Retirement Benefits As of November 30, 2003, our measurement date for pension accounting, the value of the accumulated pension benefit obligation (ABO) exceeded the value of pension investments by approximately $195 million. A minimum pension liability was recognized in 2002 as a result of a severe decline in the equity markets from 2000 through 2002, higher benefit liabilities from long-term labor contracts negotiated in 2001, and a lower assumed discount rate for valuing the pension liabilities. Accounting standards require that a minimum pension liability be recorded if the value of pension investments is less than the ABO at the annual measurement date. Accordingly, in the 2002 fourth quarter, we recorded a charge against stockholders’ equity of $406 million, net of deferred taxes, to write off our prepaid pension cost representing the previous overfunded portion of the pension plan, and to record a deferred pension asset for unamortized prior service cost relating to prior benefit enhancements. In the fourth quarter 2003, our adjustment of the minimum pension liability resulted in a $47 million increase to stockholders’ equity, presented as other comprehensive income (loss). The recognition of the minimum pension liability in 2002, and the adjustment of the minimum pension liability in 2003 does not affect our reported net loss and does not have a cash impact. In accordance with accounting standards, the full charge against stockholders’ equity would be reversed in subsequent years if the value of pension plan investments returns to a level that exceeds the ABO as of a future annual measurement date. As of the 2003 annual measurement date, the value of pension investments was $1.8 billion and the ABO was $2.0 billion. Based upon current actuarial analyses and forecasts, the ABO is projected to be $2.0 billion at the 2004 annual measurement date, assuming no changes in the discount rate used to value benefit obligations. We do not expect to be required to make contributions to our U.S. defined benefit pension plan for at least the next several years based upon current actuarial analyses and forecasts. However, further significant declines in the value of plan investments in the future or unfavorable changes in laws or regulations that govern pension plan funding could materially change the timing and amount of required pension funding. Depending on the timing and amount, a requirement that we fund our defined benefit pension plan could have a material adverse effect on our results of operations and financial condition. Beginning in the second half of 2001, we began funding certain retiree health care benefits for Allegheny Ludlum using investments held in a Voluntary Employee Benefit Association (VEBA) trust. This allows us to recover a portion of the retiree medical costs. In accordance with our labor agreements, during 2003 and 2002, we funded $14.2 million and $12.7 million, respectively, of retiree medical costs using the investments of the VEBA trust. We may continue to fund certain retiree medical benefits utilizing the investments held in the VEBA if the value of these investments exceed $50 million. The value of the investments held in the VEBA was over $100 million as of November 30, 2003. Other We paid a quarterly dividend of $0.06 per share of common stock during each of the four quarters of 2003 and the fourth quarter of 2002. We paid a quarterly dividend of $0.20 per share of common stock in each of the first three quarters of 2002. On March 11, 2004, the Board of Directors declared a regular quarterly dividend of $0.06 per share of common stock. The dividend will be paid on March 30, 2004, to stockholders of record at the close of business on March 22, 2004. The payment of dividends and the amount of such dividends depends upon matters deemed relevant by our Board of Directors, such as our results of operations, financial condition, cash requirements, future prospects, and any limitations imposed by law, credit agreements or senior securities, and other factors deemed relevant and appropriate. Critical Accounting Policies The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, or the method of its application, is generally accepted, management selects the principle or method that is appropriate in our specific circumstances. Application of these accounting principles requires our management to make estimates about the future resolution of existing uncertainties; as a result, actual results could differ from these estimates. In preparing these financial statements, management has made its best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality. 20 Annual Report 2003 ATI