AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account
Plan Years ended December 31, 2002 and 2001 with Report of Independent Auditors
Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan
Audited Financial Statements and Supplemental Schedule
Report of Independent Auditors ................................................................................ 1 Audited Financial Statements Statements of Net Assets Available for Benefits................................................................ 2 Statements of Changes in Net Assets Available for Benefits..................................................... 3 Notes to Financial Statements ................................................................................. 4 Supplemental Schedule Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year)................................................ 12 EXHIBITS 23 Consent of Independent Auditors 99 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Allegheny Technologies Incorporated
We have audited the accompanying statements of net assets available for benefits of the Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan as of December 31, 2002 and 2001, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2002 and 2001, and the changes in its net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2002 is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
June 11, 2003
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Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan
DECEMBER 31
2002 2001
---------------- ---------------
Investments:
Interest-bearing cash $ - $ 351
Interest in Allegheny Technologies Incorporated Savings Plan Trust 68,562,589 67,085,891
Interest in registered investment companies 10,334,374 12,684,948
Interest in common collective trusts 8,616,603 9,801,563
Participant loans 6,072,273 6,219,132
Corporate common stocks 3,976,412 9,862,875
--------------------------------
Total investments 97,562,251 105,654,760
Other (payables) receivables, net (679,148) 88
--------------------------------
Net assets available for benefits $ 96,883,103 $105,654,848
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See accompanying notes.
Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan
YEAR ENDED DECEMBER 31
2002 2001
--------------------------------
Contributions:
Employer $ 2,732,088 $ 2,377,780
Employee 5,187,714 5,046,862
--------------------------------
Total contributions 7,919,802 7,424,642
Investment income (loss):
Net loss from interest in Allegheny Technologies
Incorporated Savings Plan Trust (1,152,894) (26,871)
Net loss from interest in registered investment
Companies (2,544,431) (723,000)
Net loss from interest in common collective trusts (1,309,517) (569,870)
Interest income 393,001 341,696
Dividend income 347,604 260,396
Net realized/unrealized loss on corporate
common stocks (5,668,370) (1,835,120)
--------------------------------
Total investment loss (9,934,607) (2,552,769)
Plan transfers - 17,023,296
--------------------------------
(2,014,805) 21,895,169
Distributions to participants (6,709,034) (4,080,646)
Plan transfers (47,906) (174,980)
--------------------------------
(6,756,940) (4,255,626)
--------------------------------
Net (decrease) increase in net assets available for benefits (8,771,745) 17,639,543
Net assets available for benefits at beginning of year 105,654,848 88,015,305
--------------------------------
Net assets available for benefits at end of year $ 96,883,103 $105,654,848
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See accompanying notes.
Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan
1. SIGNIFICANT ACCOUNTING POLICIES
Investments are valued as follows:
Bank and insurance contracts with varying contract rates and maturity dates are stated at contract value.
Although it is management's intention to hold the investment contracts in the Fixed Income Fund until maturity, certain investment contracts provide for adjustments to contract value for withdrawals made prior to maturity.
All other funds are stated at their net asset value, based on the quoted market prices of the securities held in such funds on applicable exchanges.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. DESCRIPTION OF THE PLAN
The Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan (the Plan) is a defined contribution plan and subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
The purpose of the Plan is to provide retirement benefits to eligible employees of Allegheny Ludlum Corporation (ALC) through company contributions and to encourage employee thrift by permitting eligible employees to defer a part of their compensation and contribute such deferral to the Plan. ALC is a wholly owned subsidiary of Allegheny Technologies Incorporated (ATI, the Plan Sponsor). ALC contributes to the Plan $0.50 per hour worked per eligible union employee. Unless otherwise specified by the participant, all contributions are made to the Fixed Income Fund. Such contributions are made only from current income or accumulated earnings of the Plan Sponsor. The Plan allows participants to direct contributions made on their behalf to any of the investment alternatives. The Plan allows employees to contribute a portion of eligible wages each pay period through payroll deductions subject to Internal Revenue Code limitations. In addition, the employees' annual pretax profit sharing award and pretax Longevity Incentive Payment Plan award may be contributed at the employees' discretion as their deferral.
Separate accounts are maintained by the Plan Sponsor for each participating employee. Trustee fees and asset management fees charged by the Plan's trustee, Mellon Bank, N.A., for the administration of all funds are charged against net assets available for benefits of the respective fund. Certain other expenses of administering the Plan are paid by the Plan Sponsor.
Participants may make "in-service" and hardship withdrawals as outlined in the plan document.
Active employees can borrow up to 50% of their vested account balances minus any outstanding loans. The loan amounts are further limited to a minimum of $500 and a maximum of $50,000, and an employee can obtain no more than three loans at one time. Interest rates are determined based on commercially accepted criteria, and payment schedules vary based on the type of the loan. General-purpose loans are repaid over 6 to 60 months, and primary residence loans are repaid over periods up to 180 months. Payments are made by payroll deductions.
Effective November 29, 1999, Allegheny Teledyne Incorporated's name was changed to Allegheny Technologies Incorporated. Also, the Aerospace and Electronics and Consumer segments of Allegheny Teledyne were spun off into two new freestanding public companies--Teledyne Technologies Incorporated and Water Pik Technologies, Inc. Stockholders of Allegheny Teledyne became stockholders of Teledyne Technologies Incorporated and Water Pik Technologies, Inc., thus creating two new master trusts. Participants continued to hold interests in the two new companies until December 31, 2002, at which time these two holdings were terminated and the assets were transferred to one of the other plan investment options.
Effective November 1, 2001, Oremet employees belonging to the bargaining unit Local 7150 became eligible to participate in the Plan. Accordingly, plan investments related to these participants were transferred into the Plan.
Further information about the Plan, including eligibility, vesting, contributions and withdrawals, is contained in the Plan Document, summary plan description and related contracts. Copies of these documents are available from the Plan Sponsor.
3. INVESTMENTS
The following presents investments that represent 5% or more of the Plan's net assets:
DECEMBER 31
2002 2001
--------------------------------------------
Fixed Income Fund $56,605,733 $50,203,227
Allegheny Technologies Disciplined Stock Fund 6,082,791 8,447,657
Alliance Equity Fund 5,874,064 8,435,007
Dreyfus Lifestyle Growth and Income Fund 5,243,372 6,547,450
Allegheny Technologies Incorporated common stock 3,976,412* 8,450,736
Dreyfus Emerging Leaders 4,632,483* 6,113,187
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*Shown for comparative purpose
Certain of the Plan's investments are in the Allegheny Technologies Incorporated Savings Plan Trust, which has three subsidiary Master Trusts: the Allegheny Technologies Disciplined Stock Fund Master Trust, the Alliance Equity Master Trust and the Fixed Income Master Trust, which are institutional separate accounts valued on a unitized trust basis (collectively, the "Master Trust"). The Master Trust was established for the investment of assets of the Plan, and several other ATI sponsored retirement plans. Each participating retirement plan has an undivided interest in the Master Trust. At December 31, 2002 and 2001, the Plan's interest in the net assets of the Allegheny Technologies Disciplined Stock Fund Master Trust, the Alliance Equity Master Trust and the Fixed Income Master Trust were as follows:
2002 2001
------------------- ------------------
Fixed Income Master Trust 31.31% 30.31%
Alliance Equity Master Trust 22.12 21.11
Allegheny Technologies Disciplined Stock Fund
Master Trust 11.07 10.90
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Investment income and expenses are allocated to the Plan based upon its pro rata share in the net assets of the Master Trust.
The composition of the net assets of the Fixed Income Master Trust at December 31, 2002 and 2001 was as follows:
2002 2001
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Guaranteed investment contracts:
Business Men's Assurance Company of America $ - $ 1,246,890
Canada Life 2,757,412 2,743,536
Combined Life Insurance Company - 3,097,946
GE Life and Annuity 10,420,327 11,812,375
Hartford Life Insurance Company 10,460,185 10,025,160
John Hancock Life Insurance Company 9,854,982 14,218,029
Monumental Life Insurance Company 2,363,422 3,331,280
New York Life Insurance Company 7,808,955 7,729,985
Ohio National Life 5,976,900 7,936,620
Pacific Mutual Life Insurance Company 6,074,436 6,036,924
Principal Life 1,134,634 3,000,000
Protective Life Insurance Company 1,006,463 1,002,333
Pruco Pace Credit Enhanced 8,689,223 9,950,359
Safeco Life Insurance 1,973,290 3,000,505
Security Life of Denver 6,465,137 6,181,488
Sun America, Inc. 2,988,024 2,992,868
United of Omaha 7,226,335 7,188,790
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85,199,725 101,495,088
Synthetic guaranteed investment contracts:
Caisse des Depots et Consignations 4,953,210 7,800,826
CIT Equipment 996,925 992,755
Common Wealth Edison 2,999,980 1,976,061
Commit to purchase FNMA 02-74 LC 3,071,979 -
Conn RRB Spec Trust 2,948,436 2,987,164
Detroit Edison 2,027,941 2,018,460
FHLMC 5,977,227 2,466,660
Illinois Power Sp Trust 1,971,078 1,957,161
MBNA Master CC Trust 1,993,490 1,983,492
MDA Monumental BGI Wrap 41,868,727 -
Peco Energy Company 1,970,899 1,982,788
Peoples Security Life Insurance Company 2,491,608 6,602,162
Public Service 2,036,624 1,998,629
Transamerica Occidental 6,568,303 9,559,425
Union Bank of Switzerland 174,682 2,737,675
Westdeutsche Landesbank Girozentrale 3,556,463 9,387,186
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85,607,572 54,450,444
Interest in common collective trust 7,972,257 7,680,629
Receivables - 381,024
Interest-bearing cash 212,167 -
Other 1,817,668 1,635,070
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Total net assets $180,809,389 $165,642,255
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Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan
The Fixed Income Fund (the Fund) invests in guaranteed investment contracts (GICs) and actively managed structured or synthetic investment contracts (SICs). The GICs are promises by a bank or insurance company to repay principal plus a fixed rate of return through contract maturity. SICs differ from GICs in that there are specific assets supporting the SICs, and these assets are owned by the Master Trust. The bank or insurance company issues a wrapper contract that allows participant-directed transactions to be made at contract value. The assets supporting the SICs are comprised of government agency bonds, corporate bonds, asset-backed securities (ABOs) and collateralized mortgage obligations (CMOs) with fair values of $88,750,762 and $55,854,607 at December 31, 2002 and 2001, respectively. The contract value minus the market value of the wrapper contracts at December 31, 2002 and 2001 is $(2,667,261) and $(1,397,030), respectively.
Interest crediting rates on the GICs in the Fund are determined at the time of purchase. Interest crediting rates on the SICs are either: (1) set at the time of purchase for a fixed term and crediting rate; (2) set at the time of purchase for a fixed term and variable crediting rate or (3) set at the time of purchase and reset monthly within a "constant duration." A constant duration contract may specify a duration of 2.5 years and the crediting rate is adjusted monthly based upon quarterly rebalancing of eligible 2.5 year duration investment instruments at the time of each resetting; in effect the contract never matures. At December 31, 2002 and 2001, the interest crediting rates for GICs and Fixed Maturity SICs ranged from 3.27% to 8.05% and 3.49% to 8.05%, respectively.
For the years ended December 31, 2002 and 2001, the average annual yield for the investment contracts in the Fund was 5.74% and 6.25%, respectively. Fair value of the GICs was estimated by discounting the weighted average of the Fund's cash flows at the then-current interest-crediting rate for a comparable maturity investment contract. Fair value for the SICs was estimated based on the fair value of each contract's supporting assets at December 31, 2002 and 2001.
The composition of net assets of the Alliance Equity Master Trust at December 31, 2002 and 2001 was as follows:
2002 2001
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Investment in registered investment companies:
Alliance Equity Fund S.A. #4 $26,603,639 $40,024,274
Operating payables (49,895) (64,365)
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Total net assets $26,553,744 $39,959,909
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The composition of net assets of the Allegheny Technologies Disciplined Stock Fund Master Trust at December 31, 2002 and 2001 was as follows:
2002 2001
--------------------------------------------
Corporate common stocks $53,256,475 $76,016,770
Interest in common collective trusts 1,630,752 1,410,015
Receivables 67,848 103,913
Payables (25,733) -
---------------------- --------------------
Total net assets $54,929,342 $77,530,698
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Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan
The composition of the changes in net assets of the various master trusts is as follows:
ALLEGHENY TECHNOLOGIES
ALLIANCE EQUITY MASTER DISCIPLINED STOCK FUND MASTER
FIXED INCOME MASTER TRUST TRUST TRUST
--------------------------------- ---------------------------- -------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------------------
2002 2001 2002 2001 2002 2001
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Investment income (loss):
Interest income $ 9,786,577 $ 9,147,492 $ - $ - $ - $ -
Net realized/unrealized
gain (loss) on
corporate common
stocks 1,528 - - - (17,406,255) (12,375,289)
Dividends - - - - 948,623 941,613
Net gain (loss),
registered invest-
ment companies - 32,606 (10,652,634) (9,248,179) - -
Net gain, common
collective trusts 172,081 401,062 - - 13,761 53,202
Other income 69,815 - - - - -
Administrative expenses (236,944) (208,589) (118,618) (170,195) (424,085) (520,128)
Transfers 5,374,077 11,804,280 (2,634,913) (1,786,437) (5,733,400) (1,810,556)
------------ ----------- ---------- ------------ ------------ ------------
Net increase (decrease) 15,167,134 21,176,851 (13,406,165) (11,204,811) (22,601,356) (13,711,158)
Total net assets at
beginning of year 165,642,255 144,465,404 39,959,909 51,164,720 77,530,698 91,241,856
------------ ----------- ---------- ------------ ------------ ------------
Total net assets at
end of year $180,809,389 $165,642,255 $ 26,553,744 $ 39,959,909 $ 54,929,342 $ 77,530,698
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Interest, realized and unrealized gains and losses, and management fees from the master trusts are included in the net loss from interest in Allegheny Technologies Incorporated Savings Plan Trust on the statements of changes in net assets available for benefits.
4. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service dated November 30, 1995, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the Code) and, therefore, the related trust is exempt from taxation. Subsequent to this issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan, as amended, is qualified and the related trust is tax-exempt.
5. PARTIES-IN-INTEREST
Dreyfus Corporation is the manager of the Dreyfus Mutual Funds that are offered as investment options under this Plan. Dreyfus Service Corporation is the funds' distributor. Dreyfus Corporation and Dreyfus Service Corporation are both wholly owned subsidiaries of Mellon Financial Corporation. Mellon Financial Corporation also owns Mellon Bank, N.A., the Trustee for this Plan. Therefore, transactions with these entities qualify as party-in-interest.
6. PLAN TERMINATION
Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.
Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan
DESCRIPTION UNITS/SHARES CURRENT VALUE
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Registered Investment Companies
Dreyfus Emerging Leaders Fund* 166,876.191 $ 4,632,483
Dreyfus International Value Fund* 147,955.476 1,781,384
Dreyfus Bond Market Index* 141,519.873 1,484,543
MAS Midcap Growth Fund 148,134.235 1,789,462
Jennison Growth Fund 64,264.600 646,502
------------------------
Total registered investment companies $10,334,374
========================
Common Collective Trusts
Dreyfus Lifestyle Growth and Income Fund* 363,915.185 $ 5,243,372
Dreyfus Short-Term Investment Fund* 709,848.570 709,849
Dreyfus Lifestyle Growth Fund* 145,351.251 1,953,562
Dreyfus Lifestyle Income Fund* 47,020.437 709,820
------------------------
Total common collective trusts $ 8,616,603
========================
Participant loans* (5.25% to 10.50% with maturities through 2017)
$ 6,072,273
========================
Corporate Common Stocks
Allegheny Technologies Incorporated* 638,268.361 $3,976,412
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*Party-in-interest
Pursuant to the requirements of the Securities Exchange Act of 1934, the administrators of the Plan have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
By: /s/ Richard J. Harshman
------------------------------------
Date: June 27, 2003 Richard J. Harshman
Senior Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer and Duly
Authorized Officer)
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We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-10225) pertaining to the Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan of our report dated June 11, 2003, with respect to the financial statements and schedule of the Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan included in this Annual Report (Form 11-K) for the ended December 31, 2002.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
June 24, 2003
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In connection with the Annual Report of the Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan (the "Plan") on Form 11-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the net assets available for benefits and changes in net assets available for benefits of the Plan.
Date: June 27, 2003 /s/ James L. Murdy
---------------------------------
James L. Murdy
President and Chief Executive Officer
Date: June 27, 2003 /s/ Richard J. Harshman
---------------------------------
Richard J. Harshman
Senior Vice President-Finance and
Chief Financial Officer
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished in accordance with Securities and Exchange Commission Release No. 34-47551 and shall not be considered filed as part of the Form 11-K.