October 7, 2009

Alcoa Strengthens Cash Position and Returns to Profitability in Third Quarter

Highlights:
  • Income from continuing operations of $73 million, or $0.07 per share
  • Excluding restructuring and special items, income of $39 million, or $0.04 per share
  • Revenues up 9 percent over second quarter 2009
  • Cash Sustainability initiatives exceeding targets
  • Actions offsetting negative currency and energy impacts
  • EBITDA of $454 million in third quarter 2009
  • Cash from operations of $184 million in third quarter 2009
  • Debt-to-capital at 38.3%, down 140 basis points sequentially
  • Cash on hand of $1.1 billion


NEW YORK--(BUSINESS WIRE)--Alcoa (NYSE: AA) today announced third quarter 2009 income from continuing operations of $73 million, or $0.07 per diluted share, compared to a loss from continuing operations of $312 million, or $0.32 per share, in the second quarter 2009. Income from continuing operations in the third quarter of 2008 was $306 million, or $0.37 per share. Excluding restructuring and special items, income for the third quarter 2009 was $39 million, or $0.04 per share.

The third quarter of 2009 had net income of $77 million, or $0.08 per share, compared with a net loss for the second quarter of 2009 of $454 million, or $0.47 per share. Net income in the third quarter of 2008 was $268 million, or $0.33 per share. Discontinued operations for the third quarter of 2009 had income of $4 million, or $0.01 per share. The second quarter of 2009 had a loss of $142 million, or $0.15 per share.

Restructuring and special items in the quarter totaled $34 million, or $0.03 per share. These items included a gain on the completion of a transaction to acquire bauxite and alumina refining interests in Suriname of $35 million and restructuring charges of $17 million before tax ($1 million after tax and noncontrolling interests).

Revenues for the quarter were $4.6 billion compared with $4.2 billion in the second quarter of 2009, a nine percent increase. Revenues were $7.0 billion in the third quarter of 2008. Sequentially, revenues were helped by an increase in realized prices for primary aluminum to $1,972 per metric ton from $1,667 per metric ton in the second quarter, as well as stabilization in the end markets.

“The financial and operational measures we took in the first half of the year are having a strong positive impact on our cash position and profitability,” said Klaus Kleinfeld, Alcoa President and Chief Executive Officer. “Despite unfavorable currency and energy headwinds, our performance this quarter indicates that Alcoa is weathering the economic storm and is in excellent shape to benefit when the market recovers.”

The Company is exceeding all the targets of its Cash Sustainability Program, which helped to offset negative currency and energy impacts in the quarter of $89 million. Overhead savings are $375 million, 188 percent of the full year target for 2009, and procurement savings are $1.61 billion, 107 percent of the full-year target. Reductions in working capital have generated $780 million in cash, or 98 percent of the 2009 target of $800 million.

Cash from operations in the quarter was $184 million compared with $328 million in the second quarter of 2009 as working capital reductions continued, yet at a slower pace due to rising prices. Cash from operations in the third quarter 2008 was a negative $93 million. EBITDA in the quarter improved by $454 million from zero in the second quarter of 2009.

During the quarter, the Company received the final $520 million of proceeds from the exiting of the Shining Prospect venture and finished the quarter with $1.1 billion of cash on hand. The Company’s debt-to-capital ratio stood at 38.3 percent at the end of the quarter, a 140 basis point reduction from the second quarter of 2009.

Capital expenditures in the quarter were $370 million, on-target to reach the 2009 goal of a nearly 50 percent reduction from 2008. In the quarter, the Company commissioned its Juruti bauxite mine in Brazil and new lithographic sheet operations in Bohai, China. This follows the opening of a new end and tab line in Russia in late-June. These investments will lower costs and position the Company well for growth as economies improve in those important markets.

Revenues for the first nine months of 2009 were $13.0 billion, compared to $21.2 billion in the first nine months of 2008. Income from continuing operations for the first nine months of 2009 showed a loss of $719 million, or $0.78 per share, compared with income of $1.2 billion, or $1.40 per share, in the first nine months of 2008. The nine months of 2009 showed a net loss of $874 million, or $0.95 per share, compared to net income of $1.1 billion, or $1.35 per share, in the first nine months of 2008.

In the second half of 2009, there are signs that key markets the Company operates in are stabilizing. Due to low inventories at distributors and rising shipments, regional premiums are improving and global aluminum consumption is expected to increase 11 percent in the second half of 2009.

Segment Results

Alumina

After tax operating income (ATOI) was $65 million, a $72 million improvement from the second quarter. Alumina production increased nine percent or 305 thousand metric tons and average third-party realized pricing improved 13 percent, helped by rising LME aluminum prices and improved demand. A $58 million benefit from the Suriname acquisition was partially offset by negative currency impacts of $28 million and higher energy costs of $13 million. The Juruti mine was officially commissioned this quarter and combined with the Sao Luis refining expansion, will place Alcoa’s overall refining system in the top quartile on the global cost curve in terms of low-cost production.

Primary Metals

ATOI improved $170 million sequentially to a loss of $8 million due primarily to improved pricing. Smelting production decreased 25 thousand metric tons and third-party realized pricing was up $305 per metric ton, or 18 percent, as LME pricing and regional premiums continued to improve. Results were negatively impacted by $29 million of currency effects. The production run rate now stands at 3.5 million metric tons with approximately 20 percent of primary production curtailed.

Flat-Rolled Products

ATOI improved $45 million from the second quarter of 2009 through improved orders and significant cost reduction efforts. Shipments for the quarter increased six percent sequentially and revenue increased seven percent. Every key end market except aerospace saw revenue gains, including automotive which increased 21 percent from the second quarter of 2009. Improved shipments and cost reduction efforts more than offset the impacts of product mix and currency effects in Australia. This quarter the Bohai flat-rolled products facility in China was inaugurated and it is already serving customers in the printing, transportation, electronics, and packaging industries.

Engineered Products and Solutions

ATOI for the quarter of $75 million was 15 percent below the sequential quarter results driven by continued aerospace destocking, industrial gas turbine market declines, and normal seasonal impacts. This was partially mitigated by improved demand in commercial transportation and strong results from spend reduction efforts.

Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on October 7, 2009 to present the quarter's results. The meeting will be webcast via alcoa.com. Call information and related details are available at www.alcoa.com under "Invest.”

About Alcoa

Alcoa is the world leader in the production and management of primary aluminum, fabricated aluminum, and alumina combined, through its active and growing participation 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, including flat-rolled products, hard alloy extrusions, and forgings, Alcoa also markets Alcoa® wheels, fastening systems, precision and investment castings, and building systems. The Company has been named one of the top most sustainable corporations in the world at the World Economic Forum in Davos, Switzerland, and has been a member of the Dow Jones Sustainability Index for seven consecutive years. Alcoa employs approximately 63,000 people in 31 countries across the world. More information can be found at www.alcoa.com.

Forward-Looking Statements

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. Alcoa disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: (a) material adverse changes in economic or aluminum industry conditions generally, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices for primary aluminum, alumina, and other products; (b) material adverse changes in the markets served by Alcoa, including automotive and commercial transportation, aerospace, building and construction, distribution, packaging, industrial gas turbine, and other markets; (c) Alcoa's inability to mitigate impacts from energy supply interruptions or from increased energy, transportation, and raw materials costs or other cost inflation; (d) Alcoa’s inability to achieve the level of cash generation, return on capital improvement, cost savings, or earnings or revenue growth anticipated by management in connection with its restructuring, portfolio streamlining, and liquidity strengthening actions; (e) Alcoa's inability to complete its growth projects and portfolio streamlining projects or achieve efficiency improvements at newly constructed or acquired facilities as planned and by targeted completion dates; (f) unfavorable changes in laws, governmental regulations or policies, foreign currency exchange rates or competitive factors in the countries in which Alcoa operates; (g) significant legal proceedings or investigations adverse to Alcoa, including environmental, product liability, safety and health, and other claims; and (h) the other risk factors summarized in Alcoa's Form 10-K for the year ended December 31, 2008, Forms 10-Q for the quarters ended March 31, 2009 and June 30, 2009, and other reports filed with the Securities and Exchange Commission.

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