Alcoa 2004 Annual Report Download

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Alcoa is…
…focused on customers
Annual Report 2004

Table of contents

  • Page 1
    Annual Report 2004 Alcoa is...focused on customers

  • Page 2
    ... and฀markets฀consumer฀brands including฀Reynolds฀Wrap®,฀Alcoa® wheels,฀and฀Baco® household฀ wraps.฀Among฀its฀other฀businesses฀ are฀vinyl฀siding,฀closures,฀fastening systems,฀precision฀castings,฀ and฀electrical฀distribution฀systems฀ for฀cars฀and...

  • Page 3
    ... continue to work to profitably the last two years, but also to invest in alloy materials. Currency and energy grow and improve our results. numerous growth projects around the alone in 2004 negatively impacted our Our cost-savings program, as world for the Company's future. And we earnings by more...

  • Page 4
    ...the growing Russian market and global customers in Europe, Asia, and the Americas, giving us substantial competitive and comparative advantages. We reached an agreement with Fujikura Ltd. that paves the way for Alcoa to obtain full ownership of the Alcoa Fujikura (AFL) Automotive business. In return...

  • Page 5
    ... value today and long term for all shareowners, Alcoans, and the communities in which we operate. Environment, Health and Safety - Our lost workday rate of 0.09 (injuries per 200,000 work hours) for 2004 was the best in our history. During the year, we had 258 million hours worked with 116 incidents...

  • Page 6
    ... a robust, low-cost aircraft designed for decades of service. New Alcoa alloys play an important part in meeting fuel and weight-saving objectives. Pratt & Whitney awarded Alcoa Fastening Systems a life-of-program contract to supply its Weld-Stud Fastening System for the F119 engine nozzle assembly...

  • Page 7
    ...'s aluminum sheet, plate, and aerospace fasteners. As part of the U.S. Air Force Advanced Aerostructures Initiative, Boeing and Alcoa businesses introduced an improved, lower-cost crew emergency escape door for the Boeing C-17 aircraft. Eclipse Aviation plans to enter the new Very Light Jet market...

  • Page 8
    ... Transportation Systems sets new performance standards for automotive aluminum structures. Volkswagen's Golf V was the first car with an integrated cooling fan. AFL Automotive Europe brought its electronics, wire harnesses, and plastic components together to create multiple environmental and cost...

  • Page 9
    ... brand image. Corvette's reputation for performance is supported by Alcoa's more than 20 years of experience in vehicle electrical system technology and just-intime supply of customized wire harnesses. Toyota honored Alcoa Engineered Products with a Multi-Year Achievement Award for its work...

  • Page 10
    ... now traveling on aluminum wheels with the help of Alcoa Mill Products. Truckers value Alcoa Wheel Products' DuraFlange wheels for their cost-saving performance and their good looks. The aluminum wheels feature a rim treatment that guards against excessive wear and may double their service life. 8

  • Page 11
    ...supplies wheels to Heil Trailer plants in four countries. Sterling Truck, a unit of Freightliner, named AFL Automotive its full-service electrical distribution supplier for right-hand drive models, sold primarily in Australia and New Zealand. Ford's newest mediumduty F650/750 truck models use Alcoa...

  • Page 12
    ...consistency corporate brands require. Alcoa Arquitectura in Spain and Alcoa Architectural Products in Merxheim, France met special design needs for the new Forum 2004 building in Barcelona, Spain. The businesses supplied customized Reynobond cladding panels and a new fixing system to integrate the...

  • Page 13
    ... of DeVos Place (MI) used Alcoa's Reynobond aluminum composite material to achieve a curved design not possible with less formable materials. Alcoa Home Exteriors' new DreamColor premium siding and accessories are available in more than 700 colors, letting homeowners customize color combinations to...

  • Page 14
    ... cans throughout North America. Alcoa also is the leading supplier of sheet to the aluminum can market. Alcoa Closure Systems International's new facility outside of Cairo, Egypt, can produce 800 million closures annually to supply beverage customers in North Africa. Reynolds Food Packaging met...

  • Page 15
    ... Novartis supplies safer, more convenient, and more costeffective physicians' samples of its diabetes medication thanks to an award-winning bottle/closure packaging system labeled in a colorfully printed Alcoa Flexible Packaging shrink sleeve. Reynolds Food Packaging provided catering products and...

  • Page 16
    ...will increase its share in those operations by 30%. Alcoa and the Government of the Republic of Trinidad and Tobago signed a memorandum of understanding to build a state-of-the-art, environmentally friendly aluminum smelter in Trinidad. The smelter will use low-cost electricity generated from power...

  • Page 17
    ... plans to build an anode plant in Mosjøen, Norway. The new facility will supply Alcoa's new Fjar aál smelter in Iceland and the two companies' Mosjøen smelter. Alcoa's Wenatchee smelter in Washington state, idle since 2001, resumed production. Alcoa World Alumina and Chemicals' Suralco business...

  • Page 18
    Alcoa is Global: News'04 • 43 Countries • 350-plus operating locations •131,000 Employees Gains for Aerospace Market Alcoa Mill Products used ABS to avoid a potential process bottleneck at its Davenport (IA) Works and achieve increased revenues, while reducing costs. The effort centered on ...

  • Page 19
    ... operations in Romania include two AFL Automotive plants that produce wire harnesses for the automotive market. These facilities increasingly are involved in their communities through Alcoa Foundation grants and employee volunteerism. Alcoa's European Extruded & End Products business now is building...

  • Page 20
    ... business, to Latin American-based Dixie Toga. • Alcoa World Alumina and Chemicals sold Alcoa Specialty Chemicals to two private equity firms led by Rhone Capital LLC. • Alcoa sold its U.S. Russellville (AR) and St. Louis (MO) aluminum foil plants to JW Aluminum. New ACC-U-BAR Alcoa Engineered...

  • Page 21
    Bigger Home Benefits Alcoa Home Exteriors (AHE) and Dow Building Materials introduced Structure Premium Insulated Siding for residential customers. In addition to low maintenance, the product offers superior strength and durability, increased noise reduction and water resistance, and energy savings....

  • Page 22
    ... business category in Hungary. Sponsored by the Ministry of Economics, the award uses criteria based on the European Foundation for Quality Management model. On Deck Alcoa Home Exteriors and strategic partner Deceuninck North America entered the growing market for engineered wood building products...

  • Page 23
    ... adoption of new accounting standards, goodwill impairment, and discontinued operations Restructuring and other charges, dispositions of businesses, and various charges to cost of goods sold and selling, general administrative and other expenses Acquisitions of Reynolds Metals Company (Reynolds) and...

  • Page 24
    ... market: Flat-Rolled Products, Packaging and Consumer Convenience continues to be a major trend in home food management with nearly half of U.S. homemakers saying that convenience is most important in the foods they eat. NPD Group Reynolds brand products are well-positioned as their primary benefit...

  • Page 25
    ... market: Flat-Rolled Products, Engineered Products, Other Alcoa's revenues from this market include sales of aluminum sheet, plate, and extrusions to distributors and sales of products and services for power generation. After reaching bottom in 2004, the projected heavy-duty gas turbine build rates...

  • Page 26
    ...closures, and electrical distribution systems for cars and trucks. Alcoa's products are used worldwide in aircraft, automobiles, commercial transportation, packaging, consumer products, building and construction, and industrial applications. Alcoa is a global company operating in 43 countries. North...

  • Page 27
    ...: specialty chemicals, automotive fasteners, packaging equipment, South American ï¬,exible packaging, foil facilities in Russellville, AR and St. Louis, MO, and extrusion facilities in Europe and Brazil. In the second quarter of 2004, certain architectural products businesses in North America were...

  • Page 28
    ..., and packaging markets. In addition, the acquisition of the remaining 50% of KAAL Australia in October 2003 provided $370 in additional revenue in 2004. Partly offsetting these increases were sales decreases due to divestitures of Alcoa's specialty chemicals business, the Russellville, AR and St...

  • Page 29
    ...) on the sale of Alcoa's specialty chemicals business and $15 from adjustments to prior year reserves; offset by charges of $41 related to additional layoff reserves recorded in 2004 associated with approximately 4,100 hourly and salaried employees located primarily in Mexico and the U.S., as...

  • Page 30
    ... Statements for further information. 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...

  • Page 31
    ... chemical products. Alcoa's alumina operations in Australia are a significant component of this segment. Slightly more than half of Alcoa's alumina production is sold under supply contracts to third parties worldwide, while the remainder is used internally. Alcoa's specialty chemicals business...

  • Page 32
    ... capacity restarts and anticipated higher metal prices will add to revenue and profit in 2005, the company anticipates that higher energy costs will persist. Flat-Rolled Products Third-party aluminum shipments (mt) Third-party sales Intersegment sales Total sales ATOI 2004 2,046 $5,962 89 $6,051...

  • Page 33
    ... of Alcoa Fujikura, Ltd. (AFL), which produces electrical components for the automotive industry; the residential building products operations, Alcoa Home Exteriors; and automotive parts businesses. Products in this segment are generally sold directly to customers or through distributors. AFL sales...

  • Page 34
    ... in the cash surrender value of employee life insurance (which essentially offsets the increase in deferred compensation costs), insurance settlements of past environmental matters, and lower taxes related to differences between statutory tax rates applied and the overall corporate effective tax...

  • Page 35
    ... over the designated hedge periods, generally within three years. Alcoa has also entered into futures contracts to minimize its price risk related to aluminum purchases. Alcoa has not qualified these contracts for hedge accounting treatment, and therefore, the fair value gains and losses on these...

  • Page 36
    ... construction in Iceland. Increased sales contributed to Alcoa's cash from operations of $2,199 in 2004. Additionally, progress on the divestiture program with the sales of the automotive fasteners business, the packaging equipment business, and the specialty chemicals business in 2004, facilitated...

  • Page 37
    ... against a long-term aluminum supply contract. Partially offsetting these increases were higher working capital requirements, primarily attributed to an increase in accounts receivable due to higher sales. See the Results of Operations discussion for further details. credit agreement that expired...

  • Page 38
    ...current fair value of the business. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash ï¬,ows, including markets and market share, sales volumes and prices, costs to produce, and working capital changes. Management considers...

  • Page 39
    ...Accounting Standards SFAS No. 123 (revised 2004) ''Share-Based Payment'' was issued in December 2004. This standard requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. The effective date...

  • Page 40
    ... the type or nature of the company's obligations associated with operating activities that exceed $5 annually or $10 in total over the life of the contract. Energy-related purchase obligations consist primarily of electricity and natural gas contracts with expiration dates ranging from less than one...

  • Page 41
    ..., the Company's Chief Executive Officer provided to the New York Stock Exchange the annual CEO certification regarding the Company's compliance with the New York Stock Exchange's corporate governance listing standards. Management's Report on Internal Control over Financial Reporting Management is...

  • Page 42
    ... in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. work issued by the COSO. Alcoa's management is responsible for maintaining effective internal control over financial reporting and for its...

  • Page 43
    ... Consolidated Income (in millions, except per-share amounts) Alcoa and subsidiaries For the year ended December 31 2004 2003 2002 Sales (A and Q) Cost of goods sold Selling, general administrative, and other expenses Research and development expenses Provision for depreciation, depletion, and...

  • Page 44
    ...416 18,296 1,340 Minority Interests (M) Commitments and Contingencies (N) Shareholders' Equity Preferred stock (R) Common stock (R) Additional capital Retained earnings Treasury stock, at cost Accumulated other comprehensive loss T otal shareholders' equity 55 925 5,775 8,636 (1,926) (165) 13,300...

  • Page 45
    ... stock compensation plans Repurchase of common stock Dividends paid 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...

  • Page 46
    ...ed to income Net unrecognized gains on derivatives Comprehensive loss Cash dividends: Preferred @ $3.75 per share Common @ $.60 per share Treasury shares purchased Stock issued: compensation plans Accumulated other comprehensive loss Total shareholders' equity $56 $ 420 $925 $6,114 $7,517 420...

  • Page 47
    ...current fair value of the business. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash ï¬,ows, including markets and market share, sales volumes and prices, costs to produce, and working capital changes. Management considers...

  • Page 48
    ...with the provisions of Accounting Principles Board Opinion No. 25, ''Accounting for Stock Issued to Employees,'' and related interpretations using the intrinsic value method, which resulted in no compensation cost for options granted. Alcoa's net income and earnings per share would have been reduced...

  • Page 49
    ...ongoing aluminum or other significant supply contracts. Recently Issued Accounting Standards. SFAS No. 123 (revised 2004) ''Share-Based Payment'' was issued in December 2004. This standard requires companies to measure and recognize the cost of employee services received in exchange for an award of...

  • Page 50
    ... the normal operation of Alcoa's bauxite mining, alumina refining, and aluminum smelting facilities. Alcoa had previously recorded liabilities for certain of these costs. Additionally, Alcoa capitalized asset retirement costs by increasing the carrying amount of related long-lived assets, primarily...

  • Page 51
    ... interests) on the sale of Alcoa's specialty chemicals business and $15 resulting from adjustments to prior year reserves; offset by charges of $41 related to additional layoff reserves associated with approximately 4,100 hourly and salaried employees (located primarily in Mexico and the U.S.), as...

  • Page 52
    ...Kobe amended an existing aluminum supply agreement related to the KAAL Japan operations, which resulted in an acceleration of the delivery term of the agreement to two years. In October of 2003, Alcoa completed the sale of its Latin America PET business to Amcor PET Packaging for $75, which resulted...

  • Page 53
    ... and cash provided from operations. Alcoa recognized a net gain of $58 in other income on the early retirement of long-term debt and the associated settlement of interest rate swaps. The net gain of $58 is comprised of the following: â- a premium paid for early retirement of debt and related...

  • Page 54
    ... classified as current) related to a longterm aluminum supply contract with a customer. Each month for a six-year period, the customer will purchase and Alcoa is required to deliver 7,500 tons of aluminum at market prices. Alcoa has deposited $7 into a cash collateral account to satisfy one month...

  • Page 55
    ... priced long-term supply of power to Alcoa's refineries in Western Australia. In addition to its equity ownership, Alcoa has an agreement to purchase natural gas from the DBNGP until after 2016. Alcoa's maximum exposure to loss on the investment and the related contract is approximately $412. Alcoa...

  • Page 56
    ..., vinyl siding, consumer products, food service and ï¬,exible packaging products, plastic closures, and electrical distribution systems for cars and trucks. Alcoa's segments are organized by product on a worldwide basis. Alcoa's management reporting system evaluates performance based on a number of...

  • Page 57
    ... Alcoa Fujikura Ltd. (AFL), which produces electrical components for the automotive industry; the residential building products operations, Alcoa Home Exteriors; and automotive parts businesses. Products in this segment are generally sold directly to customers or through distributors. AFL sales...

  • Page 58
    ... sales Consolidated sales Net income: ATOI R. Preferred and Common Stock Preferred Stock. Alcoa has two classes of preferred stock. Serial preferred stock has 546,024 shares authorized and outstanding, with a par value of $100 per share and an annual $3.75 cumulative dividend preference per share...

  • Page 59
    ... 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 common stock for all potentially dilutive equivalents outstanding. The information used to compute basic and diluted...

  • Page 60
    ...ciently funded to ensure that all plans can pay benefits to retirees as they become due. Alcoa maintains health care and life insurance benefit plans covering most eligible U.S. retired employees and certain other retirees. Generally, the medical plans pay a percentage of medical expenses, reduced...

  • Page 61
    ... benefit obligation Benefit obligation at beginning of year Service cost Interest cost Amendments Actuarial losses Acquisitions Divestitures Benefits paid, net of participants' contributions Other transfers, net Exchange rate Projected benefit obligation at end of year Change in plan assets Fair...

  • Page 62
    ... grade, high yield corporate bonds, and the rate of compensation increase is based upon actual experience. Weighted average assumptions used to determine the net periodic benefit cost are as follows: Year ended December 31 Discount rate Expected long-term return on plan assets Rate of compensation...

  • Page 63
    ... risk related to aluminum purchases. Alcoa has not qualified these contracts for hedge accounting treatment, and therefore, the fair value gains and losses on these contracts are recorded in earnings. In addition, Alcoa has entered into power supply contracts that contain pricing provisions related...

  • Page 64
    Massena, New York. Alcoa has been conducting investigations and studies of the Grasse River, adjacent to Alcoa's Massena, NY plant site, under order from the U.S. Environmental Protection Agency (EPA) issued under the Comprehensive Environmental Response, Compensation and Liability Act, also known ...

  • Page 65
    ... Information Quarterly Data (unaudited) (dollars in millions, except per-share amounts) First 2004 Sales Income from continuing operations Income (loss) from discontinued operations (B) Net income* Earnings (loss) per share: Basic: Income from continuing operations Loss from discontinued operations...

  • Page 66
    ... (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 Dividends Declared Preferred stock Common stock Financial Position Properties, plants...

  • Page 67
    ... 18 - 791 .81 .83 2 160 6,539 13,643 1,897 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...$ 9,686 7,765 623 126 671 80 107 378 171 157 364 11 - 375 .64 .68 2 142 6,390 12,353 1,432 1,688 3,999 .53 .52 .200 5.52 11.28 8.03 55,200 711,528 6,660...

  • Page 68
    ...Gorman, 67, chairman and chief executive officer of Moxahela Enterprises, LLC, a venture capital firm, since 2001. He was chairman and chief executive officer of TRW Inc., a global company serving the automotive, space, and information systems markets, 1988-2001. Director of Alcoa since 1991. Judith...

  • Page 69
    ... For information on Alcoa's corporate governance program, go to www.alcoa.com Thomas J. Meek Assistant General Counsel Ronald D. Dickel Vice President - Tax Colleen P. Miller Assistant Secretary Helmut Wieser Vice President - Alcoa and Group President, Mill Products Europe and North America...

  • Page 70
    ... email [email protected]. Stock Listing Common: New York Stock Exchange and exchanges in Australia, Belgium, Germany, Switzerland, and the United Kingdom Preferred: American Stock Exchange Ticker symbol: AA Other Publications For more information on Alcoa Foundation and Alcoa community...

  • Page 71
    ... to be the best company in the world. Values 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
    ... ilh ow ee River Chilhowee see Reservoir see Riv er Tenn es Calderwood Dam Chilhowee Dam and Powerhouse Calderwood Powerhouse Managing Resources for a Sustainable Future At Alcoa, we blend business performance with environmental, social, and community leadership every day. Through a unique...