Markets - AnnualReports

This effort, requiring major organizational andcultural change, saw real life this year with market customers. By “real life” I mean that customers dealt withAlcoa as a more comprehensive horizontal supplier ofsolutions; i.e., the application of technologies that enablea customer to meet specific end-user requirements forspeed, convenience, economy, safety, etc. Solutions arethe opposite of commodities. For both Alcoa and ourcustomers, they have value far beyond the nuts and boltsand materials that comprise them. This strategy gainedmomentum in 2002 and will continue that path through2003 and beyond.Safety and Community MilestonesOther positive achievements for 2002, I am proud to say,include continued progress in safety and a major milestonein our relationships with Alcoa communities worldwide.When we first set our sights at being the safest companyin the world, many thought it was unrealistic. But wecontinue to deliver consistent improvement. Our lostworkday rate in 2002, including acquired Reynolds andCordant facilities, was 0.15 per 200,000 hours worked –a 44% improvement over the full-year rate of 0.27 forall facilities in 2001. This shows that we are able to closethe safety gap quickly with new acquisitions – thanks tointegration into the Alcoa Business System and the adoption of Alcoa Values. Approximately 80% of our locationsLost Workday Incident Rateinjuries per 200,000 work hours.99.8144% improvement from 2001.77.75.46.49208 160001.1502Alcoa (as reported)With Reynolds, Howmet/Huckoperated through 2002 without a single lost workdayincident – and 44% of them did not have a single recordable incident. We remain committed to achieving theultimate goal – zero incidents.I’m proud of our employees’ performance. It shows thatAlcoa is capable of tremendous achievement when focusedon an issue. We are applying the same level of focus toimproving the business performance of the company.Performance in our communities was also stellar in2002, in which we kicked off the 50th anniversary ofAlcoa Foundation, marking a half century of sharingAlcoa Values beyond the workplace. We celebratedaround the world, with employees in more than 100 communities. We also began work on a unique internationalSocial Venture Initiative designed to improve the effectiveness and sustainability of nonprofits by applying businessand entrepreneurial models in their organizations.Alcoa Values and Corporate GovernanceOur Values proved their worth in other ways in 2002, atime of significant corporate governance issues in theworld. We support initiatives underway to provide moretransparency, more disclosure, better and stronger controlof the accounting industry, and better governance. Ourreview of the Sarbanes-Oxley Act shows that we have nosignificant changes to make. Still, there is no amount oflaws or regulations that will force a company to behavewith integrity. The best line of defense is for integrity to bea part of the living Values of each individual member ofthe team. For years, Integrity has sat atop our Values. Yet,as with everything we do, we are taking steps to furtherimprove standards, controls, and accountabilities toensure we are beyond reproach.Alcoa’s Great OpportunityTogether, we embrace the challenge of improving ourperformance and achieving our goals within the currentmarket environment. We cannot maintain the status quoand hope for an economic recovery. We will not let aweak economy have the same impact on Alcoa in 2003that it did in 2002. We have made some of the difficultdecisions that needed to be made and that will positionus well for the years ahead.We will strengthen the company, improve our agility,and pursue profitable growth opportunities with ourcustomers, like the solutions in the pages that follow.They represent a small portion of opportunities that layin front of us. Alcoans are committed to not only improveour performance, but build a legacy of action that we canbe proud of for years to come.Alain J. P. BeldaChairman and Chief Executive OfficerFebruary 20, 20033

InsideABSThe Alcoa Business SystemThe Alcoa Business System, or ABS, isan integrated set of principles and toolsused to manage Alcoa businesses. Thethree overarching principles of ABS are:This principle is based on customerusage, as opposed to making toinventory. Make to Use,Eliminate WasteThe Eliminate Waste principle is ourdrive toward the ideal of exposing andsolving problems, when and wherethey occur, to continuously improvethe cost, quality and speed of all ourmanufacturing and business processes. Eliminate Waste, People Linchpin the System.ABS: Much Achieved But Only Just Begun350 Operating FacilitiesNext-generationvalue based onnew benchmarksis ks ImprovementGainsEarly GainsInitiatingMake to UseThe Make to Use principle beginswith Alcoa customers and is based onthe ideal of: Single-piece production On demand Defect free At the lowest possible cost Made safely4People Linchpin the SystemThis third principle is the drive to createthe people environment, engaging allour associates in identifying and solvingthe problems linked to our transitionfrom “make to inventory” to “make touse” and the continuous improvementsin costs, quality, and speed.While ABS is about improvements,it has also led to significant costsavings. At the end of 2002, Alcoahad achieved 600 million in annualized cost savings toward its threeyear 1.0 billion 2001 to 2003 goal –which comes on top of the company’s

ABS – Extending the Business SystemWhat we make Products Services Time Quality PriceInitially operations-based on ourexisting value propositionsABSNow we’re redefining value propositionsbased on new operational capabilities,products, and technologies1998 to 2000 cost challenge thatachieved 1.1 billion in savings. Therun rate at the end of the fourth quarter2002 was 150 million, and with thecost savings initiatives announced during the fourth quarter, the company ison track to exceed the goal of a run rateof 250 million by the end of 2003.While ABS has helped deliver substantial savings, there are significantopportunities ahead in both savingsand in extending the entire businesssystem of the company:On Track to Exceed 1 Billion Cost Savings GoalMillions of dollars25031278638787107123140150Make to use Single-piece production On demand Defect free At the lowest possible cost Made safely Of the more than 350 operatinglocations of the company, approximately 100 have realized significantgains, major improvements, orare on to setting new benchmarkperformance. At our other approximately 270 operating locations,we are either initiating ABS or arerealizing the early gains that canbe achieved. We are using our years of experienceapplying ABS to systemically captureimprovements faster and transferknowledge across the organizationmore quickly. Where we were initially operationsbased, we are now redefining ourvalue propositions and evolving intoa market-driven company basedon new operational capabilities,products, and technologies.2782000 1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 2003GoalGoal5

MarketsCustomersSolutionsOur first aerospace customerswere the Wright Brothers who neededsome aluminum for a new invention.A hundred years later, we’re still putting customers at the leading edge.Today we serve customers in allsegments of the aerospace market withsolutions ranging from materials, manufacturing, fastening, and propulsionto components for wings, fuselage,landing gear, wheels, and aero engines.We’re moving from being the bestaluminum provider to the best metallicsolutions partner, showing product andtechnology breadth that’s unrivaled.Tomorrow’s planes demand next-AerospaceJohn Liu, alloy technologydivision manager, inspects ajet engine diffuser (top left).We’re offering aerospacecustomers a more completefastener solution by integrating new acquisition FairchildFasteners with our HuckFasteners business to formAlcoa Fastening Systems(top center).Product application strategistBob Evert and senior staffscientist Joanne Murray witha model winglet (above).6Under a new contract withBombardier Aerospace(above), Alcoa will use ABSprinciples to pinpoint delivery of regional and businessjet components and skinsto meet customer needs.

generation solutions delivering newlevels of performance, reliability, safety,fuel efficiency, and environmentalfriendliness. Alcoa is bringing its worldleading know-how in materials,structural design, engineering, quality,and delivery performance to customers,helping them meet their ever-increasingrequirements. As we do this, we alsobring a commitment – and the ability –to reduce weights of metallic structuresby 20% in addition to reducing costsby 20%. This is how we will help ourcustomers move their businesses –and ours – up the value curve in commercial aircraft, defense, and aerospace.Alcoa’s Contributionto the A380Wing BoxFastenersWing Ribs (Plate)Vertical StabilizerFastenersFuselage StringersFloor BeamsFuel ConnectorsWing Gear Rib and Support FittingsFuselage SkinsWing Spars (Plate)Seat TracksBay Landing andSupport ForgingsCustomer SuccessAirbusThe future of advancedmetallic solutions is here,and the evidence is inAlcoa’s work to meet theunique challenges requiredon the Airbus A380 superjumbo airliner. Alcoa will provide nearly the entire wingUpper Wing SkinsLower Wing SkinsEngine Pylon FastenersFuselage to Wing ConnectionWing Flap FastenersWing Spars (Forgings)Engine Pylon Support Structurestructure, a large portion ofthe fuselage skins, the mainwing spar forgings, and othermajor applications throughout the plane. Alcoa alsowill provide the fasteningsystems for the A380.The A380 will be theworld’s only twin-deck, fouraisle airliner – or a tripledecker in the freighterconfiguration. It will seat555 passengers in a typicalthree-class interior layout.The first customer deliveries are expected in 2006.There have been 103 ordersand commitments for thenew Airbus plane bookedthus far. Alcoa is literally allover this aircraft.7

We get as excited as everyoneelse about aluminum’s role in technological marvels such as the CadillacSixteen. But what excites us evenmore is how Alcoa solutions add performance, safety, fuel efficiency, andenvironment-enhancing capabilitiesto what’s on the road right now.More than 90% of our automotiverevenue comes from vehicles like theones you drive every day: everythingfrom Chevrolet sedans to Ford trucks,Mercury minivans, and Volvo wagons.Alcoa solutions make hoods and trunklids easier to handle, suspension moredependable, handling more nimble,wheels more stylish, drivetrains andchassis components lighter and moreresponsive. Our ability to supply allof the above and more puts Alcoa in aunique position as an automotive supplier: decades of design and engineeringexperience to help automakers worldwide design and build vehicles thatconsumers want to buy.AutomotiveThe Audi A8 (top) and theChevy Monte Carlo: twoexamples of how automakers add performance andgood looks through Alcoamaterials, components, andsolutions. We’re also a leading source of automotivewiring and electronics (right).8Engineer Matt Garrattwith the rear upper controlarm for the Mercedes-BenzM-class automobile.

Our Diverse Automotive ProductsSteering YokesWiring HarnessSuspension SubframesInstrument Panel StructuresAirbag CanistersExterior ClosurePanels/InteriorReinforcing PanelsStructures and SubassembliesElectrical ComponentsThe Cadillac Sixteenconcept’s unique 16-cylinder,1000-hp engine is set in asculpted compartment ofAlcoa aluminum.WheelsEngine ComponentsSpaceframes andComponentsBumper BeamsSeat FramesHeat ExchangerComponents/RadiatorsDriveshafts and YokesTransmission BracketsAir Compressor PistonsBrake Pistons and CalipersEngine SubframeCrash Management SystemsChassis and SuspensionComponentsCustomer SuccessGeneral MotorsTo enhance the entire Cadillacbrand and return GeneralMotors to preeminence asthe world standard in producing luxury automobiles, GMapproached Alcoa to collaborate on the design and engineering of the new CadillacSixteen concept car, theultimate aspirational sedan.Working with GM presented Alcoa the opportunity todemonstrate more than twodecades of structural designand engineering expertise.The Sixteen’s aluminum autostructure is unique in itscapacity to meet significantperformance, occupantcomfort, and safety require-unparalleled passenger view;a compartment highlighting theV-16 engine, the jewel of theconcept vehicle; and assurancethe car will be easily recyclable.With Alcoa’s work completedin just eight months, theSixteen was easily the highlightof the 2003 North AmericanInternational Auto Show.ments while accommodatingits aesthetic needs.The Cadillac Sixteen hasbecome a demonstrator ofleading-edge automotivealuminum engineering, withAlcoa integrating its latesttechnologies,including:energy-absorbing bumpers;an upper body design supporting GM’s desire for an9

No matter if it is the foodyou eat, the beverages you drink, themedicines you take, or the electronicproducts that help make our livesmore efficient, chances are goodthat Alcoa packaging has helpedmake it better.For manufacturers, we provideclosure and capping systems, bottles,containers, packaging materials, films,and wraps. For foodservice outlets,we provide solutions ranging fromfoil, film, containers, lids, wraps, andbags to baking cups and hot dog trays.And for consumers, we’re top-of-mindwith brands like Reynolds Wrap With new Reynolds Wrap Release Non-StickAluminum Foil (below),you can cook, cover, freeze,and store foods like lasagnawithout sticking.Alcoa customer focus helpsretailers like Wal-Mart puthigh-quality Alcoa consumerproducts in the right placeat the right price (bottomand right).Aluminum Foil, new Reynolds Wrap Release Non-Stick Aluminum Foil,Reynolds Plastic Wrap , andBacoFoil in the U.K. This business isover and above the sheet we make for100,000,000,000 (that’s 100 billion!)aluminum beverage cans every year.And with Ivex plastic film, sheet,and food container products joiningthe Alcoa line in 2002, we’re noweven better able to collaborate withcustomers to create new packagingsolutions.Packaging and ConsumerCustomer SuccessWal-Mart“Supplier of the Year,” anhonor reserved for only afew selected suppliers thatWal-Mart singles out as thebest of the best.Through listening andunderstanding what Wal-Martwants, when it wants it, andin what quantity, AlcoaConsumer Products wasAlcoa Consumer Productstakes to heart the Companystrategy of “to grow the business, grow the customer.”Nowhere is that more prevalent than in its partnershipwith Wal-Mart Stores, Inc.where it was named a10able to: grow retail sales atWal-Mart by 44% from 2000;increase retail profit 2.5 percentage points; increasein-stock levels to 99.1%;reduce order lead time tohalf a week; and increaseturns 21% to 23 times a year.This philosophy is alsobeing used with all of AlcoaConsumer Products’customers worldwide andis part of the reason its newReynolds Wrap Release Non-Stick Aluminum Foilinnovation is such a hugemarket success.

Packaging and Consumer RevenueThe fridge-friendly multipack,an innovative packaging ideadeveloped to boost sales forthe beverage industry, makesbetter use of refrigeratorspace so consumers can chilland dispense more cans.32% Consumer Products12% Flexible Packaging18%billions 13%ReynoldsAcquisition00IvexAcquisition016% Southern Graphic Systems6% KamaRevenue Growth 33%18% Food Packaging32%3%3%3.02.52.01.51.00.50.020% Closure Systems International20%026%6%3% Protective Packaging12%3% Packaging EquipmentAlcoa packaging andclosures are everywhere,keeping food, beverages,and other products fresh,safe, convenient, andvibrant. We work closelywith customers in thesecompetitive markets todevelop new ideas thatattract sales and satisfyconsumer needs.11

Next time you see a semi onthe highway decked out with gleamingAlcoa wheels, remember – it’s highlighting the total value Alcoa brings tothis market. In the tough business ofcommercial transportation everypenny counts. Any savings in weight,wear and tear, fuel consumption,or cargo space goes right to the bottomline. Those shiny aluminum wheelsalso extend tire and brake life andrequire less maintenance than steelwheels. That’s why you see so manyof them on the road.Wheels are only the most visiblepart of our commercial transportationDan Serafin, AlcoaTechnical Center,with a truck wiringharness (below).business. Today’s truck and trailermanufacturers use Alcoa electricalsystems, materials, and fasteners fortruck and trailer bodies, and completecomponents such as cab doors, trailerlanding gear, engine parts, refrigeration systems, and finished body panels.Our end-to-end strategy for supplying this market has enabled us to workmore closely with original equipmentmanufacturers (OEMs), fleets, andowner-operators to build integratedsolutions that they need to compete –not just in trucking, but in marine, rail,and almost anything else that moves.Commercial TransportationA New Genuine MotorAccessory from HarleyDavidson is now available:Detonator three-spokealuminum wheels (top).Their rounded “liquid metal”look is forged by Alcoa.12Senior technical specialistAndrew Hinkle, Sr. andengineered finishes managerLuis Fanor Vega (above)examine the surface of atrailer interior.

Alcoa Components forCommercial TransportationCab StructureRoof SheetCab FastenersBody TrimExtrusionsfor Skeleton,Side PostsCab DoorsSide SheetChassis FastenersFloor, Scuff Plate,Tread PlateWiring HarnessWheelsFuel TanksCustomer SuccessSteelcaseSC Transport is the transportarm of office furniture company Steelcase. Togetherthey are in the business ofcreating great-looking furniture for high-performancework environments and wanteverything to reflect thatimage, including their trucks.FastenersCross MembersFrame RailsSteelcase, which has beenspecifying Alcoa forged aluminum wheels for its fleetsince 1992, turned to Alcoa,who showed them how Alcoawheels can give them thebrightness of chromed wheelsplus other advantages suchas strength, durability, andtruer run for longer tire andbrake life. Alcoa also showedWheelsand ensure that Steelcase’sfleet looks great.and theyrequire a lot less work to keepthat great appearance. NowSteelcase, like thousands ofindustry professionals acrossthe U.S. and Europe, says,“With Alcoa Dura-Brightwheels there’s absolutely nopolishing. The wheels lookbright and stay that way.”how its wheels saved weight,allowing room for more payloads, especially on backhauls.Now, through continuinguse of technologies to developcustomer solutions, Alcoahas introduced Dura-Bright wheels to Steelcase. Theysave labor costs and downtime; protect the wheels fromoxidation and corrosion;13

Whether it’s the coziness ofa cottage, the sturdiness of a home,or the soaring sculpture of a modernoffice tower, industry professionalsunderstand their reputations rideon every project they complete.That’s why they count on Alcoabuilding solutions to add protection,strength, beauty, and endurance toevery environment.We support homeowners, contractors, and architects with recognizedAlcoa and Mastic brandhome exterior products(below) get to contractorsand homeowners when andwhere they’re needed thanksto Alcoa’s close relationshipwith wholesale distributorslike Ted LansingCorporation (right).brands like Alcoa , Alumax , Mastic ,Reynobond , Reynolux , and others.Our solutions encompass a varietyof materials – aluminum, vinyl, andstate-of-the-art composites. Theyinclude everything from siding to trimto curtain walls for office buildings.Whatever the project, customerscount on Alcoa’s history of innovationand expertise at fit and finish whenthey’re using architecture to make astatement, make a sale, or just makepeople feel at home.Ted Lansing CorporationBuilding and ConstructionCustomer SuccessTed LansingCorporationIn 2002, Alcoa HomeExteriors, Inc. (formerly AlcoaBuilding Products) began totransform its supply chainthrough its “Connect TheCustomer” program. More14than 160 customers, including Ted Lansing Corporation,the nation’s leading independent wholesale distributorof exterior building products,with 47 warehouses in 15states, literally have beenconnected to Alcoa HomeExteriors where they tap intocompany-based marketsupport and explore flexibleshipping options, ensuringwe make what customerswa

acquisition of Fairchild 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 Fairch