Slide 1: 2nd Quarter Earnings Conference
2nd Quarter Earnings Conference July 8, 2014 1
Slide 2: Cautionary Statement
Cautionary Statement Forward-Looking Statements This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements. Forward-looking statements include those containing such words as “anticipates,” “estimates,” “expects,” “forecasts,”
Slide 3: Transformation Accelerates - All Groups Improve QoQ and YoY
Transformation Accelerates - All Groups Improve QoQ and YoY 2Q 2014 Overview ▪ Strong Earnings Increase: – Downstream: Highest Ever quarterly ATOI and EBITDA Margin; $204 million and 23.1% Delivering Strong – Midstream: ATOI up 34% Operational – Upstream: Improved Performance – 11 Consecutive Quarte
Slide 4: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer July 8, 2014 4
Slide 5: Income Statement Summary
Income Statement Summary Prior Year Sequential $ Millions, except aluminum prices and per-share amounts 2Q13 1Q14 2Q14 Change Change Realized Aluminum Price ($/MT) $2,237 $2,205 $2,291 $54 $86 Revenue $5,849 $5,454 $5,836 ($13) $382 Cost of Goods Sold $4,933 $4,495 $4,765 ($168) $270 COGS % Revenue
Slide 6: Special Items
Special Items Income Statement $ Millions, except per-share amounts 1Q14 2Q14 Segment Classification Net Income (Loss) ($178) $138 Net Income (Loss) Per Diluted Share ($0.16) $0.12 Restructuring/COGS/ Corporate / Primary Restructuring-Related1 ($296) ($54) Other Expenses, Net Metals/ GRP Tax Items $
Slide 7: Volume, productivity and price drives sequential improvement
Volume, productivity and price drives sequential improvement Net Income excluding Special Items ($ Millions) 24 6 26 22 216 21 38 46 13 98 1Q 14 LME Currency Volume Price Productivity Energy Raw Cost 2Q 14 / Mix Materials Increases / Other Market Performance Cost Headwinds/Other +$33 +$81 +$4 See ap
Slide 8: Earnings nearly triple year-over-year on productivity and pricing
Earnings nearly triple year-over-year on productivity and pricing Net Income excluding Special Items ($ Millions) 10 8 131 188 216 63 76 28 18 12 2Q 13 LME Currency Volume Price Productivity Energy Raw Cost 2Q 14 / Mix Materials Increases / Other Market Performance Cost Headwinds/Other -$10 +$263 -$
Slide 9: Record results for Engineered Products and Solutions
Record results for Engineered Products and Solutions 2Q14 Actual and 3Q14 Outlook – Engineered Products and Solutions 2nd Quarter Results 2nd Quarter Business Highlights 2Q 13 1Q 14 2Q 14 Revenue up 4% sequentially driven by share gains across all sectors 3rd Party Revenue ($ Millions) 1,468 1,443
Slide 10: GRP improves on higher seasonal volume and productivity
GRP improves on higher seasonal volume and productivity 2Q14 Actual and 3Q14 Outlook – Global Rolled Products 2nd Quarter Results 2nd Quarter Business Highlights 2Q 13 1Q 14 2Q 14 Higher volume from seasonal Packaging and stronger demand for Industrial, Commercial Transportation 3rd Party Revenue
Slide 11: Alumina earnings reflect portfolio actions, lower volumes, cost increases
Alumina earnings reflect portfolio actions, lower volumes, cost increases 2Q14 Actual and 3Q14 Outlook – Alumina 2nd Quarter Results 2nd Quarter Business Highlights 2Q 13 1Q 14 2Q 14 Production and shipments decline due primarily to Brazil curtailments and the Pt. Comfort interruption Production (
Slide 12: Strong Primary earnings reflect portfolio actions, power sales, premiums
Strong Primary earnings reflect portfolio actions, power sales, premiums 2Q14 Actual and 3Q14 Outlook – Primary Metals 2nd Quarter Results 2nd Quarter Business Highlights 2Q 13 1Q 14 2Q 14 Production down due to capacity closures and curtailments Production (kmt) 896 839 795 Strong performance d
Slide 13: Four day year-over-year increase in average DWC
Four day year-over-year increase in average DWC Average Days Working Capital since Second Quarter 2009 51 47 18 day reduction 44 42 43 40 40 40 since 2Q09 37 37 36 36 34 35 33 32 31 30 29 28 30 4 day increase since 2Q2013 Driver Horizon Labor negotiations Near-term Future sales expectations Near-ter
Slide 14: 2nd Quarter Cash Flow Overview
2nd Quarter Cash Flow Overview 2Q13, 1Q14 & 2Q14 Cash Flow ($ Millions) 2Q13 1Q14 2Q14 Net Income before Noncontrolling Interests ($148) ($197) $129 DD&A $363 $340 $350 Change in Working Capital $72 ($687) $1 Pension Contributions ($98) ($91) ($191) Other Adjustments $325 $84 $229 Cash from Operatio
Slide 15: Lowest Net Debt since September 2007
Lowest Net Debt since September 2007 Debt, Net Debt, and Debt-to-Capital % (Millions) Cash Net Debt Debt to Cap 10,578 762 9,819 9,165 9,371 1,481 8,829 8,319 1,543 1,939 8,055 1,861 7,747 1,437 665 1,183 42.5% 9,816 38.7% 38.1% 34.9% 35.3% 35.0% 35.4% 8,338 34.8% 7,622 7,432 6,882 7,082 6,872 6,968
Slide 16: On track to meet our 2014 targets
On track to meet our 2014 targets 2014 annual financial targets and year-to-date results Taking the right actions Overarching 2014 Financial Target YTD: Drive Productivity Gains of $850M $556M Build Value-Add with Growth $206M Capital of $500M Positive Manage Sustaining Capital of $750M $261M
Slide 17: Market fundamentals remain positive
Market fundamentals remain positive Reaffirm 7% global demand growth Metal deficit rising, alumina surplus shrinking Russia 2014 Primary Aluminum Consumption (mmt), Annualized Growth (%) Supply/Demand Analysis Brazil 1.1 1.0 4% 2014E Alumina Supply/Demand Balance 2014E Aluminum Supply/Demand Balance
Slide 18: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer July 8, 2014 18
Slide 19: Aerospace and Automotive markets remain strong; forecast unchanged
Aerospace and Automotive markets remain strong; forecast unchanged Alcoa End Markets: Current Assessment of 2014 vs. 2013 End Market Growth Global and Regional Commentary Aerospace • Large Commercial Aircraft segment Growth of 12.1% • Strong commercial jet Order Book: 9 Years of Production at 2013 d
Slide 20: Global HDT market steady, stronger N.A.; Packaging +2% to 3% globally
Global HDT market steady, stronger N.A.; Packaging +2% to 3% globally Alcoa End Markets: Current Assessment of 2014 vs. 2013 End Market Growth Global and Regional Commentary Heavy Duty Truck • Orders: 2Q increased +20% YoY with continued strength YTD +28% from prior year and Trailer NA • Good Order
Slide 21: Solid commercial B&C growth; Global airfoil market down YoY
Solid commercial B&C growth; Global airfoil market down YoY Alcoa End Markets: Current Assessment of 2014 vs. 2013 End Market Growth Global and Regional Commentary Building and Positive Early Indicators: Construction NA • Non-Residential Contracts Awarded: +11% in May (12-month rolling average) 3-4%
Slide 22: Executing our Strategy - Alcoa's Transformation Continues
Executing our Strategy - Alcoa’s Transformation Continues Invented Aluminum Aluminum Applications & Multi-Material Process Globalization Solutions Lightweight Multi-Material Innovation Powerhouse Highly Competitive Commodity Business 22
Slide 23: Lightweight Solutions: Fuel Efficiency + High Performance
Lightweight Solutions: Fuel Efficiency + High Performance Al-Li: $100M Alcoa’s innovative lightweighting solutions Alcoa Already Wheels: Al-Li: Better Efficiency, Lower Maintenance $1B Revenue contracted in 2017 Up to 10% lower weight vs. composite for in 2016 single aisle fuselage applications Ul
Slide 24: Expertise provides solutions in a Multi-Material Environment
Expertise provides solutions in a Multi-Material Environment Alcoa’s multi-material aerospace solutions – Example: Wing Structures XPL® Metallic1 Wing $2.2M Rev. $4.0M Rev. Composite1 Wing Lockbolts content/shipset content/shipset Flite-Tite® Fasteners Pin Skin on B767 on B787 CFRP Threaded Al and A
Slide 25: Alcoa's Innovation Expertise Shines in our product offerings
Alcoa’s Innovation Expertise Shines in our product offerings +$1.8B value-add organic revenue1 Alcoa innovations in 2016 Alcoa 951: Breakthrough Durable Bonding Dura-Bright ® EVO™: Low Maintenance Key enabler for AIVs; +1 mmt of Al by 2025 10x Corrosion Resistance Chemically bonds aluminum to
Slide 26: Capturing Growth in Advanced Jet Engine Components via Investments
Capturing Growth in Advanced Jet Engine Components via Investments APP: $2.2B Alcoa investments to expand jet engine component offerings Revenue in 2016 Hampton: Blade Performance Enhancements La Porte: Broadens Jet Engine Reach $25M Investment; Completion by 4Q 2015 Extends to Large Commercial Je
Slide 27: Firth Rixson Acquisition: Strengthening Alcoa's Value-Add Suite
Firth Rixson Acquisition: Strengthening Alcoa’s Value-Add Suite $1.6B Revenue Firth Rixson portfolio overview $350M EBITDA in 2016 Strong Aerospace Stronger aerospaceOffering offering Rings Largest seamless Rings (Ni-based alloys, TI) 200” in diameter Full Range of forged closed-die aero Engine
Slide 28: Remaining Cost Focused; Improving a Strong Alumina Position
Remaining Cost Focused; Improving a Strong Alumina Position Cost curve reduction levers and global alumina cost curve 1 Capturing Cost Improvements1 Targeting 21 st Percentile by 2016 $113M $1,678M $246M $286M $/MT -9% points $298M 500 ALUMINA by 2016 $735M 450 2013: 400 27th Percentile 2009/2010 20
Slide 29: Building a Highly Competitive Smelting Business
Building a Highly Competitive Smelting Business Cost curve reduction levers and global aluminum cost curve 1 Capturing Cost Improvements1 Targeting 38 th Percentile by 2016 $235M $137M $1,922M $340M $345M $/MT ALUMINUM -13% points $865M 3,000 by 2016 2013: 2009/2010 2011 2012 2013 1H2014 Total 2,500
Slide 30: Transforming Alcoa – Creating Compelling Sustainable Value
Transforming Alcoa – Creating Compelling Sustainable Value Value-Add and Upstream transformation strategy Value-Add: Building a Lightweight Multi-Material Innovation Powerhouse Lightweight Multi-material Innovation Growth $1.3B $2.2M Rev. $4.0M Rev. Revenue in content/shipset Firth Rixson: content/s
Slide 31: Advancing each generation. ALCOA
Advancing each generation. ALCOA
Slide 32: Additional Information
Additional Information Kelly Pasterick Vice President, Investor Relations Alcoa 390 Park Avenue New York, NY 10022-4608 Telephone: (212) 836-2674 www.alcoa.com 32
Slide 33: Annual Sensitivity Summary
Annual Sensitivity Summary LME Aluminum Annual Net Income Sensitivity +/- $100/MT = +/- $240 million Currency Annual Net Income Sensitivity Australian $ +/- $11 million per 0.01 change in USD / AUD Brazilian $ +/- $ 3 million per 0.01 change in BRL / USD Euro € +/- $ 2 million per 0.01 change in USD
Slide 34: Revenue Change by Market
Revenue Change by Market Sequential Year-Over-Year 2Q’14 Third-Party Revenue Change Change Aerospace 1% (1%) 28% 17% Automotive 5% 4% B&C 9% 4% 4% Comm. Transport 11% 17% Industrial Products 7% (5%) 7% IGT 15% (9%) 7% Packaging 14% (5%) 13% Distribution/Other 5% 27% 8% 1% 13% Alumina (10%) (7%) 2% P
Slide 35: Special Items
Special Items Pre-tax, Before NCI After-tax, After NCI Income Statement $ Millions, except per-share amounts 1Q14 2Q14 1Q14 2Q14 Classification Segment Net Income (Loss) ($274) $207 ($178) $138 Net Income (Loss) Per Diluted Share ($0.25) $0.17 ($0.16) $0.12 Corporate / Restructuring/COGS/ Restructur
Slide 36: Composition of Regional Premium Pricing Convention
Composition of Regional Premium Pricing Convention 2014E Shipments Regional Premiums Estimated Pricing Convention 55% Midwest – Platts 15-day lag 30% Rotterdam DDP – Metal Bulletin 45-day lag 10% CIF Japan – Platts Month prior to Quarter start 5% Negotiated Annual 36
Slide 37: Alcoa smelting closures and curtailments when announced actions are complete
Alcoa smelting closures and curtailments when announced actions are complete Alcoa smelting capacity closures, since Dec 2007 Alcoa smelting capacity curtailments Location Year kmt Location kmt Baie Comeau 2008 53 Rockdale 191 Eastalco 2010 195 Sao Luis 182 Badin 2010 60 Portovesme 150 Warrick 2010
Slide 38: All-in prices down despite increase in regional premiums
All-in prices down despite increase in regional premiums LME 15-day lag vs. All-in regional price, $USD/tonne, 2012-present Midwest Europe $/tonne $/tonne 2,400 2,400 2,000 Japan 2,000 $/tonne 1,600 2,400 1,600 1,200 2,000 1,200 800 800 1,600 400 1,200 400 0 800 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 1Q 2Q
Slide 39: Composition of Upstream Production Costs
Composition of Upstream Production Costs Refining Cost Structure Input Cost Inventory flow Pricing Annual ATOI Fuel Oil convention Sensitivity 13% Conversion Fuel oil 1 – 2 months Prior month $3m per $1/bbl Natural gas 42% 11% Natural gas N/A Spot1 $16m per $1/GJ1 Caustic Spot & semi- $8m per 10% Ca
Slide 40: Reaffirm 7% global demand growth
Reaffirm 7% global demand growth Russia 2014 Primary Aluminum Consumption (mmt), Annualized Growth (%) Brazil 1.0 4% Other * 1.1 5% 2.0 4% MENA 2.0 8% SE Asia 2.0 8% India 2.1 5% North Asia 4.2 3% 2014 demand +7% North America 6.4 5% World ex China +4% Europe 6.6 2% China 25.4 10% 2014E 52.8 mmt * O
Slide 41: Metal deficit rising, alumina surplus shrinking
Metal deficit rising, alumina surplus shrinking Supply/Demand Analysis 2014E Alumina Supply/Demand Balance 2014E Aluminum Supply/Demand Balance 1Q14 1Q14 SURPLUS 1,996 Surplus DEFICIT Deficit 2,257 824 (930) (730) ’000 mt China Rest of World ’000 mt China Rest of World 2014 Production 44,782 55,384
Slide 42: Inventories declined 5 days in 2Q
Inventories declined 5 days in 2Q Global Inventories vs. LME Price Over Time $ Days of $ per metric ton Consumption Days of Days of Consumption Consumption Days of 83 days 71 days 105 Consumption 108 days LME Price LME Price 98 $1,869/MT $3,000 $2,686/MT 91 LME Price $2,214/MT 84 77 $2,500 70 63 56
Slide 43: Premiums move to record highs
Premiums move to record highs $ per metric $ per metric Regional Premiums over time ton ton $500 $500 Region End of 2Q 14 $450 $450 Europe $425/MT $400 Japan $403/MT $400 $350 Midwest USA $430/MT $350 $300 $300 $250 $250 $200 Average $200 $150 2Q 14 vs. 2Q 13 $150 Europe 41% $100 $100 Japan 52% $50
Slide 44: Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa
Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa (in millions) 1Q13 2Q13 3Q13 4Q13 2013 1Q14 2Q14 Total segment ATOI $351 $304 $338 $224 $1,217 $325 $418 Unallocated amounts (net of tax): Impact of LIFO (2) 5 9 40 52 (7) (8) Interest expense (75) (76) (70) (73) (294) (7
Slide 45: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income (in millions, except per- (Loss) Income Diluted EPS share amounts) Quarter ended Quarter ended June 30, March 31, June 30, June 30, March 31, June 30, 2013 2014 2014 2013 2014 2014 Net (loss) income attributable to Alcoa $(119) $(178) $138 $(0.11) $(0.16) $0.12 Rest
Slide 46: Reconciliation of Alcoa Adjusted EBITDA
Reconciliation of Alcoa Adjusted EBITDA ($ in millions) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2Q13 1Q14 2Q14 Net income (loss) attributable to Alcoa $938 $1,310 $1,233 $2,248 $2,564 $(74) $(1,151) $254 $611 $191 $(2,285) $(119) $(178) $138 Add: Net income (loss) attributable to nonc
Slide 47: Reconciliation of Alumina Adjusted EBITDA
Reconciliation of Alumina Adjusted EBITDA ($ in millions, except per metric ton amounts) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2Q13 1Q14 2Q14 After-tax operating income (ATOI) $415 $632 $682 $1,050 $956 $727 $112 $301 $607 $90 $259 $64 $92 $38 Add: Depreciation, depletion, and amort
Slide 48: Reconciliation of Primary Metals Adjusted EBITDA
Reconciliation of Primary Metals Adjusted EBITDA ($ in millions, except per metric ton amounts) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2Q13 1Q14 2Q14 After-tax operating income (ATOI) $657 $808 $822 $1,760 $1,445 $931 $(612) $488 $481 $309 $(20) $(32) $(15) $97 Add: Depreciation, dep
Slide 49: Reconciliation of Global Rolled Products Adjusted EBITDA
Reconciliation of Global Rolled Products Adjusted EBITDA ($ in millions, except per metric ton amounts) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2Q13 1Q14 2Q14 After-tax operating income (ATOI) $232 $223 $232 $290 $300 $317 $151 $(41) $(106) $241 $260 $346 $252 $79 $59 $79 Ad
Slide 50: Reconciliation of Engineered Products and Solutions Adjusted EBITDA
Reconciliation of Engineered Products and Solutions Adjusted EBITDA ($ in millions) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2Q13 1Q14 2Q14 After-tax operating income (ATOI) $126 $161 $276 $382 $423 $522 $311 $419 $537 $612 $726 $193 $189 $204 Add: Depreciation, depletion, and amortiza
Slide 51: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow Quarter ended (in millions) 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14 Cash from $489 $1,142 $(236) $537 $263 $933 $(70) $514 $214 $920 $(551) $518 operations Capital expenditures (325) (486
Slide 52: Reconciliation of Free Cash Flow, continued
Reconciliation of Free Cash Flow, continued Quarter ended (in millions) 31-Dec-08 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11 30-Jun-11 Cash from $608 $(271) $328 $184 $1,124 $199 $300 $392 $1,370 $(236) $798 operations Capital expenditures (1,017) (471)
Slide 53: Days Working Capital
Days Working Capital ($ in millions) Quarter ended 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14 Receivables from customers, less allowances $1,709 $1,650 $1,600 $1,573 $1,704 $1,483 $1,427 $1,383 $1,391 $1,401 Add: Deferred purchase price receiv
Slide 54: Reconciliation of Net Debt
Reconciliation of Net Debt (in millions) December 31, March 31, June 30, 2008 2009 2010 2011 2012 2013 2014 2014 Short-term borrowings $478 $176 $92 $62 $53 $57 $53 $133 Commercial paper 1,535 – – 224 – – – 223 Long-term debt due within one year 56 669 231 445 465 655 85 87 Long-term debt, less amou
Slide 55: Reconciliation of Net Debt-to-Capital
Reconciliation of Net Debt-to-Capital ($ in millions) March 31, 2014 June 30, 2014 Cash and Cash Cash and Cash Debt-to-Capital Equivalents Net Debt-to-Capital Debt-to-Capital Equivalents Net Debt-to-Capital Total Debt Short-term borrowings $53 $133 Commercial paper – 223 Long-term debt due within on