Alcoa 2001 Annual Report Download

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Alcoa’s
Wa y
Annual Report 2001
Five Defining Strategies

Table of contents

  • Page 1
    Alcoa's Way Five Defining Strategies Annual Report 2001

  • Page 2
    ... brands as Alcoa® wheels, Reynolds Wrap® aluminum foil, and Baco® household wraps. • Related businesses include packaging machinery, precision castings, vinyl siding, plastic bottles and closures, fiber optic cables, and electrical distribution systems for cars and trucks. • Vital statistics...

  • Page 3
    Alain Belda Chairman and Chief Executive Officer To Alcoa Shareholders D espite an extremely challenging business environment, 2001 proved to be the second best year in the company's history in terms We operated in a deteriorating environment. Demand in our markets weakened as a consequence of ...

  • Page 4
    ... s Anatomy of a market team Alcoa's new Market Sector Lead Team (MSLT) initiative helps develop industry, market segment, channel and specific customer strategies. Each team focuses the design, engineering, production and sales capabilities of key Alcoa businesses to present a single face/multiple...

  • Page 5
    ... Connecting with our customers through ABS is enabling us to selectively deliver to them just in time and better manage the supply chain. MSLTs provide a simplified, powerful means to coordinate the 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 U.S. Manufacturing Alcoa (excludes acquisitions made in...

  • Page 6
    ...fied our efforts to raise safety performance at locations acquired in 2000 to the levels expected at other Alcoa operations, and undertook a company-wide effort to eliminate workplace fatalities. Wherever we operate, Alcoa will strive to reward its shareholders by remaining true to its stated...

  • Page 7
    ... level. These are the shared ideas and motivations of the exceptional people who make up this company. On the following pages, we explore Alcoa's Way: five defining strategies at the core of Alcoa - the DNA of a corporation determined to become the best company in the world. Jesus Pineda, Acu...

  • Page 8
    To Grow the Business, Grow the Customer Andy Trageser (left) and John Cobes Jr., Alcoa Center, Pennsylvania, USA 6

  • Page 9
    ... all business units. The Alcoa Customer Value challenges Alcoans to achieve this growth by putting customers front and center - to meet or exceed their expectations in quality, delivery and service. Making this Value a living reality requires a cultural shift from what once was an internally-driven...

  • Page 10
    Outperform in Every Practice, Every Day Dana Thomas and John Greiner, Indianapolis, Indiana, USA 8

  • Page 11
    .... People do. The Alcoa Business System (ABS) is designed to give Alcoa's people the opportunity to be the best - to achieve world standard practices, processes, technologies, and customer collaborations as a way of life. BS is an integrated set of systems and tools empowering Alcoans with a common...

  • Page 12
    Financial Discipline - In Season and Out Ming Li, Alcoa Center, Pennsylvania, USA 10

  • Page 13
    ... return on capital and performance ratios at 1st quintile levels of S&P Industrial companies. • Strategic management of a low debt to capital ratio, even through periods of major acquisitions. • Comprehensive due diligence on prospective acquisitions to provide for Alcoa's safety, environmental...

  • Page 14
    Build Up, and Build On Strategic Assets Bauxite mining and reforestation, Western Australia 12

  • Page 15
    ..., and a global network of world-class plants and equipment. F or decades, Alcoa has built up a unique portfolio of select tangible and intangible assets across the globe. Managed from an ethos of stewardship, these assets extend from mineral deposits and energy resources that communities and...

  • Page 16
    Steer by the Same Stars 14

  • Page 17
    ... for a scalable, global management approach has likewise grown. Our solution is to allow our longstanding Values to guide decisions and to "manage" behaviors, cross-culturally. We have articulated - and seek to live every day - a shared set of Values that answers the question: How does Alcoa do it...

  • Page 18
    ... aluminum block. The aluminum was supplied by The Pittsburgh Reduction Company - now Alcoa. Working from a block cast from the original tooling, photographs, and dimensional sketches, Casting Center employees "reverse engineered" Stamp of Quality Alcoa's Southern Graphic Systems (SGS) played a key...

  • Page 19
    ...a new Alcoa forged aluminum wheel plant in Joetsu City, Japan, rolled its first pallet of commercial vehicle wheels off the line in October. Japanese customers have welcomed the new wheels. More than 53% of the wheels seen at 17 GM Thinks Big Covered with expanses of glass and aluminum the size of...

  • Page 20
    ... Pingguo, one of the most efficient alumina and aluminum plants in China. Alcoa will gain a strong position in China's aluminum New Neighbor The Pittsburgh Steelers' new Heinz Field football stadium includes $600,000 worth of architectural aluminum products from Kawneer. Fans enter club seats and...

  • Page 21
    ... foreign investment approval from the Nepal government to build a plant in Hetauda, a border town between Nepal and India. purchase of an additional 26% interest in the company from Maro Corp. Alcoa now holds 51% of this leading producer of plastic beverage closures. Acquisitions Alcoa increased...

  • Page 22
    ..., Acuña, Coahuila, Mexico designs and operates wireless communications sites. â- Alcoa Engineered Products acquired REDD Team Mfg., Inc., a privately held maker of extruded aluminum products. â- Alcoa Packaging Machinery, Inc. (APMI) acquired some assets of Didde Web Press Corp., a producer of...

  • Page 23
    ... for Communications AFL Telecommunica- tions introduced two new products in 2001. Its MicroCore™ fiber optic cabling system uses stainless steel laser welding technology, which allows bandwidth providers to add Eye-Catchers Scientists at Alcoa Technical Center developed a family of ultra...

  • Page 24
    ... The truck ï¬,owpath is almost completely linked from suppliers through the wheel line and on to the end customer. Delivery performance went from 88% in 2000 to 99%. Customer Connection Alcoa Building Products (ABP) undertook a pilot program with Cassidy Pierce Co. A training program created an ABS...

  • Page 25
    ... by 25%. Other program elements are management systems, accountability, cost savings through recycling and other initiatives, product design, and community involvement. â- Greener Recycling to landfills. The Alcoa Portland SPL Process transforms SPL to usable aluminum ï¬,uoride and a harmless...

  • Page 26
    ... workplace accidents. The plants posted a work safety score that is 38 times better than average in Spain's general industrial sector, and 58 times better than other companies in the metallurgical sector. New! from Alcoa PowerShade Kawneer, Alcoa's architectural building products group, has...

  • Page 27
    ..., Pittsburgh, Pennsylvania, USA Mexico: recovery in the park Blanca E. Lopez (center) and friends clear a wetland of brush and debris in Acuña, Coahuila, Mexico. The project is part of the ongoing cleanup and restoration of a 70-acre park near a plant operated by Alcoa Fujikura. A $120,000 Alcoa...

  • Page 28
    ...replicated in other communities. For Work and Family Alcoa World Alumina Australia received the Australian Chamber of Commerce and Industry (ACCI) National Work and Family Gold Award for 2001, given to honor overall outstanding achievement in addressing the work and life needs of employees. It also...

  • Page 29
    ... Dow Jones Global Index of the 2,000 largest companies in the world. Relief Fund to Civic Capital Corp., a nonprofit organization that gives capital and strategic assistance to smalland medium-sized businesses near Ground Zero in New York City. work crews to build an Alcoa Foundationsponsored house...

  • Page 30
    ... guided community giving. Resources include materials and Alcoa volunteers, in addition to funding. The teams operate within areas of excellence: Conservation and Sustainability; Safe and Healthy Children and Families; Skills Today for Tomorrow; Global Education in Science, Engineering, Technology...

  • Page 31
    ... Worldwide Operations Selected Financial Data Management's Discussion and Analysis Management's Report Independent Accountant's Report Consolidated Financial Statements Notes to Financial Statements Supplemental Financial Information 11-Year Financial Data Directors Officers Shareholder Information...

  • Page 32
    ... aluminum sheet, plate and extrusions to distributors. 'Other' also includes sales of products and services for telecommunications and power generation. • In November, Alcoa and Billiton formed a North American metals-distribution 50-50 joint venture that combines Alcoa's Reynolds Aluminum Supply...

  • Page 33
    ... an array of fabricated aluminum products for commercial and residential applications, as well as vinyl extrusions and injection moldings for new homes and remodeling. • New U.S. housing starts rose 2.2% in 2001, the third highest rise in the last 15 years. New home sales in 2001, 2.6% above the...

  • Page 34
    Worldwide Operations For a detailed listing of our operating locations, visit: www.alcoa.com Bauxite, Alumina and Chemicals Primary Aluminum Fabricated Aluminum Products Packaging and Consumer Products Related Products Alcoa Technical Center Corporate Center Norway Ireland 2 1 United Kingdom 11 3 4...

  • Page 35
    ... .75 .73 .244 13,071 348 1,604 See Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of special items, gains on asset sales and various charges to cost of goods sold and selling and general administrative expenses that impacted net income in 2001...

  • Page 36
    ... fasteners, vinyl siding, food service and ï¬,exible packaging products, plastic bottles and closures, fiberoptic cables, electrical distribution systems for cars and trucks, and packaging machinery. Alcoa is a global company operating in 38 countries. North America, including Canada and the...

  • Page 37
    ... increases in the Primary Metals and Flat-Rolled Products segments as well as at Alcoa Fujikura Ltd. (AFL). Special Items - During 2001, Alcoa recorded charges of $566 ($355 after tax and minority interests) as a result of a restructuring plan. The company completed a strategic review of its primary...

  • Page 38
    ...842 925 $2,767 $ 307 Segment Information Alcoa's operations consist of five worldwide segments: Alumina and Chemicals, Primary Metals, Flat-Rolled Products, Engineered Products and Packaging and Consumer. Alcoa businesses that are not reported to management as part of one of these five segments...

  • Page 39
    ... with the power failures and related restart of capacity at Warrick is expected to be incurred primarily in the first quarter of 2002. LME of Flat-Rolled Products Third-party aluminum shipments (mt) Third-party sales Intersegment sales Total sales After-tax operating income 2001 1,818 $4,999 64...

  • Page 40
    ... a 50% equity interest). Products in this segment are generally sold directly to customers or through distributors. AFL sales are dependent on a relatively small number of customers. Seasonal increases in the building products business generally occur in the second and third quarters of the year. In...

  • Page 41
    ... sales of building products and gains totaling $87 from the sales of Thiokol, Alcoa Proppants, Inc. and Alcoa's interest in a Latin American cable business. In 2000, ATOI for this group increased by 39% from 1999 primarily due to the RASCO, Thiokol and AFL telecommunications acquisitions, offset...

  • Page 42
    ... EPA related to PCB contamination of the Grasse River, adjacent to Alcoa's Massena, New York plant site. The range of costs associated with the remedial alternatives evaluated in the 2002 report is between $2 and $525. Alcoa believes that several of those alternatives, involving the largest amounts...

  • Page 43
    ... in April 2005. The revolving-credit facilities are used to support Alcoa's commercial paper program. The increase in cash used for financing activities in 2001 was also attributed to the repurchase of 39,348,136 shares of the company's common stock for $1,452 at an average price of $36.87 per...

  • Page 44
    ... 2000, Alcoa used $763 to repurchase 21,742,600 shares of the company's common stock at an average price of $35.08 per share. Stock repurchases in 2001 and 2000 were partially offset by stock issued for employee stock compensation plans of 21,412,772 shares for $552 in 2001 and 16,579,158 shares for...

  • Page 45
    ... Financial Statements for additional information on these standards, including a description of the new standards and the timing of adoption. Related Party Transactions Alcoa buys products from and sells products to various related companies, consisting of entities in which Alcoa retains a 50% or...

  • Page 46
    ... in which the company operates and potentially conï¬,icting outside business interests of its employees. The company maintains a systematic program to assess compliance with these policies. Report of Independent Accountants T o the Shareholders and Board of Directors Alcoa Inc. (Alcoa) In our...

  • Page 47
    Statement of Consolidated Income (in millions, except per-share amounts) Alcoa and subsidiaries For the year ended December 31 2001 2000 1999 Sales (A and L) Cost of goods sold Selling, general administrative and other expenses Research and development expenses Provision for depreciation, ...

  • Page 48
    ... and Contingencies ( J) Shareholders' Equity Preferred stock (M) Common stock (M) Additional capital Retained earnings Treasury stock, at cost Accumulated other comprehensive loss T otal shareholders' equity Total Liabilities and Equity The accompanying notes are an integral part of the financial...

  • Page 49
    ... to shareholders Dividends paid to minority interests Net change in commercial paper Additions to long-term debt Payments on long-term debt Cash (used for) provided from financing activities Investing Activities Capital expenditures Acquisitions, net of cash acquired (K) Proceeds from the sale of...

  • Page 50
    ...per share Treasury shares purchased Stock issued: Reynolds acquisition Stock issued: compensation plans Stock issued: two-for-one split Comprehensive income Preferred stock Common stock Additional capital Retained earnings Accumulated other Treasury comprehensive loss stock Total shareholders...

  • Page 51
    ... in relation to the operating performance and future undiscounted cash ï¬,ows of the underlying businesses. Adjustments are made if the sum of expected future net cash ï¬,ows is less than book value. See Note F for additional information. See Recently Adopted Accounting Standards regarding...

  • Page 52
    ...long-lived assets. Management is currently developing a plan to apply the provisions of this standard to its operations on an ongoing basis. Recently Issued Accounting Standards. In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, ''Accounting for Asset Retirement Obligations...

  • Page 53
    ... in the second quarter of 2001. There were no gains or losses on the sales of these assets. In November of 2001, Alcoa contributed net assets of approximately $200 of Reynolds Aluminum Supply Company (RASCO), the metals distribution business acquired in the Reynolds acquisition, to a joint venture...

  • Page 54
    ... impact on Alcoa's financial statements. Alcoa's acquisitions have been accounted for using the purchase method. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair market values. Any excess purchase price over the fair market value...

  • Page 55
    ... form of performance bonds. Aluminio accounts for its investments in these hydroelectric projects on the equity method. Aluminio's investment in these projects was $108 and $48 at December 31, 2001 and 2000, respectively. Alcoa of Australia (AofA) is party to a number of natural gas and electricity...

  • Page 56
    ... Area Information Alcoa is primarily a producer of aluminum products. Its segments are organized by product on a worldwide basis. Alcoa's management reporting system evaluates performance based on a number of factors; however, the primary measure of performance is the after-tax operating income...

  • Page 57
    ... used in industrial markets, while the remaining 40% of third-party sales consists of RCS. Engineered Products. This segment includes hard- and soft-alloy extrusions, including architectural extrusions, super-alloy castings, steel and aluminum fasteners, aluminum forgings and wheels. These products...

  • Page 58
    ...2000 6.1% 1.6 40.0 2.5 2.0 1999 5.0% 1.4 37.0 2.5 1.5 N. Earnings Per Share Basic earnings per common share (EPS) amounts are computed by dividing earnings after the deduction of preferred stock dividends by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of...

  • Page 59
    ... or eliminate these benefits. All U.S. salaried and certain hourly employees hired after January 1, 2002 will not have postretirement health care benefits. 57 *Includes U.S. taxes related to foreign income In the 1999 fourth quarter, Australia reduced its corporate income tax rate from 36% to 34...

  • Page 60
    ... of December 31, 2001, and $594 and $338, respectively, at December 31, 2000. Weighted average assumptions used in the accounting for Alcoa's plans follow. December 31 Discount rate Expected long-term return on plan assets Rate of compensation increase 2001 7.25% 9.50 5.00 2000 7.75% 9.00 5.00 1999...

  • Page 61
    ...also sponsors a number of defined contribution pension plans. committed and the time that the order is shipped. Alcoa's commodity Expenses were $103 in 2001, $80 in 2000 and $64 in 1999. risk management policy is to hedge, through the use of futures and option contracts, the aluminum price risk for...

  • Page 62
    ... related to the Massena, New York and Point Comfort, T exas sites where investigations are ongoing and where natural resource damage or off-site ...sites. Massena. Since 1989, Alcoa has been conducting investigations and studies of the Grasse River, adjacent to Alcoa's Massena, New York plant site...

  • Page 63
    ... the sale of the Sherwin alumina refinery in T exas, which was required to be divested as part of the Reynolds merger in 2000 (see Note C), Alcoa has agreed to retain responsibility for the remediation of certain properties, including former waste disposal areas, and a share of the ultimate closure...

  • Page 64
    ... Shareholders' equity Common Share Data Basic earnings per share* (dollars per share) Diluted earnings per share* Dividends declared Book value (based on year-end outstanding shares) Price range: High Low Shareholders (number) Average shares outstanding (thousands) Operating Data Alumina shipments...

  • Page 65
    ...81 .83 2 160 2,090 6,930 (1,750) 13,643 1,216 1,609 4,445 1.11 1.10 .225 6.23 15.06 9.22 83,600 712,072 6,407 673 1,909 2,582 1,905 2,428 1,506 ...531 2,067 $612 60,200 7.9 9.9 9.3 1993 $ 9,056 7,264 633 130 692 151 88 93 (10) 201 196 - 5 .56 .53 2 140 1,610 6,507 (1,711) 11,597 1,433 1,389 3,584 .01 ...

  • Page 66
    ...1993-1995; chief operating officer 1991-1993. Director of Alcoa since 1995. Marina v.N. Whitman, 66, professor of Business Administration and Public Policy, University of Michigan since 1992; vice president and group executive, public affairs and marketing staffs of General Motors Corporation (GMC...

  • Page 67
    ...- Human Resources and Communications Retired February 1, 2002 Mario Longhi Filho Vice President - Alcoa and President, Alcoa Wheel and Forged Products Donna C. Dabney Secretary and Assistant General Counsel James R. Stanley Vice President - Alcoa and President and Chief Executive Officer, Howmet...

  • Page 68
    ... House (ACH) system. Shareholder Services Shareholders with questions on account balances; dividend checks, reinvestment or direct deposit; address changes; lost or misplaced stock certificates; or other shareholder account matters may contact Alcoa's stock transfer agent, registrar and dividend...

  • Page 69
    ... the average performance of stocks of 30 leading companies in major industries. Alcoa has been a DJIA company since 1959. Engineered product A basic aluminum fabricated product that has been mechanically altered to create special properties for specific purposes; forgings and extrusions are...

  • Page 70
    ...41 Flat-Rolled Products segment 37, 54 Foreign currency 35, 50 U Unconditional purchase obligations 43, 53 W Working capital 62 Worldwide operations 32 *Chart Q Quarterly data 61, 66 B Balance sheet 46 Board committees 65 Board of directors 64 Book value inside front cover, 62 R Realized prices...

  • Page 71
    ... aspires to be the best company in the world. Integrity Alcoa's foundation is our integrity. We are open, honest and trustworthy in dealing with customers, suppliers, coworkers, shareholders and the communities where we have an impact. Environment, Health and Safety We work safely in a manner that...

  • Page 72
    The Joy Tellers Alcoan Fábio M. Almeida and the Contadores de Alegria ("Joy Tellers") light up a child care center in Itajuba, Brazil with the power of a friendly smile. The Contadores are a group of volunteers from AFL do Brasil who donate their spare time spreading laughter and joy in child care ...