Slide 1: 2nd Quarter 2003 Analyst Conference
2 nd Quarter 2003 Analyst Conference July 28, 2003 New York, NY
Slide 2: Forward-Looking Statements
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
Slide 3: Richard B. Kelson, Executive VP and CFO
Richard B. Kelson Executive VP and CFO
Slide 4: 2nd Quarter Highlights
2 nd Quarter Highlights n Continued world-class safety performance n Income from continuing operations $ 0.27 per diluted share up from $0.23 in the first quarter n Revenue growth over both prior- and year-ago quarters n Sequential profitability increases in all downstream segments n Strengthened ba
Slide 5: 2nd Quarter Highlights
2 nd Quarter Highlights n Disciplined capital spending, a 33% reduction from prior-year period n Working capital reduction with revenue increase n Cost savings of $16 million, remain solidly on track toward the $1.0 billion cost challenge n Divestiture of Assets held for Sale progressing well — Firs
Slide 6: Safety
Safety n LWD Incident Rate — Continued strong performance in 2Q 2003 [GRAPH] * Reynolds, Howmet/Huck included beginning in 2002 ** IVEX, Fairchild, Kama, and other 2002/2003 new acquisitions
Slide 7: 2nd Quarter 2003 Financial Overview
2 nd Quarter 2003 Financial Overview In Millions 2Q03 1Q 03 Fav/(Unfav) LME 3-Month Average ($/ton) $1,380 $1,392 ($12) Sales $5,460 $5,112 $348 Cost of Goods Sold $4,347 $4,073 ($274) % of Sales 79.6% 79.7% 0.1% SG&A $343 $294 ($49) % of Sales 6.3% 5.8% (0.5)% Effective Tax Rate 26.0% 30.0% 4.0% Mi
Slide 8: Significant Cash Generation…
Significant Cash Generation… n Cash from operations of $1.2 billion in the quarter, up sequentially and year-over-year — Strongest cash flow since 4Q 2000, excluding forward metal sale n Working capital reduction of $210 million sequentially, with revenue increase of $348 million n Capital spending
Slide 9: Leading to Debt Reduction
Leading to Debt Reduction [GRAPH] n Debt-to-capital reduced by 300 basis points to 40.4% from 43.4% at end of 1Q 2003 n Debt paid down by $722 million n Focusing on what is within our control to improve our financial flexibility
Slide 10: 2nd Quarter Market Conditions Global View
2 nd Quarter Market Conditions Global View n Market Conditions [GRAPH] Change from 2Q02 Change from 1Q03 Realized Prices Alumina % % Primary % -2 % 3rd Party Revenue Commercial Trans % % Automotive % -4 % Industrial Products % -3 % B&C -11 % % Aerospace* % % IGT -42 % -1 % Packaging % % * Excluding
Slide 11: Alumina & Chemicals
Alumina & Chemicals Alignment: Bauxite mining, alumina refining and chemicals production Markets: ATOI Performance: [GRAPH] [GRAPH] Current Business Conditions: Positives Negatives Spot prices continue high
Slide 12: Primary Metals
Primary Metals Alignment: 3.9 million mt of smelting capacity, with 585 kmt currently idled Markets: ATOI Performance: [GRAPH] [GRAPH] Current Business Conditions: Positivies Negatives Preparation for Intalco shutdown Electrical outage at Sao Luis
Slide 13: Flat Rolled Products
Flat Rolled Products Alignment: Aluminum sheet and plate for aerospace applications, rigid container sheet for beverage cans and mill products Markets: ATOI Performance: [GRAPH] [GRAPH] Current Business Conditions: Positives Negatives Seasonal can sheet strength expected to continue in 3Q Seasonal s
Slide 14: Engineered Products
Engineered Products Alignment: Hard and soft alloy extrusions, aluminum forgings, Alcoa Fasteners & Howmet products Markets: ATOI Performance: [GRAPH] [GRAPH] Current Business Conditions: Positives Negatives Continued cost benefits from recent restructuring Lower aerospace volume Some seasonal stren
Slide 15: Packaging & Consumer
Packaging & Consumer Alignment: Reynolds consumer products, closures, flexible packaging, and packaging graphics design Markets: ATOI Performance: [GRAPH] [GRAPH] Current Business Conditions: Positives Negatives Seasonal strength in consumer products somewhat offset by weakness in Latin America
Slide 16: Other
Other Alignment: Alcoa Fujikura, residential building products and automotive structures Markets: ATOI Performance: [GRAPH] [GRAPH] Current Business Conditions: Positives Negatives Some seasonal strengthening in residential building & construction Seasonal automotive OEM shutdowns
Slide 17: 2002 Actions Continue to be Reflected in 2Q
2002 Actions Continue to be Reflected in 2Q Costs [GRAPH] We expect to surpass the $1 billion Cost Challenge
Slide 18: Return on Capital
Return on Capital [GRAPH] All indicators are based on the Bloomberg ROC Methodology. 1Q 03 Quarter Annualized ROC excludes $47 million after-tax cumulative effect of accounting change due to adoption of FAS 143.
Slide 19: Summary
Summary Second quarter accomplishments are indicative of our focus going forward: n Top-line growth and strong cash generation n Cost savings – driven by ABS n Working capital reduction n Disciplined capital expenditures n Balance sheet improvement
Slide 20: Alain Belda, Chairman and CEO
Alain Belda Chairman and CEO
Slide 21: First Half 2003 Achievements
First Half 2003 Achievements n We focused on cost, execution & capital discipline — Offsetting geopolitical issues, rising energy, health & welfare costs n We managed the portfolio — Fairchild & Ivex integrations demonstrating significant progress — First announcement of asset divestiture program n
Slide 22: Two Examples of Actions Taken
Two Examples of Actions Taken US Smelting n 1.4 million mt of capacity, 8 locations n Competitive average power cost, $22/Mwh n Staffing, the critical issue — Roadmap to $120/mt cost takeout progressing well — Achieved $50+/mt as of June 2003, across multiple plants and functions – balance rest of t
Slide 23: Operating in the Current Business Environment
Operating in the Current Business Environment n We have adjusted to the slow global economy n Offsetting the challenging business conditions with cost controls and the benefits from last year’s restructuring initiatives n Dealing with aluminum industry dynamics
Slide 24: Our Top Priorities
Our Top Priorities n Long-term value creation — Values are our foundation — Cost control, capital discipline, customers – ABS is how we do business — Profitable growth n Deliver on our short term goals — Manage the portfolio — Improve balance sheet — Successful integration and asset divestitures n E
Slide 25: Profitable Growth Continues
Profitable Growth Continues n Alcoa Latin America — Camargo Correa Group n Refining — Pinjarra expansion — Jamaica expansion n Smelting — Canada — Iceland — China
Slide 26: The Road Ahead
The Road Ahead n We don’t expect the business environment to become easier, but we are poised to excel n Focus is on positioning our portfolio and businesses for the long-term while achieving short term goals n Continue to meet our priorities and long-term value creation
Slide 27: For Additional Information, contact:
For Additional Information, contact: William F. Oplinger Director, Investor Relations Alcoa 390 Park Avenue New York, N.Y. 10022-4608 Telephone: (212) 836-2674 Facsimile: (212) 836-2813 www.alcoa.com
Slide 28: Appendix
Appendix
Slide 29: Income and EPS Information and Reconciliation
Income and EPS Information and Reconciliation In Millions 2Q 03 1Q 03 2Q 02 GAAP Net Income $ $ $ Cumulative Effect of Accounting Change — $ — Discontinued Operations—operating (income) loss — $ (3 ) $ Discontinued Operations—Loss on Divestitures $ — — GAAP Income from continuing operations $ $ $ Sp
Slide 30: Income and EPS Information and Reconciliation (Continued)
Income and EPS Information and Reconciliation (Continued) In Millions 2Q 03 1Q 03 2Q 02 GAAP Earnings per share $ 0.26 $ 0.17 $ 0.27 Cumulative Effect of Accounting Change — $ 0.06 — Discontinued Operations—operating (income) loss — — $ 0.01 Discontinued Operations—Loss on Divestitures $ 0.01 — — GA
Slide 31: Reconciliation of Return on Capital
Reconciliation of Return on Capital In Millions 2Q 2003 Bloomberg Methodology 2Q 2003 Annualized 1Q 2003 Bloomberg Methodology 1Q 2003 Annualized Ex FAS 143 Net Income $ $ $ $ Minority Interest $ $ $ $ Interest Expense (After-tax) $ $ $ $ Numerator (Sum Total) $ $ 1,403 $ $ 1,274 ST Borrowings $ $ $
Slide 32: Notes to Reconciliation
Notes to Reconciliation (1) Alcoa believes that income from continuing operations excluding charges for restructurings and divestitures is a measure that should be presented in addition to income from continuing operations determined in accordance with GAAP. The following matters should be considere