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July 8, 2003

Alcoa's Income From Continuing Operations Up 16 Percent Over Sequential Quarter, Revenues Climb 7 Percent

NEW YORK--(BUSINESS WIRE)--July 8, 2003--Alcoa (NYSE:AA)

Highlights of the quarter:

  • GAAP income from continuing operations was $227 million or $0.27 per diluted share, up 16 percent from $195 million, $0.23, in the first quarter
  • Revenue was $5.5 billion, the strongest quarterly performance since 2001
  • Cost savings were $16 million in the quarter, bringing the company's annual run rate on savings to $872 million
  • Downstream segments showed improved profitability over the first quarter
  • Debt reduced by $722 million in the quarter, biggest decline since the first quarter of 2001


Alcoa today reported second quarter income from continuing operations of $227 million or $0.27 per diluted share, compared to $195 million, $0.23, in the first quarter. Income from continuing operations was $237 million, $0.28, in the second quarter of 2002.

Net income in the second quarter was $216 million, $0.26, up 43 percent from $151 million, $0.17, in the first quarter, and down from $232 million, $0.27, in the 2002 second quarter. Both income from continuing operations and net income are measures recognized by Generally Accepted Accounting Principles.

"We demonstrated an ability to improve profitability in what is still a challenging climate by any measure," said Alain Belda, Chairman and CEO of Alcoa. "Improved performance by our downstream businesses and seasonal strength in packaging helped drive double-digit profit growth over the first quarter."

Continued Top-Line Growth

Sales were $5.5 billion up 7 percent from $5.1 billion in the first quarter, and up 6 percent from $5.2 billion in the second quarter of 2002. Strong aluminum ingot shipments and a robust global alumina market drove the improvement. Both packaging and residential construction markets saw seasonal improvements, helping boost revenue to its highest level since the third quarter of 2001.

Automotive markets were flat in the quarter, and European demand for fabricated products showed weakness. Global markets in aerospace, industrial gas turbine and telecommunications remained soft.

"Given the uncertain climate, our continuing focus will be on productivity improvements and cash generation through the deployment of the Alcoa Business System," said Belda. "While we have not seen signs of market improvements, we are well positioned to reap the benefits of any upturn."

Driving Cost Savings

The company achieved $16 million in savings in the quarter. Second quarter energy and benefit costs were substantially higher than the previous year.

Despite higher energy, raw material, and benefit costs, the company's margins held steady over the prior year at 20.4 percent. Alcoa has now achieved $872 million toward its $1 billion cost savings goal by the end of 2003 and remains solidly on track to meet that challenge. Energy costs are excluded from the cost challenge because of their volatility.

The second quarter tax rate of 26 percent includes a benefit for recently enacted international tax legislation. A substantial portion of that benefit is offset by an increase in minority interest. The company expects the full-year tax rate for 2003 to be lower than the rate in the first quarter.

Expanding Low-Cost Facilities

In the quarter, Alcoa continued to seize opportunities to consolidate and improve its low cost position as a supplier of primary metals and alumina. As previously announced, the company reached an agreement to acquire the 40.9 percent minority stake in its South American operations, primarily mining, refining, smelting and fabrication facilities of Alcoa Aluminio S.A. in Brazil. The company also has begun engineering for a 600,000 metric ton expansion of its low-cost refining facility in Pinjarra, Western Australia.

Strengthening the Balance Sheet

In the quarter, Alcoa reached an agreement to sell its PET business in Latin America, and continues to pursue the divestiture of non-core businesses. Proceeds from those sales will primarily be used to pay down debt.

The balance sheet showed substantial improvement in the quarter due to improved profitability, lower working capital, a partial pre-payment on a metal supply contract, and tight control on capital expenditures. Capital expenditures were below last year's level by approximately 35 percent and ran at 70 percent of depreciation. The metal supply contract included a cash pre-payment of $440 million, and represents 7500 tons per month over 72 months at market rates.

The debt-to-capital ratio dropped 300 basis points to 40.4 percent. The $722 million decline in debt was the largest single quarterly decrease since the first quarter of 2001. The third quarter should show additional improvement as the purchase of the Latin American interests and additional asset sales are expected, along with continued restraint on capital expenditures.

Providing Solutions to Customers

Alcoa continued to strengthen its performance this quarter by developing solutions that add value for its customers. AFL Automotive, for example, recently received PACCAR's preferred supplier award, the highest award PACCAR bestows upon its vendors; received Subaru's President's award for outstanding quality and delivery performance; and was named the full-service supplier of electrical distribution systems for the next generation Ford F-250 Super Duty Truck Program. It will design and manufacture both wire harnesses and electrical centers for the new F-250 program.

Alcoa Mill Products also was chosen to supply aluminum for the hoods of Ford's recently re-designed F-150 pick-up truck as part of Alcoa's automotive market team. The 2004 F-150 is an all-new version of the country's best-selling truck for the past 25 years and the best-selling vehicle of any type for the past 20 years. It will feature the widest width aluminum closure produced in the North American automobile market.

In the aerospace market, Alcoa Howmet Castings was selected to supply two solutions -- a hydraulic vessel and cover - for the Airbus A380, joining a broad array of Alcoa solutions on this airplane. Alcoa Howmet Castings also was named by Honeywell to supply seven components for the Joint Strike Fighter (JSF) aircraft, joining Howmet's sole-source contracts with Pratt and Whitney Aircraft for all six of the turbine airfoils in the JSF main engine.

Quarterly Analyst Workshop

Alcoa's quarterly analyst workshop will be at 4:00 p.m. EDT on Monday, July 28, 2003. The meeting will be web cast via alcoa.com. Call information and related information will be available at www.alcoa.com under "Invest."

About Alcoa

Alcoa is the world's leading producer of primary aluminum, fabricated aluminum and alumina, and is active in all major aspects of the industry. Alcoa serves the aerospace, automotive, packaging, building and construction, commercial transportation and industrial markets, bringing design, engineering, production and other capabilities of Alcoa's businesses to customers. In addition to aluminum products and components, Alcoa also markets consumer brands including Reynolds Wrap(R) foils and plastic wraps, Alcoa(R) wheels, and Baco(R) household wraps. Among its other businesses are vinyl siding, closures, precision castings, and electrical distribution systems for cars and trucks. The company has 127,000 employees in 40 countries. More information can be found at www.alcoa.com

Alcoa Business System

The Alcoa Business System is an integrated set of systems, tools and language organized to encourage unencumbered transfer of knowledge across businesses and borders. It focuses on serving customer demand by emphasizing the elimination of all waste and making what the customer wants, when the customer wants it.

Forward Looking Statement

Certain statements in this release relate to future events and expectations and as such constitute forward-looking statements involving known and unknown risks and uncertainties that may cause actual results, performance or achievements of Alcoa to be different from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include (a) the company's inability to complete pending acquisitions or to realize the projected amount of proceeds from divestitures, (b) the company's inability to achieve the level of cost savings or productivity improvements anticipated by management, (c) unexpected changes in global economic, business, competitive, market and regulatory factors, and (d) the other risk factors summarized in Alcoa's 2002 Form 10-K Report and other SEC reports.

Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)

                                           Quarter ended
                                 June 30      June 30      March 31
                                   2003         2002         2003
                               ------------ ------------ ------------
Sales                               $5,460       $5,158       $5,112

Cost of goods sold                   4,347        4,108        4,073
Selling, general administrative
 and other expenses                    343          272          294
Research and development expenses       50           52           50
Provision for depreciation,
 depletion and amortization            303          267          285
Special items                          (15)           -           (4)
Interest expense                        81           83           88
Other income, net                      (57)         (34)         (37)
                               ------------ ------------ ------------
                                     5,052        4,748        4,749

Income from continuing
 operations before taxes on
 income                                408          410          363
Provision for taxes on income          106          126          109
                               ------------ ------------ ------------
Income from continuing
 operations before
  minority interests' share            302          284          254
Less:  Minority interests'
 share                                  75           47           59
                               ------------ ------------ ------------

Income from continuing
 operations                            227          237          195

(Loss) income from
 discontinued operations               (11)          (5)           3

Cumulative effect of
 accounting change                       -            -          (47)
                               ------------ ------------ ------------

NET INCOME                            $216         $232         $151
                               ============ ============ ============

Earnings (loss) per common
 share:
   Basic:
     Income from continuing
      operations                      $.27         $.28         $.23
     Loss from discontinued
      operations                      (.01)        (.01)           -
     Cumulative effect of
      accounting change                  -            -         (.06)
                               ------------ ------------ ------------
        Net income                    $.26         $.27         $.17
                               ============ ============ ============

   Diluted:
     Income from continuing
      operations                      $.27         $.28         $.23
     Loss from discontinued
      operations                      (.01)        (.01)           -
     Cumulative effect of
      accounting change                  -            -         (.06)
                               ------------ ------------ ------------
        Net income                    $.26         $.27         $.17
                               ============ ============ ============

Average number of shares used
 to compute:
   Basic earnings per common
    share                      845,601,440  845,712,405  845,065,093
   Diluted earnings per common
    share                      847,468,083  851,877,799  846,328,622

Shipments of aluminum products
 (metric tons)                   1,260,000    1,325,000    1,192,000


Alcoa and subsidiaries
Condensed Statement of Consolidated Income (unaudited)
(in millions, except per-share, share and metric ton amounts)

                                                Six months ended
                                              June 30      June 30
                                                2003         2002
                                            ------------ ------------
Sales                                           $10,572      $10,058

Cost of goods sold                                8,420        8,076
Selling, general administrative and other
 expenses                                           637          545
Research and development expenses                   100          103
Provision for depreciation, depletion and
 amortization                                       588          526
Special items                                       (19)           -
Interest expense                                    169          158
Other income, net                                   (94)         (89)
                                            ------------ ------------
                                                  9,801        9,319

Income from continuing operations before
 taxes on income                                    771          739
Provision for taxes on income                       215          230
                                            ------------ ------------
Income from continuing operations before
  minority interests' share                         556          509
Less:  Minority interests' share                    134           88
                                            ------------ ------------

Income from continuing operations                   422          421

Loss from discontinued operations                    (8)          (5)

Cumulative effect of accounting change             ( 47)          34
                                            ------------ ------------

NET INCOME                                         $367         $450
                                            ============ ============

Earnings (loss) per common share:
   Basic:
     Income from continuing operations             $.50         $.50
     Loss from discontinued operations             (.01)        (.01)
     Cumulative effect of accounting change        (.06)         .04
                                            ------------ ------------
        Net income                                 $.43         $.53
                                            ============ ============

   Diluted:
     Income from continuing operations             $.50         $.49
     Loss from discontinued operations             (.01)        (.01)
     Cumulative effect of accounting change        (.06)         .04
                                            ------------ ------------
        Net income                                 $.43         $.52
                                            ============ ============

Average number of shares used to compute:
   Basic earnings per common share          845,358,393  846,351,690
   Diluted earnings per common share        846,971,975  852,870,259

Common stock outstanding at the end of
 the period                                 846,051,542  844,427,046

Shipments of aluminum products
 (metric tons)                                2,452,000    2,576,000


Alcoa and subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(in millions)

                                                June 30   December 31
                                                  2003       2002
                                               ---------- -----------
ASSETS
Current assets:
  Cash and cash equivalents                         $430        $344
  Receivables from customers, less allowances:
   $111 in 2003 and $120 in 2002                   2,590       2,378
  Other receivables                                  254         174
  Inventories                                      2,524       2,441
  Deferred income taxes                              454         468
  Prepaid expenses and other current assets          471         508
                                               ---------- -----------
     Total current assets                          6,723       6,313
                                               ---------- -----------

Properties, plants and equipment, at cost         24,149      23,120
Less: accumulated depreciation, depletion and
  amortization                                    11,862      11,009
                                               ---------- -----------
Net properties, plants and equipment              12,287      12,111
                                               ---------- -----------

Goodwill                                           6,383       6,365
Other assets                                       4,740       4,446
Assets held for sale                                 638         575
                                               ---------- -----------
     Total assets                                $30,771     $29,810
                                               ========== ===========

LIABILITIES
Current liabilities:
  Short-term borrowings                              $24         $37
  Accounts payable, trade                          1,774       1,618
  Accrued compensation and retirement costs          892         933
  Taxes, including taxes on income                   743         818
  Other current liabilities                        1,124         970
  Long-term debt due within one year                  88          85
                                               ---------- -----------
     Total current liabilities                     4,645       4,461
                                               ---------- -----------
Long-term debt, less amount due within
 one year                                          7,945       8,365
Accrued postretirement benefits                    2,279       2,320
Other noncurrent liabilities and deferred
 credits                                           3,328       2,878
Deferred income taxes                                552         502
Liabilities of operations held for sale              117          64
                                               ---------- -----------
     Total liabilities                            18,866      18,590
                                               ---------- -----------

MINORITY INTERESTS                                 1,516       1,293
                                               ---------- -----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Preferred stock                                       55          55
Common stock                                         925         925
Additional capital                                 6,088       6,101
Retained earnings                                  7,413       7,428
Treasury stock, at cost                           (2,792)     (2,828)
Accumulated other comprehensive loss              (1,300)     (1,754)
                                               ---------- -----------
     Total shareholders' equity                   10,389       9,927
                                               ---------- -----------
     Total liabilities and equity                $30,771     $29,810
                                               ========== ===========

Alcoa and subsidiaries
Segment Information (unaudited)
(in millions, except realized prices)

Consolidated Third-
 Party Revenues:        1Q02  2Q02   3Q02   4Q02    2002  1Q03   2Q03
                      ------------------------------------------------
  Alumina and
   Chemicals             425    419    469    430  1,743    449   491
  Primary Metals         764    788    792    830  3,174    732   805
  Flat-Rolled Products 1,156  1,192  1,162  1,130  4,640  1,152 1,200
  Engineered Products  1,319  1,330  1,238  1,131  5,018  1,361 1,420
  Packaging and
   Consumer              618    672    752    840  2,882    750   834
  Other                  618    757    731    700  2,806    668   710
----------------------------------------------------------------------
    Total              4,900  5,158  5,144  5,061 20,263  5,112 5,460
======================================================================

Consolidated
 Intersegment
 Revenues:              1Q02  2Q02   3Q02   4Q02    2002  1Q03   2Q03
                      ------------------------------------------------
  Alumina and
   Chemicals             229    233    235    258    955    240   248
  Primary Metals         629    770    637    619  2,655    840   690
  Flat-Rolled Products    15     18     21     14     68     20    15
  Engineered Products      8     10      8      8     34      9     5
  Packaging and Consumer   -      -      -      -      -      -     -
  Other                    -      -      -      -      -      -     -
----------------------------------------------------------------------
    Total                881  1,031    901    899  3,712  1,109   958
======================================================================

Consolidated Third-
 Party Shipments
 (KMT's):               1Q02  2Q02   3Q02   4Q02    2002  1Q03   2Q03
                      ------------------------------------------------
  Alumina and
   Chemicals           1,825  1,796  1,939  1,926  7,486  1,794 1,939

  Primary Metals         503    507    517    546  2,073    453   495
  Flat-Rolled Products   439    456    446    433  1,774    434   453
  Engineered Products    221    244    223    203    891    217   214
  Packaging and Consumer  30     31     46     55    162     36    42
  Other                   58     87     80     83    308     52    56
----------------------------------------------------------------------
    Total Aluminum     1,251  1,325  1,312  1,320  5,208  1,192 1,260
======================================================================

Average realized price
-Primary                0.66   0.67   0.66   0.66   0.66   0.69  0.68
======================================================================

After-Tax Operating
 Income (ATOI):         1Q02  2Q02   3Q02   4Q02    2002  1Q03   2Q03
                      ------------------------------------------------
  Alumina and
   Chemicals              65     73     93     84    315     91    89
  Primary Metals         143    175    175    157    650    166   162
  Flat-Rolled Products    61     66     46     47    220     53    56
  Engineered Products     58     44     33    (28)   107     29    44
  Packaging and Consumer  28     55     51     64    198     53    57
  Other                    7     19      8    (43)    (9)     9    17
----------------------------------------------------------------------
    Total                362    432    406    281  1,481    401   425
======================================================================

Reconciliation of ATOI
 to consolidated net
 income:                1Q02   2Q02   3Q02   4Q02   2002  1Q03   2Q03
                      ------------------------------------------------
  Total ATOI             362    432    406    281  1,481    401   425
  Impact of
   intersegment profit
   eliminations           (3)    (1)    (5)     3     (6)     7    (4)
  Unallocated amounts
   (net of tax):
   Interest income        10      9      7      5     31      5     6
   Interest expense      (49)   (54)   (62)   (62)  (227)   (57)  (52)
   Minority interests    (41)   (47)   (49)     2   (135)   (59)  (75)
   Corporate expense     (58)   (53)   (40)   (83)  (234)   (57)  (81)
   Special items           -      -    (25)  (261)  (286)     4    10
   Discontinued
    operations             -     (5)    (9)   (98)  (112)     3   (11)
   Accounting change      34      -      -      -     34    (47)    -
   Other                 (37)   (49)   (30)   (10)  (126)   (49)   (2)
----------------------------------------------------------------------
  Consolidated net
   income                218    232    193   (223)   420    151   216
======================================================================


SUPPLEMENTAL FINANCIAL INFORMATION
Alcoa and subsidiaries
Net Income and EPS Information (unaudited)
(in millions, except per-share amounts)

                                   Net Income          Diluted EPS
                              ------------------- --------------------
                                2Q03  1Q03 2Q02    2Q03   1Q03   2Q02
------------------------------------------------- --------------------
GAAP Net income                 $216  $151  $232  $0.26  $0.17  $0.27
  Cumulative effect of
   accounting change               -    47     -      -    .06      -
  Discontinued operations
   - operating (income) loss       -    (3)    5      -      -    .01
  Discontinued operations
   - loss on divestitures         11     -     -    .01      -      -
----------------------------------------------------------------------
GAAP Income from
 continuing operations          $227  $195  $237  $0.27  $0.23  $0.28
----------------------------------------------------------------------
Special items (2):
  Restructurings                  12    (3)    -   0.01      -      -
 (Gain)loss on divestitures      (10)    -     -  (0.01)     -      -
----------------------------------------------------------------------
Income from continuing
 operations excluding
 charges for restructurings
 and divestitures (1)           $229  $192  $237  $0.27  $0.23  $0.28
======================================================================

Average diluted shares
 outstanding                                        847    846    852

(1) Alcoa believes that income from continuing operations excluding
charges for restructurings and divestitures is a measure that should
be presented in addition to income from continuing operations
determined in accordance with GAAP. The following matters should be
considered when evaluating this non-GAAP financial measure:

    --  Alcoa reviews the operating results of its businesses
        excluding the impacts of restructurings and divestitures.
        Excluding the impacts of these charges can provide an
        additional basis of comparison. Management believes that these
        charges are unusual in nature, and would not be indicative of
        ongoing operating results. As a result, management believes
        these charges should be considered in order to compare past,
        current, and future periods.

    --  The economic impacts of the restructuring and divestiture
        charges are described in the footnotes to Alcoa's financial
        statements. Generally speaking, charges associated with
        restructurings include cash and non-cash charges and are the
        result of employee layoff, plant consolidation of assets, or
        plant closure costs. These actions are taken in order to
        achieve a lower cost base for future operating results.

    --  Charges associated with divestitures principally represent
        adjustments to the carrying value of certain assets and
        liabilities and do not typically require a cash payment. These
        actions are taken primarily for strategic reasons as the
        company has decided not to participate in this portion of the
        portfolio of businesses.

    --  Alcoa's growth over the last five years, and the onset of the
        manufacturing recession led to the aforementioned charges in
        2001 and 2002. Before the start of the current manufacturing
        recession, Alcoa last recorded charges associated with
        restructuring and divestitures in 1997.

    --  Restructuring and divestiture charges are typically material
        and are considered to be outside the normal operations of a
        business. Corporate management is responsible for making
        decisions about restructurings and divestitures.

    --  There can be no assurance that additional restructurings and
        divestitures will not occur in future periods. To compensate
        for this limitation, management believes that it is
        appropriate to consider both income from continuing operations
        determined under GAAP as well as income from continuing
        operations excluding restructuring and divestiture charges.

(2) Special items totaled $15 of income for the second quarter before
taxes and minority interests. The amount is comprised of adjustments
to the estimated proceeds on several businesses to be divested that
resulted in net gains, and was offset by additional layoff charges
primarily for businesses serving the aerospace and primary metals
markets. After tax and minority interests, special items amounted to a
loss of $2 in the quarter.