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Alcoa_2Q10_Earnings_Presentation

Course: FINANCE 101, Spring 2011
School: University of Phoenix
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Word Count: 3107

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Quarter 2nd 2010 Earnings Conference July 12, 2010 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, 2009, Form 10-Q for the quarter ended March 31, 2010, and other reports filed with the Securities and Exchange Commission. 2 Chuck McLane Executive Vice President and Chief Financial Officer 2nd Quarter 2010 Financial Overview Income from Continuing Operations of $137 million, or $0.13 per share Revenue increase of 6% driven by higher volumes Cash Sustainability Initiatives continued to deliver EBITDA of $724 million, EBITDA Margin of 14.0% Free Cash Flow positive Debt to Capital of 38.4%, Cash on hand of $1.34 billion 4 Revenue Change by Market 2Q'10 Third Party Revenue Aerospace 33% 14% 3% 7% 4% IGT 5% 2% 13% 13% 6% Packaging Distribution/Other Alumina Primary Metals Automotive Sequential Change 5% (7%) 9% Year-Over-Year Change (7%) 67% 5% 50% 47% (32%) (14%) 48% 59% 49% B&C Comm. Transport Industrial Products 10% (1%) 5% 17% 23% 10% 0% 5 Sequential Income Statement Summary $ Millions 1Q'10 $4,887 $4,013 82.1% $239 4.9% $187 (95.5%) 2Q'10 $5,187 $4,210 81.2% $208 4.0% $30 25.0% Change $300 $197 (0.9 % pts.) ($31) (0.9 % pts.) ($157) N/A Sales Cost of Goods Sold COGS % Sales Selling, General Administrative, Other SGA % Sales Restructuring and Other Charges Effective Tax Rate (Loss) Income from Continuing Operations Loss from Discontinued Operations ($194) ($7) $137 ($1) $331 $6 6 2nd Quarter Restructuring and Special Items After-Tax & Non- Earnings Controlling Interests Per Share Income Statement Classification $ Millions Segment Restructuring Discrete Tax Items Special Items: Rockdale Luminant Litigation USW Negotiations Mark-to-Market Derivatives ($20) $16 $2 ($7) ($13) $22 Restructuring Taxes Corporate Corporate Revenue & Cost of Goods Sold Cost of Goods Sold Other Income/Expense Primary All Segments Corporate Total ($2) ($0.00) 7 2nd Quarter 2010 vs. 1st Quarter 2010 Earnings Bridge Income (Loss) from Continuing Operations excluding Restructuring & Special Items ($ millions) $23 $16 ($36) $9 ($14) $139 $101 $40 See appendix for reconciliation 8 Alumina 2nd Quarter Highlights 2Q 09 Production (kmt) 3rd Party Shipments (kmt) 3rd Party Revenue ($MM) ATOI ($MM) 3,309 2,011 441 (7) 2nd Quarter Business Conditions 2Q 10 3,890 2,264 701 94 1Q 10 3,866 2,126 638 72 Realized third-party alumina price up 1% Currency benefit of $18 million, primarily driven by stronger USD against Australian dollar Sao Luis commissioning issues negatively impacted results by $11 million 2nd Quarter Performance Bridge $ Millions $18 $2 $3 $3 ($1) ($3) $94 3rd Quarter Outlook Pricing to follow two-month lag on LME Continued benefits from cash sustainability initiatives Production projected to increase 150 KMT $72 9 Primary Metals 2nd Quarter Highlights 2Q 09 Production (kmt) 3rd Party Shipments (kmt) 906 779 2nd Quarter Business Conditions 2Q 10 893 699 1Q 10 889 695 Realized pricing down 1% sequentially Higher alumina and LME-linked power costs based on quarter lag Positive currency impact of $18 million Lower non-LME linked energy costs benefit $11m Curtailed Fusina during quarter 3rd Party Revenue ($MM) 3rd Party Price ($/MT) 1,146 1,667 (178) 1,702 2,331 123 1,710 2,309 109 ATOI ($MM) 2nd Quarter Performance Bridge $ Millions $123 ($43) $2 $18 $3 $1 ($6) $109 3rd Quarter Outlook Pricing to follow 15-day lag to LME Continued productivity benefits from cash sustainability initiatives Production equal to second quarter $11 10 Flat-Rolled Products 2nd Quarter Highlights ATOI $ Millions Global Rolled Products, excl Russia, China & Other 2Q 09 2 1Q 10 47 2Q 10 71 2nd Quarter Business Conditions Higher volumes especially in Russia, North America, and China North American RPD margin and volume improvement Productivity benefit of $16 million on continuing gains from cash sustainability initiatives Russia, China & Other (37) (17) 0 Total ATOI (35) 30 71 Growth businesses at breakeven profitability and Russia at positive ATOI 2nd Quarter Performance Bridge $ Millions $16 $18 $30 ($4) ($1) $2 $10 $71 3rd Quarter Outlook North American RPD expected to fully offset margin impact from customer lost in 1Q'10 Improving demand in most regions, including Russia, China, and Europe Seasonal impact from summer plant slowdowns Continued benefits from cash sustainability initiatives 11 Engineered Products and Solutions 2nd Quarter Highlights $ Millions 3rd Party Revenue ATOI EBITDA % of Revenue 2Q 09 1,194 88 14.5% 1Q 10 1,074 81 14.2% 2Q 10 1,122 107 17.2% 2nd Quarter Business Conditions EBITDA margin up 2.7% points vs. Q2'09 despite $72 million in lower sales Productivity benefit of $14 million on continued strong performance in cash sustainability initiatives Volume improvements in Aerospace structural castings and Building and Construction IGT demand remained weak 2nd Quarter Performance Bridge $ Millions $14 $1 $107 $81 $3 $15 ($7) 3rd Quarter Outlook Seasonal impact from summer plant slowdowns Continued benefits from cash sustainability initiatives 12 2nd Quarter 2010 Cash Flow Overview ($ Millions) Net (Loss) Income DD&A Change in Working Capital Pension Contributions Taxes / Other Adjustments Cash From Operations Dividends to Shareholders Change in Debt Distributions to Noncontrolling Interest Contributions from Noncontrolling Interest Other Financing Activities Cash From Financing Activities Capital Expenditures Other Investing Activities Cash From Investing Activities See appendix for free cash flow reconciliation 2Q'09 ($459) 317 329 (35) 176 $328 (31) (59) (2) 94 (4) ($2) (418) (215) ($633) 1Q'10 ($179) 358 (336) (22) 378 $199 (32) (42) (72) 27 (61) ($180) (221) 13 ($208) 2Q'10 $170 364 (422) (22) 210 $300 (31) 35 (41) 37 3 $3 (213) (33) ($246) 13 2Q'10 FCF $87 million $1.34 billion of cash We Are Focused on Achieving Our 2010 Goals *Procurement reduction of $2.5 billion Overhead reduction of $500 million Capital expenditures of $1.25 billion Days Working Capital reduction of 2 days Driving Positive Free Cash Flow *Procurement and other productivity 14 Klaus Kleinfeld Chairman and Chief Executive Officer Strong Mid- and Long-Term Aluminum Fundamentals Aluminum Outlook Mega Trends Demographics Global population rising 2006: 6.6 billion 2025: 7.9 billion 2050: 9.1 billion The Aluminum Proposition Aluminum Demand In MMT 73.0 Light Weight EMEA Recyclable High Strength 6% CAGR Americas Urbanization Population in cities 2006: > 50% 2030: > 60% Relative Value Durable 39.2 Asia Environment Energy consumption rising Increase of 54% by 2025 Driven by developing countries Personal transport rising Increase of 40% by 2030 Greenhouse gas regulation Malleable Highly Conductive Non-Corrosive 2010 2020 Source: Alcoa Analysis 16 Aluminum: Key To Light Weighting Vehicles MPG Improvement Levers Fuel Economy Improvement (MPG) 3x Benefit vs. HSS 2.7 CAFE Legislation Powertrain 2016: 35.5 MPG Drivetrain 0.9 0.0 Steel Baseline High Strength Steel Intensive Aluminum Intensive Today: 25.5 MPG Lightweighting Life Cycle CO2 Emission Savings (Kilograms) 3x Benefit vs. HSS 2,900 1,050 0.0 Steel Baseline Source: Alcoa Analysis, EAA, IAI Transport CAFE: Corporate Average Fuel Economy High Strength Steel Intensive Aluminum Intensive 17 Automotive: A 10 MMT+ Opportunity For Aluminum Significant Aluminum Penetration Opportunity Automotive Aluminum Consumption by Component KMT Aluminum Intensive Vehicle Will Drive Aluminum Demand Automotive Aluminum Consumption (in MMT) 12,000 Currently Aluminum 10,000 Aluminum Opportunity 2020-2030: 17.9 Auto Aluminum Demand Grows 40%+ 8,000 10% CAGR 6,000 7.4 4,000 Rapid Adoption of Aluminum Intensive Vehicle 2,000 0 2010 2020 2030 Source: Alcoa Analysis, The Aluminum Association, IAI Transport 18 Market Conditions in 2010 Alcoa End Markets: Current Assessment of 2010 vs. 2009 Conditions Source: Alcoa Analysis 19 Raising 2010 Demand Growth Forecast to 12% Brazil Russia India *Other Asia w/o China 2010 Projected Primary Aluminum Consumption by Region (in mmt) 39.2 -5% 12% 0.9 -15% 0.9 4% 1.4 0% 14% 2.9 9% -2% 2.9 4.7 5.3 -15% -5% 8% 6% 2009 Global Demand Growth Rate: -6% 2010 Global Demand Growth Rate 12% (2010 ex China: 6.5%) North America Europe 6.6 -15% 4% China 16.5 4% 21% 2009 Actual 2010 Forecast 2010 Estimated Consumption Source: Alcoa Analysis 2009 vs. 2010 Projected Growth Rates *Other consists of: Middle East, Latin America ex Brazil and Rest of World 20 Inventories Lower, Regional Premiums Higher Global Inventory Days of Consumption and Regional Premiums Global Inventories 3 Days Lower vs. 1Q'10 450% 400% 350% Regional Premium (1-Year Change) 80 70 63 days of consumption LME Shanghai Japan Port Producer Midwest Japan Europe 54% 108% 298% $179 / MT 60 50 40 LME at 44 days 30 20 Non-LME at 19 days 300% 250% $122 / MT 200% 150% 100% 50% 0% $143 / MT 10 0 Source: Bloomberg, IAI 21 2010 Primary Aluminum Surplus Is Manageable 2010E Aluminum Supply / Demand Balance (in kmt) China Western World Surplus Surplus 2010 Annualized Production 16,500 2010 Annualized Production Demand Exports to China, Net Net Surplus 23,950 (22,750) (200) 1,000 Demand Imports from West, Net Net Surplus (16,500) 200 200 Source: Alcoa estimates, Brook Hunt, CRU, CNIA, IAI 22 China: Rationale Response To Changing Aluminum Dynamics Price Falls => Curtailments Follow Production (KMT) End of Power Subsidy Raises Costs SHFE Price ($/MT) China Aluminum Cash Cost by Province ~5.7 MMT with Cash Cost Above SHFE 20,000 15,000 10,000 0 5,000 Production SHFE 20,000 15,000 10,000 RMB/MT 17,000 27% Curtailed 16,000 0 5,000 Cash Cost Additional Power Cost SHFE 15,000 14,000 15% Duty On Primary Metal = No Exports Trade Balance (KMT) SHFE Prem/Disc ($/MT) China Export/(Import) SHFE Prem/(Disc) to LME 13,000 12,000 11,000 0 10,000 400 200 0 (200) (400) 400 200 0 (200) (400) (L) Denotes low cost grid power (H) Denotes high cost grid power Source: Alcoa Analysis, CRU, CNIA, IAI 23 2010 Global Alumina in Balance 2010E Alumina Supply / Demand Balance (in kmt) Balanced China 2010 Annualized Production Imports from Western World Supply Western World 28,500 4,000 32,500 2010 Annualized Production 50,000 Exports to China Supply Demand (Deficit) / Surplus (4,000) 46,000 (46,500) (500) Demand (Deficit) / Surplus (31,800) 700 Source: Alcoa estimates, CRU, CNIA, IAI 24 Significant Value Creation From The Alumina Leader Alumina financial and strategic overview EBITDA per Metric Ton EBITDA/MT LME 2,641 2,570 2,572 Alcoa 3rd Party Alumina Sales Price % LME 110% 105% 2,163 2,096 100% 1,900 1,664 1,719 1,549 1,447 1,350 1,433 110 95% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 104 81 Average = ~$70/MT 20 61 49 Alcoa: The Alumina Leader 18.1 MMT of capacity, including Sao Luis expansion Low cost alumina production system Unmatched growth potential Ma'aden, lowest cost refinery online in 2014 72 62 44 48 68 75 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1'10 Q2'10 25 Driving Primary Metal To A New Profitability Level Primary Metals financial and strategic overview EBITDA per Metric Ton EBITDA/MT LME 2,641 2,570 2,572 Growing Self-Generated Energy Self-Generated Long-Term Contracts 2010 2,163 2,096 2011 79% 26% 74% 1,900 1,664 1,719 1,549 1,447 1,350 1,433 784 626 21% 487 Alcoa: Poised For Profitable Growth 460 321 336 418 398 Average = ~$410/MT 392 325 280 4.5 MMT of capacity Optimizing smelter portfolio; reducing costs Ma'aden, lowest cost smelter online in 2013 (159) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1'10 Q2'10 Improving cost curve position 26 Rolled Products Positioned to Substantially Improve Returns Flat Rolled Products financial and strategic overview EBITDA & EBITDA % Sales EBITDA $Millions 573 541 495 EBITDA % Sales YTD 2010 3rd Party Sales by Market 107 157 479 531 620 536 498 254 224 75% Utilization Packaging 42% 11% 11% 11% 10% 9% 9% 7% 6% 5% 4% 3% 10% Industrial /Other 17% Commercial Transport 4% B&C 5% Automotive 8% Distribution 13% Aerospace 11% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1'10 Q2'10 27 EPS Strong Platform for Profitable Growth Engineered Products & Solutions financial and strategic overview EBITDA & EBITDA % Sales EBITDA $Millions 368 436 287 EBITDA % Sales YTD 2010 3rd Party Sales by Market 152 194 17% 356 495 536 676 783 922 630 70% Utilization Aerospace 47% IGT 11% 15% 14% 13% 12% 11% 11% 9% 8% 11% 12% 13% B&C 19% Other 6% Automotive 4% Commercial Transport 13% 65% Utilization 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1'10 Q2'10 28 Aggressively Pursuing 2010 Operational Targets 2010 Cash Sustainability Operational Targets and Actual Performance Procurement1 $ Millions Overhead $ Millions Total Capex2 $ Millions Working Capital Days Working Capital $1,414 2010 YTD 1Procurement $2,500 $311 2010 Target 2010 YTD $500 $514 2010 YTD $1,250 42 2010 YTD 35 2010 Target 2010 Target 2010 Target and other productivity 2Total Capex includes investments in Ma'aden project 29 Alcoa Is Driving Value Today And Over The Long-Term Alcoa Performance Strengthening (EBITDA Margin) 20% 17% 19% Alcoa: Driving Value 16% 14% 12% 12% 15% 14% 14% 13% 2% Global alumina leader leveraging low cost production base 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1'10 Q2'10 Long-term Drivers Remain Intact Strong Mid- and Long-Term Aluminum Fundamentals Aluminum Outlook Global aluminum leader reducing cost position Alcoa Rolled Products leading profitability revitalization EPS expanding market leadership and profitability Mega Trends Demographics Global population rising 2006: 6.6 billion 2025: 7.9 billion 2050: 9.1 billion The Aluminum Proposition Aluminum Demand In MMT 73.0 Light Weight EMEA Recyclable High Strength 6% CAGR Americas Urbanization Population in cities 2006: > 50% 2030: > 60% Relative Value Durable 39.2 Asia Environment Energy consumption rising Increase of 54% by 2025 Driven by developing countries Personal rising transport Increase of 40% by 2030 Greenhouse gas regulation Malleable Highly Conductive Non-Corrosive 2010 2020 Source: Alcoa Analysis 16 30 Additional Information Matthew E. Garth Director, Investor Relations A 390 Park Avenue New York, NY 10022-4608 Telephone: (212) 836-2674 www.alcoa.com 31 Annual Sensitivity Summary LME Aluminum Annual Net Income Sensitivity +/- $100/MT = +/- $200 million Currency Annual Net Income Sensitivity +/- 10% versus USD Australian $ Brazilian $ Euro Canadian $ +/- $75 million +/- $50 million +/- $40 million +/- $35 million 33 Effective Tax Rate $ Millions 1Q'10 ($88) $84 (95.5%) 2Q'10 $228 $57 25.0% (Loss) income from continuing operations before income taxes Provision for income taxes Effective tax rate as reported Discrete tax provisions: Medicare Part-D Transaction-related and other items Subtotal - Discrete tax (benefits) provisions (Benefit) Provision for income taxes excluding discrete tax (benefits) provisions Effective tax rate excluding discrete tax (benefits) provisions $79 $33 $112 ($28) 31.8% -($16) ($16) $73 32.0% Effective tax rate, excluding discrete tax items is a non-GAAP financial measure. Management believes that the Effective tax rate, excluding discrete tax items is meaningful to investors because it provides a view of Alcoa's operational tax rate. 34 Reconciliation of ATOI to Consolidated Net (Loss) Income Attributable to Alcoa (in millions) 1Q09 Total segment ATOI Unallocated amounts (net of tax): Impact of LIFO Interest income Interest expense Noncontrolling interests Corporate expense Restructuring and other charges Discontinued operations Other Consolidated net (loss) income attributable to Alcoa $ 2Q09 3Q09 142 80 (1) (78) (47) (71) (3) 4 51 77 $ 4Q09 $ (101) $ 87 4 (79) (9) (92) (50) (11) (26) 2009 1Q10 306 (14) 3 (77) (22) (67) (122) (7) (201) (201) $ 2Q10 $ 381 (3) 3 (77) (34) (59) (21) (1) (53) 136 (143) $ 29 1 (74) (10) (71) (46) (17) (166) (132) $ 39 8 (75) 5 (70) (56) (142) (31) (454) $ (234) $ 235 12 (306) (61) (304) (155) (166) (172) $ (497) $ (277) $ (1,151) $ 35 Reconciliation of Adjusted Income (in millions) Quarter ended March 31, June 30, 2010 2010 $ (201) $ 136 Net (loss) income attributable to Alcoa Loss from discontinued operations (Loss) income from continuing operations attributable to Alcoa Restructuring and other charges Discrete tax items* Special items** Income from continuing operations attributable to Alcoa as adjusted (7) (1) (194) 137 119 112 64 20 (16) (2) $ 101 $ 139 Income from continuing operations attributable to Alcoa as adjusted is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of Alcoa excluding the impacts of restructuring and other charges discrete tax items, and special , items. There can be no assurances that additional restructuring and other charges, discrete tax items, and special items will not occur in future periods. To compensate for this limitation, management believes that it i appropriate to consider both (Loss) income from continuing operations attributable to Alcoa s determined under GAAP as well as Income from continuing operations attributable to Alcoa as adjusted. * Discrete tax items include the following: a benefit for a change in a Canadian provincial tax law permitting tax returns to be filed in U.S. dollars ($24), a charge baed on settlement s discussions of several matters with international taxing authorities ($18), and a benefit for the recovery of a portion of the unfavorable impact included in the quarter ended March 31, 2010 related to unbenefitted losses in Russia, China, and Italy ($10); and charges for a change in the tax treatment of federal subsidies received related to prescription drug benefits provided under certain retiree health benefit plans ($79), unbenefitted losses in Rus China, and Italy ($22)(expected to reverse by the end of 2010), interest due to the sia, IRS related to a previously deferred gain associated with the 2007 formation of the former soft alloy extrusions joint venture ($6), and a change in the antici pated sale structure of the Transportation Products Europe business ($5) for the quarter ended March 31, 2010 . ** Special items include the following: favorable mark-to-market changes in derivative contracts ($22), a charge for costs associated with the potential strike and successful executio n of a new agreement with the USW ($13), and a charge related to an unfavorable decisionin Alcoa's lawsuit against Luminant related to the Rockdale, TX facility ($7); andcharges related to unfavorable mark-to-market changes in derivative contracts ($31), power outages at the Rockdale, TX and So Lus, Brazil facilities ($17), an add itional environmental accrual for the Grasse River remediation in Massena, NY ($11), and the write off of inventory related to the permanent closures of cetain U.S. facilities ($5) for the quarter ended r March 31, 2010. 36 Reconciliation of Free Cash Flow (in millions) Quarter ended June 30, 2010 $ 300 (213) Cash provided from operations Capital expenditures Free cash flow $ 87 Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expendituresdue to the fact that these expenditures are considered necessary to maintain and expand Alcoa's asset base and are expected to generate future cash flow from s operations. It is important to note that Free Cash Flow does not represent the residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements, are not deducted from the measure. 37 Reconciliation of Alcoa EBITDA ($ in millions) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 2Q10 Net income (loss) attributable to Alcoa Add: Net income attributable to noncontrolling interests Cumulative effect of accounting changes (Income) loss from discontinued operations Provision (benefit) for income taxes Other (income) expenses, net Interest expense Restructuring and other charges Provision for depreciation, depletion, and amortization Earnings before interest, taxes, depreciation, and amortization (EBITDA) $ 1,484 $ 908 $ 420 $ 938 $ 1,310 $ 1,233 $ 2,248 $ 2,564 $ (74) $ (1,151) $ (201) $ 136 306 205 181 212 233 259 436 365 221 61 22 34 5 (34) 47 367 (278) 314 (28) 2 (73) 859 (136) 427 (1) 5 524 (295) 371 530 101 307 (175) 350 398 27 546 (266) 271 (29) 50 464 (478) 339 266 (22) 853 (236) 384 507 250 1,623 (1,920) 401 268 303 342 (59) 407 939 166 (574) (161) 470 237 7 84 21 118 187 1 57 (16) 119 30 1,123 1,144 1,037 1,110 1,142 1,227 1,252 1,244 1,234 1,311 358 363 $ 3,994 $ 3,392 $ 2,585 $ 2,682 $ 3,234 $ 3,362 $ 5,422 $ 4,795 $ 3,313 $ 359 $ 596 $ 724 Sales $19,947 $19,906 $17,691 $18,879 $21,370 $24,149 $28,950 $29,280 $26,901 $18,439 $ 4,887 $ 5,187 EBITDA/Sales (EBITDA Margin) 20% 17% 15% 14% 15% 14% 19% 16% 12% 2% 12% 14% Alcoa's definition of EBITDA is net margin plus an add -back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus thefollowing items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation, depletion, and amortiz tion. EBITDA is a non-GAAP financial measure. Management believes a that this measure is meaningful to investors because EBITDA provides additional information with respect to Alcoa's operating perform ance and the Company's ability to meet its financial obligations. The EBITDA presented may not be comparable to similarly titled m easures of other companies. 38 Reconciliation of Alumina EBITDA ($ in millions) Alumina After-tax operating income (ATOI) Add: Depreciation, depletion, and amortization Equity (income) loss Income taxes Other Earnings before interest, taxes, depreciation, and amortization (EBITDA) Production (thousand metric tons) (kmt) EBITDA/Production ($ per metric ton) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 2Q10 $ 585 $ 471 $ 315 $ 415 $ 632 $ 682 $ 1,050 $ 956 $ 727 $ 112 $ 72 $ 94 163 (3) 279 (12) 144 (1) 184 (17) 139 (1) 130 (14) 147 161 (55) 153 (1) 240 (46) 172 246 (8) 192 2 428 (6) 267 (1) 340 2 268 (7) 277 (26) 292 (8) (22) (92) 92 (2) 27 1 107 (4) 41 (2) $ 1,012 $ 781 $ 569 $ 668 $ 978 $ 1,092 $ 1,666 $ 1,564 $ 1,239 $ 282 $ 190 $ 236 13,968 12,527 13,027 13,841 14,343 14,598 15,128 15,084 15,256 14,265 3,866 3,890 72 62 44 48 68 75 110 104 81 20 49 61 Alcoa's definition of EBITDA is net margin plus an add -back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goo s sold; Selling, general d administrative, and other expenses; Research and d evelopment expenses; and Provision for depreciation, depletion, and amortization. The Other line in the table above includes gains/losses on asset sales and other nonoperating items. EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because EBITDA provides additional information with respect to Alcoa's operating performance and the Company's ability to meet its financial obligations. The EBITDA presented m not be comparable to similarly titled measures of other companies. ay 39 Reconciliation of Primary Metals EBITDA ($ in millions) Primary Metals After-tax operating income (ATOI) Add: Depreciation, depletion, and amortization Equity (income) loss Income taxes Other Earnings before interest, taxes, depreciation, and amortization (EBITDA) Production (thousand metric tons) (kmt) EBITDA/Production ($ per metric ton) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 2Q10 $ 1,000 $ 905 $ 650 $ 657 $ 808 $ 822 $ 1,760 $ 1,445 $ 931 $ (612) $ 123 $ 109 311 (50) 505 (41) 327 (52) 434 (8) 300 (44) 266 (47) 310 (55) 256 12 326 (58) 314 20 368 12 307 (96) 395 (82) 726 (13) 410 (57) 542 (27) 503 (2) 172 (32) 560 26 (365) (176) 147 18 1 142 (1) $ 1,725 $ 1,606 $ 1,125 $ 1,180 $ 1,410 $ 1,413 $ 2,786 $ 2,313 $ 1,572 $ (567) $ 289 $ 250 3,539 487 3,488 460 3,500 321 3,508 336 3,376 418 3,554 398 3,552 784 3,693 626 4,007 392 3,564 (159) 889 325 893 280 Alcoa's definition of EBITDA is net margin plus an add -back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goo s sold; Selling, general d administrative, and other expenses; Research and d evelopment expenses; and Provision for depreciation, depletion, and amortization. The Other line in the table above includes gains/losses on asset sales and other nonoperating items. EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because EBITDA provides additional information with respect to Alcoa's operating performance and the Company's ability to meet its financial obligations. The EBITDA presented m not be comparable to similarly titled measures of other companies. ay 40 Reconciliation of Flat-Rolled Products EBITDA ($ in millions) Flat-Rolled Products After-tax operating income (ATOI) Add: Depreciation, depletion, and amortization Equity (income) loss Income taxes Other Earnings before interest, taxes, depreciation, and amortization (EBITDA) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 2Q10 $ 296 $ 253 $ 225 $ 222 $ 254 $ 278 $ 233 $ 178 $ (3) $ (49) $ 30 $ 71 153 (3) 126 1 167 2 124 (5) 184 4 90 (8) 190 1 71 (5) 200 1 75 1 220 121 1 223 2 58 20 227 92 1 216 35 6 227 48 (2) 59 18 57 28 1 $ 573 $ 541 $ 495 $ 479 $ 531 $ 620 $ 536 $ 498 $ 254 $ 224 $ 107 $ 157 Total sales $ 5,167 $ 4,868 $ 4,571 $ 4,768 $ 6,042 $ 7,081 $ 8,610 $ 9,597 $ 9,184 $ 6,182 $ 1,481 $ 1,614 EBITDA/Total sales 11% 11% 11% 10% 9% 9% 6% 5% 3% 4% 7% 10% Alcoa's definition of EBITDA is net margin plus an add -back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goo s sold; Selling, general d administrative, and other expenses; Research and d evelopment expenses; and Provision for depreciation, depletion, and amortization. The Other line in the table above includes gains/losses on asset sales and other nonoperating items. EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because EBITDA provides additional information with respect to Alcoa's operating performance and the Company's ability to meet its financial obligations. The EBITDA presented m not be comparable to similarly titled measures of other companies. ay 41 Reconciliation of Engineered Products and Solutions EBITDA ($ in millions) Engineered Products and Solutions After-tax operating income (ATOI) Add: Depreciation, depletion, and amortization Equity (income) loss Income taxes Other Earnings before interest, taxes, depreciation, and amortization (EBITDA) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2Q09 1Q10 2Q10 $ 125 $ 189 $ 63 $ 124 $ 156 $ 271 $ 365 $ 435 $ 533 $ 315 $ 88 $ 81 $ 107 165 (1) 79 186 61 150 39 35 166 55 11 168 65 106 160 116 (11) 152 6 155 (2) 163 192 (7) 165 222 2 177 (2) 139 1 46 40 (1) 41 (1) 31 38 48 $ 368 $ 436 $ 287 $ 356 $ 495 $ 536 $ 676 $ 783 $ 922 $ 630 $ 173 $ 152 $ 193 Total sales EBITDA/Total sales $ 3,386 $ 4,141 $ 3,492 $ 3,905 $ 4,283 $ 4,773 $ 5,428 $ 5,834 $ 6,199 $ 4,689 $ 1,194 $ 1,074 $ 1,122 11% 11% 8% 9% 12% 11% 12% 13% 15% 13% 14% 14% 17% Alcoa's definition of EBITDA is net margin plus an add -back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goo s sold; Selling, general d administrative, and other expenses; Research and d evelopment expenses; and Provision for depreciation, depletion, and amortization. The Other line in the table above includes gains/losses on asset sales and other nonoperating items. EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because EBITDA provides additional information with respect to Alcoa's operating performance and the Company's ability to meet its financial obligations. The EBITDA presented m not be comparable to similarly titled measures of other companies. ay 42

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