              200.1              152.9

Provision for income taxes                          24.2               11.7               73.0               55.0
                                               ---------        -----------        -----------        -----------


Income from continuing operations
  before extraordinary gains                        42.1               20.9              127.1               97.9

Income from discontinued operations,
  net of tax                                        --                 17.1               --                 58.0
Extraordinary gains on sales of
  operations, net of tax                            --                129.6               --                129.6
                                               ---------        -----------        -----------        -----------

Net income                                     $    42.1        $     167.6        $     127.1        $     285.5
                                               =========        ===========        ===========        ===========

Basic net income per common share:
  Income from continuing operations
    before extraordinary gains                 $    0.52        $      0.22        $      1.52        $      1.02
  Income from discontinued operations               --                 0.18               --                 0.60
  Extraordinary gains on sales of
    operations                                      --                 1.36               --                 1.35
                                               ---------        -----------        -----------        -----------
Basic net income per common share              $    0.52        $      1.76        $      1.52        $      2.97
                                               =========        ===========        ===========        ===========

Diluted net income per common share:
  Income from continuing operations
    before extraordinary gains                 $    0.52        $      0.21        $      1.52        $      1.01
  Income from discontinued operations               --                 0.18               --                 0.60
  Extraordinary gains on sales of
    operations                                      --                 1.36               --                 1.34
                                               ---------        -----------        -----------        -----------
Diluted net income per common share            $    0.52        $      1.75        $      1.52        $      2.95
                                               =========        ===========        ===========        ===========

Dividends declared per common share            $    0.20        $      0.32        $      0.60        $      0.96
                                               =========        ===========        ===========        ===========
</TABLE>


The accompanying notes are an integral part of these statements.


                                       4
<PAGE>   5





              ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In millions)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     Nine Months Ended
                                                                       September 30,
                                                                 -------------------------
                                                                   2000             1999
                                                                 --------         --------
<S>                                                              <C>              <C>
OPERATING ACTIVITIES:
  Net income                                                     $  127.1         $  285.5
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Extraordinary gains on sales of operations, net                  --             (129.6)
    Income from discontinued operations, net of tax                  --              (58.0)
    Depreciation and amortization                                    75.6             71.5
    Deferred income taxes                                            51.6              4.1
    Gains on sales of investments and businesses                    (11.1)            --
  Change in operating assets and liabilities:
    Prepaid pension cost                                            (96.7)           (77.6)
    Inventories                                                     (43.2)            (0.9)
    Accounts payable                                                 (7.5)            21.8
    Accounts receivable                                              (3.8)           (27.5)
    Accrued income taxes                                              0.1             40.2
  Other                                                             (41.4)            47.4
                                                                 --------         --------
CASH PROVIDED BY OPERATING ACTIVITIES                                50.7            176.9

INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                        (45.1)           (57.6)
  Purchases of businesses and investment in ventures                (25.4)            (6.9)
  Proceeds from the sales of investments and businesses              16.7              1.3
  Disposals of property, plant and equipment                          4.5              8.7
  Other                                                              (8.0)             0.9
                                                                 --------         --------
CASH USED IN INVESTING ACTIVITIES                                   (57.3)           (53.6)

FINANCING ACTIVITIES:
  Net borrowings (payments) under credit agreements                 251.4           (196.6)
  Borrowings on long-term debt                                        4.8             --
  Payments on long-term debt and capital leases                      (1.1)            (1.5)
                                                                 --------         --------
    Net increase (decrease) in debt                                 255.1           (198.1)
  Purchases of treasury stock                                      (207.3)          (148.3)
  Cash dividends                                                    (50.0)           (92.2)
  Exercises of stock options                                          1.7              6.4
                                                                 --------         --------
CASH USED IN FINANCING ACTIVITIES                                    (0.5)          (432.2)

CASH PROVIDED BY DISCONTINUED OPERATIONS                             --              283.7
                                                                 --------         --------

DECREASE IN CASH AND CASH EQUIVALENTS                                (7.1)           (25.2)

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR                   50.7             74.2
                                                                 --------         --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                       $   43.6         $   49.0
                                                                 ========         ========
</TABLE>



The accompanying notes are an integral part of these statements.


                                       5
<PAGE>   6



              ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  ACCOUNTING POLICIES

Basis of Presentation

     The interim consolidated financial statements include the accounts of
Allegheny Technologies Incorporated and its subsidiaries. Unless the context
requires otherwise, "Allegheny Technologies" and the "Company" refer to
Allegheny Technologies Incorporated and its subsidiaries.

     Certain amounts from 1999 have been reclassified to conform with the 2000
presentation, including classification of companies spun-off and sold as
discontinued operations.

     At a stockholders' meeting held on November 11, 1999, the Company's
stockholders approved a reduction in the authorized number of shares of the
Company's common stock and a one-for-two reverse stock split of the common
stock. The reverse stock split was effective immediately following the spin-offs
of Teledyne Technologies Incorporated and Water Pik Technologies, Inc. on
November 29, 1999. All references in the financial statements and notes to the
number of shares and per share amounts, have been restated to reflect this
reverse stock split.

     These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and note
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments (which
include only normal recurring adjustments) considered necessary for a fair
presentation have been included. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1999 Annual Report. The
results of operations for these interim periods are not necessarily indicative
of the operating results for a full year.

Accounting Pronouncements

     Financial Accounting Standards Board ("FASB") Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued in
June 1998, and amended in June 2000, pursuant to FASB Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities:
an amendment of FASB No. 133". These statements establish accounting and
reporting standards for derivative instruments and hedging activities. They
require that an entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. In June 1999, FASB Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities: Deferral of the Effective Date of FASB
Statement No. 133" was issued. This statement delayed the effective date of FASB
Statement No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. Effective January 1, 2001, the Company will apply this Standard
to its derivative instruments, which are principally used to mitigate raw
material commodity price and foreign exchange risks. Upon adoption, the Company
will report its derivative contracts on the balance sheet at fair value.

     In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions involving
Stock Compensation--an interpretation of APB Opinion No. 25". Among other
issues, FIN 44 clarifies the application of Accounting Principles Board Opinion
No. 25 ("APB 25") regarding (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan

                                       6
<PAGE>   7
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The provisions of FIN 44 do not have a material impact on the
Company's results of operations or financial condition.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. Although SAB 101 does not change existing accounting rules on
revenue recognition, changes in accounting to apply the guidance in SAB 101 may
be accounted for as a change in accounting principle. The provisions of SAB 101
do not have a material impact on the Company's results of operations or
financial condition.

NOTE 2.  DISCONTINUED OPERATIONS

     On January 19, 1999, the Company announced its plans to effect a major
strategic transformation of the Company that included the sales of several of
the Company's businesses and the spin-offs of certain businesses in two of the
Company's former business segments into independent, publicly-traded companies
(the "spin-offs"). Teledyne Technologies Incorporated ("Teledyne") is comprised
of certain businesses in the Company's former Aerospace and Electronics segment.
Water Pik Technologies, Inc. ("Water Pik") is comprised of the Company's former
Consumer segment.

     Prior to the spin-offs, the Company received a tax ruling from the Internal
Revenue Service that the spin-offs would be tax-free to the Company and to the
Company's stockholders.

     On November 29, 1999, the Company distributed all of the common stock of
Teledyne and Water Pik to the Company's stockholders of record as of
November 22, 1999. Stockholders of record received one share of Teledyne common
stock for every seven shares of Allegheny Technologies common stock and one
share of Water Pik common stock for every twenty shares of Allegheny
Technologies common stock, based on the number of shares of Allegheny
Technologies common stock they held prior to the reverse split. Immediately
following the spin-offs, the Company effected a one-for-two reverse split of its
common stock and changed its name from Allegheny Teledyne Incorporated to
Allegheny Technologies Incorporated.

     In 1999, the Company sold its unmanned aerial vehicle and its pyrotechnic
components and systems businesses, known as Ryan Aeronautical and McCormick
Selph Ordnance Unit, respectively, as well as the pressure relief valve, vehicle
control valve, nitrogen gas springs, consumer drinkware, construction and mining
equipment and material handling businesses. The Company recognized extraordinary
gains of $129.6 million, net of $79.9 million in taxes, in the 1999 third
quarter in connection with the sales of these businesses.

     Discontinued operations include all companies that were spun-off or sold.
Results of discontinued operations were as follows (in millions):

<TABLE>
<CAPTION>
                                           Three Months         Nine Months
                                               Ended               Ended
                                           September 30,       September 30,
                                               1999                1999
                                             --------            --------
<S>                                          <C>                 <C>
Net sales                                    $  293.3            $  987.7
                                             ========            ========

Income before taxes                              26.6                90.5
Provision for income taxes                        9.5                32.5
                                             --------            --------
Income from discontinued operations          $   17.1            $   58.0
                                             ========            ========
</TABLE>


                                       7
<PAGE>   8
NOTE 3.  INVENTORIES

     Inventories were as follows (in millions):

<TABLE>
<CAPTION>
                                               September 30,       December 31,
                                                  2000                 1999
                                                  ----                 ----

<S>                                            <C>                 <C>
Raw materials and supplies                      $  120.7             $  108.1
Work-in-process                                    515.8                437.8
Finished goods                                     106.0                113.1
                                                --------             --------
Total inventories at current cost                  742.5                659.0
Less allowances to reduce current cost
     values to LIFO basis                         (126.3)               (95.0)
Progress payments                                   (7.7)                (5.7)
                                                --------             --------
Total inventories                               $  608.5             $  558.3
                                                ========             ========
</TABLE>


NOTE 4.  BUSINESS SEGMENTS

     Information on the Company's business segments was as follows (in
millions):

<TABLE>
<CAPTION>
                                             Three Months Ended                   Nine Months Ended
                                                September 30,                       September 30,
                                        ---------------------------         -----------------------------
                                          2000              1999               2000               1999
                                        --------         ----------         ----------         ----------

<S>                                     <C>              <C>                <C>                <C>
Total sales:

Flat-Rolled Products                    $  364.9         $    334.2         $  1,138.8         $    975.9
High Performance Metals                    202.7              191.0              600.9              606.7
Industrial Products                         69.8               67.0              212.8              214.0
                                        --------         ----------         ----------         ----------
                                           637.4              592.2            1,952.5            1,796.6
Intersegment sales:

Flat-Rolled Products                        10.1                7.8               26.7               18.6
High Performance Metals                     15.3               21.9               50.1               57.3
                                        --------         ----------         ----------         ----------
                                            25.4               29.7               76.8               75.9

Sales to external customers:

Flat-Rolled Products                       354.8              326.4            1,112.1              957.3
High Performance Metals                    187.4              169.1              550.8              549.4
Industrial Products                         69.8               67.0              212.8              214.0
                                        --------         ----------         ----------         ----------
                                        $  612.0         $    562.5         $  1,875.7         $  1,720.7
                                        ========         ==========         ==========         ==========
Operating Profit:

Flat-Rolled Products                    $   31.6         $     11.9         $    100.6         $     73.8
High Performance Metals                     24.2               16.5               55.9               65.7
Industrial Products                          4.7                1.8               18.7               10.2
                                        --------         ----------         ----------         ----------

Total operating profit                      60.5               30.2              175.2              149.7

Corporate expenses                          (6.6)             (10.8)             (22.5)             (27.8)
Interest expense, net                      (11.0)              (2.3)             (25.3)             (19.7)
Gains on asset sales and other              (3.9)              (0.7)               0.1                5.2
Excess pension income                       27.3               16.2               72.6               45.5
                                        --------         ----------         ----------         ----------

Income from continuing
    operations before income
    taxes                               $   66.3         $     32.6         $    200.1         $    152.9
                                        ========         ==========         ==========         ==========
</TABLE>

Excess pension income represents the amount of pension income in excess of
amounts allocated to business segments to offset pension and other
postretirement benefit expenses.


                                       8
<PAGE>   9
NOTE 5. NET INCOME PER SHARE

     The following table sets forth the computation of basic and diluted net
income per common share (in millions, except per share amounts):

<TABLE>
<CAPTION>
                                                  Three Months Ended                Nine Months Ended
                                                     September 30,                   September 30,
                                              -------------------------        --------------------------
                                                2000            1999             2000             1999
                                              --------        ---------        ---------        ---------
<S>                                           <C>             <C>              <C>              <C>
Numerator:
  Income from continuing operations
    before extraordinary gains                $   42.1        $    20.9        $   127.1        $    97.9
  Income from discontinued
    operations                                    --               17.1             --               58.0
  Extraordinary gains on sales of
    operations                                    --              129.6             --              129.6
                                              --------        ---------        ---------        ---------
  Numerator for basic and diluted
    net income per common share -
    Net income                                $   42.1        $   167.6        $   127.1        $   285.5
                                              ========        =========        =========        =========

Denominator:
  Weighted average shares                         81.1             95.2             83.7             96.1
  Contingent issuable stock                        0.1              0.1              0.1              0.2
                                              --------        ---------        ---------        ---------
  Denominator for basic net
    income per common share                       81.2             95.3             83.8             96.3

Effect of dilutive securities:
  Employee stock options                           0.1              0.4              0.1              0.5
                                              --------        ---------        ---------        ---------
  Dilutive potential common
    shares                                         0.1              0.4              0.1              0.5

  Denominator for diluted net
    income per common share -
    adjusted weighted average shares              81.3             95.7             83.9             96.8
                                              ========        =========        =========        =========

Basic net income per common share:
  Income from continuing operations
    before extraordinary gains                $    0.52       $     0.22       $     1.52       $     1.02
  Income from discontinued
    operations                                    --                0.18            --                0.60
  Extraordinary gains on sales of
    operations                                    --                1.36            --                1.35
                                              ---------       ----------       ----------       ----------
Basic net income per common share             $    0.52       $     1.76       $     1.52       $     2.97
                                              =========       ==========       ==========       ==========

Diluted net income per common share:
  Income from continuing operations
    before extraordinary gains                $    0.52       $     0.21       $     1.52       $     1.01
  Income from discontinued
    operations                                    --                0.18            --                0.60
  Extraordinary gains on sales of
    operations                                    --                1.36            --                1.34
                                              ---------       ----------       ----------       ----------
Diluted net income per common share           $    0.52       $     1.75       $     1.52       $     2.95
                                              =========       ==========       ==========       ==========
</TABLE>


                                       9
<PAGE>   10
NOTE 6. COMPREHENSIVE INCOME

     The components of comprehensive income, net of tax, were as follows (in
millions):

<TABLE>
<CAPTION>
                                                       Three Months                      Nine Months
                                                          Ended                             Ended
                                                      September 30,                     September 30,
                                                  -----------------------         -------------------------
                                                   2000            1999             2000             1999
                                                  -------        --------         --------         --------

<S>                                               <C>            <C>              <C>              <C>
Net income                                        $  42.1        $  167.6         $  127.1         $  285.5
Foreign currency translation gains
  (losses)                                            0.3             1.7            (12.9)            (3.4)
Less:  foreign currency translation
  losses due to sale of foreign
  entities                                           --              (4.9)            --               (4.9)
                                                  -------        --------         --------         --------
                                                      0.3             6.6            (12.9)             1.5
Unrealized gains (losses) on securities:
  Unrealized holding gains arising
    during period                                     2.1             0.7              3.8              5.3
  Less: realized gains included in
    net income                                       --              --                7.4             --
                                                  -------        --------         --------         --------
                                                      2.1             0.7             (3.6)             5.3
                                                  -------        --------         --------         --------

Comprehensive income                              $  44.5        $  174.9         $  110.6         $  292.3
                                                  =======        ========         ========         ========
</TABLE>


NOTE 7. STOCKHOLDERS' EQUITY

     Allegheny Technologies paid a cash dividend of $0.20 per share of common
stock in each of the 2000 first, second and third quarters and paid a cash
dividend of $0.32 per share of common stock in each of the 1999 first, second
and third quarters.

     On October 1, 1998, the Company's Board of Directors authorized a stock
repurchase program to acquire up to 10 million shares of Allegheny Technologies
common stock. In December 1999, the Company's Board of Directors increased the
number of shares authorized for purchase in the stock repurchase program by 10
million shares. In September 2000, the Board of Directors authorized an increase
of an additional 5 million shares authorized for repurchase in the program,
bringing the total authorization to 25 million shares. These shares may be
purchased from time-to-time in the open market or in negotiated transactions. In
the first nine months of 2000, the Company had repurchased 10.3 million shares
for $207.3 million under this program. From the inception of the share
repurchase program through October 27, 2000, the Company has repurchased 19.7
million shares at a cost of $517.9 million. For the third quarter 2000, average
diluted shares outstanding are down 15 percent from the same year ago period.

NOTE 8.  COMMITMENTS AND CONTINGENCIES

     The Company is subject to various domestic and international environmental
laws and regulations which require that it investigate and remediate the effects
of the release or disposal of materials at sites associated with past and
present operations, including sites at which the Company has been identified as
a potentially responsible party under the federal Superfund laws and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws.

     Environmental liabilities are recorded when the Company's liability is
probable and the costs are reasonably estimable. In many cases, however,
investigations are not yet at a stage where the Company has been able to
determine whether it is liable or, if liability is probable, to reasonably
estimate the loss or range of loss, or certain components thereof. Estimates


                                       10
<PAGE>   11
of the Company's liability are further subject to uncertainties regarding the
nature and extent of site contamination, the range of remediation alternatives
available, evolving remediation standards, imprecise engineering evaluations and
estimates of appropriate cleanup technology, methodology and cost, the extent of
corrective actions that may be required, and the number and financial condition
of other potentially responsible parties, as well as the extent of their
responsibility for the remediation. Accordingly, as investigation and
remediation of these sites proceed, it is likely that adjustments in the
Company's accruals will be necessary to reflect new information. The amounts of
any such adjustments could have a material adverse effect on the Company's
results of operations in a given period, but the amounts, and the possible range
of loss in excess of amounts accrued, are not reasonably estimable. Based on
currently available information, however, management does not believe future
environmental costs in excess of those accrued with respect to sites with which
the Company has been identified are likely to have a material adverse effect on
the Company's financial condition or results of operation. The resolution in any
reporting period of one or more of these matters could have a material adverse
effect on the Company's results of operation of that period. In addition, there
can be no assurance that additional future developments, administrative actions
or liabilities relating to environmental matters will not have a material
adverse effect on the Company's financial condition or results of operations.

     At September 30, 2000, the Company's reserves for environmental remediation
obligations totaled approximately $52.1 million, of which approximately $13.2
million was included in other current liabilities. The reserve includes
estimated probable future costs of $16.9 million for federal Superfund and
comparable state-managed sites; $3.6 million for formerly owned or operated
sites for which the Company has remediation or indemnification obligations;
$18.5 million for owned or controlled sites at which Company operations have
been discontinued; and $13.1 million for sites utilized by the Company in its
ongoing operations. The Company is evaluating whether it may be able to recover
a portion of future costs for environmental liabilities from third parties other
than participating potentially responsible parties.

     The timing of expenditures depends on a number of factors that vary by
site, including the nature and extent of contamination, the number of
potentially responsible parties, the timing of regulatory approvals, the
complexity of the investigation and remediation, and the standards for
remediation. The Company expects that it will expend present accruals over many
years, and will complete remediation of all sites for which it has identified
remediation obligations in up to thirty years.

     Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, principally related to the former
operations of Teledyne, Inc., including claims based on business practices and
cost classifications. The Company also learns from time to time that it has been
named as a defendant in civil actions filed under seal pursuant to the False
Claims Act, principally related to the former operations of Teledyne, Inc.
Although such claims are generally resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal
legal or administrative proceedings may ensue. Depending on the circumstances
and the outcome, such proceedings could result in fines, penalties, compensatory
and treble damages or the cancellation or suspension of payments under one or
more U.S. Government contracts. Under government regulations, a company, or one
or more of its operating divisions or units, can also be suspended or debarred
from government contracts based on the results of investigations. Given the
limited extent of the Company's business with the U.S. Government, the Company
believes that a suspension or debarment of the Company would not have a material
adverse effect on the future operating results and consolidated financial
condition of the Company. Although the outcome of these matters cannot be
predicted with certainty,


                                       11
<PAGE>   12
management does not believe there is any audit, review or investigation
currently pending against the Company of which management is aware that is
likely to have a material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period. Generally, since False Claims Act cases are under
seal, the Company does not in all cases possess sufficient information to
determine whether the Company will sustain a material loss in connection with
such cases, or to reasonably estimate the amount of any loss attributable to
such cases.

     In the spin-offs of Teledyne and Water Pik, completed in November 1999, the
new companies agreed to assume and to defend and hold the Company harmless
against all liabilities (other than certain income tax liabilities) associated
with the historical operations of their businesses, including all government
contracting, environmental, product liability and other claims and demands,
whenever any such claims or demands might arise or be made. If the new companies
were unable or otherwise fail to satisfy these assumed liabilities, the Company
could be required to satisfy them, which could have a material adverse effect on
the Company's results of operations and financial condition.

     In connection with the spin-offs of Teledyne and Water Pik, the Company
received a tax ruling from the Internal Revenue Service stating that the
spin-offs will be tax-free to the Company and the Company's stockholders. While
the tax ruling, as supplemented, relating to the qualification of the spin-offs
as tax-free distributions within the meaning of the Internal Revenue Code
generally is binding on the Internal Revenue Service, the continuing validity of
the tax ruling, as supplemented, is subject to certain factual representations
and uncertainties that, among other things, require the new companies to take or
refrain from taking certain actions. If a spin-off were not to qualify as a
tax-free distribution within the meaning of the Internal Revenue Code, the
Company would recognize taxable gain generally equal to the amount by which the
fair market value of the common stock distributed to the Company's stockholders
in the spin-off exceeded the Company's basis in the new company's assets. In
addition, the distribution of the new company's common stock to Company
stockholders would generally be treated as taxable to the Company's stockholders
in an amount equal to the fair market value of the common stock they received.
If a spin-off qualified as a distribution within the meaning of the Internal
Revenue Code but was disqualified as tax-free to the Company because of certain
post-spin-off circumstances, the Company would recognize taxable gain as
described in the preceding sentence, but the distribution of the new company's
common stock to the Company's stockholders in the spin-off would generally be
tax-free to each Company stockholder. In the spin-offs, the new companies
executed tax sharing and indemnification agreements in which each agreed to be
responsible for any taxes imposed on and other amounts paid by the Company, its
agents and representatives and its stockholders as a result of the failure of
the spin-off to qualify as a tax-free distribution within the meaning of the
Internal Revenue Code if the failure or disqualification is caused by post-
spin-off actions by or with respect to that company or its stockholders.
Potential liabilities under these agreements could exceed the respective new
company's net worth by a substantial amount. If either or both of the spin-offs
were not to qualify as tax-free distributions to the Company or its
stockholders, and either or both of the new companies were unable or otherwise
failed to satisfy the liabilities they assumed under the tax sharing and
indemnification agreements, the Company could be required to satisfy them
without full recourse against the new companies. This could have a material
adverse effect on the Company's results of operations and financial condition.

     A number of other lawsuits, claims and proceedings have been or may be
asserted against the Company relating to the conduct of its business, including
those pertaining to product liability, patent infringement,

                                       12
<PAGE>   13
commercial, employment, employee benefits, tax, and stockholder matters. While
the outcome of litigation cannot be predicted with certainty, and some of these
lawsuits, claims or proceedings may be determined adversely to the Company,
management does not believe that the disposition of any such pending matters is
likely to have a material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

     Allegheny Technologies is one of the largest and most diversified producers
of specialty materials in the world. It operates in the following three business
segments which accounted for the following percentages of total sales for the
2000 and 1999 nine months:

                                                  2000            1999
                                               -----------     -----------

                 Flat-Rolled Products             59%             56%
                 High Performance Metals          30%             32%
                 Industrial Products              11%             12%

     For the 2000 nine months, operating profit was $175.2 million compared to
$149.7 million for the same 1999 period. Sales increased 9.0 percent to $1,875.7
million for the 2000 nine months compared to $1,720.7 million for the same 1999
period.

     Income from continuing operations before extraordinary gains was $127.1
million, or $1.52 per diluted share, for the 2000 nine months, compared to $97.9
million, or $1.01 per diluted share, for the 1999 nine months. Net income was
$127.1 million, or $1.52 per diluted share for the 2000 nine months, compared to
$285.5 million, or $2.95 per diluted share, for the same 1999 period. Net income
for the 1999 nine months included $58.0 million of net income from discontinued
operations and $129.6 million of net extraordinary gains in connection with the
sales of businesses. Net income in the first nine months of 2000 was increased
by $5.0 million, or $0.06 per share, which included a gain on the sale of a
minority interest in Gul Technologies Singapore Ltd., partially offset by a
charge for exiting the tungsten mill products business of Metalworking Products.

     In safety, the Company's OSHA Total Recordable Incident Rate improved by 34
percent and Lost Workday Case Rate improved by 39 percent as compared to 1999.
This performance exceeds the Company's 25 percent safety improvement target for
2000. In addition, $24 million in cost reductions were realized during the third
quarter, increasing year-to-date cost reductions to $70 million. The Company is
on track to achieve its $90 million cost reduction program in 2000.

     Sales and operating profit for the Company's three business segments are
discussed below.

FLAT-ROLLED PRODUCTS SEGMENT

     Third quarter 2000 operating profit increased to $31.6 million from $11.9
million in the same year-ago period in spite of significantly higher raw
material costs. Third quarter 2000 sales increased 8.7 percent to $354.8 million
compared to the prior year third quarter. For the nine-month period, operating
profit increased to $100.6 million and sales increased 16.2 percent to $1,112.1
million from the comparable 1999 period. The overall


                                       13
<PAGE>   14
improvement in sales and operating profit resulted from revised raw material
surcharge base levels and a diversified product mix. The segment also continued
to benefit from on-going cost reduction efforts.

     The average prices of flat-rolled products in the third quarter and nine
months of 2000 were $2,392 and $2,363 per ton, respectively, compared to $1,940
and $1,993, respectively, per ton in the same 1999 periods. This increase was
due primarily to the impact of revised raw materials surcharge base levels and
an improved product mix. Higher margin product shipments (including strip,
Precision Rolled Strip(R), super stainless steel, nickel alloy and titanium
products) increased 10 percent in the third quarter substantially replacing
lower margin semi-finished product shipments. Tons shipped in the third quarter
and nine month periods of 2000 were 148,325 tons and 470,669 tons respectively,
compared to 168,181 tons and 480,242 tons for the same periods of 1999. Included
in tons shipped were 138 tons of semi-finished products in the 2000 third
quarter compared to 15,300 tons in the comparable 1999 period.

HIGH PERFORMANCE METALS SEGMENT

     Operating profit increased 46.7 percent and decreased 14.9 percent compared
to the 1999 third quarter and 1999 nine months, respectively. Sales for the 2000
third quarter increased 10.8 percent compared to the 1999 period and 2000 nine
months were flat compared to the 1999 nine months. Quarter over quarter sales
benefited from increased demand for nickel-based superalloys and specialty steel
alloys from the growing markets for electrical power generation turbines and
biomedical products and improving conditions in aerospace and oil and gas
markets. In addition, shipments were strong for niobium-titanium alloys for
superconducting applications, nickel-titanium shape memory alloys for cellular
phones, nickel-titanium super-elastic alloys for the medical industry, and
hafnium alloys used in the production of super alloys for aerospace
applications.

     Comparative information on the segment's major products is provided in the
following table:

<TABLE>
<CAPTION>
                                                           Three Months                             Nine Months
                                                              Ended                                    Ended
                                                          September 30,                            September 30,
                                                  ------------------------------          ------------------------------
                                                     2000                1999                2000                1999
                                                  ----------          ----------          ----------          ----------

<S>                                               <C>                 <C>                 <C>                 <C>
Volume (000's pounds):
 Nickel-based and specialty steel alloys              11,147              10,709              35,041              33,681
 Titanium mill products                                6,110               5,352              18,068              17,539
 Zirconium and related alloys                          1,014                 793               2,990               3,067

Average prices (per pound):
 Nickel-based and specialty steel alloys          $     5.92          $     5.84          $     5.81          $     5.95
 Titanium mill products                           $    10.78          $    11.76          $    10.85          $    11.92
 Zirconium and related alloys                     $    37.07          $    35.34          $    33.49          $    30.36
</TABLE>

INDUSTRIAL PRODUCTS SEGMENT

     Operating profit for the 2000 third quarter was $4.7 million compared to
$1.8 million for the same quarter of 1999, and sales increased 4.2 percent to
$69.8 million compared to the same prior period. For the 2000 nine months,
operating profit increased 83.3 percent to $18.7 million while sales decreased
slightly. Sales and operating profit at Metalworking Products, the largest
company in the segment, improved compared to the same 1999 periods due to
stronger industrial demand and cost savings, including workforce reductions. On
June 20, 2000, the Company announced its intention to sell Portland Forge and
Casting Service, which are the other two companies that comprise this segment.


                                       14
<PAGE>   15
CORPORATE ITEMS

     Corporate expenses decreased to $6.6 million for the 2000 third quarter and
decreased to $22.5 million for the 2000 nine months, compared to the respective
1999 periods, due to continued cost controls and 21 percent fewer corporate
employees over the 1999 third quarter. Net interest expense increased to $11.0
million for the third quarter 2000 from $2.3 million for the third quarter 1999.
Net interest expense increased to $25.3 million for the 2000 nine months
compared to $19.7 million for the 1999 nine months. The increase in interest
expense was primarily due to borrowings used to finance the Company's share
repurchase program. Excess pension income increased to $27.3 million for the
2000 third quarter and increased to $72.6 million for the 2000 nine months
compared to $16.2 million and $45.5 million, respectively, in the same 1999
periods due to higher pension assets as a result of strong investment
performance during 1999. Third quarter 2000 excess pension income increased $4.6
million from the 2000 second quarter due to reduced post-retirement benefit
liabilities.

SPECIAL ITEMS

     Nine months 2000 results include first quarter special items of $5.0
million, or $0.06 per share. These items include a gain on the sale of a
minority interest in Gul Technologies Singapore Ltd., included in other income,
partially offset by a charge for exiting the tungsten mill products business of
Metalworking Products included in cost of sales. Net income in the second and
third quarters of 2000 and 1999 were not impacted by special items.

NEW ACCOUNTING PRONOUNCEMENTS

     Financial Accounting Standards Board ("FASB") Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued in
June 1998, and amended in June 2000, pursuant to FASB Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities:
an amendment of FASB No. 133." These statements establish accounting and
reporting standards for derivative instruments and hedging activities. They
require that an entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. In June 1999, FASB Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities: Deferral of the Effective Date of FASB
Statement No. 133" was issued. This statement delays the effective date of FASB
Statement No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. Effective January 1, 2001, the Company will apply this Standard
to derivative instruments, which are principally used to mitigate certain raw
material commodity price and foreign exchange risks. Upon adoption, the Company
will report its derivative contracts on the balance sheet at fair value.

     In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions involving
Stock Compensation--an interpretation of APB Opinion No. 25. "Among other
issues, FIN 44 clarifies the application of Accounting Principles Board Opinion
No. 25 ("APB 25") regarding (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. The
provisions of FIN 44 do not have a material impact on the Company's results of
operations or financial condition.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101), which provides guidance
on the recognition, presentation and disclosure of revenue in


                                       15
<PAGE>   16
financial statements. Although SAB 101 does not change existing accounting rules
on revenue recognition, changes in accounting to apply the guidance in SAB 101
may be accounted for as a change in accounting principle. SAB 101 is not
expected to have a material impact on the Company's results of operations or
financial condition.

INCOME TAXES

     The Company's effective tax rate from continuing operations was 36.5
percent for the 2000 third quarter and nine months, compared to 35.9 percent and
36.0 percent, respectively, for the same periods in 1999. The effective tax
rates are affected by permanent book to tax differences such as non- deductible
goodwill, lobbying expenses and state tax nexus items. The 2000 and 1999 rates
also reflect benefits from federal and state tax planning initiatives.

FINANCIAL CONDITION AND LIQUIDITY

     Working capital increased to $713.6 million at September 30, 2000, compared
to $493.5 million at December 31, 1999. The current ratio increased to 3.0 from
1.9 in this same period. The increase in working capital was primarily due to
the shifting of short-term debt to long-term debt and higher inventory.

     In the first nine months of 2000, cash generated from operations of $50.7
million, proceeds from the net increase in debt of $255.1 million and proceeds
from the sale of investments and businesses of $16.7 million were used to
repurchase shares for $207.3 million, pay dividends of $50.0 million and invest
$70.5 million in capital equipment and business expansion. Cash transactions
plus cash on hand at the beginning of the year resulted in a cash position of
$43.6 million at September 30, 2000.

     Capital expenditures for 2000 are expected to approximate $65.0 million, of
which $45.1 million had been expended through September 30, 2000.

     On October 1, 1998, the Company's Board of Directors authorized a stock
repurchase program to acquire up to 10 million shares of Allegheny Technologies
common stock. In December 1999, the Company's Board of Directors increased the
number of shares authorized for purchase in the stock repurchase program by 10
million shares. In September 2000, the Board of Directors authorized an increase
of an additional 5 million shares authorized for repurchase in the program,
bringing the total authorization to 25 million shares. The shares may be
purchased from time-to-time in the open market or in negotiated transactions. In
the first nine months of 2000, the Company has repurchased approximately 10.3
million shares for $207.3 million under this program. From the inception of the
share repurchase program through October 27, 2000, the Company has repurchased
19.7 million shares at a cost of $517.9 million. For the third quarter 2000,
average diluted shares outstanding are down 15 percent from the same year ago
period.

     At a stockholders' meeting held on November 11, 1999, the Company's
stockholders approved a one-for-two reverse split of the Company's stock. The
reverse split was effective immediately following the spin-offs of Teledyne and
Water Pik on November 29, 1999. Share and per share amounts have been adjusted
for all periods presented to reflect this one-for-two reverse stock split.

     The Company believes that internally generated funds, current cash on hand
and borrowing from existing credit lines will be adequate to meet foreseeable
needs. The Company may choose, however, to issue additional debt depending on
market conditions.


                                       16
<PAGE>   17
OTHER MATTERS

Price Increases

     In September 2000, Allegheny Ludlum, an Allegheny Technologies company,
announced that it would increase base prices by approximately 5 to 7 percent on
super stainless steel, nickel-based alloy and superalloy grades of sheet,
standard strip, Precision Rolled Strip(R), plate-mill-plate and
continuous-mill-plate products as well as silicon electrical steel. These price
increases were effective with orders received after the close of business on
September 29, 2000, except for silicon steel which are effective January 2,
2001. Allegheny Ludlum also announced in September 2000 that it would increase
base prices by approximately 4 to 5 percent on commercially pure titanium coil,
sheet and plate products effective with new orders received after September 4,
2000. In July 2000, Allvac, an Allegheny Technologies company, announced that it
would increase prices by approximately 8 percent to 10 percent on its
nickel-based, titanium and specialty steel products. While price increases
should have some impact on performance in 2000, the price increases are expected
to primarily benefit 2001 performance.

Energy Costs

     Prices and availability of most energy resources are subject to market
conditions. These market conditions are often affected by political and economic
factors that are generally outside of the Company's control. The uncertainty
surrounding the price of oil and the political environment in the Middle East
are factors that may impact petroleum costs. The U.S. government is also
forecasting that supplies of natural gas may be at historical low levels during
the winter of 2000-2001. These factors, among other things, may contribute to
increased production costs that could have a material impact on the results of
operations of the Company. The Company is evaluating energy factors with regard
to production costs including negotiating with an energy partner to assist in
cost containment and control of energy consumption.

Growth Strategy Analysis

     In June 2000, the Company announced the results of its growth strategy
analysis. The Company's objective is to reach an annualized sales rate that is
at least 75 percent higher by the end of 2003 than in 1999, while maintaining
the Company's historically high level of return on capital employed.

Environmental

     The Company is subject to various domestic and international environmental
laws and regulations which require that it investigate and remediate the effects
of the release or disposal of materials at sites associated with past and
present operations, including sites at which the Company has been identified as
a potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund, and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws. The Company's reserves for
environmental investigation and remediation totaled approximately $52.1 million
at September 30, 2000. Based on currently available information, management does
not believe future environmental costs at sites with which the Company has been
identified in excess of those accrued with respect to sites with which the
Company has been identified are likely to have a material adverse effect on the
Company's financial condition or liquidity. The resolution in any reporting
period of one or more of these matters could have a material adverse effect on
the Company's results of operations for that period.


                                       17
<PAGE>   18
     With respect to proceedings brought under the federal Superfund laws, or
similar state statutes, the Company has been identified as a potentially
responsible party at approximately 33 such sites, excluding those at which it
believes it has no future liability. The Company's involvement is very limited
or de minimis at approximately 13 of these sites, and the potential loss
exposure with respect to any of remaining 20 sites is not considered to be
material.

     For additional discussion of environmental matters, see Note 8 to the
consolidated financial statements of the Company.

Government Contracts

     One of the Company's operating companies directly performs work on
contracts with the U.S. Government. Various claims (whether based on U.S.
Government or Company audits and investigations or otherwise) have been or may
be asserted against the Company related to its U.S. Government contract work,
including claims based on business practices and cost classifications and
actions under the False Claims Act. Under the False Claims Act, a person may
assert the rights of the U.S. Government by initiating a suit under seal against
a contractor. For the claim to be successful, the person must have information
that the contractor falsely submitted a claim to the U.S. Government for
payment. If it chooses, the U.S. Government may intervene and assume control of
the case.

     Government contracting claims may be resolved by detailed fact-finding and
negotiation. When they are not resolved in that way, civil or criminal legal or
administrative proceedings may ensue. Depending on the circumstances and the
outcome, such proceedings could result in fines, penalties, compensatory and
treble damages or the cancellation or suspension of payments under one or more
U.S. Government contracts. Under government regulations, a company, or one or
more of its operating divisions or units, can also be suspended or debarred from
government contracts based on the results of investigations.

     Given the limited extent of the Company's business with the U.S.
Government, the Company believes that a suspension or debarment of the Company
would not have a material adverse effect on the future operating results and
consolidated financial condition of the Company. Although the outcome of these
matters cannot be predicted with certainty, management does not believe there is
any audit, review or investigation currently pending against the Company of
which management is aware that is likely to have a material adverse effect on
the Company's financial condition or liquidity. The resolution in any reporting
period of one or more of these matters could have a material adverse effect on
the Company's results of operations for that period.

     For additional discussion of government contract matters, see Note 8 to the
consolidated financial statements of the Company.

Forward-Looking Statements

     From time to time the Company has made and may continue to make
forward-looking statements. Certain forward-looking statements are contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 8 to the consolidated financial statements of the Company,
including those statements concerning: the results of its growth strategy
analysis and initiatives; projected levels of sales, earnings and earnings per
share, financial performance, growth and segment margins; operational actions
taken to respond to market conditions; product demand; benefits expected to be
realized from diversified markets and product mix; prices and price increases;
raw material availability and costs; energy costs and actions taken to control
costs; working capital; cash flow and the Company's focus on generating cash
flow; anticipated business, economic and market conditions; aerospace, oil and
gas, automotive and other industry


                                       18
<PAGE>   19
trends; cost reductions and cost reduction programs; expected capital
expenditures; projected returns on sales of surplus assets; potential
repurchases of the Company's stock; results of labor negotiations; foreign
currency fluctuations; the outcome of any government inquiries, litigation or
other proceedings related to government contracts or other matters; and future
environmental costs. These forward-looking statements are based on management's
current expectations and include known and unknown risks, uncertainties and
other factors, many of which the Company is unable to predict or control, that
may cause the Company's actual results or performance to materially differ from
any future results or performance expressed or implied by such statements.
Factors that could cause actual results to differ materially from those
projected in forward-looking statements, include, but are not limited to our
ability to achieve our growth strategies and cost reduction programs; cyclical
demand for our products; volatility of prices for and unavailability of critical
raw materials; our ability to implement and maintain raw material surcharges and
price increases which may depend on market conditions, including pricing by
foreign producers; the effect of market conditions on the performance of pension
assets; anticipated effects of acquisitions on earnings; the effect of energy
costs, as well as those risks and uncertainties described above under the
captions "Other Matters - Environmental" and "Other Matters - Government
Contracts" and elsewhere herein. Realization of anticipated benefits described
in forward-looking statements could take longer than expected and implementation
difficulties, market factors and deterioration in domestic or global economic
conditions could alter anticipated benefits. Additional risk factors are
described from time to time in the Company's filings with the Securities and
Exchange Commission, including its Report on Form 10-K for the year ended
December 31, 1999 and its Reports on Form 10-Q. The Company assumes no duty to
update its forward-looking statements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company uses derivative financial instruments from time to time to
hedge ordinary business risks regarding foreign currencies on product sales and
to partially hedge against volatile raw material cost fluctuations in the
Flat-Rolled Products and High Performance Metals segments.

     Foreign currency exchange contracts are used to limit transactional
exposure to changes in currency exchange rates. The Company sometimes purchases
foreign currency forward contracts that effectively permit it to sell specified
amounts of foreign currencies expected to be received from its export sales for
pre-established U.S. dollar amounts at specified dates. The forward contracts
are denominated in the same foreign currencies in which export sales are
denominated. These contracts, which are not financially material, are designated
as hedges of export sales transactions in which settlement will occur in future
periods, which otherwise would expose the Company, on the basis of its aggregate
net cash flows in respective currencies, to foreign currency risk.

     A portion of the Company's operations consists of investments in foreign
subsidiaries. As a result, the Company's financial results could be affected by
changes in foreign currency exchange rates. To mitigate this foreign currency
translation risk, the Company has a practice of recapitalizing operations using
local foreign currency debt to replace direct equity investment. The average
interest rate to service this foreign debt is favorable to current U.S. interest
rates.

     As part of its risk management strategy, from time to time, the Company
purchases exchange-traded futures contracts to manage exposure to changes in
nickel prices, a component of raw material cost for some of its flat-rolled and
high performance metals products. The nickel futures contracts obligate the
Company to make or receive a payment equal to the net change in value of the
contract at its maturity. Some of these contracts can be designated as hedges of
the Company's firm sales commitments and are short-term in nature


                                       19
<PAGE>   20
to correspond to the commitment period. The gains and losses on these contracts
are deferred and recognized in earnings when realized as an adjustment to cost
of goods sold. Historically, the Company has not closed any significant
contracts prior to the execution of the underlying sales transactions, nor have
any of the underlying sales transactions for such significant contracts failed
to occur which resulted in a material adverse effect on the Company.

     The Company guarantees the outstanding Allegheny Ludlum fixed rate 6.95
percent debentures due in 2025. In a period of declining interest rates, the
Company faces the risk of required interest payments exceeding those based on
the then current market rate. To mitigate interest rate risk, the Company
attempts to maintain a reasonable balance between fixed and variable rate debt
to keep financing costs as low as possible.

     The Company believes that adequate controls are in place to monitor these
activities, which are not financially material. However, many factors, including
those beyond the control of the Company such as changes in domestic and foreign
political and economic conditions, as well as the magnitude and timing of
interest rate changes, could adversely affect these activities.




                                       20
<PAGE>   21


                           PART II. OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

        (a)    Exhibits -

               27.1     Financial data schedule - September 30, 2000

        (b)    Current Reports on Form 8-K filed by the Company -

               None.




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<PAGE>   22

                                   SIGNATURES




     Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                       ALLEGHENY TECHNOLOGIES INCORPORATED
                                  (REGISTRANT)





Date: November 3, 2000            By     /s/ R.J. Harshman
                                         --------------------------------------
                                         Richard J. Harshman
                                         Vice President - Controller and Acting
                                         Chief Financial Officer
                                         (Principal Financial Officer and
                                          Duly Authorized Officer)







                                       22
<PAGE>   23

                                  EXHIBIT INDEX

Exhibit No.           Description


  27.1                Financial Data Schedule for Nine Months Ended
                      September 30, 2000.





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