UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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1000 Six PPG Place

Pittsburgh, PA 15222-5479

 

March 25, 2008

 

To our Stockholders:

 

We are pleased to invite you to attend the 2008 Annual Meeting of Stockholders. The meeting will be held at 11:00 a.m., Eastern Time, on Friday, May 9, 2008, in the Grand Ballroom, 17th Floor, Omni William Penn Hotel, 530 William Penn Place, Pittsburgh, Pennsylvania 15219. 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:

 

 

A copy of the Company’s Annual Report for the year 2007 is also enclosed.

 

Your Board of Directors recommends that you vote:

 

(1) FOR the election of the three nominees named in this Proxy Statement (Item A);

 

 

(3) AGAINST a stockholder proposal regarding majority voting in director elections (Item C).

 

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 2007 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 2008 Annual Meeting.

 

Sincerely,

 

L. Patrick Hassey
Chairman, President and Chief Executive Officer

ALLEGHENY TECHNOLOGIES INCORPORATED

 

Notice of Annual Meeting of Stockholders

 

 

Agenda:

 

1) Election of three directors;

 

2) Ratification of the appointment of Ernst & Young LLP as independent auditors for 2008;

 

 

4) 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. The list of stockholders also will be available for examination at the meeting.

 

Admission to the Meeting

 

Holders of Allegheny Technologies common 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 card from your bank or broker or a copy of your account statement. The approximate date of the mailing of this Proxy Statement and proxy card, as well as a copy of ATI’s 2007 Annual Report, is March 25, 2008. For further information about Allegheny Technologies, please visit our web site at www.alleghenytechnologies.com.

 

On behalf of the Board of Directors:

 

Jon D. Walton

Corporate Secretary

 

Dated: March 25, 2008

Table of Contents

 

 

 

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 9, 2008.

 

The proxy statement and 2007 annual report of Allegheny Technologies Incorporated are available to review at: http://bnymellon.mobular.net/bnymellon/ati

PROXY STATEMENT FOR
2008 ANNUAL MEETING OF STOCKHOLDERS

 

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 11 below.

 

1. Who is entitled to vote at the Annual Meeting?

 

If you held shares of Allegheny Technologies Incorporated (“ATI” or the “Company”) common stock, par value $0.10 per share (“Common Stock”), at the close of business on March 12, 2008, you may vote at the annual meeting. On that day, 101,098,773 shares of our Common Stock were outstanding. Each share is entitled to one vote. Stockholders do not have cumulative voting rights.

 

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 (“Board”) requests your proxy so that your shares will count toward a quorum and be voted at the meeting.

 

 

There are four different ways you may cast your vote. You may vote by:

 

 

If you are a stockholder of record and wish to vote by telephone or electronically through the Internet, follow 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, on May 8, 2008.

 

If your shares are held in “street name” (that is, they are held in the name of broker, bank or other nominee), or if 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 question 6 below.

 

 

You may revoke your proxy or change your vote at any time before it is voted at the meeting by:

 

 

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.

 

 

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 or retirement plans. If you do not cast your vote, your shares (except those held in the Company’s savings or retirement plans) will not be voted. See question 6 for an explanation of the voting procedures for shares in the Company’s savings or retirement plans.

 

 

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 (or vote by telephone or the Internet all of the shares on each of the proxy or voting instruction cards you receive) in order to ensure that all of your shares are 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 trustee 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.

 

The deadline for voting by telephone or the Internet is 11:59 p.m., Eastern Time, on May 5, 2008.

 

 

If you hold your shares of ATI Common Stock in “street name” through 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.

 

 

A majority of the outstanding shares, present or represented by a proxy, constitutes a quorum. There must be a quorum for business to be conducted at the Annual Meeting. 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.

 

 

The director nominees receiving the highest number of votes will be elected to fill the seats on the Board. Only votes “for” or “withheld” affect the outcome. Checking the box on the proxy card that withholds authority to vote for a nominee is the equivalent of abstaining. Abstentions are not counted for the purpose of election of directors.

 

With respect to each of the proposals other than the election of directors (Items B and C), stockholders may vote in favor of the proposal or against the proposal, or abstain from voting. The affirmative vote of

the majority of shares present in person or by proxy and entitled to vote at the Annual Meeting is required for approval of those proposals. A stockholder who signs and submits a ballot or proxy is “present,” so an abstention will have the same effect as a vote against those proposals.

 

Under New York Stock Exchange rules, if your broker holds your shares in its name as a nominee, the broker is permitted to vote your shares on the election of directors (Item A) and on the ratification of the appointment of the independent auditors (Item B) even if it does not receive voting instructions from you. Item C of this Proxy Statement is “non-discretionary,” meaning that brokers who hold shares for the accounts of their clients and who have not received instructions from their clients do not have discretion to vote on that item. When a broker votes a client’s shares on some but not all of the proposals at the Annual Meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the Annual Meeting but are not considered “present” for purposes of voting on the non-discretionary item. Accordingly, broker non-votes will have no effect on the results of any of the proposals.

 

 

The Company maintains a policy of keeping stockholder votes confidential.

 

 

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 “stockholder of record” and you choose to vote over the Internet, you can choose to receive future annual reports and proxy statements electronically by following the prompt on the voting page. If you hold your Company stock in “street name” (such as through a broker, bank or other nominee account), 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 for those materials, as well as voting instructions, approximately six weeks before future meetings.

 

If you enroll to view the Company’s future annual reports and proxy statements electronically and vote over the Internet, your enrollment will remain in effect for all future stockholders’ meetings unless you cancel it. To cancel, stockholders of record should access www.bnymellon.com/shareowner/isd and follow the instructions to cancel your enrollment. You should retain your control number appearing on your enclosed proxy or voting instruction card. If you hold your Company stock in “street 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 the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479.

 

This list provides some highlights from the Allegheny Technologies’ corporate governance program. You can find details about these and other corporate governance policies and practices in the following pages of the Proxy Statement and in the “Our Corporate Governance” section of the “About Us” page of our web site at www.alleghenytechnologies.com.

 

 

ATI’s Board of Directors has adopted Corporate Governance Guidelines, which 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.

 

You can find the Company’s Corporate Governance Guidelines on our web site at www.alleghenytechnologies.com, by first clicking “About Us” and then “Our Corporate Governance.” Copies will also be mailed to stockholders on written request directed to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479.

 

The Board of Directors determines the number of directors. The Board currently consists of eleven members: L. Patrick Hassey (Chairman), H. Kent Bowen, Robert P. Bozzone, Diane C. Creel, James C. Diggs, J. Brett Harvey, Michael J. Joyce, W. Craig McClelland, James E. Rohr, Louis J. Thomas and John D. Turner. Messrs. Bozzone and McClelland are retiring from the Board at the 2008 Annual Meeting of Stockholders. The Company wishes to thank Messrs. Bozzone and McClelland for the contributions they have made to the Board of Directors.

 

In accordance with the Corporate Governance Guidelines, at least 75% of the Company’s directors are, and at least a substantial majority of its directors will be, “independent” under the guidelines set forth in the listing standards of the New York Stock Exchange (“NYSE”) and the Company’s categorical Board independence standards, which are set forth in the Corporate Governance Guidelines and attached to this Proxy Statement as Appendix A. 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.

 

In addition to L. Patrick Hassey, the current Chairman, President and Chief Executive Officer of the Company, the Board considers Robert P. Bozzone, whose son-in-law is the ATI Allegheny Ludlum Business Unit President, to not be an independent director. Mr. Bozzone is retiring from the Board at the 2008 Annual Meeting of Stockholders.

 

The Board, at its February 22, 2008 meeting, affirmatively determined that the remaining nine of the Company’s current directors, H. Kent Bowen, Diane C. Creel, James C. Diggs, J. Brett Harvey, Michael J. Joyce, W. Craig McClelland, James E. Rohr, Louis J. Thomas and John D. Turner, are independent in accordance with the foregoing standards. Eight of the Company’s directors have no relationships with the Company other than as directors and stockholders of the Company. One of the Company’s directors, James E. Rohr, is Chairman and Chief Executive Officer of The PNC Financial Services Group, Inc. (“PNC”). The Company has a $400 million unsecured revolving credit facility with a syndicate of 13 financial institutions, including PNC Bank, National Association, a subsidiary of PNC, as lender and administrative agent. PNC Capital Markets LLC, an affiliate of PNC, served as lead arranger with respect to this facility. The Company pays fees to PNC Bank under the terms of this facility. The Company also invests in three money market funds managed by BlackRock, Inc. (“BlackRock”). PNC currently holds approximately 33.5% of the outstanding common stock of BlackRock. During 2007, the Company paid fees to PNC and its affiliates representing a de minimis portion of both the Company’s revenues and PNC’s revenues, and therefore, all amounts were substantially less than the thresholds set forth in the NYSE’s listing standards which disqualify a director from being independent. Mr. Rohr’s compensation is not affected by the fees that the Company pays to PNC. The Board has determined that (A) the transactions between the Company and PNC (i) are commercial transactions carried out at arm’s length in the ordinary course of business, (ii) are not material to PNC or to Mr. Rohr, (iii) do not and would not potentially influence Mr. Rohr’s objectivity as a member of the Company’s Board of Directors in a manner

that would have a meaningful impact on his ability to satisfy requisite fiduciary standards on behalf of the Company and its stockholders, and (iv) do not preclude a determination that Mr. Rohr’s relationship with the Company in his capacity as Chairman and Chief Executive Officer of PNC is immaterial, and (B) Mr. Rohr is an independent director under NYSE existing guidelines and the Company’s categorical Board independence standards.

 

The Board has also determined that each member of the Audit Committee satisfies the enhanced standards of independence applicable to Audit Committee members under NYSE listing standards and the rules of the Securities and Exchange Commission (“SEC”).

 

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. It is expected that new directors appointed to the Board to fill vacancies will stand for election by the stockholders at the next annual meeting.

 

The Board of Directors has the following five standing committees: Audit Committee, Finance Committee, Nominating and Governance Committee, Personnel and Compensation Committee, and Technology Committee.

 

Only independent directors, as independence is determined by NYSE rules, are permitted to serve on the Audit Committee, the Nominating and Governance Committee, and the Personnel and Compensation Committee. Audit Committee members must meet additional independence standards under NYSE listing standards and SEC 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 Nominating and Governance Committee and the Personnel and Compensation 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 and reviews and reassesses its charter. You can find the current charters of each committee on our web site at www.alleghenytechnologies.com by first clicking “About Us,” then clicking “Our Corporate Governance” and then clicking “Committee Charters.” The current charters will also be mailed to stockholders upon written request.

 

Audit Committee

 

The current members of the Audit Committee are Michael J. Joyce (Chairman), Diane C. Creel, James C. Diggs, Louis J. Thomas and John D. Turner. 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 that they meet the NYSE and SEC standards for independence. The Board of Directors has also determined that Michael J. Joyce meets the SEC criteria of an “audit committee financial expert” and meets the NYSE standard of having accounting or related financial management expertise. Mr. Joyce has over 35 years of accounting, auditing and consulting experience, having most recently served as New England Managing Partner of Deloitte & Touche USA LLP prior to his retirement in May 2004.

 

The Audit Committee assists the Board in its oversight of the integrity of the Company’s financial statements, compliance with legal and regulatory requirements, the qualifications and independence of the Company’s independent auditors, and the performance of the Company’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 is also responsible for reviewing, approving and ratifying related party transactions. For more information, see the “Certain Transactions” section of this Proxy Statement.

 

The Audit Committee Report appears on page 22 of this Proxy Statement.

 

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, which process includes evaluation of new candidates as well as an individual evaluation of current directors who are being considered for re-election. In addition, this Committee is responsible for administering ATI’s director compensation program. The Committee also performs other duties as are described in the Corporate Governance Guidelines.

 

Personnel and Compensation Committee

 

The Personnel and Compensation Committee, on behalf of the Board of Directors, establishes and annually reassesses the executive compensation program and the Company’s philosophy on executive compensation, which is more fully discussed in the “Executive Compensation — Compensation Discussion and Analysis” section of this Proxy Statement.

 

One of the duties of the Committee is to oversee Chief Executive Officer (“CEO”) and executive officer compensation. The Personnel and Compensation Committee reviews and approves corporate goals and objectives relevant to CEO and executive officer compensation, evaluates the CEO’s performance in light of those goals and objectives, and 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 Committee also reviews and approves non-CEO executive officer compensation, and makes recommendations to the Board with respect to incentive compensation plans and equity-based plans that require Board approval. In addition, the Personnel and Compensation Committee administers ATI’s incentive compensation plans. The Committee may delegate authority to subcommittees, when appropriate. For other executives, the Committee reviews and approves recommendations from management within plan parameters. However, the Committee may not delegate any authority under those plans for matters affecting the compensation and benefits of the executive officers.

 

The Personnel and Compensation Committee, under the terms of its charter, has the sole authority to retain, approve fees and other terms for, and terminate any compensation consultant used to assist the committee in the evaluation of the Chief Executive Officer or other executive compensation. The Committee may also obtain advice and assistance from internal or external legal, accounting or other advisors. Each year, the Committee retains a compensation consultant; for years 2005, 2006 and 2007, the Committee retained Mercer Human Resources Consulting (“Mercer”), an outside compensation and executive benefits consulting firm. Mercer was retained to assist the Committee to review market conditions and peer company practices and to benchmark the Company’s executive compensation programs against those parameters. Mercer performed market analyses of peer group companies and the general market for executive talent, and made recommendations to the Committee as to the form of and incentive opportunities for executive compensation. The Committee has also retained external legal

advisors. Please see the “Executive Compensation — Compensation Discussion and Analysis” section of this Proxy Statement for more discussion about the role of the compensation consultant.

 

Mercer and the Company’s legal advisors periodically attend meetings of the Committee. For portions of those meetings, the Chief Executive Officer and the Executive Vice President of Human Resources, Chief Legal and Compliance Officer, General Counsel and Corporate Secretary also attend. The Chief Executive Officer and the Executive Vice President of Human Resources express their views on executive compensation to the Committee. Please see the “Executive Compensation — Compensation Discussion and Analysis” section of this Proxy Statement for more discussion about executive officer compensation.

 

Each member of the Personnel and Compensation Committee is a “non-employee director” of the Company as defined under Rule 16b-3 of the Securities Exchange Act of 1934, and each member is also an “outside director” for the purposes of the corporate compensation provisions contained in Section 162(m) of the Internal Revenue Code.

 

The Compensation Committee Report appears on page 26 of this Proxy Statement.

 

Technology Committee

 

The Technology Committee reviews changing technologies and evaluates how they affect the Company and its technical capabilities.

 

During 2007, the Board of Directors held six meetings. The Board’s committees consisted of the five standing committees already described. In 2007, all directors attended at least 75% of the total Board meetings and meetings of Board committees of which they were members, and average attendance at Board and committee meetings was approximately 97%.

 

The non-management directors meet separately from the other directors in regularly scheduled executive sessions without members of management (except to the extent that the non-management directors request the attendance of a member of management). When, as is currently the case, the Chairman of the Board is a management director, or if the Chairman would otherwise so choose, the position of Chair of the meetings of the non-management directors rotates on a per meeting basis in the order specified in the Corporate Governance Guidelines among the non-management Chairs of the Board’s committees. If not a member of management, the Chairman of the Board would serve as Chair of these meetings.

 

We typically schedule a Board meeting in conjunction with our annual meeting of stockholders and expect that our directors will attend absent good reason, such as a scheduling conflict. In 2007, all directors then on the Board attended our annual meeting of stockholders. J. Brett Harvey joined the Board on December 6, 2007.

The table below identifies the directors that the Board has determined to be independent and provides information with respect to Board committee memberships. The table also sets forth the number of meetings held by each Board committee in 2007.

 

The non-employee directors of the Board earned the following in 2007:

 

 

ATI has a code of ethics, 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 Guidelines in addressing legal and ethical issues encountered in their work. These 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 and honesty in all of their actions by or on behalf of the Company. These Guidelines include a financial code of ethics specifically for our Chief Executive Officer, our Chief Financial Officer, and all other financial officers and executives, which supplements the general principles set forth in the Guidelines and is intended to promote honest and ethical conduct, full and accurate reporting, and compliance with laws as well as other matters.

 

During 2007, our employees were required to certify that they reviewed and understood the Guidelines. In addition, all officers and managers are required to certify as to their compliance with the standards set forth in the Guidelines. Also, beginning in 2006, the Company implemented an online ethics training program, administered by a third party, requiring all directors, officers and employees to take an interactive online ethics course at least annually. In 2007, the courses addressed internet security and the Company’s Corporate Guidelines for Business Conduct and Ethics.

 

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 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. To date, no such amendments have been made or waivers granted.

 

A copy of the Corporate Guidelines for Business Conduct and Ethics, which includes the financial code of ethics, is available on our web site at www.alleghenytechnologies.com by first clicking “About Us” and then “Our Ethics” and will be mailed to stockholders and other interested parties on written request directed to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479.

 

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. The Nominating and Governance Committee is comprised entirely of independent directors under the applicable rules and regulations of the NYSE and SEC. The Committee operates under a written charter adopted by the Board of Directors. A copy of the Committee’s charter is available at the Company’s web site at www.alleghenytechnologies.com by first clicking “About Us” and then “Our Corporate Governance.” Paper copies can be obtained by writing to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479.

 

The Committee considers director candidates suggested by members of the Committee, other directors, senior management and stockholders. For information on how to submit a candidate for consideration, please see the caption “2009 Annual Meeting and Stockholder Proposals” below.

 

Preliminary interviews of director candidates may be conducted by the Chair of the Nominating and Governance Committee or, at his request, any other member of the Committee or the Chairman of the Board. Background material pertaining to director candidates is distributed to the members of the Committee for their review. Director candidates who the Committee determines merit further consideration are interviewed by the Chair of the Committee and other Committee members, directors

and key senior management. The results of these interviews are considered by the Nominating and Governance Committee in its deliberations.

 

Director candidates are generally selected on the basis of the following criteria: their business or professional experience, recognized achievement in their respective fields, integrity and judgment, 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 must also represent the interests of all stockholders. In accordance with the retirement policy for directors set forth in the Corporate Governance Guidelines, a person who is 72 years of age or older cannot be nominated to serve on the Board.

 

In evaluating the needs of the Board, the Nominating and Governance Committee considers the qualifications of sitting directors and consults with other members of the Board (including as part of the Board’s annual self-evaluation), the Chairman, President and Chief Executive Officer and other members of executive management. At a minimum, all recommended candidates must exemplify the highest standards of personal and professional integrity, meet any required independence standards, and be willing and able to constructively participate in and contribute to Board and committee meetings. Additionally, the Committee conducts individual reviews of current directors whose terms are nearing expiration, but who may be proposed for re-election, in light of the considerations described above and their past contributions to the Board.

 

Mr. Harvey, who joined the Board of Directors in December 2007, was initially selected as a director nominee upon the recommendation of an existing non-management director.

 

We maintain a process for stockholders and interested parties to communicate with the Board of Directors or any individual director. ATI stockholders or interested parties 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

 

or call 1-877-787-9761 (toll free). Your letter or message should indicate whether you are an ATI stockholder. Depending on the subject matter, the Corporate Secretary will:

 

 

At each Board meeting, the Corporate Secretary presents a summary of all communications received since the last meeting that were not forwarded and makes those communications available to the directors on request.

 

Under Rule 14a-8 of the Securities and Exchange Commission, proposals of stockholders intended to be presented at the 2009 Annual Meeting of Stockholders must be received no later than November 25, 2008 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 director 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. 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 nominate candidates for election to the Board by following the procedures described in ATI’s certificate of incorporation. Stockholder-recommended candidates will be evaluated on the same basis as other candidates. The provisions of ATI’s certificate of incorporation generally require that written notice of a nomination be received by the Corporate Secretary, who will forward the information to the Nominating and Governance Committee of the Board of Directors for the Committee’s consideration. 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.

 

For all such notices to be timely, the provisions of the Company’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 2009, we must receive this notice on or after February 8, 2009 and on or before February 23, 2009.

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 and can be viewed on our web site at www.alleghenytechnologies.com by first clicking “About Us” and then “Our Corporate Governance.”

 

“Householding” of Proxy Materials.  The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements with respect to two or more stockholders sharing the same address and the same last name by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and cost savings for the Company. The Company and some brokers household proxy materials, delivering a single proxy statement to multiple stockholders sharing an address, unless contrary instructions have been received from the affected stockholders. Once stockholders have received notice from their broker or the Company that materials will be sent in the householding manner to the stockholder’s address, householding will continue until otherwise notified or until the stockholder revokes such consent. If, at any time, stockholders no longer wish to participate in householding and would prefer to receive a separate proxy statement, they should notify their broker, if shares are held in a brokerage account, or the Company, if holding registered shares. The Company will deliver promptly, upon written or oral request, a separate copy of the annual report or proxy statement, as applicable, to a stockholder at a shared address to which a single copy of the documents was delivered. Any such notice should be addressed to the Corporate Secretary of the Company at 1000 Six PPG Place, Pittsburgh, PA 15222-5479, or notice may be given by calling the Company at (412) 394-2800 (i) to receive a separate copy of an annual report or proxy statement for this meeting, (ii) to receive separate copies of those materials for future meetings, or (iii) if the stockholder shares an address and wishes to request delivery of a single copy of annual reports or proxy statements, if now receiving multiple copies of annual reports or proxy statements.

 

The rules of the Securities and Exchange Commission (SEC) require the Company to disclose late filings of reports of stock ownership (and changes in stock ownership) by its directors and statutory insiders. Based upon a review of filings with the SEC and written representations, the Company believes that, in 2007, the Company’s directors and statutory insiders complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 and all filings by these individuals with respect to Company Common Stock were made on a timely basis.

 

The individuals and entities listed in the following table are beneficial owners of five percent or more of Company Common Stock as of December 31, 2007, based on information filed with the SEC. 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.

 

 

 

The following table sets forth the shares of Common Stock reported to the Company as beneficially owned as of March 1, 2008 by the nominees for director, the continuing directors, each officer named in the Summary Compensation Table and all directors, nominees, named executive officers and other statutory insiders as a group.

 

 

 

The table also includes the following shares where beneficial ownership is disclaimed: 31,700 shares owned by Mr. Walton’s spouse; 21,691 shares owned by Mr. Harshman’s spouse; and 265 shares held by the spouses of other statutory insiders.

 

The table includes shares issuable pursuant to options that are currently exercisable or may become exercisable on or before April 30, 2008 in the following amounts: Mr. Bowen, 4,886; Mr. Bozzone, 33,000; Mr. Harshman, 15,000; Mr. Joyce, 1,000; Mr. McClelland, 2,000; Mr. Rohr, 7,567; Mr. Thomas, 2,000; Mr. Turner, 3,000; Mr. Walton, 15,000; and for all directors, nominees, named executive officers and other statutory insiders as a group, 88,453.

 

 

The Board of Directors has nominated three directors, James C. Diggs, J. Brett Harvey and Michael J. Joyce, to stand for re-election to the Board for a three-year term expiring in 2011. The Board of Directors determined that each of the nominees qualifies for re-election under the criteria for evaluation of directors described under “Identification and Evaluation of Candidates for Director” on page 11 of this Proxy Statement. The Board of Directors determined that Messrs. Diggs, Harvey and Joyce qualify as independent directors under applicable rules and regulations and the Company’s categorical Board independence standards. See “Identification and Evaluation of Candidates for Director” at page 11 of this Proxy Statement and “Number and Independence of Directors” at page 5 of this Proxy Statement.

 

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. Management has no reason to believe that any of the three nominees for election named below will be unable to serve.

 

Background information about the nominees and the continuing directors, including their business experience during the past five years, follows. Messrs. Bozzone and McClelland are retiring from the Board at the 2008 Annual Meeting of Stockholders.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE ELECTION OF ALL THREE NOMINEES LISTED BELOW.

 

Nominees — Term to Expire at the 2011 Annual Meeting (Class III)

 

 

Continuing Directors — Term to Expire at the 2009 Annual Meeting (Class I)

 

Continuing Directors — Term to Expire at the 2010 Annual Meeting (Class II)

 

 

Ernst & Young LLP (“Ernst & Young”) 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 of the Board of Directors believes that Ernst & Young is knowledgeable about the Company’s operations and accounting practices and is well qualified to act in the capacity of independent auditors.

 

In appointing Ernst & Young as the Company’s independent auditors for the fiscal year ending December 31, 2008, and making its recommendation that stockholders ratify the appointment, the Audit Committee considered whether the audit and non-audit services Ernst & Young provides are compatible with maintaining the independence of our outside auditors.

 

If the stockholders do not ratify the selection of Ernst & Young, the Audit Committee will reconsider the appointment of Ernst & Young as the Company’s independent auditors.

 

Representatives of Ernst & Young 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 Annual Meeting.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS FOR FISCAL YEAR 2008.

 

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 before the firm is retained to perform the service. 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, 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 Chair of the Committee with respect to permitted, non-tax related services; the Chair is required to report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee pre-approved all audit and non-audit services provided by Ernst & Young in 2007 and 2006.

 

The fees and expenses billed by Ernst & Young for the indicated services performed during 2007 and 2006 were as follows:

 

 

“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, Sarbanes-Oxley Section 404 attestation services, audit and attestation services related to statutory or regulatory filings, the issuance of consents, and captive insurance company audits (which fees for 2006 had previously been included as audit-related fees).

 

“Audit-related fees” consisted of fees related to the audits of employee benefit and pension plans.

 

“Tax fees” consisted of fees related to IRS transcript reviews.

 

“All other fees” consisted of subscriptions to Ernst & Young’s web-based EYOnline accounting reference library.

 

The following is the report of the Audit Committee with respect to the Company’s audited financial statements for the year ended December 31, 2007, which include the consolidated balance sheets of the Company as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007, 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 expressing an opinion as to their conformity with generally accepted accounting principles and for attesting to management’s report on the Company’s internal control over financial reporting. One of the Audit Committee’s responsibilities is to monitor and oversee the financial reporting process and to review and discuss management’s report on the Company’s internal control over financial reporting.

 

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 matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU§ 380). 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 Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees) 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 at the February 22, 2008 meeting of the Board that the Financial Statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 as filed with the Securities and Exchange Commission. The Board has approved this inclusion.

 

Submitted by:

AUDIT COMMITTEE, whose members are:

Michael J. Joyce, Chairman

Diane C. Creel

James C. Diggs

Louis J. Thomas

John D. Turner

 

The Company has been notified by The United Brotherhood of Carpenters Pension Fund (the “Fund”) that it intends to introduce the following resolution at the Annual Meeting. The Fund, whose address is 101 Constitution Avenue, NW, Washington, D.C. 20001, beneficially owns 1,624 shares of Company Common Stock.

 

Stockholder Proposal and Supporting Statement

 

RESOLVED: That the shareholders of Allegheny Technologies Incorporated (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders, with a plurality vote standard retained for contested director elections, that is, when the number of director nominees exceeds the number of board seats.

 

Supporting Statement

 

In order to provide shareholders a meaningful role in director elections, our Company’s director election vote standard should be changed to a majority vote standard. A majority vote standard would require that a nominee receive a majority of the votes cast in order to be elected. The standard is particularly well-suited for the vast majority of director elections in which only board nominated candidates are on the ballot. We believe that a majority vote standard in board elections would establish a challenging vote standard for board nominees and improve the performance of individual directors and entire boards. Our Company presently uses a plurality vote standard in all director elections. Under the plurality vote standard, a nominee for the board can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are “withheld” from the nominee.

 

In response to strong shareholder support for a majority vote standard in director elections, an increasing number of the nation’s leading companies, including Intel, General Electric, Motorola, Hewlett-Packard, Morgan Stanley, Wal-Mart, Home Depot, Gannett, Marathon Oil, and recently Pfizer have adopted a majority vote standard in company bylaws or articles of incorporation. Additionally, these companies have adopted director resignation policies in their bylaws or corporate governance policies to address post-election issues related to the status of director nominees that fail to win election. Other companies have responded only partially to the call for change by simply adopting post-election director resignation policies that set procedures for addressing the status of director nominees that receive more “withhold” votes than “for” votes. At the time this proposal submission, our Company and its board had not taken either action.

 

We believe that a post-election director resignation policy without a majority vote standard in company bylaws or articles is an inadequate reform. The critical first step in establishing a meaningful majority vote policy is the adoption of a majority vote standard. With a majority vote standard in place, the board can then consider action on developing post-election procedures to address the status of directors that fail to win election. A majority vote standard combined with a post-election director resignation policy would establish a meaningful right for shareholders to elect directors, and reserve for the board an important post-election role in determining the continued status of an unelected director. We feel that this combination of the majority vote standard with a post-election policy represents a true majority vote standard.

 

The Board of Directors’ Statement Against this Stockholder Proposal

 

The Board of Directors has considered the above proposal and recommends that you vote “AGAINST” the proposal for the following reasons:

 

We are incorporated under Delaware law, and our stockholders currently elect directors through plurality voting, whereby nominees receiving the most affirmative votes are elected as directors. Plurality voting is the standard method for the election of directors under Delaware law, and this has been the applicable

voting method since the Company’s incorporation. Plurality voting is also used by a substantial number of comparable large public companies incorporated in the State of Delaware.

 

The Board of Directors has monitored, and will continue to monitor, national trends in the implementation of voting in director elections. The evaluation of the various effects of voting as proposed by the stockholder is still in relatively early stages at this time, however. Currently, there is disagreement among corporate governance experts as to the exact form that majority voting should take, if adopted, and best practices are continuing to evolve. Thus, there remains at this time a high degree of risk and uncertainty surrounding the consequences of adopting the voting method proposed by the stockholder.

 

One aspect of the director election process which would become uncertain upon the implementation of such voting is the status of hold-over directors. Under Delaware law, an incumbent director who is not re-elected will continue to serve with the same voting rights and powers until a successor is elected and qualified. Accordingly, even if voting as proposed by the stockholder were implemented, we could not force a director who failed to receive a majority vote to leave the Board of Directors until a successor is elected at a subsequent stockholder meeting. Not only would the status of the hold-over director be in question, but there would also be uncertainty surrounding the enforceability of the forced resignation of such a director.

 

Moreover, the proposal does not address the issue of vacancies on the Board of Directors that are created in the event that a nominee fails to receive a majority of the votes cast. Under both Delaware law and the Company’s Amended and Restated Bylaws, the Board of Directors may elect a director to fill a vacancy, opt to have the position remain vacant, or call a special meeting of stockholders for the sole purpose of filling the vacancy. If voting as proposed by the stockholder were implemented, any vacancy could remain open for a prolonged period of time, preventing the Board of Directors from fully staffing important committees and otherwise meeting its obligations to oversee the Company’s business and affairs, which could cause needless disruption and expense for the Company.

 

We enjoy a long track record of strong corporate governance and integrity, led by our Board of Directors. In particular, the Board of Directors maintains a Nominating and Governance Committee, which is responsible for recommending director nominees to the Board of Directors, composed exclusively of independent directors. The Nominating and Governance Committee generally identifies appropriate nominees based on several criteria described in our Corporate Governance Guidelines and has established procedures to consider and evaluate persons recommended by stockholders of the Company. Stockholder-recommended candidates will be evaluated on the same basis as other candidates. In recognition of these and other of our corporate governance policies, as of February 2008, the Company ranked ahead of nearly 85% of materials companies, as measured by the ISS Corporate Governance Quotient.

 

Under our current voting method for electing directors, our stockholders consistently have supported to a significant degree our highly qualified nominees from diverse business backgrounds. At our annual meeting of stockholders in 2007, for example, each nominee received the affirmative vote of approximately 98% of the shares voted and approximately 93% of the shares then outstanding. Moreover, we have never had a director nominee who has not received the affirmative vote of a majority of the votes cast. Therefore, it is not likely that the implementation of voting as proposed by the stockholder at this time would change the results of an election of our directors or improve either our overall corporate governance or the performance of our Board of Directors as a whole.

 

In addition, as a company listed on the New York Stock Exchange, we must comply with listing standards that include requirements for maintaining independent directors and directors with particular qualifications or expertise. These requirements are considered by our Board of Directors when recommending nominees to our stockholders. The failure to elect a particular nominee by voting as proposed by the stockholder, especially in an uncontested election, may impair our ability to continue to comply with those listing standards, which would negatively impact our stockholders.

 

The Board of Directors does not believe that we should rush to adopt an untested voting system without the benefit of a reasonable consensus on the topic and a greater understanding of the full impact of

such a system. Adopting the voting method proposed by the stockholder at this time would introduce unnecessary uncertainty and complexity into the director election process. The Board of Directors instead intends to evaluate the experiences of companies which implement majority voting in various forms to determine whether the adoption of such a standard in any form is in the best interests of our stockholders in light of the resulting impact on director recruitment, proxy solicitation costs, and other relevant factors. In the event that a reasonable consensus develops in this area, the Board of Directors will revisit our director election process and pursue any changes that it determines to be in the best interests of our stockholders.

 

FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS BELIEVES THAT MAJORITY VOTING IN DIRECTOR ELECTIONS IS NOT IN THE BEST INTERESTS OF OUR STOCKHOLDERS AT THIS TIME AND RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL.

 

The Company knows of no business that may be presented for consideration at the meeting other than the items 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, Chairman, 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.

 

The Personnel and Compensation Committee (referred to in this Report as the “Committee”) has reviewed and discussed the following Compensation Discussion and Analysis with Company management. Based on such review and discussion, the Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2008 Proxy Statement. The Committee furnishes this Report for inclusion in the 2008 Proxy Statement and recommends its inclusion in the Company’s annual report on Form 10-K.

 

Submitted by:

PERSONNEL AND COMPENSATION

COMMITTEE, whose members are:

James E. Rohr, Chairman

Diane C. Creel

W. Craig McClelland

 

Summary

 

 

1. Key Executive Performance Plan (“KEPP”) (cash incentive measured over a three-year period)

 

 

3. Performance/Restricted Stock Program (“PRSP”) (performance vesting with retention features)

 

4. Annual Incentive Plan (“AIP”) (annual cash incentive)

 

5. Base Salary and Discretionary Bonus (based on broad measures of reported profits)

Compensation Philosophy

 

For many years, and continuing in 2007, the Committee’s approach to all manager compensation has been to offer a compensation package consisting of base compensation competitive with an identified peer group of companies and incentive opportunities that are performance oriented and linked to the interests of stockholders. For approximately 350 key employees, managers and executives, the program consists of base salary and potential annual cash-based incentives. For approximately 100 of such key managers and executives, the program adds longer-term (generally three year) cash and/or equity compensation plans.

 

The Committee has consistently determined that the compensation program be:

 

 

Attractive for Long Term Careers

 

The compensation program is designed to attract and retain a deep pool of managerial talent that shares the Company’s commitment to enhancing stockholder value in the short and longer terms. Base salaries are intended to be at the approximate mid-point of the peer group. In addition, the Company offers a qualified defined contribution pension plan to all salaried employees and a non-qualified pension benefit restoration plan to make up for amounts that cannot be contributed because of limitations on the qualified plan. Some salaried employees participate in a defined benefit plan. However, for most management level employees, the defined benefit plans have been frozen (Allegheny Ludlum froze its plan in 1988) or have limited accruals (Teledyne accruals were curtailed in 1996). Certain key executives participate in a Supplemental Pension Plan which pays an annuity for 10 years after retirement under specified circumstances with annual payments at one half of base pay at retirement.

 

Performance Oriented

 

The Committee believes that management employees should have significant portions of compensation at risk for attaining performance goals. The more senior the manager, the larger percentage of compensation should be at risk. The Committee believes that, if performance exceeds goals, total compensation should exceed the benchmarks for the peer group described below.

 

The Committee views the compensation program as a management tool that, through goal and target setting, encourages the management team to achieve or surpass the Company’s business objectives. The array of goals and targets used as incentives across all management levels, which include both financial performance measures as well as achievement of pre-set goals within a particular participant’s area of responsibility, are designed to encourage a team-oriented approach to achieving Company profitability objectives and to position it for the challenges of the future. The Committee believes that the performance weight and opportunity will challenge, attract and retain superior managers experienced in the Company’s businesses and direct their efforts toward achieving specific tasks that the Board and senior executives determine to be necessary for profitable growth.

 

Linking Compensation to the Interests of Stockholders

 

Over the last several years, the Committee has implemented its pay-for-performance philosophy by using earnings and stock price performance as the principal goals for performance driven programs, particularly for the individuals named in the compensation tables. Since 2004, the Company’s business plans have progressively focused on profitable growth, proceeding through stages of reversing losses incurred in years prior to 2004, then diversifying the Company’s mix of products and then toward achieving market leadership in core product lines with an emphasis on the most profitable product lines. Throughout, the Company’s business plans have focused on internal generation of the funds necessary

for the sustainable profitable growth and product and end market diversification. The Committee believes that focusing compensation programs first on earnings and stock performance directs management’s energies toward achieving those longer term goals. The Committee also sets team goals for executive management in certain programs and has designed programs for other management employees that base a portion of compensation on predetermined individual achievements within particular manager’s area of responsibility.

 

Competitive in the Aggregate

 

The Committee reviews with outside advisors the compensation practices at peer groups of companies, both those with which the Company competes for talent in geographic areas and skill sets and those in our industrial classification. The Committee uses this information as benchmarks to set base compensation levels throughout the management team at approximate mid-points of these groups. As described above, the incentive portions of the compensation programs provide opportunities to earn additional amounts. If performance targets are not met, the Company’s compensation program is designed to pay less than the mid-point for total compensation of the peer groups. If the performance goals are met or exceeded, the compensation earned under the Company’s programs will be well above the mid-point.

 

No Stock Options

 

The Committee ceased awarding stock options to employees as a matter of policy after 2003 and to directors after 2006. Subsequently, the Company became an early adopter of Statement of Financial Accounting Standards (FAS) No. 123(R) “Share-Based Payments” (“FAS 123(R)”). Some stock options granted before that time remain outstanding as reported elsewhere in this Proxy Statement. The Committee retains discretion to award stock options to employees but there is no present intent to do so, except possibly in recruitment or retention situations. At the time that the Committee ceased awarding stock options, it chose to implement the Performance/Restricted Stock Program for a smaller, more senior group of managers than the group previously considered for option awards. The Committee’s view was that the Performance/Restricted Stock Program, by putting half of each award “at risk” for performance for the limited group of employees, would more efficiently provide a strong incentive to the management employees more able to influence corporate earnings and goal achievement.

 

Employment Contracts and Change in Control Agreements

 

For retention purposes, the Committee has authorized participation in qualified and non-qualified retirement plans, a limited number of employment contracts, and double trigger change in control severance agreements, all of which reflect competitive practices. The change in control agreements are intended to better enable the Company to retain the employee counterparties in the event that the Company is the subject of a potential change in control transaction and are in the interests of the Company and its stockholders. The Committee has been advised that the potential payments under the change in control agreements are, individually and in the aggregate, in line with competitive practices. The Committee takes the value of these contracts as well as qualified and non-qualified plans into account when setting compensation. Please see the “Employment and Change in Control Section” of this Proxy Statement.

 

Adherence to Ethical Standards; Clawbacks

 

The payment of awards under the Annual Incentive Plan is conditioned on adherence to the Company’s Corporate Guidelines for Business Conduct and Ethics. Furthermore, the Committee has included clawback provisions in each compensation program that require participants in plans to return compensation to the extent that earnings or other performance measures are improperly reported.

Federal Income Taxes

 

The Committee designs programs intended to be performance based within the meaning of Section 162(m) of the Code. All compensation earned under these programs is intended to be deductible by the Company for federal income tax purposes. The Committee retains discretion to adjust compensation paid under these programs to recognize extraordinary performance. If that discretion is exercised, upward adjustments may not be deductible for federal income tax purposes.

 

Process

 

Role of the Committee

 

The Personnel and Compensation Committee is composed of three independent, non-employee directors and has a twofold task with respect to the Company’s compensation programs. With regard to the named executive officers and other members of management’s executive committee, the Committee has the sole responsibility to carry out the Company’s overarching policy of linking the compensation program to the interests of stockholders. The Committee also has the responsibility to outline the programs for management employees more generally and to supervise management’s implementation of those programs to ensure a continuing source of leadership for the Company. The Committee scales compensation challenges and opportunities by level of responsibility and focuses performance on measures particular managers can most directly influence.

 

The Committee intends that compensation for the named executive officers should be approximately at the midpoint of the peer group used for the Total Shareholder Return Incentive Compensation Program if actual performance is at the midpoint of the actual performance of that group. The degree to which compensation is placed at risk is intended to cause named executive officers to earn less than the midpoint of the peer group if actual performance is not at target levels, and named executive officers can earn substantially more than the midpoint if actual performance exceeds the performance of the peer group.

 

Monitoring of Performance and Progress Throughout the Year

 

The Committee meets periodically during the year to monitor Company and individual performance and determine management’s progress toward achieving business objectives and potential payouts under the plans. Portions of these meetings are attended by members of executive management and, from time to time, by the Committee’s outside compensation and legal advisors. These meetings assist the Committee with its evaluation of whether the compensation programs continue to support and direct performance as required to achieve the Company’s business goals.

 

Compensation Advisors

 

With respect to executive compensation, the Committee uses advisors — an independent compensation consultant and external legal advisors — to assist it in reviewing the continued suitability of the peer groups used for setting base pay amounts and shareholder return achievement, and to report on comparable company executive compensation practices. In particular, the Committee has had long-standing reliance on its external legal advisors for objectivity with regard to market practices and the Committee’s performance-oriented approach to executive compensation. The compensation advisors are retained solely by the Committee and are responsible only to the Committee.

 

Peer Group

 

The Committee has been advised by the advisors regarding the relative compensation among named executive officers. For the past several years, the Committee’s practices for setting base compensation and incentive opportunities for named executive officers have differed from practices used by peer companies. Peer company practices generally focus on job function. Instead, the Committee has elected for the last several years to support a team-oriented and collective responsibility approach by approving equal base salary and incentive opportunities for the named executive officers that report directly to the

CEO. Recognizing the ultimate management responsibility of the CEO, base pay and compensation opportunities are significantly greater for the CEO than for those who report to him. However, the Committee has been advised that the degree of difference between the CEO of the Company and the other named executive officers is not as great as may be found in comparable companies. The result is intended to benchmark the aggregate of opportunities at the Company to compare to the aggregate of opportunities at peer companies but to do so in a way that helps support a collegial and team-oriented approach to management.

 

The Committee recognizes that there are no public companies that engage in the full range of the Company’s specialty metals production, fabrication, marketing and distribution. Peer group companies have been selected based on relative similarity to one or more of the aspects of the Company’s businesses and on the risk profiles typically assigned by the capital markets. The Committee recognizes that some companies in the peer group are more heavily involved in one aspect of the Company’s business than in others. For example, two members of the peer group used for benchmarking shareholder return are involved almost exclusively in the titanium business (and one more in fabrication than production) while others are primarily in less specialized stainless steel production and distribution; some are more heavily involved in sales than in production or fabricating. However, on balance, the Committee believes the peer group shown on page 38 under the caption “Three-Year Total Stockholder Return” is representative of companies in the Company’s industry that serve similar markets and the balance of companies allows for effective benchmarks to inform Committee judgments.

 

Benchmarking

 

The Committee receives information from its outside advisors as to compensation practices across a wider group of industrial companies. The benchmarking process assists the Committee to assess the relative competitiveness of the Company’s programs and earnings opportunities as well as to determine the approaches to compensation used by peers and other industrial enterprises. Inherent in this process is a review of the financial performance of the peer companies to determine the relative efficacy of the programs used at the peer companies and others to the Company’s goals and plans. In addition, members of the Committee take into account financial and performance information received as members of the Board as a whole and through service on other Board committees. All of the foregoing information enables the Committee to evaluate the relative performance of the Company’s senior management team individually and in the aggregate and to make informed judgments concerning compensation programs, methods and award opportunities. The Committee believes that the benchmarking process provides an important frame of reference for measurement and a perspective of competitive practices but should not be the sole determinant of compensation practices at the Company. The Committee takes into account the specific business plans and opportunities of the Company to fashion programs intended to incent achieving the Company business plans.

 

Implementation of Compensation Levels and Opportunities

 

Near the end of each year, the Board, including members of the Committee, receives the Company’s annual and longer term business plans and has several opportunities to question management on those plans. For the last several years, at the Committee’s January meeting, substantial time is devoted to discussing what compensation programs, levels and goals were effective for the performance measurement periods then recently ended in December and which programs, levels and goals would optimize the achievement of the Company’s business plans for future periods. Generally, at the Committee’s February or March meeting, the Committee authorizes compensation programs for future periods and sets specific performance goals for senior management in light of approved business plans. In addition, at the February or March meeting, the Committee also designs compensation programs for other members of the management group and directs senior managers to make awards under those programs consistent with guidelines given by the Committee. Members of executive management, primarily the CEO, have discretion in fashioning specific awards to key employees who are not named executive officers. No compensation awards have been made after March in any year except for internal

promotions and external hiring, in which cases, the Company’s general practice has been to slot the incoming individual into the previously vacated compensation position (prorated as necessary).

 

When setting compensation under the Annual Incentive Plan and for the three-year performance measurement periods of the longer term incentive plans, the Committee looks to the prospective periods and does not take into account amounts earned in prior periods. The peer review process indicates this to be the industry practice. Moreover, the Committee does not believe that it is in the best interests of the Company to reduce prospective compensation opportunities because excellent performance in past periods has produced maximum cash awards and caused the value of equity awards to increase significantly from the value on date of grant.

 

In setting compensation opportunities, the Committee maintains an approximate ratio from year to year between the CEO compensation opportunities and the compensation opportunities of the corporate executives who report directly to the CEO. In addition, the Committee treats the three corporate direct reports to the CEO as co-equals in setting compensation to reflect the interdisciplinary efforts necessary to achieve the Company’s business goals.

 

At its periodic monitoring meetings and at its target setting meetings, the Committee provides the compensation consultant and its other advisors with the opportunity to review questions and discuss concepts without the presence of Company personnel.

 

Committee’s Discretion

 

The Committee has always retained discretion for recruitment and retention purposes as well as to reward extraordinary performance. The key concept in the compensation program for senior executives is and has been to provide comparatively modest compensation for average performance but to recognize superior performance with top quartile compensation. The Committee can make awards above the amounts awarded under the plan to recognize extraordinary performance. Because of the superior earnings performance in 2007, the Committee increased the annual bonus amounts payable to the following individuals above the formula amount: Mr. Hassey, $323,886; Messrs. Harshman, Kittenbrink and Walton, $12,582; and Mr. Dunlap, $48,400. The compensation programs are designed to comply with Section 162(m) of the Code and cause all compensation amounts to be deductible. The above discretionary payments are not “performance based compensation” and, therefore, a portion of the discretionary increases may not be deductible. However, the Committee believed the discretionary increases to be appropriate and wholly consistent with the “pay-for-performance” philosophy. In years past, the Committee has exercised negative discretion when circumstances indicated it to be appropriate.

 

Stock Ownership Guidelines

 

The Company has stock ownership guidelines for its officers. The guidelines call for a minimum level of stock ownership based on the executive’s base salary, which is designed to further link these executives’ interests to increased stockholder value, as follows: Chief Executive Officer, three times base salary; Executive Officers, two times base salary; and Vice Presidents, one times base salary. The executives must reach the target ownership levels before September 2008 or five years from the date executive’s employment began, whichever is later. These guidelines were met as of December 31, 2007. The Company also has stock ownership guidelines for its non-employee directors, which are discussed in the “Director Compensation” section of this Proxy Statement.

 

Current Compensation Structures

 

Base Compensation: At Mid-Point

 

The Committee views the compensation program as integrated through several levels of the Company’s management employees. For base salary, the Committee engaged an independent compensation consultant to perform a salary survey of a group of companies with which the Company competes for non-executive management talent as a benchmark for determining the reasonableness of base compensation for salaried employees generally. Base salary for the named executive officers was benchmarked using a more focused survey of a peer group. With some exceptions recommended by senior management to meet competitive and skill set needs, base compensation for the broad manager group is set at or near the mid-point of the competitive group.

Annual Incentive Plan or “AIP”

 

For executive officers and certain other senior employees, the performance criteria are determined solely on a corporate-wide basis. For other participants, performance criteria are geared to the respective company or division or area of responsibility of a particular manager. The target incentive opportunities have ranged from 15% of base compensation for key employees to 80% for certain members of the management’s executive committee, to 100% of base compensation for executive vice presidents and 175% of base compensation for the CEO. The AIP allows the Committee to exercise negative discretion to reduce payments if actual performance does not exceed targeted performance. In the most recent three years, the Committee used its discretion and awarded bonus payments in excess of the AIP formula in some cases based on the Company’s extraordinary financial performance.

 

The opportunities for the named executive officers, as measured in percentages of base pay under the AIP as well as under the other programs described below, are set each year in connection with the review of peer group practices and levels in light of the philosophy to award equal opportunities to executive vice presidents.

 

The Performance/Restricted Stock Program or “PRSP”

 

Earnings thresholds are set with respect to a three-year business plan. Because of its retention element, the earnings levels in this plan are not as challenging as the earnings levels in other incentive programs. For the 2007-2009 performance measurement period, the earnings threshold was set at $900 million. Awards are denominated in shares of common stock, using the fair market value of the common stock on the date of grant which is defined as the average of the high and low trading prices on the date the award is made by the Committee. Dollar levels of awards have ranged from 50% of base compensation for key employees to 125% of base compensation for executive vice presidents and 200% of base compensation for the CEO. Because this program is denominated in shares of stock, the dollar value of awards earned may exceed, or be less than, the dollar value of the awards when granted.

 

The Total Shareholder Return Incentive Compensation Program or “TSRP”

 

Awards are denominated in shares of common stock, using a per share value equal to the average of the closing price over the 30 trading days immediately preceding the first day of the performance measurement period. The percentile rank of returns on the Company’s Common Stock compared with actual returns on the Common Stock of the peer group determines whether participants receive no shares (less than 25th percentile), target (at 50th percentile) or up to three times the target number of shares (90th percentile or higher). Interpolation is made between these points. The dollar value of grant opportunities at target on the date of grant in recent years have ranged from 50% of base compensation for key employees to 125% for executive vice presidents and 200% of base compensation for the CEO. Because this plan increases the number of shares that may ultimately be awarded for performance above the target level, and because performance above the target level may contribute to a higher trading price, either or both of the number of shares actually earned and their dollar value when earned may exceed the target dollar value at grant. Similarly, because this program is denominated in shares of stock, the dollar value of awards if earned may be less than the dollar value of the awards when granted, and the number of shares ultimately received may be less than the target level, depending on the Company’s performance.

 

The Key Executive Performance Plan or “KEPP”

 

Under KEPP, cash targets are based on two levels. Improvement in income before tax over a three-year base period is the measure for level one. Accomplishment of specific team tasks keyed to positioning the Company for future challenges provides a guideline for the negative discretion permitted under level two. As background, for the 2004-2006 performance measurement period (KEPP I), the minimum level of achievement required a turnaround in operations and a net income improvement of $192 million over the prior three-year period with seven gradients above the minimum target, with the first gradient of $60 million and the remaining six gradients at $50 million each. The initial period, therefore, focused on reversing the losses the Company incurred. For the 2005-2007 performance measurement period (KEPP II), the focus of

KEPP was repositioning the Company to maximize its presence in higher margin product markets. For the 2006-2008 performance measurement period (KEPP III), the focus was to internally generate capital to invest in the higher margin businesses. The 2007-2009 performance measurement period (KEPP IV) focuses on optimizing the capital assets in which the Company invested over the recent past.

 

 

The Committee intends for the income before taxes (IBT) targets for this plan to be particularly challenging, requiring continued substantial earnings improvement over the rolling three-year prior period which in and of itself may include exceeding previous record earnings years for each KEPP program up to the 2007-2009 performance measurement period. The minimum performance level has exceeded the maximum level when compared to the prior KEPP performance measurement period. The specific tasks for level two are proprietary but have included specific strategic goals such as investing in assets required to penetrate predetermined niche markets, efficiently increasing the Company’s titanium production capacity, specific cost control measures, increasing overseas presence and production, balance sheet credit rating and pension funding improvements and other team-oriented tasks key to the Company’s long term business plan. These strategic actions are intended to be formidable objectives to achieve. Target awards are set at one times base salary and achievement of each gradient above target increases potential awards by approximately one times base salary. For the 2006-2008 and 2007-2009 performance measurement periods, the KEPP plan has a “banking feature” whereby if the actual achievement for any one or more years exceeds the average annual targets for that year, a KEPP payment may be reserved to be paid after the end of the measurement period.

 

The Committee believes it strikes an appropriate balance for executive officers between cash and stock compensation opportunities on one axis and between one year and longer term measurements on another. At target levels of awards, based on stock trading values when the award is made, approximately 45% of compensation opportunities for executive officers are payable in cash (base pay, AIP and KEPP) and 55% is payable in stock (PRSP and TSRP). On the axis of short and longer term performance measurement periods, the Committee believes this balance achieves consistency in goal setting that considers both the short term results and building a platform for future profitable growth. On the axis of cash and equity opportunities, the Committee believes the ratio focuses the executives’ attention on the interest of stockholders and encourages executives to retain shares of stock. It is expected that the Committee will strive to retain these general ratios.

 

Defined Contribution Plans

 

The Company also sponsors a number of defined contribution and, for some executives that were employees of Teledyne, Inc. prior to the 1996 merger, defined benefit retirement arrangements, with non-qualified programs compliant with Section 409A of the Code aimed at restoring the effects of limitations

imposed by the Code. The benefits payable under these programs are more modest than the benefits payable under restoration plans sponsored by other manufacturing companies, in large part because accruals for former Teledyne, Inc. employees under the applicable qualified defined benefit plan for those employees have been curtailed and the fact that the defined benefit plan for former Allegheny Ludlum Corporation employees were frozen in 1988. The Company does sponsor a “Supplemental Pension Plan” covering certain corporate officers as a non-qualified plan that pays one half of the individual’s salary at retirement to the executive (or spouse) for ten years after retirement at or after age 58 with the consent of the Company. The Company maintains these programs in order to offer competitive compensation and as retention devices.

 

Employment Agreements

 

The Company is a party to only two employment agreements, a three-year evergreened agreement with Mr. Hassey that was entered into when Mr. Hassey was recruited in 2003, and a one-year evergreened agreement with Mr. Walton that was entered into in 1996 when Allegheny Ludlum Corporation and Teledyne, Inc. combined. For a discussion of these agreements, see the “Employment and Change in Control Agreements” section of this Proxy Statement. In the process of recruiting Mr. Hassey in 2003, the Company agreed to accommodate his request that he be able to avoid relocating his family from its Salt Lake City residence. In order to do so, Mr. Hassey periodically uses Company leased aircraft so that he can maintain a full schedule with the Company. Mr. Hassey’s employment agreement was signed in August of 2003 and Mr. Hassey served as a consultant to the Company prior to October 1, 2003.

 

Perquisites

 

The Company provides a limited number of perquisites, having eliminated the use of automobiles and reimbursement for country club memberships several years ago.

 

For more information on each of the incentive compensation plans, please see the narrative discussion following the Grants of Plan-Based Awards Table.

 

CEO Compensation and Compensation Decisions for Performance Measurement Periods Ending
in 2007

 

After the Company incurred losses over the previous three years, Mr. Hassey began his tenure as CEO on October 1, 2003. Mr. Hassey and his management team announced the three-year strategic goals for the Company for 2004 through 2006 as a turnaround to profitability (KEPP I), as depicted in the KEPP graph on page 35.

 

As a result of achieving those KEPP I strategic goals and the KEPP II strategic goals established in 2005, the Company’s financial performance built to a one-year record earnings amount of $7.26 per share in 2007. Total net income for the KEPP II three-year performance measurement period ended December 31, 2007 was approximately $1.7 billion. The achievement to date of the strategic goals for KEPP III (2006-2008) and KEPP IV (2007-2009) were on track for the completed years of those performance measurement periods. As reported elsewhere, the actual earnings, relative stock price and other performance measures of the management performance programs of the Company have been superior during this period.

 

The number of shares awarded as opportunities for the 2005 through 2007 performance measurement periods under the TSRP and PRSP were determined by multiplying base pay by a percentage (determined in consultation with outside advisors to reflect competitive practices) divided by the then applicable trading price. For the TSRP, the applicable stock price was the average of the closing prices of the Common Stock over the thirty trading days immediately preceding January 1, 2005, or $21.615 per share. For the Performance/Restricted Stock, the applicable stock price was the average of the high and low trading prices of the stock on the day the award was made, or $22.895 per share. The result of the process was a fixed number of target shares.

During the 2005-2007 performance measurement period, the management team delivered on the strategic goals. At the end of 2007, the Company’s revenues had grown to $5.45 billion from $4.94 billion in 2006 and $3.54 billion in 2005. At the close of the 2005-2007 performance measurement period, the closing trading price was $86.40 per share (on December 31, 2007). At the time the achievement of all performance measures was determined on January 25, 2008, the valuation date for the award payments, which was two business days following the release of the Company’s fourth quarter 2007 earnings, the average of the high and low trading prices of ATI Common Stock was $67.435 per share. This per share value is shown in the dollar values of the compensation in the Option Exercises and Stock Vested Table.

 

Any increase in the trading price of Company Common Stock does not increase the relative percentage of outstanding shares awarded but does have a substantial effect on the dollar value of the awards realized because the target values increase at the same rates as the stock prices and rewards to stockholders increase. In terms of dollars, for the various compensation periods ending December 31, 2007, only the base pay and benefit (including the non-qualified plans shown in the “All Other Compensation” column of the Summary Compensation Table) components represented guaranteed compensation. All other amounts were “at risk” for performance achievement. For Mr. Hassey and each of the other named officers in the Summary Compensation Table, on average, approximately 90% of their respective compensation earned during the 2005-2007 performance measurement period was “at risk.”

 

In early 2008, the Committee reviewed the 2007 earnings results, the relative rates of return on Company Common Stock and the achievement of individual goals. The Committee applied those results to the formulae under the respective long term plans and awarded the shares and cash earnings shown in the tables. For the AIP, based on the Company’s extraordinary performance in 2007, the Committee exercised its discretion and increased the annual bonus amounts above the formula-derived amount for Mr. Hassey by $323,886, and for Messrs. Harshman, Kittenbrink, and Walton, by $12,582 each, and for Mr. Dunlap, by $48,400, in recognition of the superior performance for calendar year 2007.

Three-Year Total Stockholder Return

 

The following graph, which is derived from the comparable five-year graph appearing in Item 5 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) (“TSR”) on our Common Stock for three years, from December 31, 2004 through December 31, 2007, as compared to the S&P 500 Index and a peer group of companies. The total stockholder return for the peer group is weighted according to the respective issuer’s stock market capitalization at the beginning of each period. The graph assumes that $100 was invested on December 31, 2004. For a comparison of the Company’s TSR for the past five years, please see Item 5 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, which contains the five-year performance graph required by Item 201(e) of Regulation S-K.

 

Peer group companies for the cumulative three-year total return period ended December 31, 2007 were as follows:

 

 

COMPARISON OF CUMULATIVE THREE-YEAR TOTAL RETURN

 

 

The peer group depicted above is the peer group reviewed by the Personnel and Compensation Committee in evaluating the Company’s compensation programs, and is the peer group used in the 2005-2007 TSRP. Under the TSRP, the total shareholder return (TSR) of the Company is compared to the TSR of the peer group on an absolute basis, and is not weighted for market capitalization. The amount of the award, if any, is determined by measuring the Company’s TSR performance against the relative performance of all peer group companies without regard to their size. This is unlike the above performance graph, in which the returns are weighted for market capitalization, causing the TSR performance of a large capitalization company to have greater weight than the TSR performance of a small capitalization company. As a result, in the performance graph, weak performance of a large capitalization company will have a greater weight than the strong performance of a small capitalization company.

 

The following Summary Compensation Table sets forth information about the compensation paid by the Company to the Chief Executive Officer, the Chief Financial Officer and to each of the other three most highly compensated executives required to file reports under Section 16 of the Securities Exchange Act of 1934, as of December 31, 2007 (the “named officers”).

 

 

 

 

Other amounts included in the “All Other Compensation Column” consist of the following:

 

 

 

The value of any perquisites, including personal travel amounts, are calculated based on the aggregate incremental cost to the Company. Amounts for Mr. Hassey relating to air travel, most of which are travel expenses to and from Mr. Hassey’s family home in Salt Lake City, Utah, are calculated based on the variable costs of hourly and fuel charges and excise taxes paid by the Company for the leased aircraft used. Fixed costs are not included. In the process of recruiting Mr. Hassey in 2003, the Company agreed to accommodate his request that he be able to avoid relocating his family from its Salt Lake City residence. In order to do so, Mr. Hassey periodically uses Company leased aircraft so that he can maintain a full schedule with the Company. Mr. Hassey’s use of Company leased aircraft for these purposes is a provision of Mr. Hassey’s employment agreement with the Company. Also, the Personnel and Compensation Committee has required Mr. Hassey to use Company leased aircraft for the Company’s benefit.

 

Under the non-qualified Defined Contribution Benefit Restoration Plan, the Company supplements payments received by participants under the Company’s defined contribution plan (which is known as the “Retirement Savings Plan”) by accruing benefits on behalf of participants in amounts that are equivalent to the portion of the formula contributions or benefits that cannot be made under such plan due to limitations imposed by the Internal Revenue Code. See also the narrative discussion following the Non-Qualified Deferred Compensation Table.

 

The quarterly dividends paid on shares of performance/restricted stock, as described in note 2 above, are based on the intra-day price of the shares on the applicable dividend payment date. The price used to reinvest shares, and the mechanism and manner in which the dividends are reinvested, are consistent with the Company’s dividend reinvestment plan.

 

 

 

Annual Incentive Plan

 

In considering performance targets for the 2007 AIP, the Committee took into account the Company’s business and operations plans. The Committee recognized that opportunities for 2007 should allow for reasonable rewards for meeting, and larger amounts for exceeding, the performance goals that represented substantial challenges to AIP participants. The Company performance goals for 2007 consisted of the following components: