UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 24, 2005
Allegheny Technologies Incorporated
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation
1-12001 25-1792394
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(Commission File Number) (IRS Employer Identification No.)
1000 PPG Place, Pittsburgh, Pennsylvania 15222-5479
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(Address of Principal Executive Offices) (Zip Code)
(412) 394-2800
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
A. Base Salaries for 2005
On February 24, 2005, the Personnel and Compensation Committee and the
Stock Incentive Award Subcommittee (collectively, the "Committee") of the Board
of Directors of Allegheny Technologies Incorporated (the "Company") approved the
annual base salaries of the Company's executive officers after a review of
performance and competitive market data. The following table sets forth the
annual base salary levels of the Company's Named Executive Officers (which
officers were determined by reference to the Company's proxy statement, dated
March 29, 2004) for 2005:
NAME AND POSITION BASE SALARY
----------------- -----------
L. Patrick Hassey $850,000
Chairman, President
and Chief Executive Officer
Richard J. Harshman $400,000
Executive Vice President, Finance
and Chief Financial Officer
Douglas A. Kittenbrink $400,000
Executive Vice President,
ATI Business Systems and
Group Vice President, Engineered
Products Segment
Jack W. Shilling $400,000
Executive Vice President,
Corporate Development and
Chief Technical Officer
Jon D. Walton $400,000
Executive Vice President, Human
Resources, Chief Legal and
Compliance Officer, General Counsel
and Corporate Secretary
B. Annual Incentive Plan for 2005
The Committee set performance goals and opportunities for the 2005
fiscal year under the Annual Incentive Plan ("AIP") at its meeting on February
24, 2005. For Messrs. Hassey, Harshman, Kittenbrink, Shilling and Walton,
attainment of performance goals will be based entirely on the degree to which
the Company as a whole attains predetermined levels of the following performance
measures with the relative weighting in determining individual AIP bonuses as
shown below:
Predetermined Levels of: Relative Weight
------------------------ ---------------
Operating earnings 40%
Operating cash flow 30%
Manufacturing Improvements 10%
o Inventory Turns (5%)
o Yield Improvements (5%)
Safety and Environmental Improvements 10%
o Lost time incidents (5%)
o Recordable Incidents (5%)
Customer responsiveness improvements 10%
o Delivery performance (5%)
o Quality/Complaints (5%)
No AIP will be paid to the named officers if operating earnings are below the
predetermined minimum.
The individual AIP opportunities are granted at "Threshold", "Target"
and "Maximum" levels, which are predetermined levels of achievement of the
performance goals and are expressed as a percentage of base salary. For Mr.
Hassey, the respective percentages of base pay that may be paid under AIP for
2005 based on the relative levels of achievement are 40% at Threshold, 80% at
Target and 160% at Maximum. For Messrs. Harshman, Kittenbrink, Shilling and
Walton, the Committee determined that the percentages of base salary to be paid
under AIP for 2005 at Threshold would each be 30%, at Target would each be 60%
and at Maximum would each be 120%.
Under the AIP, the Committee retains negative discretion to reduce
actual amounts payable to an individual by up to 20% each if the individual does
not achieve goals determined appropriate by the Committee. The Committee also
has the discretion to pay additional amounts as annual bonus if, in its
discretion, such additional amounts are warranted under the circumstances,
including achieving financial performance in excess of the Maximum performance
goals set for the year. No discretionary additional amount would be
performance-based compensation for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended.
C. Long-Term Incentive Programs with Measurement Periods Beginning
in 2005
At its February 24, 2005 meeting, the Stock Incentive Award
Subcommittee established a Total Shareholder Return measurement period under the
Company's Total Shareholder Return Incentive Compensation Program ("TSRP")
measuring total shareholder return for the period January 1, 2005 through and
including December 31, 2007 and determined award opportunity levels for that
period. Also, the Stock Incentive Award Subcommittee awarded shares of common
stock of the Company subject to the restrictions described below. In addition,
the Personnel and Compensation Committee established a Key Executive Performance
measurement period for the period January 1, 2005 through December 31, 2007
under the Company's Key Executive Performance Program ("KEPP") and set
performance goals and award opportunities under the KEPP. The Committee also
determined that it would not grant stock options as part of the long-term
incentive program beginning in 2005.
(1) TSRP
The Company's TSRP measures the Company's relative total shareholder
return ("TSR") (generally, the change in the trading price of a share of common
stock of the Company plus dividends paid) for the measurement period against the
total shareholder return of a group of publicly traded companies deemed
comparable by the Stock Incentive Award Subcommittee for the same measurement
period. A target number of shares, determined by dividing a predetermined
percentage of an individual's base salary by the average of the high and low
trading prices of a share of the Company's common stock for the thirty business
days preceding January 1, 2005, will be delivered in 2008 to participants in the
TSRP if the Company's relative TSR is at the level that includes the 50th
percentile. One half the target number of shares will be delivered if the level
of the Company's TSR performance includes the 25th percentile, twice the target
number if the level of the Company's TSR performance includes the 75th
percentile and 3 times the target number if the level of the Company's TSR
performance includes the 90th percentile or higher; interpolation is made on a
straight line basis between each scale. The following table shows the percentage
of base salary used to determine the TSRP award for the 2005 through 2007
measurement period for the individuals indicated:
Name: Percentage
---- ----------
Mr. Hassey 80%
Mr. Harshman 50%
Mr. Kittenbrink 50%
Mr. Shilling 50%
Mr. Walton 50%
(2) Restricted Stock
The Committee determined that shares of Company common stock granted in
2005 would be subject to the following restrictions. One half the number of
restricted shares granted to an individual would be performance based and would
vest, if at all, if the Company's earnings determined in accordance with
generally accepted accounting principles exceeded an aggregate of $150,000,000
for the period January 1, 2005 through and including December 31, 2007 and the
holder of the restricted shares was then an employee of the Company (except for
retirement, death or disability). If that level of aggregate earnings was not
exceeded for the three-year period ending December 31, 2007 or if the employee
left employment with the Company for any reason other than retirement, death or
disability before December 31, 2007, the shares of performance-based restricted
stock would be forfeited. One half the number of shares granted to an individual
would vest on the earlier of (i) December 31, 2007 if the earnings threshold
described above for performance-based restricted shares was reached for the
three-year period ending December 31, 2007 or (ii) February 24, 2010 if the
employee was then an employee of the Company (except for retirement, death or
disability). The aggregate number of shares of restricted stock granted to an
individual is determined by dividing the individual's base salary by the average
of the high and low trading prices of a share of Company common stock on the
date of grant. The following table shows the respective percentage of base
salary used to determine the number of shares of restricted stock for the
individuals named:
Name Percentage
---- ----------
Mr. Hassey 80%
Mr. Harshman 50%
Mr. Kittenbrink 50%
Mr. Shilling 50%
Mr. Walton 50%
(3) KEPP
The Company's KEPP is a long-term cash bonus plan in which nine key
individuals, including the five named below, participate and will receive cash
payments in 2008 if, but only if, a predetermined level of aggregate income
before taxes is attained or exceeded. KEPP was established by the Committee in
2004 in order to keep the Company's long-term incentive programs competitive
with peer companies.
The KEPP program is divided into two levels, one requiring payment of
cash bonuses if a designated level of aggregate income before taxes is reached
and the second permitting the Committee to exercise negative discretion on a
separate bonus pool formed if aggregate income before taxes equal or exceed
designated amounts. The Committee's negative discretion concerning the second
level will be based on the Committee's evaluation of the extent to which
designated key operational objectives are achieved and the Committee's
evaluation of the performance of the trading price of the Company's common
stock. At the February 24, 2005 meeting, the Committee specified and weighted 11
key operational objectives unique to the business and plans of the Company that
it believes are essential to reposition the Company for sustained financial
performance not only for the 2005 through 2007 measurement period but also for
years after that performance period.
The levels of aggregate income before taxes specified by the Committee
for the 2005 through 2007 performance period under KEPP are amounts of earnings
that the Committee believes to be both a significant challenge to management and
a significant acceleration of the Company's rate of financial improvement over
the base period. KEPP for the 2005 through 2007 measurement period denominates
ten different levels of aggregate income before taxes starting at a minimum
amount of $420 million in aggregate income before taxes for the 2005 through
2007 measurement period and increasing in increments of $40 million in aggregate
income before taxes for each of the successive nine gradients up to a maximum of
$780 million in aggregate income before taxes. At the lowest gradient, $420
million in aggregate income before taxes for the 2005 through 2007 measurement
period, the level one and level two bonus pools are each approximately 0.85% of
that amount of aggregate income before taxes. Level one bonus pools under KEPP
increase on a graduated scale as aggregate income before taxes increases through
the specified gradients and reach a maximum of 4.6% of the aggregate income
before taxes at the highest of the ten gradients. Level two bonus pools subject
to the Committee's negative discretion increase at the same graduated scale used
for level one for the first five gradients of aggregate income before taxes and
thereafter the level two bonus pool decreases on a graduated scale as aggregate
income before taxes increases through the gradients so that no bonus pool under
level two is available at the highest gradient of aggregate income before taxes.
No additional KEPP payment is made in respect of aggregate income before taxes
in excess of $780 million during the 2005 through 2007 KEPP performance period.
At the February 24, 2005 meeting the Committee also set forth the
amounts of cash bonuses that would be paid under level one at each gradient of
aggregate income before taxes and the amount subject to the Committee's negative
discretion at each gradient of aggregate income before taxes under level two.
The percentage of the bonus pools that would or could be paid to the named
individuals below vary slightly by gradient of aggregate income before taxes
with the variation primarily reflected in smaller percentages of the bonus pools
made available to Mr. Hassey and correspondingly larger percentage for other
KEPP participants at intermediate gradients. The following table shows the
approximate average percentage of the bonus pools payable to the named
individuals under the KEPP for the 2005 through 2007 measurement period:
Name Percentage
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Mr. Hassey 24%
Mr. Harshman 11%
Mr. Kittenbrink 11%
Mr. Shilling 11%
Mr. Walton 11%
In determining to establish a measurement period under KEPP for the
2005 through 2007 period and setting the gradients and potential bonuses as it
did, the Committee recognized that (i) if no amounts were earned under KEPP
during the 2005 through 2007 measurement period or under the KEPP measurement
period established in 2004 for the 2004 through 2006 period, the five
individuals named above would receive average annualized compensation from the
Company under all programs substantially below the 50th percentile of a group of
public, industrial companies with sales approximately equal to the Company's,
(ii) if only lower levels of cash bonuses were earned under KEPP during the two
measurement periods, the five named individuals would receive average annualized
compensation from the Company under all programs approximately equal to the 50th
percentile of that comparable group and (iii) if the maximum amounts were earned
under KEPP for the two measurement periods, the five named individuals would
receive average annualized compensation from the Company under all programs at
approximately the 90th percentile of the comparable group. The Committee
believed that requiring management to have substantial portions of their
respective compensation based on verifiable financial results of the Company at
risk was in the best interests of the Company and that, if the maximum levels of
earnings for the 2004 through 2006 measurement period and aggregate income
before taxes for the 2005 through 2007 measurement period were attained, the
Company's previous financial performance would have been so far surpassed that
payment at or about the 90th percentile would be warranted.
D. Amendment of the 2000 Incentive Plan
At its February 24, 2005 meeting the Committee also amended the
Company's 2000 Incentive Plan so that the plan would have a ten year term
beginning on May 11, 2000, the date the stockholders of the Company initially
approved the 2000 Incentive Plan. Prior to the amendment, there was no
expiration date specified in the 2000 Incentive Plan. As amended, the 2000
Incentive Plan will expire on May 10, 2010, unless reapproved by the
stockholders of the Company prior to that time. In addition, the Committee
clarified by amendment that cash flow and income before taxes were appropriate
measures for performance-based compensation.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALLEGHENY TECHNOLOGIES INCORPORATED
By: /s/ Jon D. Walton
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Jon D. Walton
Executive Vice President, Human Resources,
Chief Legal and Compliance Officer
Dated: March 2, 2005