alcoa 4Q08 Analyst Presentation

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alcoa 4Q08 Analyst Presentation

  1. 1. 4th Quarter 2008 Analyst Conference January 12, 2009
  2. 2. Forward Looking Statements Today’s discussion may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Alcoa’s actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of the specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to Alcoa’s Form 10-K for the year ended December 31, 2007 and Forms 10-Q for the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008 and other reports filed with the Securities and Exchange Commission. 2
  3. 3. Chuck McLane Executive Vice President and Chief Financial Officer
  4. 4. 4th Quarter 2008 Financial Overview – Loss from continuing operations of $929m or $1.16 per share • Restructuring, impairment and other special items of $708m or $0.88 per share – Revenue of $5.7 billion, down 18% – Sequential metal price reduction of 35% – Significant market deterioration – Cash from operations of $608m – Cash on hand at $762m – Incremental bank facility of $1.9b – Trailing 12-month ROC stands at 6.7%, excluding growth investments and restructuring charges 4
  5. 5. Sequential Income Statement In Millions 3Q'08 4Q'08 Change Sales $6,970 $5,688 (18%) Cost of Goods Sold $5,648 $5,277 (7%) % of Sales 81.0% 92.8% 11.8 pts SG&A $275 $273 (1%) % of Sales 3.9% 4.8% 0.9 pts Restructuring and Other Charges $38 $863 nm Interest Expense $96 $125 30% Other Expense/(Income) $15 $(36) nm Effective Tax Rate 25.9% 20.4% (5.5 pts) Minority Interests $84 - (100%) GAAP Net Income/(Loss) $268 ($1,191) ($1,459) Loss from Discontinued Operations ($38) ($262) ($224) GAAP Income/(Loss) from Continuing Operations $306 ($929) ($1,235) GAAP Income/(Loss) from Continuing Operations per Diluted Share $0.37 ($1.16) ($1.53) 5
  6. 6. Restructuring & Other Special Items After‐Tax Earnings Income Statement Amount Per Share Classification Segment Loss from Continuing Operations ($929) ($1.16) Restructuring: Headcount ($97) ($0.12) Restructuring Corporate Global Foil (100) (0.13) Restructuring Corporate Europe Auto Structures (50) (0.06) Restructuring Corporate Sapa Exchange (223) (0.28) Restructuring Corporate Other Asset Write‐offs (144) (0.18) Restructuring Corporate Restructuring Sub‐Total ($614) ($0.76) Other Special Items: Shutdown Related Obsolete Inventory ($16) ($0.02) COGS Flat‐Rolled/Engineered Products Environmental Reserve (26) (0.03) COGS Corporate Accounts Receivable Reserve (11) (0.02) SG&A Corporate Non‐Cash Tax on Repatriated Earnings (65) (0.08) Tax Corporate Refund of Indemnification Payment 24 0.03 Other Income Corporate Other Special Items Sub‐Total ($94) ($0.12) Total Restructuring & Other Special Items ($708) ($0.88) 6
  7. 7. 2008 Tax Reconciliation – 4th Quarter & Full Year Minority After‐Tax 4th Quarter 2008 Pre‐Tax Tax $ Tax % Interest & M.I. Reported Effective Tax Rate ($1,167) ($238) 20.4% $0 ($929) Adjustments Restructuring ($863) ($226) 26.2% ($23) ($614) Non‐Cash Tax on Repatriated Earnings 65 (65) Adjustments Sub‐Total ($863) ($161) 18.7% ($23) ($679) Operational Effective Tax Rate ($304) ($77) 25.3% $23 ($250) Total Year 2008 Reported Effective Tax Rate $792 $342 43.2% $221 $229 Adjustments Restructuring ($939) ($246) 26.2% ($23) ($670) Non‐Cash Tax on Repatriated Earnings 65 (65) Other Discrete Tax Items 33 (33) Adjustments Sub‐Total ($939) ($148) 15.8% ($23) ($768) Operational Effective Tax Rate $1,731 $490 28.3% $244 $997 7
  8. 8. 4Q vs. 3Q 2008 Earnings Bridge Income From Continuing Operations Excluding Restructuring & Other Special Items $700 $191 $88 $600 $164 $500 $69 $400 $331 $339 $560  $300 $200 $100 $0 3Q08 Energy Currency Price/Mix Volume LME 4Q08 ($100) ($200) ($221) ($300) 4Q 2008 Other Special Items = Obsolete Inventory, Environmental Reserve, A/R Reserve, Non‐Cash  Tax on Repatriated Earnings and Refund of Indemnification Payment (net $94m in total) See Slide 42 for Reconciliation 8
  9. 9. Alumina 4th Quarter Highlights 4th Quarter Business Conditions − 16% lower realized pricing 4Q 07 3Q 08 4Q 08 − Point Comfort curtailment led to lower Production (kmt) 3,855 3,790 3,776 production 3rd Party Shipments (kmt) 2,030 2,010 2,123 − Sequential benefit of $33 million from Western 3rd Party Revenue ($ million) 688 805 722 Australia gas disruption recovery ATOI ($ million) 205 206 162 − Stronger US dollar benefit of $64 million through lower cost base − Lower energy costs realized $300 $1,800 $1,500 $250 $1,200 1st Quarter Outlook Total Revenue (million) $200 ATOI (million) $900 − Prices to follow approximate two-month lag $150 $600 − Anticipate 5% lower production due to curtailments $100 $300 − Current US dollar slightly weaker than 4Q $50 $0 average 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q08 4Q08 − Lower fuel oil costs ATOI Total Revenue 9
  10. 10. Refining Cost Overview Input Cost Inventory flow Pricing convention Composition of Refining Production Costs Fuel oil 1 – 2 months Prior month Fuel Oil Natural gas 1 – 2 months Rolling 16 quarters 14% Conversion Natural gas 36% Caustic soda 3 - 6 months Spot & semi- 15% annual Bauxite 2 - 3 months 6 - 9 month lag Caustic 10% Bauxite 25% 10
  11. 11. Primary Metals 4th Quarter Highlights 4th Quarter Business Conditions 4Q 07 3Q 08 4Q 08 − Realized pricing down 28% sequentially Production (kmt) 959 1,011 971 − LME-linked costs declining but on lagged basis 3rd Party Shipments (kmt) 624 704 807 − Stronger US dollar benefit of $94 million 3rd Party Revenue ($ 1,597 2,127 1,580 million) through lower cost base 3rd Party Price ($/mt) 2,646 2,945 2,125 − Sequential negative $21 million impact of Rockdale curtailment ATOI ($ million) 196 297 (101) − Favorable sequential energy of $23 million $550 $3,850 $450 1st Quarter Outlook $3,350 $350 − Realized pricing trending closer to spot $250 Total Revenue (million) ATOI (million) $2,850 − Anticipate 8% lower production due to $150 curtailments $2,350 $50 − LME linked costs to continue decline 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q08 4Q08 -$50 − Current US dollar slightly weaker than 4Q $1,850 -$150 average -$250 $1,350 − Cost savings from procurement actions on ATOI Total Revenue carbon products start to hit bottom line 11
  12. 12. Smelting Cost Overview Composition of Smelting Production Costs Input Cost Inventory flow Pricing convention Conversion 22% Alumina Alumina 1 – 2 months 2 – 3 month lags 36% Materials Power 1 – 2 months 40% LME linked – 3% 3 month lag Carbon 1 - 2 months Spot & semi-annual Materials 1 - 2 months 1 – 3 month lag Power Carbon 26% 13% Several significant input costs lag average primary metal revenue by up to 3 months 12
  13. 13. Flat-Rolled Products 4th Quarter Business Conditions ATOI ($ million) − Sharp decline in demand as economic 4Q 07 3Q 08 4Q 08 environment worsened Global Rolled Products, − 11% lower shipments on top of a seasonally 44 60 (9) excl Russia & China weak 3Q − Non can sheet shipments down 20% Hard Alloy Extrusions 8 7 8 − Boeing strike impact of $10 million Russia, China & Other (67) (38) (97) − Bohai start-up costs of $9 million (98) Total (15) 29 − Divestiture related inventory obsolescence $12 million $120 $2,800 1st Quarter Outlook $80 $2,600 $40 $2,400 illion) Third Party Revenue (m − Continued weakness in end markets I illion) ATO (m $0 $2,200 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q08 4Q08 − Input costs expected to decline ($40) $2,000 ($80) $1,800 ($120) $1,600 ATOI Third Party Revenue 13
  14. 14. Downturn Evident in Flat-Rolled Products Global Rolling Demand Collapse Global Rolling Order Rates 2008 & 2007 Demand 2007 vs. 2008 Demand 2007 vs. 2008 2007 2008 • 2008 demand well below 2007 • No sign of seasonal up-lift • Dramatic deterioration in 4Q orders over the last 3 weeks lity sona l Sea a Norm Apr May Jun Jul Aug Sep Oct Nov Dec 14
  15. 15. Flat-Rolled Products Market Drivers Revenue Composition Sequential Revenue Change - 18% - 23% - 36% +7% - 26% - 37% - 11% Total -17% 15
  16. 16. Engineered Products and Solutions 4th Quarter Highlights 4th Quarter Business Conditions − Market declines adversely affected all 4Q 07 3Q 08 4Q 08 businesses Third Party Revenue 1,311 1,451 1,258 − Boeing strike ($5 million effect) & seasonal impacts resulted in lower aerospace demand ATOI 77 133 65 ATOI% / Revenue 5.9 9.2 5.2 $180 $2,200 1st Quarter Outlook $160 $2,000 $140 $1,800 − Further weakness expected in commercial $120 Third Party Revenue (million) $1,600 ATOI (million) $100 transportation and commercial construction markets $80 − Revenue from automotive market reduced to 5% of $1,400 $60 total segment as a result of portfolio moves $1,200 $40 − Productivity initiatives expected to gain momentum $1,000 $20 $0 $800 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q08 4Q08 ATOI Third Party Revenue 16
  17. 17. Record earnings despite market headwinds Engineered Products & Solutions Financial Metrics ATOI (in millions) Sales (in billions) Return on Capital 16% 7% 23% $503 $5.6 $5.3 $409 2007 2008 2007 2008 2007 2008 Strong market positions Productivity improvements Cost efficient capacity in aerospace, IGT, B&C continue to accelerate and expansions in fasteners and fastener acquisition yield bottom line benefits and investment castings offset unprecedented along with working capital decline in North American efficiencies & European truck and automotive markets 17
  18. 18. Cash Flow Statement In Millions 4Q'07 3Q'08 4Q'08 Net Income $632 $268 $(1,191) DD&A 312 311 292 Change in Working Capital 385 (552) 590 Other Adjustments (661) 298 955 Pension Contributions (25) (418) (38) Cash From Operating Activities $643 $(93) $608 Dividends to Shareholders $(143) $(140) $(136) Change in Debt 467 1,573 444 Dividends to Minority Interests (58) (76) (102) Contributions from Minority Interests 105 130 214 Share Repurchases (948) (477) - Share Issuances 16 1 - Other Financing Activities 2 (7) (43) Cash From Financing Activities $(559) $1,004 $377 Capital Expenditures $(1,021) $(877) $(1,017) Sales of Assets/Investments 126 115 26 Additions to Investments (8) (39) (27) Other Investing Activities (16) (56) (5) Cash From Investing Activities $(919) $(857) $(1,023) 18
  19. 19. Capital Expenditures Capital Expenditure History 2009 Capital Expenditures Forecast $4,000 150% $1,500 Values $ Millions Values $ Millions 71% $3,500 $3,000 100% $1,000 876 $2,500 29% $2,000 50% $500 187 $1,500 393 328 $1,000 0% $0 FY06 FY07 FY08 FY09 2009 First Half 2009 Second Half Total Capital Expenditures Non‐Growth Growth Non‐Growth Capex as % of Depreciation 19
  20. 20. Liquidity Remains Strong Added revolver amid financial market crisis Good performance in difficult CP markets 5.2 Values $ Billions % of Period Issuance with Maturity One Week or Greater 96% 87% 3.3 3.3 3.3 59% 43% 34% 33% 1.5 1.5 1.2 1.2 October November December 1Q 08 2Q 08 3Q 08 4Q 08 Alcoa Tier II Issuers Commercial Paper Additional Revolver Availability Source:  The Federal Reserve Board 20
  21. 21. Cash Conservation Efforts Wide-Ranging Actions Taken 21
  22. 22. Klaus Kleinfeld President and Chief Executive Officer
  23. 23. Accomplishments: Clear strategy, speed & execution 2008 Accomplishments Three Strategic Priorities Secured long-term power contracts for nearly half of smelting system Profitable Growth Alcoa Advantage Completed successful start-up of in every business creating value for Fjardaal, first greenfield smelter in two all businesses decades – Talent Record earnings in Engineered Business Programs that – Technology define: Products & Solutions – Customer Intimacy – 3-year aspirations – Purchasing – Priority levers Completed Packaging divestiture – Operating System – Accountability Fast response to early signals, e.g.: Disciplined Execution across all activities Reached agreement for soft alloy extrusion swap Increased debt capacity and improved debt structure Named to Dow Jones Sustainability Index for 7th straight year 23
  24. 24. Historic collapse in metal price – (56%) over 5 months LME cash price/ton, in US$ and global inventory1, in days 50 $3,500 45 40 Days of Consumption $3,000 35 LME Price/mt 30 $2,500 25 - 56% 20 $2,000 15 10 $1,500 5 $1,000 0 12/08 01/05 04/05 07/05 10/05 01/06 04/06 07/06 10/06 01/07 04/07 07/07 10/07 01/08 04/08 07/08 10/08 1 Reported Stocks : Comex, IAI, Japan Port , LME, & SME Reported Stocks, LME Cash Price Days of Consumption Source: IAI and Bloomberg 24
  25. 25. Expect global demand decline of 2% in 2009 Primary Aluminum Consumption Growth Rates, 2009, in million mt Brazil 0.9 1% 5% -2% 1.0 3% CIS -4% 4.9 -2% Asia w/o China 5.3 -12% -10% North America Global Demand Growth Rates: 2008: -3% Europe 7.0 -9% -7% 2009: -2% 3% 9% 13.1 China 2009 Projected 2008 vs. 2009 Consumption Projected Growth Rates 2008 Actual 2009 Forecast Source: Alcoa analysis Note: 2009 Projected Global Consumption: 36.2 million mt 25
  26. 26. Curtailment announcements – 13% of global output Global Smelting Curtailment Announcements1 By Month By Region Region Aug 08 Announced Percentage Production1 Curtailment1 Curtailed 679 5,020 920 China 14,000 (3,000) 21% 840 North America 5,700 (840) 15% Eastern 4,650 (574) 12% 1,139 Europe/Russia 1,442 Western Europe 4,600 (230) 5% Asia/Middle East 3,950 (80) 2% 800 Latin America 2,700 (93) 3% completed Oceania 2,300 (102) 4% Sep Oct Nov Dec Jan Total 2008 2008 2008 2008 2009 Africa 1,700 (100) 6% & Prev Total 39,600 (5,020) 13% 13% of total global output 1 Annualized kmt 26
  27. 27. 2009 – Aluminum Surplus or Deficit? Aluminum Supply / Demand Balance (in kmt) 2008 Consumption 37,000 2008 Production 38,800 Lower 2009 consumption (800) Estimated 2009 600 (2%) incremental production Stimulus effects ?? Announced curtailments (3,500) Total 2009 Consumption ?? Total 2009 Production 35,900 Supply Demand Source: Alcoa analysis, CRU, IAI 27
  28. 28. Managing downturn along the three strategic priorities Three Strategic Priorities and Downturn Management Accelerated R&D Profitable Growth Alcoa Advantage portfolio technology in every business creating value for moves (in & refocus all businesses out) Share growth – Talent Curtailments Business Programs that – Technology define: Procurement – Customer Intimacy – 3-year aspirations Plant shut – Purchasing savings – Priority levers MENT downs – Operating System – Accountability Corporate DOW Headcount overhead Disciplined Execution across all activities reduction reduction Additional Increased flexibility debt capacity Speedy execution Focus on cash and bottom line Capital spend reduction N TURN MANAG E 28
  29. 29. Getting ahead of the curve Alcoa Downturn Actions: Timeline 2008/09 Alcoa Downturn Actions Nov 10 Dec 22 Sep 17 Sep 30 Oct 6 Oct 7 Oct 23 Jan 6, 2009 Jul 11 Curtailed Agreement Suspended Curtailed Announced Reduced Announced Downsized Power & additional with Orkla to 150,000 mt halting of production wide-ranging Electrical share Propulsion 350,000 mt swap soft all at Point actions to and at Rockdale announced aluminum alloy repurchases non-critical Comfort address Electronic smelter headcount production extrusion capital refinery economic Solutions reductions over global share spend by 25% downturn Honduran & in response smelting for Elkem (550,000 mt) Mexican to market system smelter operations conditions share 29
  30. 30. Restructuring actions incorporate all improvement levers Restructuring Announcement: Levers and Actions Restructuring Announcement – January 6, 2009 Cost & Portfolio Production Procurement Liquidity Initiatives Streamlining Curtailments Efficiencies Swap of Sapa stake Initiate smelting Workforce reduction Suspend share for Elkem smelters curtailments 13,500 repurchases totaling 750 kmt headcount Divest four mid & 1,700 Limit capital downstream Adjust refining contractors spending businesses capacity downward Comply with law Electrical & by 1.5 million mt Global salary & Fulfill customer Electronic per year hiring freeze requirements Solutions Complete Global Foil Procurement Brazilian growth Cast Auto actions on key Wheels inputs Secured additional Transportation credit facility Products Europe Continued success on repowering smelting assets 1.9 million mt Extensions as long as 2043 30
  31. 31. Gaining upstream strength through cash-free swap Portfolio Streamlining: Sapa / Elkem Swap Equity Swap Sapa JV Elkem Aluminium Sapa JV Elkem Aluminium Alcoa Orkla Alcoa Orkla Current Current 45.45% 54.55% 50% 50% Ownership Ownership (operator) (operator) Sapa JV Elkem Aluminium Soft Alloy Extrusions Norway Smelters 46 plants Lista and Mosjoen smelters (282 kmt) North America and Europe 18% of new Mosjoen anode plant (Alcoa owns the remaining 82%) Major customer segments: LME-linked power (mostly hydro) to 2019 – Building and construction – Industrial Both smelters are middle of cost curve – Commercial transportation BENEFITS Complete planned exit of soft alloy extrusions in difficult market Building out leading upstream position through adding quality assets (e.g., hydro-based) 31
  32. 32. Smelting curtailments taken to maximize cash position Smelting Production Curtailments: Tiered Approach Smelting Curtailment Steps Guiding Principle Full curtailment of Maximize cash position selected plant(s) for ramp down and ramp up, considering: Targeted smaller curtailments at •Operational flexibility several locations based upon cost & strategic Utilize material in •Power flexibility situation inventory to reline, but do not restart pots Reduce amperage and eliminate end •Repowering impact pots •Community impact Intalco* Rockdale* 7 plants* 10 plants* 18% (750 kmt) Baie Comeau* Tennessee** Pocos ** reduction by end 1Q 09 * Completed ** In process 32
  33. 33. Increase labor and materials productivity Cost & Procurement Efficiencies: Initiatives Labor Initiatives Procurement Initiatives •Supply chain management Headcount reductions Utilizing Alcoa’s global presence and logistics expertise, demonstrate Alumina & Primary 2,300 ability to employ non-traditional sourcing from numerous Flat Rolled Products 2,900 geographies – e.g., coke & caustic Engineered Products 8,100 & Solutions •Change of specifications, e.g., Corporate 200 • Coke Total 13,500 • Cathodes • Backward integration • Reduce 1,700 contractor positions • Agreements reached covering • Fluoride • Global salary and hiring freeze • Caustic • Coke 20% reduction vs late 2008 market levels 33
  34. 34. Decreased capital spending and increased debt capacity Liquidity Initiatives: Results Capital Spending ($ millions) Debt Maturities ($ millions) $1,600 $4,000 99% of LT Debt $1,400 $3,500 -50% maturities $1,200 beyond 2009 $3,000 2nd $1,000 $2,500 half $800 $2,000 $0.5b $600 $1,500 1st $400 $1,000 half $200 $500 $1.3b $0 $0 03 04 05 06 07 08 09 09 12 15 18 21 24 27 30 33 36 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Commercial Paper & Debt Capacity ($ billions) $6 $5.2 $5 Credit $4 $3.3 $3.3 $3.3 Revolver $3 availability $2 Commercial $1 $1.5 $1.2 $1.2 $1.5 Paper balance $0 1Q 08 2Q 08 3Q 08 4Q 08 34
  35. 35. Reaping substantial benefits Restructuring Announcement: Benefits of Actions Restructuring Announcement – January 6, 2009 Cost & Portfolio Production Procurement Liquidity Initiatives Streamlining Curtailments Efficiencies Benefits of Actions Benefits of Actions •• 25% lower cost per ton in refining & smelting (1Q 09 vs 3Q 08), e.g., 25% lower cost per ton in refining & smelting (1Q 09 vs 3Q 08), e.g., •• $1.3 billion annualized from procurement & energy $1.3 billion annualized from procurement & energy •• Headcount reductions Headcount reductions •• Improved overall cost position from curtailments Improved overall cost position from curtailments •• $450 million before tax annualized benefit comprised of: $450 million before tax annualized benefit comprised of: •• $150 million from divested businesses $150 million from divested businesses •• $200 million from mid/downstream & corporate headcount reductions $200 million from mid/downstream & corporate headcount reductions •• $100 million from upstream headcount reductions $100 million from upstream headcount reductions •• Cash-free swap of soft alloy extrusion Cash-free swap of soft alloy extrusion •• Expected $100 million proceeds from divestiture of four businesses Expected $100 million proceeds from divestiture of four businesses •• Increase of nearly 60% in short-term debt capacity Increase of nearly 60% in short-term debt capacity •• Cash preservation through 50% lower capital spending Cash preservation through 50% lower capital spending 35
  36. 36. Aluminum prospects remain bright Aluminum Outlook Aluminum Benefits Mega Trends Aluminum Demand (million mt) 1 Demographics 70 ME / Africa Global population Europe / Light • 2006: 6.6 billion 6% CAGR 6% CAGR Weight • 2025: 7.9 billion Relative Price • 2050: 9.1 billion High Americas Strength Urbanization 37 Recyclable Population living in cities • 2006: > 50% Durable • 2030: > 60% Asia Malleable Environment Highly • Total energy consumption to Conductive Non- increase by 54% until 2025 – Corrosive >60% from developing countries • Person Transport rates +40% by 2030 2008 2018 1 Source: Alcoa analysis 36
  37. 37. Alcoa is well-positioned for the future Alcoa’s Competitive & Power Position World class refining system World leading businesses Bauxite Mining #1 Refining Cost Position Refining #1 Smelting Capacity #1 Worst … End & Tab Can Sheet #1 … … Can Body Stock #2 … … Aerospace Sheet & Plate #1 Alcoa 30th Alcoa 25th Hard Alloy Extrusions – Advanced #1 … Best General Engineering Plate #1 Current Post Juruti/Sao Luis Aerospace Fastener Systems #1 Outstanding power position Aerospace Airfoils #1 Repowering efforts 2009 - 2012 IGT Airfoils #1 % of Equity Capacity Aluminum Structural Forgings #1 Contracted power Aluminum Truck Wheels #1 and MOUs Commercial Building Systems (NA) #1 Self-generated power Above businesses account for 90% of Alcoa’s overall revenue 37
  38. 38. For Additional Information, Contact: Greg Aschman Director, Investor Relations Alcoa 390 Park Avenue New York, N.Y. 10022-4608 Telephone: (212) 836-2674 Facsimile: (212) 836-2813 www.alcoa.com 38
  39. 39. 39
  40. 40. APPENDIX 40
  41. 41. Reconciliation of Return on Capital Bloomberg Return on Capital, Bloomberg Return on Capital (1) Excluding Growth Investments (1) Year ended Year ended December 31, December 31, 2008 2008 Net income (loss) $ (74) Net income (loss) $ (74) Minority interests 221 Minority interests 221 Interest expense Interest expense (after tax) 231 (after tax) 231 Numerator $ 378 Numerator 378 Restructuring charges (3) 670 Net losses of growth investments (4) 300 Adjusted numerator $ 1,348 Average Balances Average Balances Short-term borrowings $ 521 Short-term borrowings $ 521 Short-term debt 129 Short-term debt 129 Commercial paper 1,196 Commercial paper 1,196 Long-term debt 7,440 Long-term debt 7,440 Preferred stock 55 Preferred stock 55 Minority interests 2,529 Minority interests 2,529 Common equity (2) 13,821 Common equity (3) 13,821 Denominator $ 25,691 Denominator 25,691 Restructuring charges (3) (436) Capital projects in progress and capital base of growth investments (4) (5,117) Adjusted denominator $ 20,138 Return on capital, excluding growth investments and Return on capital restructuring charges 1.5% 6.7% (1) The Bloomberg Methodology calculates ROC based on the trailing four quarters. Average balances are calculated as (December 2008 ending balance + December 2007 ending balance) divided by 2 for the year ended December 31, 2008, and (December 2007 ending balance + December 2006 ending balance) divided by 2 for the year ended December 31, 2007. (2) Calculated as total shareholders’ equity less preferred stock. (3) Restructuring charges after-tax and minority interests for the years ended December 31, 2008 and 2007 were $670 million and $201 million, respectively. The pretax amounts are in Restructuring and other charges on Alcoa’s Statement of Consolidated Income. The $436 million is the average of the restructuring charges after- tax and minority interests for the years ended December 31, 2008 and 2007. (4) For all periods presented, growth investments include Russia, Bohai, and Kunshan. 41
  42. 42. Reconciliation of Adjusted Income (in millions) Quarter ended September 30, December 31, 2008* 2008 Net income (loss) $ 268 $ (1,191) Loss from discontinued operations (38) (262) Income (loss) from continuing operations 306 (929) Restructuring and other charges 25 614 Other special items** – 94 Income (loss) from continuing operations – as adjusted $ 331 $ (221) * Information for the quarter ended September 30, 2008 was reclassified to reflect the movement of the Electrical and Electronic Solutions business to discontinued operations in the fourth quarter of 2008. ** Other special items include obsolete inventory, environmental reserve, accounts receivable reserve, non- cash tax on repatriated earnings, and refund of indemnification payment (see Slide 6 for additional information). 42
  43. 43. Reconciliation of ATOI to Consolidated Net Income (in millions) 4Q07 2007 1Q08 2Q08 3Q08 4Q08 2008 Total segment ATOI $ 519 $ 3,162 $ 668 $ 838 $ 665 $ 28 $ 2,199 Unallocated amounts (net of tax): Impact of LIFO 9 (24) (31) (44) (5) 73 (7) Interest income 10 40 9 12 10 4 35 Interest expense (53) (261) (64) (57) (63) (81) (265) Minority interests (64) (365) (67) (70) (84) (1) (222) Corporate expense (100) (388) (82) (91) (77) (78) (328) Restructuring and other charges 8 (201) (30) (1) (25) (637) (693) Discontinued operations (6) (250) 4 (7) (38) (262) (303) Other 309 851 (104) (34) (115) (237) (490) Consolidated net income $ 632 $ 2,564 $ 303 $ 546 $ 268 $(1,191) $ (74) In the first quarter of 2008, management approved a realignment of Alcoa's reportable segments to better reflect the core businesses in which Alcoa operates and how it is managed. This realignment consisted of eliminating the Extruded and End Products segment and realigning its component businesses as follows: the building and construction systems business is reported in the Engineered Products and Solutions segment; the hard alloy extrusions business and the Russian extrusions business are reported in the Flat-Rolled Products segment; and the remaining segment components, consisting primarily of the equity investment/income of Alcoa's interest in the Sapa AB joint venture, and the Latin American extrusions business, are reported in Corporate. Additionally, the Russian forgings business was moved from the Engineered Products and Solutions segment to the Flat-Rolled Products segment, where all Russian operations are now reported. Prior period amounts were reclassified to reflect the new segment structure. Also, the Engineered Solutions segment was renamed the Engineered Products and Solutions segment. Prior period information was reclassified to reflect the movement of the Electrical and Electronic Solutions business to discontinued operations in the fourth quarter of 2008. 43

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