Q3 2009 Earning Report of Alcoa, Inc.
- 1. 3rd Quarter 2009 Earnings Conference October 7, 2009
- 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, 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. 2
- 3. Chuck McLane Executive Vice President and Chief Financial Officer
- 4. 3rd Quarter 2009 Financial Overview Income from continuing operations of $73 million, or $0.07 per share – Excluding restructuring and special items, income from continuing operations of $39 million, or $0.04 per share Revenue up 9% sequentially Cash Sustainability initiatives exceeding targets Initiatives offsetting currency and energy headwinds EBITDA of $454 million Cash from operations of $184 million Received $520 million of final proceeds from Shining Prospect venture Debt-to-cap at 38.3%, down 140 basis points sequentially – Cash on hand of $1.1 billion 4
- 5. Revenue Change by Market Sequential Year-Over-Year 3Q’09 Third Party Revenue Change Change Aerospace (9%) (27%) 30% 15% Automotive 13% (41%) 2% B&C 3% (36%) Comm. Transport 14% (41%) 7% Industrial Products 24% (39%) 4% IGT (5%) (8%) 4% Packaging 5% (24%) 4% 11% Distribution/Other 10% (52%) 6% 17% Alumina 20% (34%) Primary Metals 19% (36%) 5
- 6. Sequential Income Statement Summary $ Millions 2Q’09 3Q’09 Change Sales $4,244 $4,615 $371 Cost of Goods Sold $3,966 $3,888 ($78) COGS % Sales 93.4% 84.2% (9.2 % pts.) Selling, General Administrative, Other $240 $234 ($6) SGA % Sales 5.7% 5.1% (0.6 % pts.) Restructuring and Other Charges $82 $17 ($65) Effective Tax Rate 25.4% (22.4%) (47.8 % pts.) Income (Loss) from Continuing Operations ($312) $73 $385 Income (Loss) from Discontinued Operations ($142) $4 $146 6
- 7. 3rd Quarter Restructuring and Special Items After-Tax and EPS $ Millions Non-controlling Interests ($/Share) Segment Restructuring ($1) ($0.00) Corporate Gain on Suralco $35 $0.04 Alumina / Corporate Transaction Total Restructuring $34 $0.03 and Special Items 7
- 8. Rapid Reduction in Headcount In 2009 Headcount Reductions Announced by Quarter Completed Not Yet Completed 1,950 550 22,200 4,400 15,300 2009 cash savings of $320 million - Run rate savings of $540 million 2H'08 Q1'09 Q2'09 Q3'09 Total Charges 224 48 38 5 315 ($ Millions) 8
- 9. 3Q 2009 vs. 2Q 2009 Earnings Bridge Income (Loss) from Continuing Operations excluding Restructuring & Other Special Items ($ millions) $43 $39 $244 $7 ($11) ($256) $16 ($78) $74 See Appendix for Reconciliation 9
- 10. YTD 2009 vs. YTD 2008 Earnings Bridge Income (Loss) from Continuing Operations excluding Restructuring & Other Special Items ($ millions) $867 $1,232 ($670) $350 ($201) $117 ($694) ($2,378) ($113) $102 See Appendix for Reconciliation 10
- 11. Alumina 3rd Quarter Highlights 3rd Quarter Business Conditions 3Q 08 2Q 09 3Q 09 Production up 9% on improved 3rd party demand and the inclusion of Suralco at 100% Production (kmt) 3,790 3,309 3,614 Realized 3rd party Alumina price up 13% versus 3rd Party Shipments (kmt) 2,010 2,011 2,191 previous quarter Suralco transaction benefit to ATOI of $58 million 3rd Party Revenue ($MM) 805 441 530 Negative currency impact of $28 million ATOI ($MM) 206 (7) 65 Higher energy costs of $13 million $250 $2,500 $200 $2,000 $150 $1,500 Third Party Revenue (million) 4th Quarter Outlook ATOI (million) $100 $1,000 Continued benefits from cash sustainability $50 $500 initiatives $0 $0 Benefit of lower caustic price accelerates -$50 -$500 Ramp-up costs of Brazil projects will negatively 3Q08 4Q08 1Q09 2Q09 3Q09 impact results ATOI Third Party Revenue 11
- 12. Primary Metals 3rd Quarter Highlights 3rd Quarter Business Conditions 3Q 08 2Q 09 3Q 09 Realized pricing up 18% Production (kmt) 1,011 906 881 Production down 3% as the full impact of 3rd Party Shipments (kmt) 704 779 698 curtailments is realized Negative currency impact of $29 million 3rd Party Revenue ($MM) 2,127 1,146 1,362 3rd Party Price ($/MT) 2,945 1,667 1,972 ATOI ($MM) 297 (178) (8) $500 $2,500 $400 $2,000 4th Quarter Outlook Third Party Revenue (million) $300 $1,500 $200 $1,000 Continued benefits from cash sustainability ATOI (million) $100 $500 initiatives especially in key raw materials $0 $0 Pricing will continue to follow a 15-day lag on -$100 -$500 LME -$200 -$1,000 Energy costs increasing -$300 -$1,500 3Q08 4Q08 1Q09 2Q09 3Q09 ATOI Third Party Revenue 12
- 13. Flat-Rolled Products 3rd Quarter Highlights 3rd Quarter Business Conditions ATOI $ Millions 3Q 08 2Q 09 3Q 09 Improved order intake – shipments up 6% Flat-Rolled Products, versus last quarter excl Russia, China & Other 56 2 37 Moderate revenue increases in all key end markets Russia, China & Other (34) (37) (27) Gains from cash sustainability initiatives Total ATOI 22 (35) 10 Year-to-date headcount reduction of 19% $150 $2,500 $2,000 $100 Third Party Revenue (million) $1,500 $1,000 4th Quarter Outlook $50 $500 ATOI (million) $0 $0 Cautious demand outlook for all end markets -$500 Continued benefits from cash sustainability -$50 -$1,000 initiatives -$1,500 -$100 -$2,000 Seasonal impact from year-end holiday -$150 -$2,500 shutdowns 3Q08 4Q08 1Q09 2Q09 3Q09 ATOI Third Party Revenue 13
- 14. Engineered Products and Solutions 3rd Quarter Highlights 3rd Quarter Business Conditions $ Millions 3Q 08 2Q 09 3Q 09 Weaker Aerospace market as destocking 3rd Party Revenue 1,596 1,194 1,128 continues throughout the supply chain Decline in Commercial Building and ATOI 140 88 75 Construction and IGT demand ATOI % of Revenue 8.8% 7.4% 6.6% Wheels business uptick on heavy truck orders Gains from cash sustainability initiatives $200 $2,000 4th Quarter Outlook Third Party Revenue (million) $150 $1,500 Aerospace , Commercial Building and ATOI (million) $100 $1,000 Construction and IGT markets continue weak Improved performance in the Commercial $50 $500 Transportation market Seasonal impact from year-end holiday $0 $0 shutdowns 3Q08 4Q08 1Q09 2Q09 3Q09 Continued benefits from cash sustainability ATOI Third Party Revenue initiatives 14
- 15. Strengthened Liquidity and Cash Position Cash Flow Free Cash Flow (in millions) $200 ($ Millions) 3Q'08 2Q'09 3Q'09 $0 Net Income (Loss) $352 ($459) $124 -$200 -$400 DD&A 312 317 342 -$600 -$800 Change in Working Capital (361) 329 100 -$1,000 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 Taxes 146 (138) (69) Cash and Debt (in millions) $12,000 50% Pension Contributions (418) (35) (33) 10,125 10,578 10,205 10,265 10,073 $10,000 Other Adjustments (124) 314 (280) $8,000 $6,000 40% Cash From Operations ($93) $328 $184 $4,000 $2,000 1,131 851 1,066 831 762 Capital Expenditures (877) (418) (370) $0 30% 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 Free Cash Flow ($970) ($90) ($186) Gross Debt Cash Debt to Cap 15
- 16. Strengthened Capital Market Position Alcoa Debt & Equity Alcoa Credit Default Swaps 17.00 1,300 Alcoa Share Price ($) 16.00 1,200 Alcoa 5-Year CDS Alcoa July 2013 Debt Yield (%) (basis points) 15.00 1,100 14.00 1,000 13.00 900 12.00 800 11.00 700 10.00 600 9.00 500 8.00 400 7.00 300 6.00 200 5.00 100 4.00 0 Source: Bloomberg 16
- 17. Klaus Kleinfeld President and Chief Executive Officer
- 18. Market Conditions in 2009 Alcoa End Markets: Current Assessment of 2009 Conditions Source: Alcoa analysis 18
- 19. Improving Market Conditions in 2nd Half 2009 Alcoa End Markets: Assessment of 2nd Half 2009 VS 1st Half 2009 Conditions Source: Alcoa analysis 19
- 20. Consumption Outlook Slightly Improved 2009 Projected Primary Aluminum Consumption by Region (in mmt) 35.0 Brazil 0.8 -5% 5% Russia 0.9 -15% 10% Other* 4.0 -2% -1% 4.3 -12% -5% Asia w/o China 2008 Global Demand Growth Rate: -3% 5.0 (2008 ex China: -8%) -15% -12% North America 2009 Global Demand Growth Rate: -6% (2009 ex China: -10%) 6.4 -15% -9% Europe 13.6 4% 9% China 2009 Projected Consumption 2008 vs. 2009 Projected Growth Rates 2008 2009 Actual Forecast Source: Alcoa analysis *Other consists of: Middle East, India, Latin America ex Brazil and Rest of World 20
- 21. 2H’09 Consumption Increasing 11% From 1H’09 2009 Projected Primary Aluminum Consumption by Region (in mmt) 18.4 2H’09 vs. 1H’09 16.6 2.0 +6% Other* 0.4 +18% 1.9 0.4 +1% Brazil 0.3 0.4 2.4 +22% Russia Asia w/o China 2.0 2.6 +11% North America 2.4 2H’09 vs. 1H’09 3.4 +16% Growth Rate: 11% Europe 3.0 6.6 7.1 +7% China 1H'09 2H'09 Source: Alcoa analysis *Other consists of: Middle East, India, Latin America ex Brazil and Rest of World 21
- 22. Aluminum Market in Surplus 2009E Primary Metal Supply / Demand Balance (in kmt) China Western World Surplus Surplus Jan-July 09 Primary Production Run 12,000 Jan-July 09 Primary Production 23,375 Rate (Annualized) Run Rate (Annualized) Announced Restarts & New Capacity 850 Announced Curtailments, Restarts & New 160 Effect Aug - December 2009 Capacity Effect Aug- December 2009 Supply 12,850 Supply 23,535 Demand (13,650) Demand (21,360) Deficit (800) Surplus 2,175 Imports from Western World 1,250 Exports to China (1,250) Net Surplus 450 Net Surplus 925 Source: Alcoa estimates, Brook Hunt, CRU, CNIA, IAI 22
- 23. Modest Surplus in 2H’09 as WW Moves To Balanced July – December 2009 Estimated Primary Metal Supply / Demand Balance (in kmt) China Western World Modest Modest Surplus Surplus July-Dec 09 Primary Production 6,405 July-Dec 09 Primary Production 11,515 (July Run Rate x 2nd Half ) (July Run Rate x 2nd Half) Restarts & New Capacity 765 Curtailments ,Restarts & New Capacity Limited Supply 7,170 Supply 11,515 Demand (7,050) Demand (11,350) Balance 120 Balance 165 Imports from Western World 50 Exports to China (50) Net Surplus 170 Net Surplus 115 Source: Alcoa estimates, Brook Hunt, CRU, CNIA, IAI 23
- 24. Alumina Market Reaches Equilibrium in 2009 2009E Alumina Supply / Demand Balance (in kmt) Balanced China Western World Jan-Jul 09 Alumina Production 20,200 Jan-Jul 09 Alumina Production 49,100 Run Rate (Annualized) Run Rate (Annualized) Announced restarts 400 Announced restarts 450 Imports from Western World 5,000 Exports to China (5,000) Supply 25,600 Supply 44,550 Demand (25,000) Demand (45,300) Net Surplus 600 Net Deficit (750) Source: Alcoa estimates, CRU, CNIA, IAI 24
- 25. Alumina Market in Balance in 2H’09 2009E Alumina Supply / Demand Balance (in kmt) Balanced China Western World Jul-Dec 09 Alumina Production 10,700 Jul-Dec 09 Alumina Production 24,600 Run Rate Run Rate Announced restarts 400 Announced restarts 450 Imports from Western World 2,300 Exports to China (2,300) Supply 13,400 Supply 22,750 Demand (12,700) Demand (23,200) Net Surplus 700 Net Deficit (450) Source: Alcoa estimates, CRU, CNIA, IAI 25
- 26. Rise In LME Stocks Slows As Non-LME Stocks Decline Inventory Producer $/MT 70 $3,500 Japan Port 67 days of consumption Shanghai $3,250 60 LME $3,000 50 LME 3 Mon $2,750 40 $2,500 LME at 49 days 30 $2,250 $2,000 20 Japan Port $1,750 Non-LME at Producer stocks at 15- 18 days 10 levels at all year lows $1,500 time lows 0 $1,250 1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 Source: Bloomberg, IAI 26
- 27. Destocking Has Left The Supply Chain Depleted The Impact of Destocking on the Supply Chain OEM Distributor Rolling Mill Smelter Time Line 3 Months 6 Months 9 Months Refrigerator Rolled Sheet Rolled Sheet Primary Aluminum – 1 Week of Inventory – 3 months of Inventory – 2 months of Inventory – Continuous Flow – Minimal Lead-time – 3 Month Lead-time – 3 Month Lead-time Excess -5% -7% -17% -42% Old Order New On Order to New On In Order to New On In Order to New Production Order Reduction Order Floor Service Order Floor Process Rolling Mill Order Floor Process Smelter Order Volume Center Source: Davenport & Company; Alcoa analysis 27
- 28. Thin Supply Chain, Rising Shipments Driving Premiums 2009 Cumulative Change in Shipments Regional Premiums Beginning to Improve Cumulative 2009 YTD Change Shipments Europe Japan United States Midwest +30% KMT 180% Japan +114% Shipments 150 +14% Europe +209% 160% 140% 100 120% 100% February 50 Bottom 80% 60% 0 40% 20% (50) 0% Jan Feb Mar Apr May Jun July Aug Jan-08 Jul-08 Jan-09 Jul-09 Source: Aluminum Association Source: Metal Bulletin, Platts 28
- 29. Demonstrating Solid Execution of Holistic Approach Holistic Alcoa Approach: Improved Cost Structure and Balance Sheet Operational Financial Procurement Efficiencies Asset Dispositions – Cost savings by 2010 – Net proceeds $1,100M $2,000M Overhead Rationalizations Dividend Reduction $430M – Cost savings by 2010 – Annual cash savings $400M CapEx Reductions Equity and Equity-Linked Financings – Annual CapEx post 2009 – Gross proceeds $1,400M $850M Working Capital Initiatives – Cash Impact 2009 $800M 29
- 30. Overcoming Headwinds to Exceed Procurement Target Procurement Efficiencies: Reduction Targets Reduction Targets by Spend Category Savings (millions) $2,000 2009E 2010E Strategic Raw Materials - 15% 18% $1,610 Alumina and Primary Metals $1,500 Strategic Raw Materials - 2% 7% 107% of Flat-Rolled Products 2009 Indirect - Services 6% 5% target Indirect - Maintenance Repair 21% 4% & Overhaul Non-Smelter Energy 34% 6% Transportation 29% 2% 2009 YTD 2009 Savings 2010 Savings Business Unit Metals 5% 4% Target vs. 2008 Target vs. 2008 30
- 31. Achieved 94% of 2010 Overhead Reduction Target Overhead Rationalization: Reduction Targets and Savings Overhead Savings Target Savings (millions) 100% $400 $400M $375 94% of 80% 2010 188% of target 2009 target $200 2008 A 2010 Target 2009 YTD 2009 Savings 2010 Savings Target vs. 2008 Target vs. 2008 Overhead includes SG&A, R&D and Plant Administrative Expenses; excludes divestitures 31
- 32. Year-to-date 2009 Capital Expenditures of $1.3 Billion Capital Expenditure Reduction: Annual CapEx ($ millions) $3,438 -48% $1,800 -53% $541 $850 $1,259 YTD 2009 2008 2009E 2010E 32
- 33. Working Capital Savings Despite Increases in LME Working Capital Initiatives: Targets and Year-to-date Results Working Capital 2009 YTD Working Capital Days Reduction Targets Change ($ millions) $463 ($736) 98% of 100% 2009 -28% target 72% $1,053 $800 $780 $800M decrease in working capital in 2009 Dec-08 Dec-09 Target Inventory Receivables Accounts 2009 YTD 2009 Target Payable Cash Generation 33
- 34. Strengthening Our Upstream Position In the Downturn Juruti Mine and Alumar Refinery Expansion Commissioned in Q3’09 Juruti Alumar Benchmark in Sustainable Development Strengthened Refining Position in Brazil Railroad Washing Plant Ship loader Alumina Silo Cogeneration Calciners Alcoa share of capex $1.2 billion Alcoa share of capex $1.0 billion 2.6 MMT of production; opportunities to 2.1 MMT expansion; 1.1 MMT Alcoa expand as demand grows share Low-cost bauxite to serve Alcoa refineries Expansion capacity in first quintile of cost in Brazil and beyond curve Combined investment of $2.2 billion places Alcoa Refining in the first quartile 34
- 35. Alcoa Bohai Well Positioned to Serve Chinese Markets Alcoa Bohai Operations Launched in Q3’09 Alcoa Bohai Facility Lithographic Strong footing to serve Chinese domestic market for lithographic, transportation, Transportation electronic and packaging markets Electronics World’s most sophisticated lithographic line will help replace most imported lithographic sheet Packaging Combines strong regional partnerships, leading-edge technology and Alcoa know how 35
- 36. Russian Coating Line Makes Alcoa the Can Leader Alcoa Samara Coating Line Commissioned in Q2’09 Samara Coating Line Consumer Packaging Tab Stock EndStock Body Stock State-of-the-art coating line serving Russian and European packaging and building & construction markets Only domestic can sheet producer in Building & Construction Russia capable of supplying full range of body, end and tab products New line raises Alcoa to the worldwide leadership position in all aspects of can material production 36
- 37. Aluminum is The Material of Choice in Aerospace Aluminum is a superior solution for the transportation sector Mitsubishi Regional Jet Aluminum in Aerospace Nearly 100 years of proven structural performance Unparalleled strength, weight and cost characteristics Equal fuel efficiency to composites at lower cost across multiple platforms Japan's first wholly built Alcoa Aerospace commercial aircraft in more than 45 years – Initial Design: Composite wings #1 in Fasteners – Sept’09 Redesign: Aluminum wings #1 in Advanced Structures #1 in Power and Propulsion 37
- 38. Strengthening Our Position As Industry Stabilizes Aluminum Fundamentals Markets Stabilizing Demand Improving Supply / Demand Balance LME Stocks Stabilizing Alcoa Strengthening in the Downturn Procurement 107% of Target Samara Overhead 188% of Target Bohai Capex On Target Alumar Working Capital 98% of Target Juruti 38
- 39. For Additional Information, Contact: Matthew E. Garth Director, Investor Relations Alcoa 390 Park Avenue New York, NY 10022-4608 Telephone: (212) 836-2674 www.alcoa.com 39
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- 41. Effective Tax Rate $ Millions 1Q’09 2Q’09 3Q’09 YTD 2009 Income (loss) from continuing operations before taxes on income ($777) ($425) $98 ($1,104) Provision (benefit) for taxes on income ($307) ($108) ($22) ($437) Effective tax rate 39.5% 25.4% (22.4%) 39.6% Discrete tax provisions (benefits): Tax rate changes ($28) ($28) After tax restructuring items ($11) ($8) ($19) Subtotal - Discrete tax provisions (benefits) ($39) $0 ($8) ($47) Provision (benefit) for taxes on income excluding discrete tax provisions (benefits) ($268) ($108) ($14) ($390) Effective tax rate excluding discrete tax provisions (benefits) 34.5% 25.4% (14.3%) 35.3% Charge (benefit) for adjustments to year-to-date effective tax rate N/A $25 ($48) ($23) 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. 41
- 42. Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa (in millions) 1Q08 2Q08 3Q08 4Q08 2008 1Q09 2Q09 3Q09 Total segment ATOI $ 668 $ 838 $ 665 $ 28 $ 2,199 $ (143) $ (132) $ 142 Unallocated amounts (net of tax): Impact of LIFO (31) (44) (5) 73 (7) 29 39 80 Interest income 9 12 10 4 35 1 8 (1) Interest expense (64) (57) (63) (81) (265) (74) (75) (78) Noncontrolling interests (1) (67) (70) (84) – (221) (10) 5 (47) Corporate expense (82) (91) (77) (78) (328) (71) (70) (71) Restructuring and other charges (30) (1) (25) (637) (693) (46) (56) (3) Discontinued operations 4 (7) (38) (262) (303) (17) (142) 4 Other (104) (34) (115) (238) (491) (166) (31) 51 Consolidated net income (loss) attributable to Alcoa $ 303 $ 546 $ 268 $ (1,191) $ (74) $ (497) $ (454) $ 77 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. (1) On January 1, 2009, Alcoa adopted changes issued by the Financial Accounting Standards Board to consolidation accounting and reporting. These changes, among others, require that minority interests be renamed noncontrolling interests for all periods presented. 42
- 43. Reconciliation of Adjusted Income (Loss) (in millions, except per share amounts) (Loss) Income (Loss) Earnings per Diluted Share Quarter ended Nine months ended Quarter ended Nine months ended June 30, September 30, September 30, September 30, June 30, September 30, September 30, September 30, 2009 2009 2008* 2009 2009 2009 2008* 2009 Net (loss) income attributable to Alcoa $ (454) $ 77 $ 1,117 $ (874) $ (0.47) $ 0.08 $ 1.35 $ (0.95) (Loss) income from discontinued operations (142) 4 (41) (155) (Loss) income from continuing operations attributable to Alcoa (312) 73 1,158 (719) (0.32) 0.07 1.40 (0.78) Restructuring and other charges 56 1 55 103 Other special items** – (35) 19 (78) (Loss) income from continuing operations attributable to Alcoa – as adjusted $ (256) $ 39 $ 1,232 $ (694) (0.26) 0.04 1.49 (0.75) (Loss) 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 and other special items. There can be no assurances that additional restructuring and other charges and other special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both (Loss) income from continuing operations attributable to Alcoa determined under GAAP as well as (Loss) income from continuing operations attributable to Alcoa – as adjusted. * Financial information for the nine months 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. Earnings per diluted share for the nine months ended September 30, 2008 were also revised to reflect Alcoa’s adoption of changes issued by the Financial Accounting Standards Board to the calculation of earnings per share effective January 1, 2009. ** Other special items include the following: a gain on an acquisition in Suriname for the quarter ended September 30, 2009; the previously mentioned item for the quarter ended September 30, 2009, a gain on the Elkem/SAPA swap (-$133), a loss on the sale of Shining Prospect ($118), and a discrete income tax benefit related to a tax law change in Canada (-$28) for the nine months ended September 30, 2009; and a net discrete income tax charge related to the sale of the Packaging and Consumer businesses for the nine months ended September 30, 2008. 43
- 44. Reconciliation of Free Cash Flow in (in millions) Quarter ended September 30, December 31, March 31, June 30, September 30, 2008 2008 2009 2009 2009 Cash from operations $ (93) $ 608 $ (271) $ 328 $ 184 Total capital expenditures (877) (1,017) (471) (418) (370) Free cash flow $ (970) $ (409) $ (742) $ (90) $ (186) 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 expenditures due to the fact that these expenditures are considered necessary to maintain and expand Alcoa’s asset base and are expected to generate future cash flows from 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. 44
- 45. Reconciliation of EBITDA (in millions) Earnings before interest, taxes, depreciation, and amortization (EBITDA) Quarter ended June 30, September 30, 2009 2009 Change (Loss) income from continuing operations $ (317) $ 120 $ 437 Benefit for income taxes (108) (22) 86 Other income, net (89) (123) (34) Interest expense 115 120 5 Restructuring and other charges 82 17 (65) Net margin (317) 112 429 Provision for depreciation, depletion, and amortization 317 342 25 EBITDA $ – $ 454 $ 454 Alcoa’s definition of EBITDA is net margin plus depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation, depletion, amortization. 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. 45