Alcoa 2002 Annual Report Download

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Markets
Customers
Alcoa 2002
Solutions

Table of contents

  • Page 1
    Alcoa 2002 Markets Customers

  • Page 2
    ... to aluminum products and components, Alcoa also markets consumer brands including Reynolds Wrap® aluminum foil, Alcoa® wheels, and Baco® household wraps. Among its other businesses are vinyl siding, closures, precision castings, and electrical distribution systems for cars and trucks. • The...

  • Page 3
    ... products to selling customer solutions - to a new level. That is where our assets, proprietary technologies and the brainpower of our employees bring the most value to our customers and, in turn, to Alcoa. Portfolio Review In 2002, we conducted a portfolio review of our businesses and the markets...

  • Page 4
    ... Fasteners. Fairchild's product line complements the fastening products from Huck, which we supply to aircraft manufacturers, and gives Alcoa the broadest product line in this part of the aerospace industry. The new Alcoa Fastening Systems, combining Huck and Fairchild, will be the premier supplier...

  • Page 5
    ...year with market customers. By "real life" I mean that customers dealt with Alcoa as a more comprehensive horizontal supplier of solutions; i.e., the application of technologies that enable a customer to meet specific end-user requirements for speed, convenience, economy, safety, etc. Solutions are...

  • Page 6
    ...is an integrated set of principles and tools used to manage Alcoa businesses. The three overarching principles of ABS are: • Make to Use, • Eliminate Waste, • People Linchpin the System. ABS: Much Achieved...But Only Just Begun 350+ Operating Facilities ABS This principle is based on customer...

  • Page 7
    ...Business System What we make • Products • Services • Time • Quality • Price Initially operations-based on our existing value propositions ABS Now we're redefining value propositions based on new operational capabilities, products, and technologies Make to use • Single-piece production...

  • Page 8
    ... offering aerospace customers a more complete fastener solution by integrating new acquisition Fairchild Fasteners with our Huck Fasteners business to form Alcoa Fastening Systems (top center). Under a new contract with Bombardier Aerospace (above), Alcoa will use ABS principles to pinpoint delivery...

  • Page 9
    generation solutions delivering new levels of performance, reliability, safety, fuel efficiency, and environmental friendliness. Alcoa is bringing its worldleading know-how in materials, structural design, engineering, quality, and delivery performance to customers, helping them meet their ever-...

  • Page 10
    ... nimble, wheels more stylish, drivetrains and chassis components lighter and more responsive. Our ability to supply all of the above and more puts Alcoa in a unique position as an automotive supplier: decades of design and engineering experience to help automakers worldwide design and build vehicles...

  • Page 11
    ... Crash Management Systems Steering Yokes Suspension Subframes Exterior Closure Panels/Interior Reinforcing Panels The Cadillac Sixteen concept's unique 16-cylinder, 1000-hp engine is set in a sculpted compartment of Alcoa aluminum. Engine Components Bumper Beams Customer Success General Motors To...

  • Page 12
    ... in-stock levels to 99.1%; reduce order lead time to half a week; and increase turns 21% to 23 times a year. This philosophy is also being used with all of Alcoa Consumer Products' customers worldwide and is part of the reason its new Reynolds Wrap® Release® Non-Stick Aluminum Foil innovation is...

  • Page 13
    ...% +13% Reynolds Acquisition Ivex Acquisition 00 01 02 Alcoa packaging and closures are everywhere, keeping food, beverages, and other products fresh, safe, convenient, and vibrant. We work closely with customers in these competitive markets to develop new ideas that attract sales and satisfy...

  • Page 14
    ... on the road. Wheels are only the most visible part of our commercial transportation Dan Serafin, Alcoa Technical Center, with a truck wiring harness (below). business. Today's truck and trailer manufacturers use Alcoa electrical systems, materials, and fasteners for truck and trailer bodies, and...

  • Page 15
    Alcoa Components for Commercial Transportation Cab Structure Cab Fasteners Body Trim Cab Doors Chassis Fasteners Wiring Harness Wheels Fuel Tanks Cross Members Frame Rails Roof Sheet Extrusions for Skeleton, Side Posts Side Sheet Floor, Scuff Plate, Tread Plate Fasteners Wheels Customer Success ...

  • Page 16
    ...'re using architecture to make a statement, make a sale, or just make people feel at home. Ted Lansing Corporation Building and Construction Customer Success Ted Lansing Corporation In 2002, Alcoa Home Exteriors, Inc. (formerly Alcoa Building Products) began to transform its supply chain through...

  • Page 17
    ... in Mastic® Premium Siding by Alcoa. Alcoa engineered the curtain wall of Amsterdam's Oval Tower office building (left) for fast installation and easy glazing, even in bad weather. months, and a wider breadth of product offerings. For companies like Ted Lansing Corporation, this connection to...

  • Page 18
    ... on capital. Our smelting operations are doing this by closing high-cost capacity, improving the performance of existing capacity via the Alcoa Business System, and by adding new, lower-cost capacity - either through greenfield or brownfield projects or via acquisition. Clarendon, Jamaica: plant...

  • Page 19
    ... with the Aluminum Corporation of China Ltd., or Chalco, in forming a 50/50 joint venture at Chalco's facility at Pingguo. This facility is one of the most efficient alumina and aluminum production facilities in China, the fastest-growing aluminum market in the world. The company also took steps to...

  • Page 20
    ... premier fastening system companies further extends Alcoa's technical depth and product breadth in the aerospace market. Divestitures • Alcoa's Baton Rouge, LA 665,000mtpy petroleum coke calcining plant was sold to Great Lakes Carbon Corp. • Alcoa World Alumina and Chemicals, a global alliance...

  • Page 21
    .... Customer News Customers Choose Howmet Alcoa Howmet Castings entered the armament market and also strengthened its position in the aircraft industry. Pratt & Whitney selected Howmet as the "Day One Source" of single-crystal, investment-cast air- Future Vision Alcoa World Alumina Australia and...

  • Page 22
    ... that forged wheels provide for and fuselage skins for all Bombardier large aircraft. regional and business jets. Alcoa Gary Bowman, Alcoa Center, Pennsylvania, USA Solution Partnering The Heavy Truck and Specialty Products Group of AFL Automotive received a Cost Management Partnership Award from...

  • Page 23
    ... Europe's largest investments in 2002. The facility meets new, more stringent discharge limits. New Closure Openings Alcoa Closure Systems International (CSI) Japan opened an export plant in China to meet Japanese customers' need for lower-cost closures that meet strict quality standards. Planned...

  • Page 24
    ... ranging from primary operations to ï¬,at-rolled products to extrusions - to create innovative solutions which meet market needs through the development of new end-use applications for products and services. Integrated Alcoa teams are working together to find and capitalize on material, design...

  • Page 25
    ... an award for its on-time delivery, quality, and relentless commitment to Boeing. There are approximately 423,000 Huck titanium threaded pins and 241,000 Huck titanium Huckbolt® Fasteners and collars in each aircraft. Manisha Gosalia, New York, NY, USA Beyond Cookies: With an Alcoa Foundation...

  • Page 26
    ... becoming one of the world's top ten packaging companies," said Executive VP Bill Leahey. He was interviewed for an article in Metal Bulletin Monthly. • In a Pittsburgh Business Times newspaper article, Alcoa Home Exteriors President Gary Acinapura described new marketing efforts designed to grow...

  • Page 27
    ...Independent Accountant's Report 43 Consolidated Financial Statements 47 Notes to Financial Statements 63 Supplemental Financial Information 64 11-Year Financial Data 66 Directors 67 Officers 68 Shareholder Information Isabel Summe, Alcoa Center, Pennsylvania, USA 25 DATA Financial and Corporate

  • Page 28
    ...East & Africa Europe Latin America & Mexico U.S. & Canada Source: CRU Alcoa 9 6 3 0 Source: Various market contributors Source: Ducker 98 99 00 01 02 0 98 99 00 01 02 Aerospace Metallic Market Large Commercial Aircraft $ billions 10 8 6 North American Light Truck & Auto Sales millions 20...

  • Page 29
    ... • Alcoa revenues in this market come from sales of aluminum sheet, extrusions, and components such as fasteners, wire harnesses, and wheels for medium/heavy-duty trucks and trailers; and buses, boats, motorcycles, etc. • In North America, heavy truck build rates rose 28%, assisted by new engine...

  • Page 30
    ... from continuing operations (Loss) income from discontinued operations Cumulative effect of accounting change Net income Alcoa's average realized price per pound for aluminum ingot LME average 3-month price per pound for aluminum ingot Cash dividends paid per common share T otal assets Short-term...

  • Page 31
    ... castings, industrial fasteners, vinyl siding, consumer products, food service and ï¬,exible packaging products, plastic closures, fiber-optic cables, and electrical distribution systems for cars and trucks. Alcoa is a global company operating in 39 countries. North America is the largest market...

  • Page 32
    ... shares outstanding during the period primarily resulting from the Reynolds acquisition in 2000. Sales - Sales in 2002 were $20,263 compared with sales of $22,497 in 2001. The 10% decline in sales was primarily due to lower volumes in downstream businesses serving the aerospace, commercial building...

  • Page 33
    ...businesses to be divested, as well as $142 for structures, machinery, and equipment; employee termination and severance costs of $105 related to approximately 8,500 salaried and hourly employees at over 70 locations, primarily in Mexico, Europe, and the U.S.; and exit costs, including environmental...

  • Page 34
    ... of markets including refractories, ceramics, abrasives, chemicals processing, and other specialty applications. Slightly more than half of Alcoa's alumina production is sold under supply contracts to third parties worldwide, while the remainder is used internally. Alumina comprises approximately...

  • Page 35
    ... from production curtailments at plants located in the north- This segment's principal business is the production and sale of aluminum plate, sheet, and foil. This segment includes rigid container sheet (RCS), which is sold directly to customers in the packaging and consumer market and is used to...

  • Page 36
    ... including architectural extrusions, super-alloy castings, steel and aluminum fasteners, aluminum forgings, and wheels. These products serve the transportation, building and construction, and distributor markets and are sold directly to customers and through distributors. Third-party sales decreased...

  • Page 37
    ... is included in corporate.). 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...

  • Page 38
    ... by changes in LME aluminum prices. From time to time, the company may elect to sell forward a portion of its anticipated primary aluminum and alumina production to reduce the risk of ï¬,uctuating market prices on these sales. T oward this end, Alcoa may enter into short positions using futures...

  • Page 39
    ... with the sale of the Sherwin alumina refinery in T exas, which was required to be divested as part of the Reynolds merger in 2000, Alcoa has agreed to retain responsibility for the remediation of then existing environmental conditions, as well as a pro rata share of the final closure of the...

  • Page 40
    ... lower realized prices for alumina and aluminum, lower volumes in businesses serving the aerospace, commercial building and construction, telecommunications, and industrial gas turbine markets, and the lack of significant power sales that were recognized in 2001. The changes in noncash adjustments...

  • Page 41
    .... Certain of the businesses to be divested include specialty chemicals, specialty packaging equipment, certain architectural products businesses in North America, commodity automotive fasteners, certain fabricating and packaging operations in South America, and foil facilities in St. Louis, MO and...

  • Page 42
    ... application of the DCF model to forecasted operating cash ï¬,ows, including markets and market share, sales volumes and prices, costs to produce, and working capital changes. Management considers historical experience and all available information at the time the fair values of its businesses are...

  • Page 43
    ... Alcoa buys products from and sells products to various related companies, consisting of entities in which Alcoa retains a 50% or less equity interest, at negotiated prices between the two parties. These transactions were not material to the financial position or results of operations of Alcoa...

  • Page 44
    ... operations and its cash ï¬,ows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Alcoa's management; our responsibility is to express...

  • Page 45
    ... December 31 2002 Alcoa and subsidiaries 2001 2000 Sales (A and O) Cost of goods sold Selling, general administrative, and other expenses Research and development expenses Provision for depreciation, depletion, and amortization (D) Impairment of goodwill (D) Special items (C) Interest expense...

  • Page 46
    ... and deferred credits (I) Deferred income taxes (R) Liabilities of operations held for sale (B) T otal liabilities Minority Interests (K) Commitments and Contingencies (L) Shareholders' Equity Preferred stock (P) Common stock (P) Additional capital Retained earnings Treasury stock, at cost...

  • Page 47
    ...(used for) financing activities Investing Activities Capital expenditures Capital expenditures of discontinued operations Acquisitions, net of cash acquired (N) Proceeds from the sale of assets Additions to investments Changes in short-term investments Changes in minority interests Other Cash (used...

  • Page 48
    ... comprehensive loss stock Total shareholders' equity Share Activity (number of shares) Preferred stock Balance at end of 1999 557,649 Treasury shares purchased Stock issued: Reynolds acquisition Stock issued: compensation plans Balance at end of 2000 557,649 Treasury shares purchased Stock issued...

  • Page 49
    ..., including changes in technology or regulations. See Note W for additional information. Stock-Based Compensation. Alcoa accounts for stockbased compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25, ''Accounting for Stock Issued to Employees,'' and related...

  • Page 50
    .... Under the provisions of this standard, Alcoa will record the estimated fair value of liabilities for existing asset retirement obligations as well as associated asset retirement costs, which will be capitalized as increases to the carrying amounts of related long-lived assets. The amounts recorded...

  • Page 51
    ... estimated fair value less costs to sell. The businesses classified as discontinued operations include Alcoa's commodity automotive fasteners business, certain fabricating businesses serving the residential building and construction market in North America, and a packaging business in South America...

  • Page 52
    ..., consisting of $136 of goodwill on businesses to be divested, as well as $142 for structures, machinery, and equipment; $105 for employee termination and severance costs related to approximately 8,500 salaried and hourly employees at over 70 locations, primarily in Mexico, Europe, and the U.S.; and...

  • Page 53
    ... growth plans of the company. See Note B for additional information. Ivex is part of Alcoa's Packaging and Consumer segment. Alcoa paid $650 in cash for Fairchild, and the preliminary purchase price allocation resulted in goodwill of approximately $237 . Fairchild is part of the Engineered Products...

  • Page 54
    ...purchase price included the conversion of outstanding Reynolds options to Alcoa options as well as other direct costs of the acquisition. Goodwill of approximately $2,100 resulted from the purchase price allocation. As part of the merger with Reynolds, Alcoa divested Reynolds' interest in an alumina...

  • Page 55
    ... table summarizes the minority shareholders' interests in the equity of consolidated subsidiaries. December 31 Alcoa of Australia Alcoa Aluminio Alcoa World Alumina and Chemicals Alcoa Fujikura Ltd. Other majority-owned companies 2002 $ 510 124 208 269 182 $1,293 2001 $ 431 222 175 277 208 $1,313...

  • Page 56
    ... credit, which expire at various dates in 2003 through 2005, was $168 at December 31, 2002. N. Cash Flow Information Cash payments for interest and income taxes follow. Interest Income taxes 2002 $329 583 2001 $418 548 2000 $388 419 The details of cash payments related to acquisitions follow. Fair...

  • Page 57
    ... due to corporate allocations. Alumina and Chemicals Primary Metals Alcoa's products are used primarily by packaging, consumer products, transportation (including aerospace, automotive, truck trailer, rail and shipping), building and construction, and industrial customers worldwide. T otal exports...

  • Page 58
    ... of Alcoa's worldwide alumina and chemicals system that includes the mining of bauxite, which is then refined into alumina. Alumina is sold directly to internal and external smelter customers worldwide or is processed into industrial chemical products. Alcoa's alumina operations in Australia are...

  • Page 59
    ... of preferred stock dividends by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. The information used to compute basic and diluted EPS on income from continuing operations follows. (shares...

  • Page 60
    ... valuation allowance relates to acquired companies for which subsequently recognized benefits will reduce goodwill. The cumulative amount of Alcoa's share of undistributed earnings for which no deferred taxes have been provided was $5,893 at December 31, 2002. Management has no plans to distribute...

  • Page 61
    ... below reï¬,ects the status of Alcoa's pension and postretirement benefit plans. December 31 Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Amendments Actuarial losses Acquisitions (principally Ivex and Fairchild) Divestitures (principally Thiokol...

  • Page 62
    ... manage, through the use of futures and option contracts, the aluminum price risk associated with a portion of its fixed-price firm commitments. These contracts cover known exposures, generally within three years. Interest Rates. Alcoa uses interest rate swaps to help maintain a strategic balance...

  • Page 63
    ...to sell forward a portion of its anticipated primary aluminum and alumina production. In addition, Alcoa anticipates the continued requirement to purchase aluminum and other commodities such as natural gas, fuel oil, and electricity for its operations. Alcoa enters into futures and options contracts...

  • Page 64
    ... with the sale of the Sherwin alumina refinery in T exas, which was required to be divested as part of the Reynolds merger in 2000, Alcoa has agreed to retain responsibility for the remediation of then existing environmental conditions, as well as a pro rata share of the final closure of the...

  • Page 65
    ...2002 fourth quarter includes a credit of $20 related to changes in the LIFO index. First 2001 Sales Income (loss) from continuing operations Income (loss) from discontinued operations (B) Net income (loss)* Earnings (loss) per share: Basic: Income (loss) from continuing operations Income (loss) from...

  • Page 66
    ...aluminum ingot Dividends Declared Preferred stock Common stock Financial Position Working capital Properties, plants, and equipment, net Other assets (liabilities), net T otal assets Long-term debt (noncurrent) Minority interests Shareholders' equity Common Share Data Basic earnings (loss) per share...

  • Page 67
    1999 $16,133 12,383 831 128 882 - - 195 124 548 242 1,048 6 - 1,054 .67 .63 2 296 1,614 8,729 85 17,066 ...155 446 233 791 - - 791 .81 .83 2 160 2,010 6,764 (1,504) 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 2,037 $887 72,000 11.6 18.5...

  • Page 68
    ... MDRC, director of special projects and studies and a consultant for the New York City Human Resources Administration. Director of Alcoa since 1988. Sir Ronald Hampel, 70, former chairman of United Business Media, a U.K.-based media company, from 1999-2002; chairman of Imperial Chemical Industries...

  • Page 69
    ... - Alcoa and Group President, Alcoa Aerospace, Automotive, and Commercial Transportation Michael Coleman Vice President - ABS and Quality and President, Alcoa Rigid Packaging John W. Collins III Executive Vice President - Science and Technology Donna C. Dabney Secretary and Assistant General Counsel...

  • Page 70
    ... write to Director - Investor Relations at 390 Park Avenue, New York, NY 10022-4608, call 1 212 836 2674, or E-mail [email protected]. Other Publications For more information on Alcoa Foundation and its programs and other community investments, visit www.alcoa.com under ''community.'' For...

  • 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
    ... of St. Louis across the Atlantic. And we helped make commercial ï¬,ight profitable with weight-saving alloys for the DC3. Alcoa's tradition of innovation has helped break the sound barrier, put a man on the moon, and make space travel possible. As part of its commitment to communities, Alcoa will...