January 12, 2009
Alcoa Reports 4th Quarter 2008 Results
- Loss From Continuing Operations of $929 million, or $1.16 per share, Including $708 Million, or $0.88 per share, of Restructuring, Impairment and Special Charges;
- Cash From Operations in 4th Quarter $608 Million;
- Historic 56% Price Decline in Last Five Months and Sharp Drop in Orders Impact Quarter;
- Workforce Reduced by 15,000; Salary and Hiring Freeze
- Extensive Restructuring, Production Cuts, Divestitures to Address Downturn Impact Results;
- Company Liquidity Remains Solid
NEW YORK--(BUSINESS WIRE)--Alcoa (NYSE: AA) today reported its fourth quarter 2008 results which include the impact of an historic decline in metal prices; weak end markets; and restructuring, impairment, and other special charges for its previously announced actions to curtail production, reduce costs, and streamline its portfolio.
Income from continuing operations for the fourth quarter 2008 showed a loss of $929 million, or $1.16 per share, which includes restructuring, impairment, and other special charges of $708 million or $0.88 per share. Results were driven by a 35 percent decline in aluminum prices in the quarter, (a 56 percent decline from July) and a sharp drop in demand, particularly from the automotive, commercial transportation and building and construction sectors. Income from continuing operations in the fourth quarter 2007 was $638 million, or $0.75 per share, and was $306 million, or $0.37 per share, in the third quarter 2008.
Net income for the fourth quarter 2008 was a loss of $1.19 billion or $1.49 per share, which includes restructuring, impairment and other special charges of $920 million ($212 million is included in discontinued operations) or $1.15 per share, 80 percent of which is non-cash. Net income for the fourth quarter 2007 was $632 million, or $0.75 per share, and net income for the third quarter of 2008 was $268 million, or $0.33 per share.
“We are taking wide-ranging measures to address the economic downturn,” said Klaus Kleinfeld, President and CEO of Alcoa. “We have streamlined our portfolio to focus on businesses where Alcoa is the recognized leader, curtailed production to adjust to weakened demand, reduced global headcount, and achieved significant savings in key raw materials.
“By moving quickly to address the market decline, we are using Alcoa’s strategic flexibility and solid liquidity to address the continuing economic uncertainty and emerge even stronger when the economy recovers,” said Kleinfeld.
Discontinued operations for the fourth quarter 2008 had a loss of $262 million, or $0.33 per share, representing the results of operations for the Electrical and Electronic Solutions business as well as charges for previously announced headcount reductions and asset impairments related to the intention to sell the business. In the third quarter 2008, discontinued operations had a loss of $38 million, or $0.04 per share. The Engineered Products and Solutions segment does not reflect the Electrical and Electronic Solutions business in its results for the fourth quarter 2008 and all prior periods.
Revenues for the fourth quarter 2008 were $5.7 billion, down from $7.0 billion in the third quarter 2008 and $6.1 billion in the fourth quarter 2007 after excluding divested businesses.
Revenues for the full year 2008 were $26.9 billion and income from continuing operations was a profit of $229 million, or $0.28 per share, primarily reflecting the impact of restructuring, impairment, and other special charges.
Referring to the accomplishments of 2008, Kleinfeld noted, “The improvements we made in 2008 solidified the strategic fundamentals of the Company, which provided the flexibility to act swiftly when the economy began to fall and the staying power to maintain our competitive lead through this historic economic downturn.”
During 2008, Alcoa had a number of accomplishments that prepared the Company for the challenges of 2009 and the opportunities of the future. The Company secured favorable long-term power commitments for nearly half its smelting capacity. Its downstream business, Engineered Products and Solutions, had record results with a 23 percent annual increase in after-tax operating income (ATOI). It shaped its portfolio to focus on its strengths -- successfully exiting the Packaging and Consumer business and executing a cash-free swap to exit the soft alloy extrusion business and gain ownership of two smelters, making Alcoa the largest aluminum producer in the world. For the seventh consecutive year Alcoa was chosen for the Dow Sustainability Index. And the Company enters 2009 with an increase in its short-term debt capacity of almost 60 percent.
Cash from operations in the fourth quarter 2008 was $608 million and the Company has $762 million of cash on hand. Additionally, Alcoa expanded its 364-day revolving credit facility to $1.9 billion in the quarter. Alcoa’s $5.2 billion of aggregate revolving credit facilities support its commercial paper program and provide significant liquidity in 2009.
Capital expenditures for the quarter were $1.0 billion, with 57% percent dedicated to growth projects. The Company’s debt-to-capital ratio stood at 42.5 percent at the end of the quarter.
Looking to the future, Kleinfeld said, “Once the economy stabilizes, the global megatrends – demographics, urbanization and environmental stewardship – will all drive opportunities for our core products. Aluminum has the ideal combination of strength, light weight and infinite recyclability to help countries rebuild their infrastructures for the 21st century. We are extremely well positioned to seize those opportunities.”
ATOI was $162 million, a decrease of $44 million, or 21 percent, from the prior quarter. Slightly lower production resulted from curtailment effects at Point Comfort which were partially offset by record output in Australia and Sao Luis. Lower market pricing offset favorable impacts from a stronger U.S. dollar, lower energy costs, and benefits associated with the continued recovery from the natural gas disruption in Western Australia.
The Company is on track to complete its expansion of the Sao Luis refinery and the new Juruti bauxite mine in Brazil. Those expansions will begin to deliver positive cash flow to the Company late in 2009. When finished, Juruti and Sao Luis will contribute to Alcoa’s world-class mining and refining system, moving Alcoa into the lowest-cost quartile of the global cost curve.
ATOI was a loss of $101 million, a $398 million decrease compared to the prior quarter. Unprecedented LME price erosion of 56 percent over the second half of the year led to a sequential 28 percent decrease in realized prices. The benefits of a stronger U.S. dollar, lower energy costs, and continued operational improvements in the Fjardaal smelter only partially offset effects of the market price decline. The segment purchased approximately 47,000 mt of primary metal for internal use.
Production decreased by 40,000 metric tons mainly due to the previously announced full curtailment of the Rockdale smelter and commencement of the full 750,000 mt reduction of smelting capacity across Alcoa’s global system.
ATOI was a loss of $98 million, a decrease of $127 million from the prior quarter. Market declines were evident in nearly all end markets as lower industrial demand and supply chain adjustments, along with the global economic slowdown, reduced non-can sheet shipments by 20 percent. Additionally, the Boeing strike had a $10 million negative effect on the results. Start-up costs for the Company’s investment in the Bohai hot mill were $9 million in the quarter, while costs related to the planned divestiture of the Company’s Global Foil business were $12 million.
Engineered Products and Solutions
The segment ended 2008 with record annual ATOI. For the quarter, ATOI was $65 million, a decrease of $68 million, or 51 percent, from the prior quarter. Lower volume was the driver of the decline as the broad-based market erosion impacted most businesses serving the aerospace, commercial transportation, and commercial construction markets.
The results of Alcoa’s Electrical and Electronic Solutions business were removed from the segment for all periods due to its classification as discontinued operations.
Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on Monday, January 12, 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."
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 and other products; (b) material adverse changes in the markets served by Alcoa, including automotive and commercial transportation, aerospace, building and construction, distribution, packaging, and industrial gas turbine markets; (c) Alcoa’s inability to achieve the level of cost reductions, cash generation or conservation, return on capital improvement, improvement in profitability and margins, or strengthening of operations anticipated by management in connection with its restructuring activities; (d) continued volatility or deterioration in the financial markets, including disruptions in the commercial paper, capital and credit markets; (e) Alcoa’s inability to mitigate impacts from increased energy, transportation and raw materials costs, including caustic soda, calcined coke and natural gas, or from other cost inflation; (f) Alcoa’s inability to complete its joint venture or growth projects or achieve efficiency improvements at newly constructed or acquired facilities as planned and by targeted completion dates; (g) unfavorable changes in laws, governmental regulations or policies, foreign currency exchange rates or competitive factors in the countries in which Alcoa operates; (h) significant legal proceedings or investigations adverse to Alcoa, including environmental, product liability, safety and health and other claims; and (i) the other risk factors summarized in Alcoa’s Form 10-K for the year ended December 31, 2007, 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.