AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Savings and Security Plan of the Lockport and Waterbury Facilities Years ended December 31, 2002 and 2001 with Report of Independent Auditors
Savings and Security Plan of the Lockport and Waterbury Facilities
Audited Financial Statements and Supplemental Schedule
CONTENTS
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
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Allegheny Technologies Incorporated
We have audited the accompanying statements of net assets available for benefits of the Savings and Security Plan of the Lockport and Waterbury Facilities 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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Savings and Security Plan of the Lockport and Waterbury Facilities
DECEMBER 31
2002 2001
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Investments:
Interest in Allegheny Technologies Incorporated Savings Plan Trust $4,844,166 $4,676,529
Interest in registered investment companies 816,231 961,957
Interest in common collective trusts 340,168 363,959
Participant loans 301,606 314,699
Corporate common stocks 69,496 221,166
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Total investments 6,371,667 6,538,310
Other payables, net (21,568) (248)
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Net assets available for benefits $6,350,099 $6,538,062
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See accompanying notes.
YEAR ENDED DECEMBER 31
2002 2001
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Contributions:
Employer $ 67,987 $ 234,332
Employee 186,316 242,146
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Total contributions 254,303 476,478
Investment income (loss):
Net gain from interest in Allegheny Technologies
Incorporated Savings Plan Trust 72,236 105,188
Net loss from interest in registered investment
companies (194,032) (153,603)
Net loss from interest in common collective trusts (44,495) (23,017)
Interest income 21,915 18,668
Dividend income 6,878 8,379
Net realized/unrealized loss on corporate
common stocks (113,827) (7,558)
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Total investment loss (251,325) (51,943)
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2,978 424,535
Distributions to participants (190,941) (404,698)
Net (decrease) increase in net assets available for benefits (187,963) 19,837
Net assets available for benefits at beginning of year 6,538,062 6,518,225
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Net assets available for benefits at end of year $6,350,099 $6,538,062
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See accompanying notes.
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 Savings and Security Plan of the Lockport and Waterbury Facilities of Allegheny Ludlum Corporation (the Plan) is a defined contribution plan and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
The purpose of the Plan is to provide a savings and retirement plan to eligible employees of the Lockport and Waterbury Facilities of Allegheny Ludlum Corporation (ALC) by allowing a portion of their salary to be set aside each month through payroll deductions. ALC (the Company) is a wholly owned subsidiary of Allegheny Technologies Incorporated (ATI, the Plan Sponsor). The Plan allows employees to contribute a portion of eligible wages each pay period through payroll deductions subject to Internal Revenue Code limitations. The Company's contribution effective July 1, 2001 consists solely of $0.50 for each hour worked by the participant (fixed dollar retirement). Prior to July 1, 2001, participants could defer up to 8% of their eligible wages to the Plan based on years of service (basic savings deferral). In addition, participants could defer additional amounts such that when combined with the basic savings deferral, the total deferral did not exceed 16% of eligible wages or Internal Revenue Code limitations. The Company, prior to July 1, 2001, contributed 6.5% of the participant's eligible wages plus a fixed dollar percentage as defined in the Plan regardless of whether the participant made any basic savings deferrals. The Company also contributed a matching contribution equal to 50% of the participant's basic savings 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.
Prior to July 1, 2001, under certain provisions of the Plan, contributions by the Plan Sponsor, which have been allocated to the accounts of the participants, were subject to forfeiture upon participant's termination of employment with less than five years of service. Such forfeitures will be used to reduce future contributions by the employer. Prior to July 1, 2001, employer matching contributions allocated to a participant's account became fully vested after a participant completed five years of service. Employee contributions and the fixed dollar retirement contributions are fully vested at all times. Effective July 1, 2001, participants are fully vested in their entire participant account balance.
Active employees can borrow up to 50% of their vested account balances. 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.
Further information about the Plan, including eligibility, vesting, contributions, and withdrawals, is contained in the plan documents, summary plan description and related contracts. 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
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Fixed Income Fund $4,393,812 $3,954,889
Dreyfus Emerging Leaders Fund 657,542 800,041
Allegheny Technologies Disciplined Stock Fund 334,088 533,936
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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
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Fixed Income Master Trust 2.43% 2.39%
Allegheny Technologies Disciplined Stock Fund
Master Trust 0.61 0.69
Alliance Equity Master Trust 0.44 0.47
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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 Mens 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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Savings and Security Plan of the Lockport and Waterbury Facilities
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
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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) -
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Total net assets $54,929,342 $77,530,698
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The composition of the changes in net assets of the various master trusts is as follows:
ALLEGHENY TECHNOLOGIES
DISCIPLINED STOCK FUND MASTER
FIXED INCOME MASTER TRUST ALLIANCE EQUITY MASTER TRUST TRUST
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YEAR ENDED DECEMBER 31
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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 1,528 - - - (17,406,255) (12,375,289)
stocks
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)
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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
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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 February 1, 1996, 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 that the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan 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.
DESCRIPTION UNITS/SHARES CURRENT VALUE
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Registered Investment Companies
Dreyfus Bond Market Index* 5,127.726 $ 53,790
Dreyfus Emerging Leaders Fund* 23,686.680 657,542
Dreyfus International Value Fund* 3,252.982 39,166
MAS Midcap Growth Fund 4,124.819 49,828
Jennison Growth Fund 1,581.054 15,905
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Total registered investment companies $ 816,231
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Common Collective Trusts
Dreyfus Lifestyle Growth and Income Fund* 13,696.041 $ 197,336
Dreyfus Short Term Investment Fund* 21,864.760 21,865
Dreyfus Lifestyle Growth Fund* 5,456.066 73,331
Dreyfus Lifestyle Income Fund* 3,155.545 47,636
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Total common collective trusts $ 340,168
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Participant loans* (5.25% to 10.50% with maturities through 2007) $ 301,606
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Corporate Common Stocks
Allegheny Technologies Incorporated* 11,155.000 $ 69,496
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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.
ALLEGHENY TECHNOLOGIES INCORPORATED SAVINGS AND SECURITY
PLAN OF THE
LOCKPORT AND WATERBURY FACILITIES
By: /s/ Richard J. Harshman
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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 Savings and Security Plan of the Lockport and Waterbury Facilities of our report dated June 11, 2003, with respect to the financial statements and schedule of the Savings and Security Plan of the Lockport and Waterbury Facilities included in this Annual Report (Form 11-K) for the year ended December 31, 2002.
/s/ Ernst & Young LLP
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Pittsburgh, Pennsylvania
June 24, 2003
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In connection with the Annual Report of the Savings and Security Plan of the Lockport and Waterbury facilities (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
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James L. Murdy
President and Chief Executive Officer
Date: June 27, 2003 /s/ Richard J. Harshman
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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.