January 11, 2011
Alcoa Ends 2010 with Strong Fourth Quarter Results

Alcoa has announced fourth quarter 2010 income from continuing operations of $258 million, or $0.24 per share, the company’s highest quarterly income since the economic downturn and $197 million higher than the third quarter of 2010. Fourth quarter income from continuing operations includes a $35 million, or $0.03 per share, positive impact from special items, compared to a negative impact of $35 million, or $0.03 per share, in the third quarter of 2010 and a negative impact of $275 million, or $0.28 per share, in the fourth quarter of 2009.

The company also set an all-time record for cash from operations and a fourth-quarter record for free cash flow.

Improved earnings were driven by higher pricing, continued strengthening in most end markets and improved productivity as a result of the company’s Cash Sustainability Program. Results were offset somewhat by a weaker U.S. dollar and higher energy and raw material costs.

Results for the fourth quarter of 2010 include a favorable impact of $35 million, or $0.03 per share, for special items. Special items included a net benefit for restructuring-related actions, discrete income tax benefits and non-cash, mark-to-market impacts of derivatives in several power contracts.

“We exceeded all of our targets and continued to build momentum,” said Klaus Kleinfeld, Alcoa Chairman and CEO. “We delivered all-time record cash from operations, record fourth-quarter free cash flow, improved earnings, grew revenue and paid down debt.

“In 2011, we see aluminum growing another 12 percent on top of last year’s 13-percent improvement. We are well positioned to outpace the recovery in the markets we serve and grow shareholder value.”

Alcoa projects global demand for aluminum to double by 2020. For 2011, the company projects growth in all end markets on a global basis.

4Q 2010

Revenue for the fourth quarter was $5.7 billion, up 7 percent compared to the third quarter. The increase was driven by an improvement in realized pricing for both alumina (9 percent) and aluminum (11 percent) as well as continued strengthening in most end markets.

Income from continuing operations in the quarter was $258 million, or $0.24 per share, compared to $61 million, or $0.06 per share, in the previous quarter and a loss of $266 million, or $0.27 per share, in the fourth quarter of 2009. Fourth-quarter income from continuing operations includes a $35 million, or $0.03 per share, positive impact from special items, compared to a negative impact of $35 million, or $0.03 per share, in the third quarter of 2010 and a negative impact of $275 million, or $0.28 per share, in the fourth quarter of 2009.

Net income was $258 million in the fourth quarter, an increase of $197 million from sequential quarter income of $61 million, and an increase of $535 million from the prior year quarter loss of $277 million.

Adjusted EBITDA margin in the fourth quarter of 2010 improved to 13.8 percent, up from 11.4 percent in the third quarter of 2010 and 3.4 percent in the fourth quarter of 2009.

Cash from operations was an all-time record $1.4 billion, an increase of $978 million from the previous quarter and a $246 million improvement from the fourth quarter of 2009. The sequential increase in cash from operations was driven by higher earnings, favorable changes in working capital and lower interest and tax payments. Alcoa generated $1 billion in free cash flow in the quarter, an increase of $829 million over the third quarter. Free cash flow was $244 million higher than the fourth quarter of 2009.

Third-party shipments of aluminum were essentially flat compared to the third quarter of 2010. End-market revenue performance improved over the third quarter in Aerospace (+4 percent), Building and Construction (+2 percent), Distribution (+13 percent) and Industrial Gas Turbines (+16 percent).

Alcoa’s debt-to-capital ratio stands at 34.8 percent at the end of the fourth quarter, 90 basis points better than the third quarter of 2010, and 390 basis points lower than the fourth quarter of 2009. Liquidity improved, with $1.5 billion in cash on hand at the end of the fourth quarter compared to $843 million at the end of the third quarter of 2010.

2010 Full Year

Alcoa exceeded all targets in its Cash Sustainability Program in 2010. Results for the year include procurement savings of $2.64 billion, overhead savings of $509 million, capital spending reduced to $1.21 billion and working capital at 34 days.

For the year 2010, revenue was $21.0 billion, compared to $18.4 billion in 2009. Income from continuing operations was $262 million, or $0.25 per share, compared with a loss of $985 million, or $1.06 per share, in 2009. In both periods, income from continuing operations includes special items resulting in a negative impact of $297 million, or $0.29 per share, in 2010 and $300 million, or $0.32 per share, in 2009.

Full-year 2010 net income was $254 million, or $0.24 per share, compared to a net loss of $1.15 billion, or $1.23 per share, in 2009. Cash from operations in 2010 was $2.3 billion, compared to $1.4 billion in 2009. Alcoa generated $1.2 billion in free cash flow in 2010, up $1.5 billion over 2009.

The company’s debt to capital ratio was reduced 390 basis points in 2010 compared to year-end 2009, driven by a $654 million net reduction in debt and a $1.6 billion increase in equity.