UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT
TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 13, 2015 (July 7, 2015)
ALCOA INC.
(Exact name
of Registrant as specified in its charter)
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Pennsylvania |
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1-3610 |
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25-0317820 |
(State or Other Jurisdiction
of Incorporation) |
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(Commission
File Number) |
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(I.R.S. Employer
Identification Number) |
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390 Park Avenue, New York, New York |
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10022-4608 |
(Address of Principal Executive Offices) |
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(Zip Code) |
Office of Investor Relations 212-836-2674
Office of the Secretary 212-836-2732
(Registrants telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the
following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01. |
Entry into a Material Definitive Agreement. |
As previously disclosed, on July 25,
2014, Alcoa Inc. (the Company) entered into a Five-Year Revolving Credit Agreement, dated as of July 25, 2014 (the Credit Agreement), among the Company, a syndicate of lenders and issuers party thereto from
time to time, Citibank, N.A., as administrative agent for the lenders and issuers (the Administrative Agent), and JPMorgan Chase Bank, N.A., as syndication agent.
On July 7, 2015, the Administrative Agent notified the Company that all required lender and issuer consents had been received to extend
the maturity date of the Credit Agreement from July 25, 2019 to July 25, 2020 pursuant to the Extension Request and Amendment Letter, dated as of June 5, 2015, among the Company, each lender and issuer party thereto, and the
Administrative Agent (the Extension Request and Amendment Letter). The Extension Request and Amendment Letter also amended the respective definitions of LIBO Rate and Federal Funds Rate to provide that if
such rate is less than zero, such rate will be deemed zero for the purposes of the Credit Agreement; and modified the nature of the letter of credit fronting obligation of each issuer named on Schedule 2.01(b) of the Credit Agreement from committed
to uncommitted.
The foregoing description of the amendments to the Credit Agreement is qualified in its entirety by reference to the full
text of the Extension Request and Amendment Letter, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.
In
the ordinary course of their respective businesses, the lenders and issuers under the Credit Agreement or their affiliates, have performed, and may in the future perform, commercial banking, investment banking, trust, advisory or other financial
services for the Company and its affiliates for which they have received, and will receive, customary fees and expenses.
Ernesto Zedillo,
a director of the Company, serves as a director of Citigroup Inc., an affiliate of Citibank, N.A., the Administrative Agent, a lender and an issuer under the Credit Agreement, and Citigroup Global Markets Inc., a joint lead arranger and book-runner
under the Credit Agreement. Klaus Kleinfeld, Chairman and Chief Executive Officer and a director of the Company, and James W. Owens, a director of the Company, serve as directors of Morgan Stanley, the parent company of Morgan Stanley Bank, N.A., a
co-documentation agent and a lender under the Credit Agreement. Arthur D. Collins, Jr., a director of the Company, serves as a director of U.S. Bancorp, the parent company of U.S. Bank, National Association, a lender under the Credit Agreement.
Item 2.02. |
Results of Operations and Financial Condition. |
On July 8, 2015, Alcoa Inc. held
its second quarter 2015 earnings conference call, broadcast live by webcast. A transcript of the call and a copy of the slides presented during the call are attached hereto as Exhibits 99.1 and 99.2, respectively, and are hereby incorporated by
reference.
The information in Item 2.02 of this report, including Exhibits 99.1 and 99.2, is being furnished in accordance with the
provisions of General Instruction B.2 of Form 8-K.
Item 2.03. |
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information set forth under Item 1.01. Entry into a Material Definitive Agreement of this report is hereby incorporated by
reference in this Item 2.03.
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Item 9.01. |
Financial Statements and Exhibits. |
The following is filed as an exhibit to this report:
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10.1 |
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Extension Request and Amendment Letter, dated as of June 5, 2015, among Alcoa Inc., each lender and issuer party thereto, and Citibank, N.A., as Administrative Agent, effective July 7, 2015. |
The following are furnished as exhibits to this report:
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99.1 |
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Transcript of Alcoa Inc. second quarter 2015 earnings call. |
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99.2 |
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Slides presented during Alcoa Inc. second quarter 2015 earnings call. |
Forward-Looking Statements
This communication contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as anticipates, believes, could, estimates, expects,
forecasts, intends, may, outlook, plans, projects, seeks, sees, should, targets, will, would, or
other words of similar meaning. All statements that reflect Alcoas expectations, assumptions or projections about the future other than statements of historical fact are forward-looking statements, including, without limitation, forecasts
concerning global demand growth for aluminum, end market conditions, supply/demand balances, and growth opportunities for aluminum in automotive, aerospace, and other applications; targeted financial results or operating performance; statements
about Alcoas strategies, outlook, and business and financial prospects; and statements regarding the acceleration of Alcoas portfolio transformation, including the expected benefits of acquisitions, including the completed acquisition of
the Firth Rixson business and TITAL, and the pending acquisition of RTI International Metals, Inc. (RTI). These statements reflect beliefs and assumptions that are based on Alcoas perception of historical trends, current conditions, and
expected future developments, as well as other factors management believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in
circumstances that are difficult to predict. Important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements include: (a) material adverse changes in aluminum industry
conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum, alumina, and other products, and fluctuations in indexed-based and spot prices for
alumina; (b) deterioration in global economic and financial market conditions generally; (c) unfavorable changes in the markets served by Alcoa, including aerospace, automotive, commercial transportation, building and construction,
packaging, defense, and industrial gas turbine; (d) the impact of changes in foreign currency exchange rates on costs and results, particularly the Australian dollar, Brazilian real, Canadian dollar, euro, and Norwegian kroner;
(e) increases in energy costs or the unavailability or interruption of energy supplies; (f) increases in the costs of other raw materials; (g) Alcoas inability to achieve the level of revenue growth, cash generation, cost
savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations (including moving its alumina refining and aluminum smelting businesses down on the industry cost curves and increasing revenues
and improving margins in its Global Rolled Products and Engineered Products and Solutions segments) anticipated from its restructuring programs and productivity improvement, cash sustainability, technology, and other initiatives;
(h) Alcoas inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions (including achieving the expected levels of synergies, revenue growth, or EBITDA margin improvement), sales of
assets, closures or curtailments of facilities, newly constructed, expanded, or acquired facilities, or international joint ventures, including the joint venture in Saudi Arabia; (i) political, economic, and
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regulatory risks in the countries in which Alcoa operates or sells products, including unfavorable changes in laws and governmental policies, civil unrest, imposition of sanctions, expropriation
of assets, or other events beyond Alcoas control; (j) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation; (k) the impact of cyber attacks and potential
information technology or data security breaches; (l) failure to receive the required votes of RTIs shareholders to approve the merger of RTI with Alcoa, or the failure to satisfy the other closing conditions to the acquisition;
(m) the risk that acquisitions (including Firth Rixson, TITAL and RTI) will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (n) the possibility that certain assumptions with
respect to RTI or the acquisition could prove to be inaccurate, including the expected timing of closing; (o) the loss of customers, suppliers and other business relationships as a result of acquisitions, competitive developments, or other
factors; (p) the potential failure to retain key employees of Alcoa or acquired businesses; (q) the effect of an increased number of Alcoa shares outstanding as a result of the acquisition of RTI; (r) the impact of potential sales of
Alcoa common stock issued in the RTI acquisition; (s) failure to successfully implement, to achieve commercialization of, or to realize expected benefits from, new or innovative technologies, equipment, processes, or products, including the
MicromillTM, innovative aluminum wheels, and advanced alloys; and (t) the other risk factors discussed in Alcoas Form 10-K for the year ended December 31, 2014, and other reports
filed with the Securities and Exchange Commission. Alcoa disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Market
projections are subject to the risks discussed above and other risks in the market. Nothing on Alcoas website is included or incorporated by reference herein.
Additional Information and Where to Find It
This
communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The proposed business combination transaction between Alcoa and RTI will be submitted to the shareholders of RTI for their
consideration. Alcoa has filed with the Securities and Exchange Commission (SEC) a Registration Statement on Form S-4 (Registration No. 333-203275) containing a definitive proxy statement of RTI that also constitutes a prospectus of Alcoa, and
RTI has mailed the proxy statement/prospectus to its shareholders. Alcoa and RTI also plan to file other documents with the SEC regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS OF RTI ARE URGED TO READ THE PROXY
STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. You may obtain copies of all documents filed with the SEC regarding
this transaction, free of charge, at the SECs website (www.sec.gov). You may also obtain these documents, free of charge, from Alcoas website (www.alcoa.com). You may also obtain these documents, free of charge, from RTIs website
(www.rtiintl.com).
Participants in the Solicitation
Alcoa, RTI, and certain of their respective directors, executive officers and other members of management and employees may be deemed to be participants in the
solicitation of proxies from RTI shareholders in connection with the proposed transaction. You can find information about Alcoas executive officers and directors in its definitive proxy statement filed with the SEC on March 19, 2015, its
Annual Report on Form 10-K filed with the SEC on February 19, 2015 and in the above-referenced Registration Statement on Form S-4. You can find information about RTIs executive officers and directors in the proxy statement/prospectus and
in RTIs Annual Report on Form 10-K filed with the SEC on February 26, 2015. You can obtain free copies of these documents from Alcoa and RTI as described in the preceding paragraph.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
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ALCOA INC. |
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By: |
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/s/ Audrey Strauss |
Name: |
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Audrey Strauss |
Title: |
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Executive Vice President, |
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Chief Legal Officer and Secretary |
Date: July 13, 2015
5
EXHIBIT INDEX
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Exhibit
No. |
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Description |
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10.1 |
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Extension Request and Amendment Letter, dated as of June 5, 2015, among Alcoa Inc., each lender and issuer party thereto, and Citibank, N.A., as Administrative Agent, effective July 7, 2015. |
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99.1 |
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Transcript of Alcoa Inc. second quarter 2015 earnings call. |
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99.2 |
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Slides presented during Alcoa Inc. second quarter 2015 earnings call. |
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EXHIBIT 10.1
EXTENSION REQUEST AND AMENDMENT LETTER
June 5, 2015
Citibank, N.A., as
Administrative Agent
1615 Brett Road, Building #3
New
Castle, Delaware 19720
Attention: Bank Loans Syndications Department
and to each Lender and Issuer under the Credit Agreement (as defined below)
Ladies and Gentlemen:
Reference is made to the
Credit Agreement, dated as of July 25, 2014 (as the same may be amended, modified or supplemented from time to time, the Credit Agreement) among Alcoa Inc., a Pennsylvania corporation (Alcoa), the Lenders
and Issuers party thereto, Citibank N.A., as Administrative Agent for the Lenders and Issuers, and JPMorgan Chase Bank, N.A., as Syndication Agent. Capitalized terms used herein and not otherwise defined herein are used herein as defined in the
Credit Agreement.
Pursuant to Section 2.21 of the Credit Agreement, Alcoa hereby requests that the Initial Scheduled Maturity Date
be extended to July 25, 2020 (the First Extended Maturity Date).
Alcoa agrees to pay each Lender that agrees to
extend its Commitment to the First Extended Maturity Date an upfront fee in the amount of 0.05% of the amount of such extending Lenders Commitment as of the date such Lender agrees to so extend its Commitment, such fee being earned, due and
payable as of such date.
Alcoa also requests that the Credit Agreement be amended in accordance with Section 10.08 of the Credit
Agreement as follows:
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(i) |
inserting the following sentence at the end of the definition of LIBO Rate: Notwithstanding the foregoing, if the LIBO Rate shall be less than zero, such rate shall be deemed zero for the purposes of
this Agreement. |
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(ii) |
inserting the following sentence at the end of the definition of Federal Funds Rate: Notwithstanding the foregoing, if the Federal Funds Rate shall be less than zero, such rate shall be deemed zero for
the purposes of this Agreement. |
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(iii) |
deleting the words agrees to Issue in Section 2.22(a) of the Credit Agreement and replacing them with the following: , in its sole discretion, may elect to Issue. |
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(iv) |
deleting the words shall, on the requested date, Issue in the first sentence of Section 2.22(d) of the Credit Agreement and replacing them with the following: , in its sole discretion, may elect
to Issue, on the requested date. |
Alcoa hereby represents and warrants that the representations and warranties set
forth in Article III of the Credit Agreement are true and correct in all material respects on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date (in which case they shall be true
and correct in all material respects as of such earlier date) and that no Event of Default or Default has occurred and is continuing.
The amendments set forth herein are effective solely for the purposes set forth herein and shall
be limited precisely as written. Except as expressly provided herein, this letter shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of the Credit Agreement or any other Loan
Document, or (ii) operate as a waiver or otherwise prejudice any right, power or remedy that the Administrative Agent, the Issuers or Lenders may now have or may have in the future under or in connection with the Credit Agreement or any other
Loan Document, except as specifically set forth herein. The Credit Agreement, together with this letter, shall be read and construed as a single agreement. All references in the Loan Documents to the Credit Agreement or any other Loan Document shall
hereafter refer to the Credit Agreement or any other Loan Document as amended hereby.
This letter may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which when taken together shall constitute a single instrument. Delivery of an executed counterpart of a signature page of this letter by
facsimile or any other electronic transmission shall be effective as delivery of a manually executed counterpart hereof. Each party hereto irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this letter or the transactions contemplated hereby.
This letter shall be
governed by, and construed and interpreted in accordance with, the law of the State of New York.
[Signature page follows]
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ALCOA INC. |
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By: |
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/s/ Peter Hong |
Name: |
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Peter Hong |
Title: |
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Vice President and Treasurer |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 11, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
CITIBANK, N.A.,
individually and as Administrative Agent,
Lender
and Issuer
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By: |
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/s/ Michael Vondriska |
Name: |
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Michael Vondriska |
Title: |
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Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 29, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
JPMorgan Chase Bank, N.A.,
as a Lender and Issuer
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By: |
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/s/ Peter Predun |
Name: |
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Peter Predun |
Title: |
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Executive Director |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
BNP
Paribas
as a Lender
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By: |
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/s/ Claudia Zarate |
Name: |
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Claudia Zarate |
Title: |
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Director |
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By: |
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/s/ Nicolas Anberree |
Name: |
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Nicolas Anberree |
Title: |
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Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of July 1, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
Credit Suisse AG, Cayman Islands Branch,
as a Lender
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By: |
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/s/ William ODaly |
Name: |
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William ODaly |
Title: |
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Authorized Signatory |
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By: |
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/s/ Franziska Schoch |
Name: |
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Franziska Schoch |
Title: |
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Authorized Signatory |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
GOLDMAN SACHS BANK USA,
as a Lender
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By: |
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/s/ Rebecca Kratz |
Name: |
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Rebecca Kratz |
Title: |
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Authorized Signatory |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
Morgan Stanley Bank, N.A.,
as a Lender
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By: |
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/s/ Michael King |
Name: |
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Michael King |
Title: |
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Authorized Signatory |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 26, 2015:
We hereby agree to the amendments set
forth herein and
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
ROYAL BANK OF CANADA,
as a Lender
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By: |
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/s/ Sinan Tarlan |
Name: |
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Sinan Tarlan |
Title: |
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Authorized Signatory |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 29, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
The
Bank of Tokyo Mitsubishi UFJ,
as a Lender
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By: |
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/s/ Ravneet Mumick |
Name: |
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Ravneet Mumick |
Title: |
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Director |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
Mizuho Bank, Ltd.
as a Lender
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By: |
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/s/ Donna DeMagistris |
Name: |
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Donna DeMagistris |
Title: |
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Authorized Signatory |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of July 6, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
Australia and New Zealand Banking Group Limited,
as a Lender
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By: |
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/s/ Robert Grillo |
Name: |
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Robert Grillo |
Title: |
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Director |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 29, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
NEW YORK BRANCH
as a Lender
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By: |
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/s/ Verónica Incera |
Name: |
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Verónica Incera |
Title: |
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Managing Director |
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By: |
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/s/ Anne Maureen Sarfati |
Name: |
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Anne Maureen Sarfati |
Title: |
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Vice President-Structured Finance North America |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 24, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
BANK
OF AMERICA, N.A.,
as a Lender
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By: |
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/s/ Lindsay Kim |
Name: |
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Lindsay Kim |
Title: |
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Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
DEUTSCHE BANK AG NEW YORK BRANCH,
as a Lender
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By: |
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/s/ Virginia Cosenza |
Name: |
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Virginia Cosenza |
Title: |
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Vice President |
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By: |
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/s/ Ming K. Chiu |
Name: |
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Ming K. Chiu |
Title: |
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Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of July 1, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
Intesa Sanpaolo S.p.A. New York Branch,
as a Lender and
Issuer
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By: |
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/s/ William S. Denton |
Name: |
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William S. Denton |
Title: |
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Global Relationship Manager |
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By: |
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/s/ Francesco Di Mario |
Name: |
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Francesco Di Mario |
Title: |
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F.V.P. & Head of Credit |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 26, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
Sumitomo Mitsui Banking Corp.,
as a Lender
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By: |
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/s/ James D. Weinstein |
Name: |
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James D. Weinstein |
Title: |
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Managing Director |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
THE
BANK OF NEW YORK MELLON,
as a Lender
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By: |
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/s/ William M. Feathers |
Name: |
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William M. Feathers |
Title: |
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Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 17, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
U.S.
BANK NATIONAL ASSOCIATION,
as a Lender
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By: |
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/s/ Kenneth Fieler |
Name: |
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Kenneth Fieler |
Title: |
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Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 24, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
Westpac Banking Corporation,
as a Lender
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By: |
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/s/ Stuart Brown |
Name: |
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Stuart Brown |
Title: |
|
Director |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
BANCO BRADESCO S.A., NEW YORK BRANCH,
as a Lender
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By: |
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/s/ Adrian A. G. Costa |
Name: |
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B-205 - Adrian A. G. Costa |
Title: |
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Manager |
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By: |
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/s/ Mauro Lopes |
Name: |
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B-221 Mauro Lopes |
Title: |
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Manager |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 24, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
Credit Agricole Corporate & Investment Bank,
as a
Lender
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By: |
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/s/ Brad Matthews |
Name: |
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Brad Matthews |
Title: |
|
Director |
|
|
By: |
|
/s/ Gordon Yip |
Name: |
|
Gordon Yip |
Title: |
|
Director |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 23, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment of $90,000,000, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
Industrial and Commercial Bank of China Limited, New York Branch,
as a Lender
|
|
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By: |
|
/s/ Yuqiang Xiao |
Name: |
|
Yuqiang Xiao |
Title: |
|
General Manager |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment of $20,000,000, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
Industrial and Commercial Bank of China Limited, New York Branch
as a Lender
|
|
|
By: |
|
/s/ Peitao Chen |
Name: |
|
Peitao Chen |
Title: |
|
Deputy General Manager |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
Banco do Brasil S.A. acting through its New York Branch,
as a
Lender
|
|
|
By: |
|
/s/ Reinaldo Lima |
Name: |
|
Reinaldo Lima |
Title: |
|
Deputy General Manager |
|
|
By: |
|
/s/ Alexandre Alves de Souza |
Name: |
|
Alexandre Alves de Souza |
Title: |
|
General Manager |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
Bank of China, New York Branch
as a Lender
|
|
|
By: |
|
/s/ Haifeng Xu |
Name: |
|
Haifeng Xu |
Title: |
|
Executive Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
China Merchants Bank Co., LTD., New York Branch
as a Lender
|
|
|
By: |
|
/s/ Yu (Richard) Zhang |
Name: |
|
Yu (Richard) Zhang |
Title: |
|
Head of Corporate Banking |
|
|
U.S. Group |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
PNC
BANK, NATIONAL ASSOCIATION
as a Lender
|
|
|
By: |
|
/s/ David B. Gookin |
Name: |
|
David B. Gookin |
Title: |
|
Executive Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 24, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
SOCIETE GENERALE,
as a Lender
|
|
|
By: |
|
/s/ Linda Tam |
Name: |
|
Linda Tam |
Title: |
|
Director |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
Standard Chartered Bank,
as a Lender
|
|
|
By: |
|
/s/ Pramita Saha |
Name: |
|
Pramita Saha |
Title: |
|
Executive Director |
|
|
By: |
|
/s/ Hsing H. Huang |
Name: |
|
Hsing H. Huang |
Title: |
|
Associate Director |
|
|
Standard Chartered Bank NY |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 30th, 2015:
We hereby agree to the amendments set forth herein and
with
respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
TD Bank, N.A.,
as a Lender
|
|
|
By: |
|
/s/ Shreya Shah |
Name: |
|
Shreya Shah |
Title: |
|
Senior Vice President |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 23, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date.
Riyad Bank Houston Agency
as a Lender
|
|
|
By: |
|
/s/ Michael Meiss |
Name: |
|
Michael Meiss |
Title: |
|
General Manager |
|
|
By: |
|
/s/ Paul N. Travis |
Name: |
|
Paul N. Travis |
Title: |
|
Vice President and Head of Corporate
Finance |
[Alcoa Extension Request
and Amendment Letter]
ACCEPTED AND AGREED
as of June 26, 2015:
We hereby agree (i) to the
amendments set forth herein and (ii)
with respect to our Commitment, the Initial Scheduled Maturity
Date shall be extended to the First Extended Maturity Date
DBS
Bank Ltd.,
as a Lender
|
|
|
By: |
|
/s/ Yeo How Ngee |
Name: |
|
Yeo How Ngee |
Title: |
|
Managing Director |
[Alcoa Extension Request
and Amendment Letter]
Exhibit 99.1
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Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its
affiliated companies. |
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
CORPORATE PARTICIPANTS
Nahla Azmy Alcoa Inc. - VP of IR
Klaus
Kleinfeld Alcoa Inc. - Chairman & CEO
William Oplinger Alcoa Inc. - EVP & CFO
CONFERENCE CALL PARTICIPANTS
Timna Tanners
BofA Merrill Lynch - Analyst
David Lipschitz CLSA - Analyst
Tony Rizzuto Cowen and Company - Analyst
Brian MacArthur UBS - Analyst
Jeremy
Kliewer Deutsche Bank - Analyst
Paretosh Misra Morgan Stanley - Analyst
PRESENTATION
Operator
Good day, ladies and gentlemen, and welcome to the second-quarter 2015 Alcoa earnings conference call. My name is Tracy, and I will be your operator for today.
As a reminder, todays conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Nahla Azmy, Vice President of Investor Relations. Please proceed.
Nahla Azmy - Alcoa Inc. - VP of IR
Thank you, Tracy. Good afternoon, and welcome to Alcoas second-quarter 2015 earnings conference call. Im joined by Klaus Kleinfeld, Chairman and
Chief Executive Officer; and William Oplinger, Executive Vice President and Chief Financial Officer. After comments by Klaus and Bill, we will take your questions.
Before we begin, Id like to remind you that todays discussion will contain forward-looking statements relating to future events and expectations.
You can find factors that cause the Companys actual results to differ materially from these projections listed in todays press release and presentations, and in our most recent SEC filings.
In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most directly-comparable GAAP financial measures can
be found in todays press release, in the appendix to todays presentation, and on our website at www.alcoa.com under the Invest section. Any reference in our discussion today to historical EBITDA means adjusted EBITDA, for
which we have provided calculations and reconciliations in the appendix. With that, Id like to turn the call over to Klaus.
Klaus Kleinfeld - Alcoa
Inc. - Chairman & CEO
Very good, Nahla. Thank you. So lets, in the usual fashion, summarize this quarter.
Solid operational results, transformation on track, really strong quarter, adjusted earnings up nearly 16%, driven by the downstream record profit, $210
million, up 4%, aerospace revenue is up 29%, midstream up 9%, profitability, auto sheet revenue up 180% year-over-year. And then the upstream. The solid performance in spite of the significant market headwinds.
On the alumina segment, its been the best first-half profit result since 2007,
and on the primary metals, very resilient, even though the Midwest transaction price in this year has dropped by 22%. Productivity gains stand now to half year at $324 million for the quarter, coming from all segments, very, very good. Free cash
flow at $205 million, and if you look at cash from operations, $472 million, and thats after the $300 million that we paid for the Australia gas supply contract. Cash on hand stands at $1.3 billion.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Now lets also look at transformation. Its on track at Firth Rixson, Ill talk about it
later, on track. You see what were doing there.
Regulatory approvals for RTI, we have received all the necessary ones, RTI has scheduled the
shareholder vote for July 21, and we expect to close by end of July. Micromill, really also exciting news. Qualification agreements are in place with eight major automotive customers from all three continents.
And then on the upstream side, as you know, we announced the capacity review and we are following up on this. Weve completed this 12 year Australian gas
supply contract, allowing us to stay competitive there. Weve curtailed more part of the alumina refinery in Suriname.
Weve closed down fully
our Sao Luis smelter. We permanently closed Pocos de Caldas, the smelter in Brazil. Weve announced the permanent closure of the Anglesea power station and the coal mine in Australia.
So this is a good fraction of the most important things weve done in this quarter, and all of these actions led to a really strong quarter that we see.
With this, over to you, Bill, to give us more color on this.
William Oplinger - Alcoa Inc. - EVP & CFO
Thanks, Klaus. Lets review the income statement. Second-quarter 2015 revenues rose to $5.9 billion from $5.8 billion in the second quarter of 2014, up 1%
year-over-year. Organic growth in aerospace, automotive and alumina, combined with acquisitions, grew second-quarter revenues by 12.7%.
This profitable
growth more than offset an 11.7% decline in revenues caused by closing and divesting lower-margin businesses and market headwinds. This revenue shift reflects the positive effect of the Companys transformation. Compared to a year-ago quarter
basis, cost of goods sold percentage improved by 250 basis points, driven by strong productivity gains and a stronger US dollar, somewhat offset by cost increases, and lower metal premiums.
Overhead costs continued to decline both sequentially and year-over-year. Year-on-year EBITDA improved to $166 million, up 21% over the second quarter of
2014. This was driven by strong performance from alumina, EPS and GRP, offset partially by pricing and energy headwinds from primary metals.
The
second-quarter effective tax rate of nearly 27% was lower than our expected operational tax rate of 31%, due to favorable net discrete and special taxes in the quarter of $22 million. Excluding this impact, our operational rate for the quarter and
year-to-date was 31%, which is consistent with our expected operational rate for the year.
Overall, net income was $140 million or $0.10 a share.
Excluding special items, net income was $250 million, up nearly 16%, versus the same period in 2014. This resulted in earnings per share excluding special items of $0.19.
Lets take a closer look at the special items. In the quarter, we recorded an aftertax charge of $110 million or $0.09 per share, primarily restructuring
related. We announced the closure of the Pocos smelter and Anglesea power plant and mine facilities resulting in a $95 million and $22 million aftertax charge respectively. The balance largely relates to a $9 million adjustment from the Mt. Holly
sale and $6 million for the Suriname curtailment, along with headcount reduction programs in various businesses.
In total, roughly 45% of the
restructuring-related charges are non-cash. Other special items for the quarter was a gain of $19 million on the sale of land around the Lake Charles anode facility, $5 million of acquisition fees related to the pending RTI transaction, and a
benefit of discrete and special tax items totaling $22 million, all of which have been backed out of the operating earnings.
Lets look at the
results versus a year ago. Second-quarter adjusted earnings of $250 million were up 16% over the prior-year quarter. From a market perspective, the biggest driver was the favorable US dollar, driving an $85 million benefit.
The profit impact from higher volumes was favorable $43 million, benefiting from both organic and inorganic aerospace growth, market share gains, continued
strong automotive demand, and to a lesser extent, growth in North American commercial transportation. Lower regional premiums drove the vast majority of the negative price impact.
Also, we delivered $209 million of aftertax productivity gains across all of our segments, which more than offset cost headwinds of $187 million from higher
maintenance cost, labor and benefits, and some growth projects. The unfavorable energy impact of $56 million was driven by higher energy costs in Spain, and lower energy sales in Brazil. This was offset partially by lower energy costs in refining.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Lets move to the segment results. First, Id like to cover a change we made this quarter in our
reporting. We received numerous comments from investors regarding the complexity and impact of metal lag to the mid and the downstream businesses.
Metal
price lag quantifies the timing difference created when the average price of metal sold differs from the average cost of the metal, when purchased by the respective segment. Starting this quarter, we removed the impact of metal price lag from the
results of GRP and EPS segments, to provide better insight into the underlying operating performance of these businesses. This revision does not have an impact on the consolidated results. Segment information for all periods has been revised,
excluding this item from segment results is consistent with our treatment of LIFO accounting, both of which are now shown in our segment ATOI reconciliation.
So let me get to the EPS operational results. EPS delivered another record result in the quarter. Year-on-year revenues were up 15%, largely benefiting from
the acquisitions.
Year-on-year robust growth can be attributed primarily to the aerospace and commercial transportation sectors. The EPS base business
revenue was impacted negatively by the stronger US dollar, but on a same currency basis, revenues were up by 3%. EPS delivered an EBITDA margin of 21.5%, inclusive of Firth Rixsons EBITDA contribution of $42 million.
The base business profitability was in line with last years result, when adjusting for the weaker US dollar. Overall, the segment showed an improvement
of 1.1% sequentially. ATOI for the quarter was $210 million, up from $202 million in the prior year.
This included the benefit of the Firth Rixson
acquisition, gross productivity improvements, and the volume share gains from the base business, which were partially offset by the negative currency impact, some cost increases, and price and mix weakness. As we look out into the third quarter, we
expect EPS ATOI to be driven by a number of things.
The aerospace market is remaining strong. We see continued recovery in North American non-residential
construction, weakness in Europe continues. We anticipate the usual European summer slowdown across all sectors, and we have continued strength in North American heavy duty truck build rates, and gradual recovery in Europe.
Lastly, we do expect an outage at one of the Savannah conventional presses for scheduled repairs. So in total, ATOI is expected to increase 5% to 10%
year-over-year, which includes further currency pressures of $9 million.
Lets move to GRP. Again, this segment has been revised to eliminate the
impact of metal lag in the numbers. GRP year-on-year revenue was down 10%, largely driven by the divestitures or closures of six rolling mills in Australia, Spain and France, and Russia.
Also impacting it was lower metal prices, and the stronger US dollar. These more than offset record auto sheet shipments, coupled with healthy commercial
transportation and aerospace growth. These volume gains, predominantly in automotive, and very strong productivity drove earnings higher, but were partially offset by the inability to pass the Rotterdam premium through in Russia, and investments
made in the Saudi joint venture and Micromill projects.
As we look out into the third quarter, we expect GRP to be impacted by a number of factors. We
see continued strong demand for auto sheet, combined with seasonal volume improvement in packaging. We see a reduction of premium impact in Russia sequentially, as the Rotterdam premium has come down, but it is still impacting the results on a
year-over-year basis.
Packaging pricing pressures are expected to continue, and we have continued investments for the ramp-up of the Saudi Arabia rolling
mill, and investment in the Micromill R&D. In total, ATOI for the segment is expected to increase 5% to 10% year-over-year, assuming current exchange rates.
Lets move to the alumina segment. The alumina segment delivered very strong results again this quarter, resulting in the best first half since 2007.
ATOI of $215 million was up $177 million from $38 million in the second quarter last year, but down slightly from the $221 million achieved in the first quarter. Second-quarter performance was driven by weaker market prices, which more than offset
benefits from volume increases and productivity gains.
On a sequential basis, as we look out into the third quarter, we expect it to be impacted by a
number of factors. 75% of third party shipments are now on API or spot pricing for the full year of 2015. API will continue to follow the 30-day lag, whereas LME-based pricing follows a 60 day lag.
We do expect production up 40,000 metric tons due to one additional production day in the quarter, and the Saudi Arabia refinery is reaching stability, and
earnings are expected to improve there by $5 million. Productivity and volume improvements will more than offset energy and cost increases by $15 million.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
So we turn to primary metals. The primary metals segment clearly was negatively impacted by the lower
premiums and pricing in the quarter. As Klaus referred to earlier, the all-in Midwest transaction price has fallen by 22% since the start of the year, and weve seen a 10% sequential decline in the realized pricing in this segment.
The energy impact in the segment was favorable due to lower power costs in the Pacific Northwest and Norway, and that was partially offset by lower earnings
in our US energy generators. The higher costs in the segment are largely due to the result of additional costs at our curtailed sites.
Looking into the
third quarter, we expect the following sequential impacts: Pricing will continue to follow a 15 day lag to the LME. Production very similar to the alumina segment, production will be up 10,000 metric tons, due to an additional day in the quarter.
Regional premiums continue to negatively impact this segment, and at current market rates, we would anticipate that to have a $70 million aftertax
impact. Brazil energy sales should improve by $10 million, and the productivity and higher volume will more than offset energy and cost increases by about $8 million.
We move to days working capital. We continue to focus on driving down days working capital, toward the lows achieved last year. Excluding acquisitions, we
achieved a two-day improvement versus the same period last year. Including the acquisitions, DWC was up one day year-on-year, and sequentially.
Overall,
the base business reduced DWC by 12 days since the second quarter of 2010, providing over $700 million in free cash flow generation from working capital. This continues to be a significant area of focus and opportunity for the integration team, as
we strive to bring Firth Rixson in line with the other EPS businesses.
Lets move to the cash flow statement and liquidity. For the second quarter,
cash from operations was $472 million, contributing to positive free cash flow for the quarter of $205 million. This positive result includes the investment of $300 million in the Western Australia gas supply contract.
Pension expense in the quarter of $122 million was in excess of cash contributions of Im sorry, of $84 million. The contributions year-to-date of
$169 million represent 35% of our anticipated full-year total. Lastly, capital expenditures of $267 million in the quarter were comprised of $128 million for return-seeking capital projects, including the auto project in Tennessee and aero projects
in LaPorte and Davenport, and $139 million for sustaining capital.
Now, if we turn to the balance sheet, we continue to maintain a strong balance sheet.
From a liquidity perspective, were ending the quarter with $1.3 billion in cash on hand, and debt at $8.8 billion, resulting in net debt of $7.5 billion. For the quarter, debt to EBITDA was 2.1 times on a trailing last 12 months basis, which
is below our target range of 2.25 to 2.75. I should also note that weve recently extended the maturity of our $4 billion revolver to July of 2020, an additional year.
Now, Id like to conclude with a review of our progress towards the 2015 goals. As Klaus said, starting off on the productivity target, we are well ahead
of our productivity target on a run rate basis. We are targeting $900 million, weve achieved $562 million year-to-date, or 60% of the target.
Year-to-date return-seeking capital spend has been $283 million and is anticipated to ramp up toward the $750 million target. Sustaining capital through the
first half was $240 million, lower than the run rate necessary to spend $725 million for the year. As discussed in the prior slide, were ahead of our target leverage metric. And finally, while the commodity environment has made this target
significantly more challenging, were maintaining our free cash flow target of $500 million.
Turning to the market fundamentals that influence our
upstream business, in the alumina market, as you can see in the chart on the left, weve tightened our forecast by about 270,000 metric tons. This is largely attributed to lower than expected production ramp-up in the rest of the world, offset
with slower curtailments of high-cost operating capacity in smelting.
Pricing for alumina, either spot or API index, of which I said 75% of our shipments
for the year will be based on, has generally held up better than metal pricing, due to the fundamental differences in this part of the supply chain. Given the recent history for alumina, we continue to expect supply-demand balances moderating in the
second half of the year, tempered by the supply side.
Now, lets turn to the aluminum market. Starting with demand, we expect strong global demand
growth for aluminum of 6.5% in 2015, or 57 million metric tons, led by China and growth in North American automotive consumption. Were adjusting our aluminum outlook to a global surplus of 760,000 metric tons.
This is roughly 400,000 metric tons higher than our previous forecast, driven by our expectation of lower Chinese curtailments. We now expect a surplus in
China of 2.2 million metric tons, compared to a forecast of 1.8 million metric tons last quarter. This is largely driven by the lack of follow through on curtailments on unprofitable operating capacity, even with the recent pressure on
metal prices both in and outside of China.
While the rest of the world remains in a deficit, the new supply from China in the form of fake semis has
filled an increasing share of that deficit, which has placed the rest of the world total price under pressure. Global inventories have declined, and now stand at 62 days of consumption, eight days lower than a year ago, and down from 66 days last
quarter. Were approaching the 30-year average of 61 days.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Lastly, premium started the year declining from historical highs, and continued to decline this quarter;
however, regional premiums appear to be stabilizing in North America and Europe, while Asia is the weakest of the deficit region, suffering from high inventories and continuing Chinese semi imports. As we said last quarter, weve seen increases
in semi exports coming out of China. Semi exports from China are up roughly 40% year-to-date, which we believe is largely related to fake semis.
Fake
semis compete directly with primary metal by avoiding Chinas 15% export duty tax, and capturing a 13% VAT rebate. At current metal pricing and premium levels, the economics of exports have deteriorated. But as we said before, we dont
believe this activity is in line with Chinese policy. Let me turn it back over to Klaus.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Thank you, Bill, and on with the markets. Lets talk about the end markets. Lets start with
aerospace.
So we do believe that the aerospace markets going to grow 8% to 9% this year. This is 1 percentage point down from our previous view,
and thats entirely due to the shift that we are seeing on the slower new platform ramp-up, mainly the A-350 and the C series. The good news of this is that all of this moves into 2016 and 2017, and there it leads to a nearly doubling of what
we saw before, as the growth rates there.
Then, lets look at the Paris Air Show, and there was a little bit of an oddity here, because right after
the air show, the Chinese Premier Li visit to France. As usual, they signed a lot of contracts there, also for Airbus. If you add this up, the contracts that were signed in Paris, as well as at the then subsequent visit of the Premier, it adds up to
$125 billion of orders and commitments for Airbus and Boeing alone. If you compare that with last year, Farnborough, that stood at $116 billion, so thats actually pretty good news.
Order book on commercial jets is over nine years of production. The airline fundamentals continue to be solid, 6.7% passenger and 5.5% cargo demand, the
underlying profitability continues to be good, and $29 billion is the estimate of IATA these days.
Lets move on to automotive. Lets start
with North America. We expect 1% to 4%, sales currently are strong, with 4.4%, led by light trucks.
Production was up 1.7%. Inventories flat, on 60 days,
and incentives are up 4.7%, driven by passenger cars and thats a response to the strength in light trucks, and the weakness on passenger cars. The average transaction price is up, driven by the light trucks that are hot in demand, and
obviously good news, also, for us.
On the automotive European side, we do believe that its going to go either down to minus 1% or to plus 3%, so a
range. Production currently is flat, stands at plus 1.3%. Western Europe improves, while Russia further declines, but in total going up. Registrations are at 6.8% year-to-date, exports are at 1.6%.
China, we continue to see at 5% to 8%. Production stands at plus 5%, sales at 4%. And thats where we are on automotive.
So lets go to the next end market, heavy duty trucks and trailer. Lets start with North America, and this is really a fascinating story. Last
quarter, we said we expected growth this year between 6% to 8%, and we are ramping this up to 9% to 11%, and the reason for this is because we were originally assuming that the supply chain would not be able to support much higher build rates in the
second quarter, and we are now seeing production peaking at plus 18.7% at 137,000 trucks.
The order book is large. It has increased 42% year-over-year,
stands at 169,000 trucks, just compared to this, a 10-year average is 100,000 trucks. But orders are decreasing by 8.6% after the record fourth-quarter 2014 numbers. The fundamentals are very solid, 2.3% freight ton miles and a 54% fleet
profitability in the first quarter this year.
On the European heavy trucks and trailer, we actually also take our number up. Used to be minus 5% to minus
7% for this year, and we believe it could be more likely to be around minus 2% to 0%. The reason for this is because we see the production increasing, by Western Europe 5.2%, and improving conditions in Western Europe, orders up 12.2%, registrations
up 17.8%.
In China, we actually bring the number down. We used to think minus 9% to minus 11%. We now think minus 14% to minus 16%.
The production is down by 34%. This still suffers from the strong pull-ahead they had due to the Stage IV regulation. We believe this is going to normalize
the more we go into the second quarter.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Packaging, really no news on the packaging front. So well say North America, we still see minus 1% to
minus 2%, carbonated soft drinks declining, beer increasing, but not enough to fully compensate for it. EU, the 1% to 2%, its the conversion from steel to aluminum in Western Europe, partially offset by declines in Eastern Europe. China 8% to
12% growth, its basically the penetration of aluminum in the beer segment.
Then, when you go to building and construction, actually we do believe
in North America, continue to believe in the 4% to 5% growth for this year. The early indicators are really positive, non-residential contracts awarded stands at 13.6% in May. Architectural Billing Index positive at 51.9 in May. Case-Shiller home
price index plus 4.1% year-over-year.
In the EU, we do believe its going to be minus 2 to minus 3. The weakness continues, but it varies, as it did
already before, in our outlook across the market.
China, we take the number a little bit down. We used to see growth, but we used to think of the growth
more between 7% to 9%. We now see it more 6% to 8%. Its really the market drivers are relatively stable, but we do feel that there is a slower industrial production growth, it stands at 6.1%, reflecting commercial building and construction.
On industrial gas turbines, we continue to see growth here, 1% to 3%. This is driven by two factors really, the higher value-add products, the new high
efficiency turbines with advanced technologies that customers find attractive.
And then secondly, its these strong US 60 hertz gas fired market,
its up 19.5% year-to-date and that also drives the strong demand for spares and component upgrades for existing turbine all of this in the 60 hertz market. Unfortunately, the 50 hertz markets, mainly Europe, counters this, and gets tempered by
it, because of the subsidized renewables that compete against us.
So much about the end markets, lets go into Alcoa. This chart here youve
seen before, but I want to remind you all that this is our game plan. We are really transforming the Company and were building these two value engines. On the one hand, the lightweight multi- materials innovation powerhouse, increasing share
and exciting gross margin in aerospace, automotive, Ive gone through all of them.
We have a full pipeline of innovative products and solutions.
Were really using all growth levers. You see it shining through this quarter again. Were shifting the mix to higher value-add, again shining through. We are expanding in multi-material expertise.
At the same time, we are not neglecting our commodity business. We are continuing to make our commodity business more competitive, and how are we doing that,
were doing it through all the actions that we have talked about, and Bill have talked about and Ill share some more with you as we go through this.
The whole reason for it is because we cant influence where pricing is going to be. You saw the pricing drop in the last weeks, but we can influence
where we are on the cost curve, and we can through this, mitigate the down side risk, and you again see it also in the second-quarter results.
We also
optimize the casthouse value, we shifted the pricing on the alumina pricing index to the alumina pricing index. This year, we think 75% is going to be alumina pricing, index or spot. And we see productivity coming from all segments.
Lets take a look at the value-add businesses first, and lets start with aerospace, and Im not going to go through all the gory details in
this. One thing I want to remind everybody of, that dont deal with these things every day, what weve done in aerospace, because obviously a lot of attention always goes on the acquisitions, but really, the great story is also on the
organic growth sides, and be it on the jet engine side or be it on the air frame structures, weve done a lot here, on both sides.
And then comes
the inorganic investments, the acquisitions, Firth Rixson doubled the engine content. You see it here depicted. The blue spots are Alcoa, the Firth Rixson ones are kind of orangey, and you see how it has worked.
We can now produce over 90% of the structural and rotating components of pretty much any jet engine with nickel and Ti-Aluminide in the hot section, and
titanium aluminum steel in the cold section, and all of this being in our portfolio. That is really, really strong, a strong thing, a strong offering for our customers. And then looking at the logic behind RTI and TITAL, its basically
complementing the titanium value chain on the midstream, as well as on the downstream side.
Lets look at how this has positioned us in aerospace.
This is a little complicated chart, but I think you all will appreciate that, because on the left-hand side, it shows all the major aerospace structures, right? And the bars represent the value-add that we, as Alcoa, have in there.
And weve distinguished between the blue bar, Alcoa, and the gray bar is the acquisition, Firth Rixson and RTI, assuming that we will be able to close
this by the end of July, as were expecting at this point in time. Thats what you see on the left-hand side. On the left-hand side, you actually, when you go through the numbers, you actually do see that we are on all major platforms.
Thats in evidence.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Then the other thing, for those that dont follow us every day, we are basically agnostic of whether the
plane is being metallic or composite. And frankly, interestingly, on the composite plane, the 787, we have the highest shipset here, and thats fantastic. We also see how the acquisitions have strengthened our position.
You see it on the left-hand side, but you see it even more so on the right-hand side. The right-hand side is now the same type of logic, but done for every
jet engine platform. You actually see what I said before that Firth Rixson, the acquisition of Firth Rixson has doubled the content in every jet engine, thats whats reflected in here. I would call this all a very, very nice picture, in a
very attractive market.
So saying that, lets look a little deeper into the market. I already gave you my view on the market expectation for this
year, and I also gave you my view on the market expectation for the next two years, right? Recently weve seen a lot of questions around hows it going be in the long haul, going forward on long haul perspective.
So we put together a 10-year perspective, right? And this is what you see reflected here on this slide, right? And I think already the first view shows you
this is a pretty robust growth picture. Ill lead you through this.
What are the aerospace fundamentals? There are new fundamentals, and they are
relatively strong. We see emerging Asia 100 million new passengers each year. This is a 5% compound average growth, thats driving travel demand in the next 20 years, basically, on average.
Aircraft retirement, 600 aircraft per annum in the next 10 years. Lower operating costs for the next-generation aircraft. 20% more fuel efficiency, 30% better
maintenance costs. And then look at whats happening, and this is a result of this, we have an over nine-year production order book.
And we also
have, if you look at how the orders are sitting there, we have a much more diversified customer base today. Before it was US and Europe. Now its very diversified, and this means its also lower risk, in case anything happens.
Now lets talk about the bars going forward. What you see here, what weve done here, these gray bars, weve basically taken the most reputed
analysts in this market, and looked at what they are forecasting, and then we put a min-max range in here, so thats what you see here, the dark gray and the lighter gray.
And we also provided here a 2024 delivery probability, so that you get a feel where are they typically in this space. Obviously, this probability varies,
depending on where you are going through the years, but it gives you an additional information. I think thats important.
Interestingly, we could
have a lot of people project 20 years out. We could have done that, and then this would have actually looked even better, because a lot of people project a steep increase after 2024. We just didnt do that, because I feel, given the
volatility that wee we see in our markets, the 10-year outlook is probably the one that you should orient yourself around.
Here, Im pretty happy
with what Im seeing here. This basically would mean we have growth in average of 3% to 5%. And in this growth market, with the position that we have, and with the innovations that we have in store, we can on top of it gain our market position,
so grow, in a growing market. So attractive, just to clarify this, how we see this, because theres been a lot of talk also about, is there a strong cyclicality coming, and this is the numbers that we see there and not we, but also the most
reputed analysts see there, market experts see there, and we agree with that.
Lets move on to the next one, and this is back to Alcoa. Let me
update you on the most recent acquisitions. So, Firth Rixson, we closed end of last year. Its on track to achieve a 2016 target.
The actuals for
2014 were $1 billion revenues, $150 million EBITDA, so 15.7% profitability. When you annualize the profitability that we see today on a run rate, you already see that we have been able to improve the performance. We have said we target for 2016,
$350 million EBITDA and $1.6 billion revenues.
How are we going to get there? I think that was one of the questions Ive heard quite a number of
times from you, not just on the call but also on the one-on-ones. Basically, to make it easy, we put it in two buckets. The one bucket I would call productivity and synergy, so we have two elements in there. The one is a standalone productivity, and
its around 5% to 6% that you can do pretty much in every business.
The second one is our synergies. As you remember, we said were going to
get $100 million synergies, so were going to get $40 million up until 2016. The interesting thing, we track all of this, including by the way also, the standalone and incremental productivity at Firth Rixson already today with our degrees of
implementation system.
So today, on the synergy side, we are 190% over-deployed. So Im pretty comfortable to say that out of this alone, the
synergies, we will get, by 2016, $50 million of net integration, $50 million benefit, net the integration costs, right? So even on the gross number, an even higher number, so this is one bucket.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
The second bucket is the market and the share gains. The nice thing is, we are positioned in engine
components that grow substantially above the market. So this is going to give us a lift.
So thats the second part here, and then we also have
identified certain opportunities where we believe that we have something unique to offer to our customers, and we are pursuing them as we speak. Unfortunately, life hits, and there are some headwinds, so we are also seeing some headwinds on the oil
and gas, as well as on the mining side, but keep in mind, this is a very small percentage of the old Firth Rixson business, so not impacting us that much. This is our game plan here for Firth Rixson, and as I said, we are on track with this.
So lets also talk about RTI, and get you up-to-speed on where we stand on this. Im not going to go through all of these things, but just get you
orientated. Remember, we did this because we are complementing our titanium portfolio on the mid and downstream. Thats basically the strategic merit, right?
What have we achieved so far? Weve gotten the approvals from the US and from Europe, the RTI shareholders meeting is scheduled for July 21, and
thats why we expect to close end of July. Weve basically said were going to get $100 million net synergies, 30% in year two, 100% in year four, and here you see a breakdown on the right hand side, and where we see those things, and
obviously theres quite a bit of detail already that have gone into this. Happy to address that in the Q&A, if anybodys interested.
Operational productivity, $44 million. Procurement $20 million, overhead cost $20 million, and growth $25 million, and if you add that up, you will wonder why
is that more than $100 million? Because this, you deduct from that $9 million of integration costs and then you get there.
So, so much about aerospace,
acquisitions, so lets also talk about midstream and automotive. And I think that the process that we have found now, to eliminate these metal swings, the metal lag out of the segment information, particularly for the midstream business, makes
it much, much easier to answer the questions that you all have been asking, where do I see whats happening there.
And I think you do see it, and
you do see it also in this quarter. And you will see more of this, because the lightweighting trend will continue, and we are super well-positioned there. Why will it continue?
Because of the CAFE regulations, the OEMs need it. They need to lightweight. Alcoa has the solution, the end customers benefit from it. They get fuel
efficiency and money savings, they get more payload. They get faster acceleration and improved braking.
When you think, by the way, when you think
automotive, dont just think auto sheet, also think of brazing sheet, and this is one of those untold stories, but brazing sheet revenues have doubled and profits have tripled in the last years, and its a very, very innovative business.
So that if you add all of this up, and you go to right-hand side of this slide, you actually see what we are expecting here, and how this is ramping up, and you saw it already in the second quarter GRP numbers, this ramp-up is going exactly as
planned, and I would say this is really a very, very good innovation story. So this concludes my value-add business.
Lets also spend a minute on
our commodity business. Theres a lot going on there, as we are reshaping our portfolio and gaining competitiveness. Remember, we restructured the businesses, and created those five separate units there, but overall, they fall into the alumina
and the primary metals business.
On the alumina side, we are coming down the cost curve. We started on the 30th percentile. Were now in the 25th,
and we will go on down to the 21st. Primary same thing, 51st percentile start, now at the 43rd, well go down to the 38th percentile.
Ive just
been asked by journalists, before I came here into this meeting, why is the upstream business so resilient? I said thats why its so resilient, because we have been working on it, to bring it down on the cost curve. And then the next
question was why is the alumina business doing so well?
Because its a different business, right? Its a different business, and it has to be
priced differently, and therefore, weve been changing it to alumina pricing index. What has been going on there on the mining side? Saudi Arabia mine pretty much done. Western Australia, we are now shipping bauxite samples to customers for
testing, and can see whether we can also ship bauxite from Australia.
On the refining side, weve curtailed Suralco more. Completed the Western
Australian gas deal. We expect 1.1 million from the refinery in Saudi Arabia, and weve come down $15 per metric ton on the cost curve.
Energy
side, revised Intalco power contract. Permanent closure of our Anglesea power station as well as the coal mine. Smelting, curtailed Sao Luis entirely, permanent closure of the Pocos smelter, and the Saudi smelter will operate at nameplate 740,000
capacity this year. Weve come down $50 on the cost curve, and we have in total reduced the cash cost by $435.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
And on the casting side, were coming up with new and innovative foundry alloys. Were upgrading
our Baie-Comeau casthouse to meet the automotive demand.
So to sum it all up, this has been a strong quarter. We continued to deliver improved
operational results. We captured the value at market share from our investments, and we drive continued upstream competitiveness. With this, lets open the line for questions.
QUESTION AND ANSWER
Operator
(Operator Instructions)
Your first question comes from Timna
Tanners with Bank of America Merrill Lynch. Your line is open.
Timna Tanners - BofA Merrill Lynch - Analyst
I think what I hear from a lot of investors is just the concern over the aluminum market in general, and I see that certainly you detailed for us the expected
change in the Midwest premium and the impact into the third quarter. Then theres the LME impact into the second quarter third quarter as well.
And you did talk about a little greater surplus, but you didnt change your Chinese demand forecast. Im just wondering what youre thinking
about the possible response Alcoa can provide to the market, in light of lower aluminum prices, and the continued issue of Chinese oversupply or over capacity?
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Well, Timna, thats a good point. I mean, lets start I dont even know where to start but
lets start what we believe has happened here, why the regional premium, as well as the primary LME prices have come down. We believe the major driver of this has been a phenomenon called China fake semis, right? And in reality, these fake
semis are remelt, disguised as semi-finished product.
They circumvent the China 15% export duty, and they receive a 13% VAT rebate. And they directly
compete against Western primary. And that is not in line at all with what the Chinese authorities have intended, with their policy. They intended with the 15% export duties, to avoid exports of primary metals, and with the 13% VAT rebate to
incentivize real value-add products, which they are not, right?
And they are doing it because they dont want to deplete critical natural resources
like water and energy, and on top of it, these folks often inflate their prices to get increased VAT returns. So if theyre taking the money away from the Chinese people. So we believe that this should stop. We need a level playing field. We
are obviously carefully monitoring it, and considering all options.
We believe the Chinese government will not tolerate such an abuse, and given these
prices today, thats the other interesting thing, the attractiveness of even the fake semis exports has strongly declined. And theres, by the way, to clarify this, there is really no primary metal, no real primary metal coming out of
China for a whole host of reasons. One, because the 15% export duty as a barrier, and the second one, because of the economics that exist today. Go ahead, Timna.
Timna Tanners - BofA
Merrill Lynch - Analyst
I was just going to say, no, I think its clear that the arb is closed, and that there should be
conceivably fewer exports from China of the fake semis, as you call it, but I was just wondering two specific things. One is, do you believe that the Chinese will curtail capacity, because theyre not always as efficient as maybe we would like
on that front. Two, if prices were to stay at these low LME price levels, what are further measures that Alcoa could take?
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well, look, I mean, on your first question, keep in mind this is the first time that those two planets have communicated with each other. Ive always
described it, and we had I think we had some good conversations, Timna, that in reality whatever China did with their primary business was their business. So they havent exported, and I can be clear, that hasnt changed.
What has changed is this phenomenon of fake semis, which is going against primary in the west. So is this is the first time these two planetary systems have
talked, and literally, they have talked in a way that the deficit in the west got destroyed was the fake semis that came out in a really I mean, I would call it an illegal fashion, stealing money away from the Chinese people, and being
totally against that.
In reality, I dont know whether they are going to curtail more. Youve seen that for the first time, by the way, last
week, Chinalco has now announced that they are curtailing. And you see that there is an increased pressure also from SASAC, the owner of all state-owned enterprises, on the state-owned enterprises that are not profitable, have non-profitable
business to become profitable, so all of these things are there.
But can we guarantee that all of this gets executed? No. But under normal circumstances,
assuming the fake semis would go away, I would not be too concerned.
Secondly, what can Alcoa do? Alcoa, it has been doing and will continue to do, to
optimize the portfolio. Youve seen it again this quarter.
I mean, weve basically weve on the smelting side, weve
taken off full capacity in Sao Luis. Totally curtailed. We permanently closed our Pocos de Caldas smelter. Then, on the refinery side, we continue to also improve our cost position.
And there are many, many more ideas. On that end, plus then also to bring our costs down on the short term, as well as on the long term. The Intalco contract
is a short term way, how to get our energy cost down, and the gas contract for Australia is a very long-term one, to really make sure that the value of the really high value asset like our system in Western Australia will be enjoyed, frankly, by
generations that come after us, because this thing only kicks in, in 20
William Oplinger - Alcoa Inc. -
EVP & CFO
2020.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
2020. So this is not something that comes tomorrow, but we believe thats the right thing to do, to get
shareholder value here.
William Oplinger - Alcoa Inc. - EVP & CFO
The only thing I would add to that, Timna, is recall we have a review, a capacity review currently under way of 2.8 million metric tons in refining, and
500,000 metric tons in smelting. So Sao Luis and Pocos were the first curtailments and closures under that review.
Timna Tanners - BofA Merrill Lynch -
Analyst
Okay, so more to come, potentially. Thank you for that answer.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Thank you, Timna.
Operator
(Operator Instructions)
Your next question comes from the line
of David Lipschitz with CLSA. Your line is now open.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Hello.
William Oplinger - Alcoa Inc. -
EVP & CFO
Hi, Dave.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Dave is calling from New York Stock Exchange.
David Lipschitz - CLSA - Analyst
Can
you hear me okay?
William Oplinger - Alcoa Inc. - EVP & CFO
We can hear you now.
David Lipschitz - CLSA -
Analyst
Sorry about that.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Thats good. Okay.
David Lipschitz - CLSA -
Analyst
So I guess my question is, youve done the Firth Rixson, youve done the RTI. Are you looking at any more either upstream
or other metal type of stuff in the specialty side? Is that something that still interests you, or pretty much, youre feeling pretty good where you are right now?
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
What I would say, we know how to manage innovation, and we know how to professionally integrate, and Ive said
this before. Some people have said oh, my God, they are now on acquisition mode, but its really been a bit coincidental that those two opportunities came so close after each other, and Id be happy to indulge in that, why this happened.
But you sometimes cant plan for something that you build up over a longer period of time.
The integration, by the way, is handled by different
teams inside of Alcoa. So the worry that some people have raised, oh, my God, I mean, are they over-eating, can they handle it, I think its way overblown, and we are very well aware of it, and thats, by the way, one of the most important
criteria that we use before we go after it. So we are really committed to do all that we can do, to create shareholder value. Thats really all I would say with this.
And I think Ive shown in my presentation how the organic growth as well as the
inorganic growth has strengthened our position in attractive markets like aerospace, and those that have been at the Paris Air Show, I would think could really feel it. You could feel it by the response from our customers, the attractiveness of our
offerings, and thats I think thats really what counts, and thats whats going to create shareholder value, short as well as long-term.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
David Lipschitz - CLSA - Analyst
Thank you.
Operator
Your next question comes from the line of Tony Rizzuto with Cowen and Company. Your line is open.
Tony Rizzuto - Cowen and Company - Analyst
Ive got a question on Rolls Royce, and theres been some negative commentary coming out of that Company, and with regard to the trend engine build
rates and the supply chain. Im wondering, can you talk about that a little bit. How concerned are you? And are we possibly looking at another supply chain destock period going forward here?
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well, Tony, Ive shown you our forecast for this year, and the next 2 years, and then the 10 years out. Right? And you can see that we are really
optimistic, as most people are, in where this market is going. Right?
And the fundamentals are there, and they are very different from what weve
seen before. We didnt have an emerging Asia that had 100 million new passengers every year in the next 20 years, every year. We didnt have a situation where the next-generation aircraft was so much more attractive in terms of fuel
efficiency and maintenance costs, and where we literally had 600 aircraft per annum retiring every year.
All of this, I think, plays into this, and we
I mean, we do see a robust demand also on the engine side, which is basically a derivative of the planes, and of the new planes and the usage. We do not see any dips in there, or any risks. I think that is more and I think if you talk
to the experts, they would very soon see that this is more a Company specific thing rather than a market situation.
And the good news is, we cater to
everybody. Basically, every jet engine maker as well as every airplane platform maker is our customer, and we are really, really happy about this business.
Tony Rizzuto - Cowen and Company -
Analyst
Okay. I wonder if I may ask a second question?
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Sure.
Tony Rizzuto - Cowen and Company -
Analyst
Its your spending thus far on capital, both growth and sustaining, has been obviously at a run rate thus far through the
first six months, thats been below what youre targeting for the year. I did hear you say it was expected to ramp up as we go through the year. But as you sit there today, and talking to us about this, is it likely youve done
a very good job at managing capital spending and cash flows over the last couple of years, and can you provide any further granularity on your thought process about overall capital spending for the year?
William Oplinger - Alcoa Inc. - EVP & CFO
Sure, Tony. I made the point on the return seeking capital, that were looking to ramp it up. Those return seeking capital projects have very good
returns.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Theyre generally either cost savings or organic growth opportunities, and so we really want to ensure
that we spend the money on the return seeking projects, so that we can get the returns. Given the current market environment in the upstream business, well do everything we can to manage sustaining capital successfully, and thats the
area that as we look forward to our $500 million free cash flow target, its one of the areas well be looking to manage, to try to achieve that target.
Tony Rizzuto - Cowen and Company -
Analyst
Thank you very much, Bill and Klaus.
Operator
Your next question comes from the line of Brian MacArthur with UBS. Your line is open.
Brian MacArthur - UBS - Analyst
Hi,
good evening. I was just thank you very much, I think it is very helpful to take out the metal float in the GRP business. But you also didnt go back and restate 2010, 2011, and 2012, and you set your goal of getting an EBITDA per ton of
$344 based on those three years, and yet since then, weve sold a lot of mills that probably werent doing that well.
Obviously autos got
a lot better. You managed to do $342 already this quarter in an environment thats pretty tough. Is it fair to assume that Im just curious, you didnt reset that target, because obviously I would think it would be quite a bit
better, given your mix going forward. Or am I incorrect in assuming that?
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Well, I mean, when we put the target out, we were actually assuming that we would change the mix. So without a
change of the mix, this would have been impossible to achieve, right? Particularly when you see the decline in the enormous headwinds that we are facing on the packaging side.
When I look at our rolling business, I must say, they are doing on both sides a really good job to bring the costs down in the packaging business, they are
facing a lot of headwinds there. At the same time, we are growing with innovation, and then we have this revolutionary innovation there with the Micromill and the Micromill materials. I hope that this is not getting buried. The very fact that we
announced when did we announce it, actually, end of last year, December or so, wasnt that about the time when we announced the Micromill?
William Oplinger - Alcoa Inc. -
EVP & CFO
Yes.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
We have now eight customers that have signed up in qualification contracts and they are coming eight
automotive customers, big names, they are coming from all three continents. That shows you what this team has been doing, right? So this is how we look at it from a short term, but the $344 has already been, on your specific question, this was
already assuming that portfolio actions would be necessary for this.
Brian MacArthur - UBS - Analyst
That would have included obviously the metal price pass-through and everything as well, too, right?
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
William Oplinger - Alcoa Inc. - EVP & CFO
The targets were set on the trailing three years, and we assumed essentially flat metal prices from there. So in essence, by setting the target with flat metal
prices, you didnt have a metal price impact in the numbers.
Brian MacArthur - UBS - Analyst
Okay. Thats what I was just going to
William Oplinger - Alcoa Inc. -
EVP & CFO
Yes, yes. The target is still a valid target, and as Klaus eloquently said, really a tale of two cities. Youve got
a packaging business that has some significant headwinds, and youve got an aerospace and automotive business thats doing well.
Brian MacArthur - UBS - Analyst
Great. That helps a lot clarifying it. Thanks very much.
Operator
Your next question comes from the line of Jeremy Kliewer with Deutsche Bank. Your line is now open.
William Oplinger - Alcoa Inc. - EVP & CFO
Hi, Jeremy.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Hello, Jeremy. Jeremy, you have to unmute.
Jeremy Kliewer - Deutsche Bank - Analyst
Hi, guys, just wanted a bit more clarity
William Oplinger - Alcoa Inc. -
EVP & CFO
We need you to speak up, Jeremy.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Speak up a little bit more.
Jeremy Kliewer - Deutsche Bank -
Analyst
Just need a little bit more clarity on the fake semis coming out of China. I was just wondering if you would perchance take the
same route as some of the steel companies and perhaps raise a trade case, or if youre just waiting for China to employ the discipline on their own companies?
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Jeremy, thats a good question. Frankly, as I said, we are considering all options here, but I believe Ive last been in China four weeks ago
or so, and had a lot of conversations also with high level folks. They are very clear that this is not in line with their policy, and that they are deeply looking into this.
My strong assumption is that they will be shutting this down. Because in reality, why have they put these procedures in place, because they dont want
primary metal to leave the country, because primary metal is another way, its a liquefied way of energy, and this energy that they dont have enough in their country, and that has a level of pollution, creates a level of pollution and
eats up water in areas where theres water shortage.
One of the big expansions that has happened on the primary metals production is in the Gobi
Desert up in the north, in the Xinjiang province. The Xinjiang province is a desert. They dont have water there. And they either still use water-cooled power, coal-fired power generation, which is really terrible to do in a desert, or they go
with air-cooled and air-cooled, you basically now have to live with a lower efficiency, which basically means you burn more coal.
So with this, your CO2
amount goes up, in an area where they already suffer from enormous problems with air quality, right? And this government, as we could see today again, and yesterday, is very much also focused on how their people are feeling about the government,
right? And social stability, and social stability is more and more tied also to environmental conditions, which is kind of typical, as economies move up. So thats how I see this. But I would say our position is, we are open to all options, but
at this point in time Im relatively optimistic that the Chinese will take care of it.
Jeremy Kliewer - Deutsche Bank -
Analyst
One more, if I may.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Sure.
Jeremy Kliewer - Deutsche Bank -
Analyst
On power and propulsion, you had set a goal for 2016 of $2.2 billion. We were just wondering how close are you to getting that with
the organic growth, versus having the acquired growth from Firth Rixson and RTI and TITAL?
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
On the APP, in fact, on APP was. The only non-organic growth that weve had there is TITAL, and thats
relatively small.
William Oplinger - Alcoa Inc. - EVP & CFO
About $100 million.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
About $100 million. The $2.2 billion is really organic growth. When you look at my list that I had in there on
aerospace, right? You see a lot of APP plans there, like Hampton.
William Oplinger - Alcoa Inc. -
EVP & CFO
LaPorte.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
LaPorte, where we are putting in investments, and for instance that allow us to have bigger casts for bigger investment casts for the larger jet engines, and a
better coating for blades in Hampton, and then for Whitehall, we have investments there. So most of it is really organic growth there through innovation, really strong innovation. Thank you for asking. APP is a really, really great business, doing
very, very well.
Jeremy Kliewer - Deutsche Bank - Analyst
Thank you. Good luck.
Operator
Your next question comes from the Paretosh Misra with Morgan Stanley. Your line is now open.
Paretosh Misra - Morgan Stanley - Analyst
Thanks. I have a question on slide 21, regarding your aerospace market guidance. I was wondering if you could provide some more color as to what platforms are
driving this growth, and driving the change in your guidance, and particularly interested in 2016 and 2017.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
Oh, I see. Youre talking about the end market slide. Okay.
Paretosh Misra - Morgan Stanley - Analyst
Right.
Klaus Kleinfeld - Alcoa Inc. -
Chairman & CEO
The end market slide. And I think youre referring to the first bullet point, the shift of this this is
purely referring, to explain, if you take this chart and you compare it with the chart, with the same chart that we had for aerospace at the end of first quarter, you would see that at that point in time, we predicted a growth for this year from 9%
to 10%, and we are now taking this down to 8% to 9%, and the reason why were taking it down is because weve seen in the first half of the year that the ramp-up in the supply chain for the new platforms, mainly the A350 and the C series
has been too slow.
However, this is not a reflection of the orders that are there, right? Its just a reflection of the ramp-up thats
impossible, basically, with the supply chain to catch up as the rest of this year. So this is moving into next year, and into the year after this.
So
thats why we are on the one hand shifting, taking the 1% down here, at the same time were adding this to the 2016 and 2017, what weve seen there, and you see that this growth rate basically doubles then, through this move. Does
that explain your question?
Paretosh Misra - Morgan Stanley - Analyst
Yes. Thats it.
Operator
There are no further questions at this time. I turn the call back over to Mr. Kleinfeld.
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JULY 08, 2015 / 09:00PM GMT, AA - Q2 2015 Alcoa Inc Earnings Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Okay. Very good, and good discussion also. Let me close. This was a strong quarter, shows the transformation is right on. Our value-add businesses are
outperforming, acquisitions fully on track.
Upstream faced tough headwinds, showed resilience, strong productivity, excellent cash generation. One thing
that I can guarantee you, we are laser beam focused on shifting the portfolio to higher profitability and the repositioning is at work. Thank you for calling in, and Im looking forward to our next conversations. Thank you very much.
Operator
Thank you for joining, ladies and gentlemen.
This concludes todays conference call. You may now disconnect.
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2 nd Quarter Earnings Conference 12 July 8, 2015 [Alcoa logo] Exhibit 99.2 |
Important Information 2 [Alcoa logo] Forward-Looking Statements This communication contains statements that relate to future events and expectations and as such constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include those containing such words as anticipates, believes, could, estimates, expects, forecasts, intends,
may, outlook, plans,
projects, seeks, sees, should, targets, will, would, or other words of similar meaning. All statements that reflect Alcoas expectations, assumptions or
projections about the future other than statements of historical fact are
forward-looking statements, including, without limitation, forecasts concerning global demand growth for aluminum, end market conditions, supply/demand balances, and growth opportunities for aluminum in automotive, aerospace, and other applications;
targeted financial results or operating performance; statements about
Alcoas strategies, outlook, and business and financial prospects; and statements regarding the acceleration of Alcoas portfolio transformation, including the expected benefits of acquisitions, including the completed acquisition of the Firth Rixson business and TITAL, and
the pending acquisition of RTI International Metals, Inc. (RTI). These
statements reflect beliefs and assumptions that are based on Alcoas perception of historical trends, current conditions, and expected future developments, as well as other factors management believes are appropriate in the circumstances. Forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties,
and changes in circumstances that are difficult to predict. Important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements include: (a) material adverse changes in aluminum industry conditions, including global supply and
demand conditions and fluctuations in London Metal Exchange-based
prices and premiums, as applicable, for primary aluminum, alumina, and other products, and fluctuations in indexed-based and spot prices for alumina; (b) deterioration in global economic and financial market conditions generally; (c) unfavorable changes in the markets served by Alcoa, including
aerospace, automotive, commercial transportation, building and
construction, packaging, defense, and industrial gas turbine; (d) the impact of changes in foreign currency exchange rates on costs and results, particularly the Australian dollar, Brazilian real, Canadian dollar, euro, and Norwegian kroner; (e) increases in energy costs or the unavailability or
interruption of energy supplies; (f) increases in the costs of other raw
materials; (g) Alcoas inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations (including moving its alumina refining and aluminum smelting businesses down on the industry cost
curves and increasing revenues and improving margins in its Global Rolled
Products and Engineered Products and Solutions segments) anticipated from its restructuring programs and productivity improvement, cash sustainability, technology, and other initiatives; (h) Alcoas inability to realize expected benefits, in each case as planned and by
targeted completion dates, from acquisitions (including achieving the
expected levels of synergies, revenue growth, or EBITDA margin improvement), sales of assets, closures or curtailments of facilities, newly constructed, expanded, or acquired facilities, or international joint ventures, including the joint venture in Saudi Arabia; (i) political, economic, and regulatory risks
in the countries in which Alcoa operates or sells products, including
unfavorable changes in laws and governmental policies, civil unrest, imposition of sanctions, expropriation of assets, or other events beyond Alcoas control; (j) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation; (k) the impact of
cyber attacks and potential information technology or data security
breaches; (l) failure to receive the required votes of RTIs shareholders to approve the merger of RTI with Alcoa, or the failure to satisfy the other closing conditions to the acquisition; (m) the risk that acquisitions (including Firth Rixson, TITAL and RTI) will not be integrated
successfully or such integration may be more difficult,
time-consuming or costly than expected; (n) the possibility that certain assumptions with respect to RTI or the acquisition could prove to be inaccurate, including the expected timing of closing; (o) the loss of customers, suppliers and other business relationships as a result of acquisitions, competitive developments,
or other factors; (p) the potential failure to retain key employees of
Alcoa or acquired businesses; (q) the effect of an increased number of Alcoa shares outstanding as a result of the acquisition of RTI; (r) the impact of potential sales of Alcoa common stock issued in the RTI acquisition; (s) failure to successfully implement, to achieve commercialization of, or to realize
expected benefits from, new or innovative technologies, equipment,
processes, or products, including the Micromill, innovative aluminum wheels, and advanced alloys; and (t) the other risk factors discussed in Alcoas Form 10-K for the year ended December 31, 2014, and other reports filed with the Securities and Exchange Commission (SEC). Alcoa
disclaims any obligation to update publicly any forward-looking
statements, whether in response to new information, future events or otherwise, except as required by applicable law. Market projections are subject to the risks discussed above and other risks in the market. Nothing on Alcoas website is included or incorporated by reference herein. |
Important Information (continued)
3 [Alcoa logo] Non-GAAP Financial Measures Some of the information included in this presentation is derived from Alcoas consolidated financial information but is not presented in
Alcoas financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). Certain of these data are considered non-GAAP financial measures under SEC rules. These non-GAAP financial measures supplement our GAAP disclosures and
should not be considered an alternative to the GAAP measure.
Reconciliations to the most directly comparable GAAP financial measures and managements rationale for the use of the non-GAAP financial measures can be found in the Appendix to this presentation. Any reference to historical EBITDA means
adjusted EBITDA, for which we have provided calculations and
reconciliations in the Appendix. Alcoa has not provided a reconciliation of any forward-looking non-GAAP financial measure to the most directly comparable GAAP financial measure, due primarily to variability and difficulty in making accurate
forecasts and projections, as not all of the information necessary for a
quantitative reconciliation is available to Alcoa without unreasonable effort. Additional Information and Where to Find It This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or
approval nor shall there be any sale of securities in any jurisdiction in
which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The proposed business combination transaction between Alcoa and RTI will be submitted to the shareholders of RTI
for their consideration. Alcoa has filed with the SEC a Registration
Statement on Form S-4 (Registration No. 333-203275) containing a definitive proxy statement of RTI that also constitutes a prospectus of Alcoa, and RTI has mailed the proxy statement/prospectus to its shareholders. Alcoa and RTI also plan
to file other documents with the SEC regarding the proposed transaction.
INVESTORS AND SECURITY HOLDERS OF RTI ARE URGED TO READ THE PROXY
STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC CAREFULLY AND
IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE
PROPOSED TRANSACTION. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SECs website (www.sec.gov). You may also obtain these documents, free of charge, from
Alcoas website (www.alcoa.com). You may also obtain these
documents, free of charge, from RTIs website (www.rtiintl.com).
Participants in the Solicitation
Alcoa, RTI, and certain of their respective directors, executive officers and other
members of management and employees may be deemed to be participants in
the solicitation of proxies from RTI shareholders in connection with the proposed transaction. You can find information about Alcoas executive officers and directors in its definitive proxy statement filed with the SEC on March 19, 2015, its Annual Report on Form 10-K filed with the SEC on
February 19, 2015 and in the above-referenced Registration Statement
on Form S-4. You can find information about RTIs executive officers and directors in the proxy statement/prospectus and in RTIs Annual Report on Form 10-K filed with the SEC on February 26, 2015. You can obtain free copies of
these documents from Alcoa and RTI as described in the preceding
paragraph. |
Klaus
Kleinfeld Chairman and Chief Executive Officer
4 July 8, 2015 [Alcoa logo] |
Driving
Solid Operational Results + Transformation On Track 5 1) Reported earnings of $140 million in 2Q15 vs 2Q14 of $138 million, up 1.4%. See appendix for adjusted earnings reconciliation. [Alcoa logo] Adjusted Earnings 1 up nearly 16% Driven by: Downstream: Record ATOI of $210 million, up 4%; aerospace revenue up 29% YoY Midstream: ATOI of $76 million, up 9%; auto sheet revenue up ~180% YoY Upstream: Solid Performance in face of significant market headwinds
Productivity Gains: $324 million across all
segments Free Cash Flow: $205 million; Cash from Operations $472 million, after $300 million prepayment for gas supply contract Cash on Hand: $1.3 billion Firth Rixson integration on
track $1.6 billion revenue and
$350 million EBITDA in 2016
Micromill : Qualification agreements in place with 8 major automotive customers
from three
continents Progress
on 12-month capacity review: 2.8 MMT Refining, 500 kmt Smelting Expected to close by end of July Completed 12-year Western
Australia Gas Supply Contract Curtailed Suriname alumina
refining capacity and São Luís aluminum smelting capacity Permanently closed Poços
de Caldas primary aluminum smelter in Brazil Announced permanent closure of
Anglesea power station & coal mine in Australia 2Q 2015 Overview Driving Solid Operational Performance Portfolio Transformation On Track Obtained regulatory approvals for RTI acquisition RTI Shareholder Vote July 21
TM Alumina segment: ATOI of $215 million; Best First Half ATOI result since 2007
Primary Metals segment: ATOI of $67 million; as Midwest transaction price lower by 22%, YTD 2015 |
William Oplinger Executive Vice President and Chief Financial Officer 6 July 8, 2015 [Alcoa logo] |
Income
Statement Summary 7
See appendix for EBITDA and Adjusted Income reconciliations.
[Alcoa logo] |
Special
Items GRP = Global Rolled Products. 1) Total restructuring-related
charges in 2Q15 of $143 million (55 percent cash, 45 percent non-cash). See appendix for Adjusted Income reconciliation
8 [Alcoa logo] $ Millions, except per-share amounts 2Q14 1Q15 2Q15 Income Statement Classification Segment Net Income $138 $195 $140 Net Income Per Diluted Share $0.12 $0.14 $0.10 Restructuring - Related 1 ($54) ($158) ($143) Restructuring and Other Charges/COGS Corporate/ Primary Metals Tax Items ($2) ($4) $22 Income Taxes Corporate/GRP Gain on Land Sale - - $19 Other Income, Net Corporate Acquisition Costs ($11) ($7) ($5) SG&A Corporate Mark-to-Market Energy Contracts $6 $1 ($3) Other Expenses (Income), Net Corporate Master U.S. Labor Agreement ($11) - - COGS Corporate/All Saudi JV Potline Impact ($6) - - COGS / Other Expenses, Net Primary Metals Special Items ($78) ($168) ($110) Net Income excl Special Items $216 $363 $250 Net Income per Diluted Share excl Special Items $0.18 $0.28 $0.19 |
Adjusted
Earnings Up nearly 16% on Performance and Market Factors See appendix for
Adjusted Income reconciliation 9
[Alcoa logo]
Net Income excluding Special Items ($ Millions)
Market +$88 Performance +$184 Cost Headwinds -$238 $5 $209 $43 $85 $19 $250 $216 Raw Materials -$187 Cost Increases / Other 2Q 15 Volume Currency API LME -$16 2Q 14 Energy -$56 Productivity Price / Mix -$68 |
EPS:
Record Second Quarter 10
1) Prior period amounts have been revised to remove impact of metal price lag. See
appendix for additional information. See appendix for EBITDA reconciliation.
[Alcoa logo]
$ Millions 2Q 14 1Q 15* 2Q 15* 3 rd Party Revenue ($ Millions) 1,502 1,689 1,733 ATOI 1 ($ Millions) 202 194 210 EBITDA Margin 1 22.9% 20.4% 21.5% 3 rd Quarter Year-over-Year Outlook 2 nd Quarter ATOI Performance Bridge 2Q15 Actual and 3Q15 Outlook Engineered Products and Solutions $71 $21 $210 $202 2Q 15 Cost Increase -$57 Productivity Price / Mix -$16 Volume Currency -$11 2Q 14 * Including Firth Rixson and TITAL. * EPS Base Business EBITDA Margin 1 : 21.8% for 1Q15, 22.6% for 2Q15 . Aerospace market
remains strong
Non-Residential Construction: Continued recovery in N.A., European weakness continues Continued strength in N.A. Heavy Duty Truck build
rates; gradual recovery in Europe European summer slowdown across all
sectors Firth Rixson
Savannah press repair outage (33k ton) Share gains through innovation &
productivity continue across all sectors ATOI is expected to increase 5%-10%, including
unfavorable currency
pressures of $9M Record second quarter ATOI, up 4% year-over-year Revenue up 15% year-over-year, EBITDA margin of 21.5% Revenue growth driven by acquisitions
and share gains in aerospace, somewhat offset by
currency Unfavorable currency ATOI impact of $11M, due to stronger U.S. dollar Firth Rixson Q2 EBITDA of $42M and EBITDA margin of 16.8% (2014A full year EBITDA margin of 15.7%) Year-over -year ATOI improvement driven by
productivity, acquisitions, strong Aerospace and Commercial Transportation revenues 2 nd Quarter ATOI Results 2 nd Quarter Business Highlights |
11 GRP: Stronger Results on Performance and Volume 1) Prior period amounts have been revised to remove impact of metal price lag. See appendix for additional information.
See appendix for EBITDA reconciliation.
[Alcoa logo]
2Q 14 1Q 15 2Q 15 3 rd Party Revenue ($ Millions) 1,860 1,621 1,668 ATOI ($ Millions) 70 54 76 EBITDA/MT 1 ($) 289 347 342 2Q15 Actual and 3Q15 Outlook Global Rolled Products $ Millions 2Q15 $76 Portfolio Actions -$7 Cost Incr./ Other -$32 Prod - uctivity $42 Price / Mix -$12 Volume $19 Currency -$4 2Q14 $70 ATOI up 9% and EBITDA/MT up
18%, year-over-year
Strong productivity and record Auto sheet revenue (up ~ 180% year- over-year) Unfavorable
currency impacts of $4M
Russia negatively impacted by metal premiums and continued pricing pressures in
Packaging Increased
investments in Micromill TM R&D and Saudi
JV ramp-up Auto and Aero demand expected to
remain strong, combined with seasonal volume increases in
Packaging Metal premium negatively impacts Russia and Packaging price pressures expected to continue European summer slowdown in
Commercial Transportation/Industrial Continued investments in the Micromill TM and Saudi
JV ramp-up ATOI is expected to increase 5%-10%, assuming current currency rates 3 rd Quarter Year-over-Year Outlook 2 nd Quarter ATOI Performance Bridge 2 nd Quarter Business Highlights 2 nd Quarter ATOI Results 1 |
Alumina
Delivers Best First Half ATOI since 2007 12
[Alcoa logo]
$ Millions $5 $1 $4 -$1 API -$11 LME -$4 1Q15 $221 2Q15 $215 Prod- uctivity Price / Mix Volume Currency 2Q 14 1Q 15 2Q 15 Production (kmt) 4,077 3,933 3,977 3 rd Party Shipments (kmt) 2,361 2,538 2,706 3 rd Party Revenue ($ Millions) 761 887 924 3 rd Party Price ($/MT) 318 344 337 ATOI ($ Millions) 38 221 215 2 Quarter ATOI Results 2 nd Quarter Business Highlights 2 nd Quarter ATOI Performance Bridge 3 rd Quarter Sequential Outlook 2Q15 Actual and 3Q15 Outlook Alumina ~75% Best first half ATOI since 2007 Third-party shipments up, primarily in Australia and Spain Unfavorable API, LME and currency movements Benefit from volme
increases and productivity improvements Gross productivity up $46M year-over-year of 3 rd party shipments on API or spot pricing for 2015 API pricing follows 30 - day lag;
LME pricing follows 60 - day lag Production up 40 kmt due to one additional day in the quarter Saudi Arabia refinery reaching stability,
earnings
up $5M Productivity and volume improvements more than offset energy and cost increases by $15M nd |
Primary
Metals Resilient Despite Strong Headwinds 13
1) Based on published prices as of July 8, 2015 for premiums; Midwest = 8.5c/lb, Euro Duty
Paid = $190/MT, CIF Japan = $100/MT. [Alcoa
logo] $ Millions
2Q15 Actual and 3Q15 Outlook
Primary Metals $67 $10 $1 $8 LME -$24 1Q15 $187 2Q15 Cost Incr. / Other -$12 Energy Prod - uctivity Price / Mix -$102 Volume -$1 API Realized price declines ~10% sequentially, largely driven by lower regional premiums; ~22% drop in Midwest Transaction Price YTD Production down due to São Luís curtailment Favorable alumina and energy costs; cost increases primarily from closed/curtailed locations Gross productivity up $56M year-over-year 2Q 14 1Q 15 2Q 15 Production (kmt) 795 711 701 3 rd Party Shipments (kmt) 638 589 630 3 rd Party Revenue ($ Millions) 1,659 1,572 1,534 3 rd Party Price ($/MT) 2,291 2,420 2,180 ATOI ($ Millions) 97 187 67 2 nd Quarter ATOI Results 2 nd Quarter Business Highlights 2 nd Quarter ATOI Performance Bridge 3 rd Quarter Sequential Outlook Pricing follows a 15-day lag
to LME Production up 10 kmt due to one additional day in the quarter Regional premium decline impact of $70M 1 Brazil energy sales improve by $10M Productivity and higher volume more than offset energy and cost increases by $8M |
Base
Business DWC Improved Year-over-Year, Acquisitions Add 3 days FCF:
Free Cash Flow. See appendix for days working capital reconciliation
14 [Alcoa logo] 5 days lower Average Days Working Capital since Second Quarter 2010 3 days lower 34 33 28 32 33 30 28 31 29 32 30 36 35 34 36 40 40 40 37 44 43 6 days lower 1 day higher Acquisitions (3 days) Alcoa ex-Acquisitions (31 days) 12 days from base business >$700M FCF 2 days lower from base business 4 days higher 31 |
2 nd Quarter 2015 Cash Flow Overview 15 See appendix for Free Cash Flow reconciliation [Alcoa logo] ($ Millions) 2Q14 1Q15 2Q15 Net Income before Noncontrolling Interests $129 $255 $207 DD&A $350 $321 $320 Change in Working Capital $31 ($595) $44 Pension Expense in Excess of Contributions ($82) $37 $37 Australian Gas Prepayment - - ($300) Other Adjustments $90 ($193) $164 Cash from Operations $518 ($175) $472 Dividends to Shareholders ($36) ($54) ($55) Change in Debt $296 $24 ($38) $4 ($29) ($42) Other Financing Activities $17 $33 $2 Cash from Financing Activities $281 ($26) ($133) Capital Expenditures ($258) ($247) ($267) Acquisitions/Divestitures/Asset Sales $1 ($212) $67 Other Investing Activities ($29) ($6) ($20) Cash from Investing Activities ($286) ($465) ($220) Free Cash Flow $260 ($422) $205 Cash on Hand $1,183 $1,191 $1,311 2Q14, 1Q15 and 2Q15 Cash Flow Net (Distributions)/Contributions from Noncontrolling Interests |
16 LTM = last twelve months; See appendix for Net Debt and LTM EBITDA reconciliations.
Maintained Strong Balance Sheet
[Alcoa logo]
2Q15 8,789 7,478 1Q15 8,817 7,626 2014 8,852 6,975 2013 8,319 6,882 2012 8,829 6,968 2011 9,371 7,432 2010 9,165 7,622 ($Millions) Debt-to-LTM EBITDA Net Debt Cash 3.27 3.39 2.87 Debt, Net Debt, and Debt-to-LTM EBITDA 2.49 4.20 2.22 2.12 1,543 1,939 1,861 1,437 1,877 1,191 1,311 |
17 Maintaining Our 2015 Financial Targets [Alcoa logo] Attain 2.25 to 2.75
Debt-to-EBITDA
Manage Return-Seeking Capital
of $750M Drive Productivity Gains of $900M Overarching 2015 Financial Target Taking the Right Actions Control Sustaining Capital of $725M Generate $500M Free Cash Flow $562M YTD: $283M $240M 2.12 2015 Annual Financial Targets and Year-to-Date Results |
Alumina
Surplus Tightens; Pricing Steady 18
Source: Alcoa analysis, Brook Hunt, CRU, CNIA, NBS, Chinese Customs
1) Smelter Grade Alumina % of 3 rd party shipments on API/Spot pricing. [Alcoa logo] $400 $450 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Alumina Price Index 2015E Alumina Supply/Demand, Alumina Price Index (API) and % Third-Party Shipments
Alumina Price Index 2016E 84% 2014 68% 2010 5% 2015E 75% API/Spot 1 as % of 3 rd Party Shipments Forecast Actual 2015E Alumina Supply/Demand Balance 000 mt China Rest of World 2015 Production 51,567 54,921 2015 Production to be added 5,830 2,523 2015 Capacity curtailed or restarted 0 (350) Imports/(exports) 3,200 (3,200) Total supply 60,597 53,894 Demand (60,597) (51,466) Net Balance 0 2,428 1Q15 Surplus 2,699 Surplus 2,428 $300 $350 |
6.5%
2015E Demand Growth Aluminum Market Fundamentals are Mixed
2015E Aluminum Supply/Demand Balance
Global Inventories Fall to 62 days; -8 days YoY
Regional Premiums through 2Q 2015
See appendix for full scale charts
19 000 mt China Rest of World 2015 Production 29,579 26,280 2015 Production to be added 2,819 719 2015 Capacity curtailed (1,000) (155) Total Supply 31,398 26,844 Demand (29,171) (28,309) Net Balance 2,227 (1,465) 1Q15 Surplus 326 Surplus 762 [Alcoa logo] 29.2 6.7 6.7 4.3 2.3 2.1 2.1 1.0 0.9 4% 1.5% 5% 9.5% 5% 1% 10% 7% -1% -3% 57.5 mmt 1 Other includes Africa, E. Europe, Latin America ex Brazil, and Oceania 2015E Primary Aluminum Consumption (mmt), Annualized Growth (%) China Europe North America North Asia India SE Asia MENA Russia Brazil Other ¹ 2.1 2015 demand +6.5% World ex China +3.5% $1,000 $1,500 $2,000 $2,500 $3,000 0 7 14 21 28 35 42 49 56 63 70 77 84 91 98 105 China Incl SRB Producer Japan Port LME On Warrant Cancelled Warrants Off Exchange LME Cash Days of 108 days LME Cash Price $2,180/MT Days of Consumption 83 days LME Cash Price $2,663/MT Global Inventories -46 days from the 09 peak; -8 days YoY Days of Consumption Days of 62 days LME Cash Price $1,683/MT $ per metric ton Global inventories vs. LME price over time $ Days of 70days LME Cash Price $1,834/MT $0 $100 $200 $300 $400 $500 $600 $0 $100 $200 $300 $400 $500 $600 Regional Premiums over time $ per metric ton $ per metric ton Region 2Q15Average Europe $203/MT Japan $184/MT Midwest USA $264/MT Average 2Q15 vs. 2Q14 Europe -48% Japan -50% Midwest USA -36% Consumption Consumption Consumption |
Klaus
Kleinfeld Chairman and Chief Executive Officer
20 July 8, 2015 [Alcoa logo] |
Aerospace Remains Strong; Steady Growth in Automotive
Source: Alcoa analysis 1) International Air Transport Association 2015
Expectations N.A. Auto sales, inventory, incentives, avg. transaction price
as of Jun. 2015; Production as of May 2015. Europe and China YTD data as of May 2015 21 [Alcoa logo] End Market 2015 Growth Global and Regional Commentary Aerospace 8% to 9% Global sales growth Shift from 2015 to 2016 on slower new platform ramp-up (mainly A350 and CSeries); 2016/2017 growth rates nearly double prior fcst.(+8% 2016 vs. +4-5% prior;
+13% 2017 vs. 6% prior)
Paris Air Show + Chinese Premier Li visit to France secured $125B
orders/commitments for Airbus and Boeing (exceeding the $116B during Farnborough 2014) Strong Commercial Jet Order Book: >9 Years of Production at 2014 delivery rates Solid Airline Fundamentals 1 : +6.7% Passenger and +5.5% Cargo Demand, Dramatic Improvement in Airline Profitability ($29B in 2015E) Alcoa End Markets: Current Assessment of 2015 vs. 2014 Automotive 2% to 4% Global production growth NA 1% to 4% EU -1% to +3% China 5% to 8% Strong Sales: U.S. sales +4.4% YTD (8.5M vehicles), led by Light Trucks Production Up: +1.7%
YTD
Inventory Flat: 60 days, +1 day
YoY (industry target is 60-65 days) Incentives Up: +4.7% YoY ($2,877/unit), driven by Passenger Cars +12.4% YoY Avg. Transaction Price Up: +2.5% YoY at $33,340,driven by Light Trucks Production Flat: +1.3% YTD; W.
Eur improves, offsetting further decline in Russia Registrations: +6.8% YTD ; Exports +1.6% vs. prior year (2015 forecast) Production: +5.1% YTD (9.9M
vehicles) ;
Sales +4.0% YTD Moderated growth driven by increasing middle class, affordability, and Clean Air Act |
Heavy
Duty Truck Strong U.S., Weak China; Packaging Stable
22 Source: Alcoa analysis. Heavy Duty Truck: YTD and YoY data for production, order book, freight miles, and EU registrations as of May 2015; YTD orders data as of June 2015. Packaging: YTD figures as of May 2015. [Alcoa logo] End Market 2015 Growth Global and Regional Commentary Packaging 2% to 3% Global sales growth NA -1% to -2% EU 1% to 2% China 8% to 12% Demand decline: Weakness (-2.5% YTD) in Carbonated Soft Drinks (CSD) Moderate growth in Beer Segment (+0.5% YTD) to partially offset CSD Growth led by Steel to Aluminum conversion in Western Europe, partially offset by declines in Eastern Europe Growth driven by continued penetration of Aluminum in Beer segment Alcoa End Markets: Current Assessment of 2015 vs. 2014 Heavy Duty Truck and Trailer NA 9% to 11% EU -2% to 0% China -14% to -16% OEM supply chain supporting higher than expected build rates in 2Q15 Peaking Production: +18.7% YTD at 137k trucks Large Order Book: +42% YoY at 169k trucks; Remains above 10 year avg of 101k Decreasing Orders: -8.6% YTD,
after record 4Q14 orders Solid Fundamentals: +2.3% Freight ton miles (YTD); +54% Fleet profitability (1Q15 YoY) -4% to -6% Global production decline Increasing Production: W.Eur +5.2% YTD Improving conditions in W.Eur: Orders +12.2% YTD, Registrations +17.8% YTD Production Down: -34.1% YTD;
Strong pull-ahead demand in 2014 due to stage IV regulations; 2H15 forecasted to normalize from regulatory conditions
|
Solid
Commercial B&C Growth; Global Airfoil Market Improves Source: Alcoa
analysis B&C = Building and construction
23 [Alcoa logo] End Market 2015 Growth Global and Regional Commentary Industrial Gas Turbines Building and Construction 1% to 3% Global airfoil market growth NA 4% to 5% EU -2% to -3% China 6% to 8% 5% to 7% Global sales growth Alcoa End Markets: Current Assessment of 2015 vs. 2014 Positive Early Indicators: Non-Residential Contracts Awarded: +13.6% in May (mean of 12-month rolling average) Architectural Billing Index: Positive at
51.9 in May Case-Shiller Home Price Index: +4.1% YoY Mar; Growth moderated since 1Q14 (10%+) Decline as weakness continues,
outlook varies across markets
Market drivers continue to be relatively stable Slower industrial production growth at +6.1% YoY May Market moving towards higher value
product as customers develop
new, high efficiency turbines with advanced technology U.S. (60 Hz) gas-fired generation +19.5% YTD April driving strong demand for spares and component upgrades on
existing turbines
Tempered by EU (50 Hz)
demand which remains soft due to
subsidized renewables |
Transforming Alcoa
Creating Compelling Sustainable Value
24 [Alcoa logo] Building a Lightweight Multi-Material Innovation Powerhouse Creating a Globally Competitive Commodity Business Increasing share in exciting growth markets e.g., aerospace, automotive, heavy duty truck and trailer, building and construction Full pipeline of innovative products and solutions Using all growth levers e.g., Alcoa Advantage Shifting mix to higher value-add Expanding multi-material, technology and process expertise Increasing competitiveness, mitigating
downside risk Optimizing the
casthouse value-add portfolio Shifting pricing to reflect market fundamentals Continuing to drive productivity
improvements |
Investments Position Alcoa as a Premier Aerospace Solutions Provider
FR = Firth Rixson. 1) Estimated completion for Hampton/LaPorte by 4Q 2015, Whitehall HIP in 2016 and Davenport in 2017. 2) Pro forma includes EPS, FR, Tital and RTI. 3) RTI close expected by end of July, subject to RTI shareholder approval. 4)Represents mid & downstream capabilities, not market position. 25 [Alcoa logo] Organic and Inorganic Aerospace Investments Increase Multi-Material, Multi-Platform Offerings
Organic Growth Through Innovation
Hampton 1 : Enhanced blade performance; cuts blade weight by 20%, improved
aerodynamics LaPorte
1 : Expands Ni structural castings to large commercial jet
engines
Whitehall 1 : Advanced coatings, high-temperature protection;
hot-
isostatic press for Ti, Ni, and 3D-
printed jet engine parts
Lafayette: Worlds first Al-Li fan blade Davenport 1 : Worlds largest stretcher for monolithic
ribs Lafayette: Worlds
largest Al-Li casthouse (20 kmt)
Grows Al-Li capabilities
Largest Al-Li ingot; slabs
~50% larger than nearest
competitor Carson:
Flite-tite ® fasteners, lightning-strike management Melting (Ingot, Cast Slab) Billetizing, Rolling (Mill Products) Conversion (Closed-Die Forging, Extruding, Investment Casting) Machining, Subassembly INGOT PLATE FORGING MACHINING CASTINGS FR Doubles Engine Content Alcoa Products Firth Rixson Products RTI 3 +TITAL Complement Value Chain 4 None Limited Moderate Significant Full Capabilities: Inorganic Investments in Robust Aerospace Market 2014 Pro forma 2 Aerospace Revenue ~$5.6B Can Produce >90%
of Structural and Rotating Components
(e.g., turbine blades and vanes, structural castings, rings, discs, shafts, fasteners and front fan blades) Multi-Material Ni and Ti-Al in hot section Ti, Al and Steel in cold section |
Positioned on Every Large Commercial Aircraft, Regardless of Material
26 CFRP = Carbon Fiber Reinforced Polymer. 1) A320NEO and 737MAX aircrafts as well as GE Leap-X engine not included as contract negotiations
ongoing. 2) Estimated RTI content; RTI close expected by end of July,
subject to RTI shareholder approval. [Alcoa
logo] Boeing
Airbus B787 A380 B747-8 A350 A320 B737 B767 A330 B777 Indexed Revenue by Aircraft Type and Key Engine Type 1 Strong Revenue Generator on All Platforms Pro forma Revenue / Aircraft (Indexed to B737) 100% CFRP Intensive PW 1100G (A320N) GE90 (B777) V2500 (A320C) GEnx 1B (B787) GEnx 2B (B747) Trent 900 (A380) Trent XWB (A350) Trent 1000 (B787) GP7200 (A380) CFM56 (B737) (A320C) Airbus Twin Aisle Better Coverage of Key Engine Platforms Pro forma Revenue / Engine (Indexed to CFM56) 100% Boeing Twin Aisle Single Aisle Alcoa Firth Rixson B787 (CFRP): ~$6.4M Rev content / shipset B767(metallic): ~$2.4M Rev content / shipset ~$660k Rev content / engine on 787 GEnx 1B Alcoa Firth Rixson RTI 2 |
Robust
Aerospace Fundamentals 27
Source: The Airline Monitor June 2015, Teal Group April 2015, and Forecast International
April 2015. Forecasted values are in 2015 constant dollars. 1) Boeing Current
Market Outlook 2015. 2) The Airline Monitor June 2015. [Alcoa logo] $150 $200 $100 $0 $50 2013 2014 2015 2012 2017 2016 2021 2022 2020 2023 2024 2018 2019 ($B) Actual Min. forecast Max. forecast Strong Aerospace Fundamentals Emerging Asia adds 100M new passengers each
year and drives 5% CAGR in travel demand (2014-2034) Lower operating costs of Next Gen Aircrafts (e.g., +20% fuel efficiency,
-30% maintenance costs) More diversified aircraft customer base (Past: primarily U.S. and European carriers) Aircraft Retirements ~600 aircrafts p.a. from 2015-2024 >9 year production order book at 2014 delivery rates
1 2 Commercial Jet Deliveries of 2012-2014 Actual and 2015-2024 3 Party Forecasts ($B) rd |
Firth
Rixson Integration
On Track to Achieve 2016 Targets
28 1) Firth Rixson unaudited financials. 2) 2Q 2015 Actual. 3) Deployed versus 2016 target, gross synergies of $44M offset by $4M integration costs.
[Alcoa logo]
Market & Share Gains
EBITDA $100-110M Productivity & Synergies EBITDA $70-80M 2Q 2015 Annualized Run Rate EBITDA $168M 2014 Actual and 2016 Target Revenue and EBITDA and 2Q 2015 EBITDA Annualized Run Rate to 2016 EBITDA Target
Acceleration of demand for Next Gen Engine Components in 2016 Targeted Rings, Forgings, and Metals growth opportunities across
Slower than expected recovery in 2016 Stand alone Incremental
Productivity Accelerated capture
of Synergies Operational productivity Overhead cost reductions Procurement savings GE Leap-X P&W GTF RR Trent XWB Oil & Gas Mining Airframe Jet engine Mining Oil & Gas 2014A EBITDA $152M 1 Revenue $1.0B 2016 Target Revenue $1.6B EBITDA $350M 15.7% EBITDA margin 16.8% EBITDA margin 2 ~190% deployed 3 21.9% EBITDA margin |
RTI
Acquisition On Track for End of July Close 1)
Fixed exchange ratio based on market close price as of March 6, 2015; Enterprise value as of March 6, 2015. 2) As a result of the acquisition, Alcoa assumes $114.4M convertible senior notes due 2015 of which holders have the right to elect to convert to common stock within 35 trading days
post-close. 3) As of July 8, based on current market conditions and
phased-in synergies . 4) Figure reflects net synergies after $9M integration costs. 29 [Alcoa logo] Net Synergies $100M 4 30% in year 2
100% in year 4
Enhances Offerings: Expands Ti, Value-Add Solutions
Identified 2019 RTI Gross Synergies
Strategic Merits Transaction Overview Targeting End of July Close Highlights of RTI Acquisition, Closing Progress and Synergy Preparation 2019 Target: $1.2B revenue 25% EBITDA margin Builds value - add portfolio; Expands further into high-performance metals Expands range
of midstream and downstream
titanium supply chain capabilities Captures growth from long-term agreements and Advanced Technologies Fixed Exchange Ratio: 2.8315 AA shares per RTI share Enterprise Value : $1.5B reflecting: o ~ $1.3B equity issuance [~89M shares] o $517M convertible senior notes (2015 2 & 2019) o $330M of RTI cash on hand Accretion: 1 full year in 2017 3 Returns: In excess of Cost of Capital U.S. RTI Shareholder Vote (July 21, 2015) Europe Approvals on track: Overhead Cost Reductions $20M Procurement Savings $20M Growth $25M Operational Productivity $44M Expand selection of machined
parts (e.g., plate, forgings, extrusions) Migrate from Ti ingot directed buy programs Offer Ti-Al for high-growth engine components Integrate Shared Services Center of Excellence Leverage Alcoas $18B global
spend ( e.g., commodities, production, maintenance supplies) Standardize payment terms Maximize internal metal supply Decrease outsourced machining Increase utilization of
capacity
(e.g., melting, billetizing, rolling, machining)
Optimize revert metal loop
Finance Credit Information Technology Human Resources 1 1 st |
GRP:
Lightweighting Trend Drives Substantial Automotive Growth
30 GRP = Global Rolled Products. CAFE=Corporate Average Fuel Economy. 1) Annual Savings = ((15,000 Hwy Miles/Yr ÷ 17 Hwy MPG) (15,000 Hwy Miles/Yr ÷ 26 Hwy MPG)) x $3/gal. 2) Alcoa Analysis and Environmental Protection Agency, October 2014.
[Alcoa logo]
Automotive Demand Drivers for Auto & Brazing Sheet and Alcoa Automotive
2014-2018 Revenue Reduced heat exchanger size and weight
up to 25% ~3% new auto sales growth Higher content growth per vehicle from adoption of turbo charged engines: 80% by 2025 from 17% in 2013 2 Automotive Revenue ($M) 2018E 1,800 2016E 1,530 2015E 1,060 2014A 750 Reduced fuel consumption: 9 MPG $916/yr
savings 1
Additional payload / towing capacity (e.g., 700 lbs on F-150) Faster acceleration;
Improved
braking distance Auto & Brazing Sheet: Profitable Growth U.S. CAFE Regulations (MPG) 54.5 35.5 32.2 2025E 2016E 2014 Result: Auto Sheet Shipments: ~65% CAGR
(2013-2016E)
Automotive Revenue: 10% of GRP in 2014A to 20% in 2016E Brazing Sheet Revenue Doubled
and Profits Tripled (2011-2014) +69% Auto Sheet Brazing Sheet Auto Sheet Brazing Sheet 1.4x 2.4x OEMs Need Fuel Economy and Consumer Benefits |
GPP:
New Global Business Structure Maximizing Profits 31
GPP=Global Primary Products. BPA = Bonneville Power Administration. Cost Curve targets
represent percentile. Source: CRU and Alcoa analysis. 1) Announced March 6,
2015. 2) Relative to market cash cost curve from 2010-2014. 3) Reflects Alcoas change in production cash cost; 3Q08-2Q15: $435/mt lower cash cost vs. $362/mt lower cash cost from 3Q08-3Q14. [Alcoa logo] 2010 and 2014 Actual and 2016 Target Cost Curve Positions and Global Business Unit 2Q15 Updates
MINING REFINING CASTING SMELTING ENERGY Innovative new foundry alloys for
automotive launched in
April 2015 Upgrading Baie- Comeau casthouse to meet automotive demand Curtailed Suralco Completed 12-year Western Australia Gas Supply Contract 1.1 MMT Saudi JV 2015 production on track $15/mt lower on cost curve 2 Revised Intalco BPA power contract Announced permanent closure of
Anglesea
power station & coal mine (by 8/31/2015) Curtailed São Luís Announced permanent closure of Poços 740 kmt Saudi JV 2015 production on track $50/mt lower on cost curve 2 $435/mt reduced cost 3 Saudi JV mine 99% complete Shipped Western Australian bauxite samples to 6 customers for testing 12-month Capacity Review 1 2.8 MMT Refining and 500 Kmt Smelting Explore opportunities in external markets Leverage assets; Secure long-term solutions Improve competitiveness; Transform pricing Lower cost; Enhance operational excellence Grow value-add product mix Alumina Primary Metals 2010 30 th 2014 25 th 2016 21 st 2010 2014 2016 Target -9% points cost position Target -13% points cost position 43 rd 38 th 51 st |
Capture
Value Add Market Share from Our Investments Drive Continued Upstream
Competitiveness Continue to Deliver Improved Operational Results
32 Creating Sustainable Value for Shareholders [Alcoa logo] |
Nahla
Azmy Vice President, Investor Relations
Alcoa 390 Park Avenue New York, NY 10022-4608 Telephone: (212) 836-2674 Email: nahla.azmy@alcoa.com www.alcoa.com Additional Information 33 [Alcoa logo] |
Annual
Sensitivity Summary Currency Annual Net Income Sensitivity
+/- $100/MT = +/- $190 million LME Aluminum Annual Net Income Sensitivity Australian $ +/- $11 million per 0.01 change in USD / AUD Brazilian $ +/- $ 1 million per 0.01 change in BRL / USD Euro +/- $ 2 million per 0.01 change in USD / EUR Canadian $ +/- $ 4 million per 0.01 change in CAD / USD Norwegian Kroner +/- $ 4 million per 0.10 change in NOK / USD 34 +/- $10/MT = +/- $20 million API/Spot Alumina Annual Net Income Sensitivity [Alcoa logo] |
Composition of Regional Premium Pricing Convention
2015E Shipments Regional Premiums Estimated Pricing Convention 50% Midwest Platts 15-day lag 35% Rotterdam DDP Metal Bulletin 45-day lag 10% CIF Japan Platts Month prior to Quarter start 5% Negotiated Annual 35 [Alcoa logo] |
36 Second Quarter 2015 Supplemental Segment Bridges EPS = Engineered Products and Solutions GRP = Global Rolled Products [Alcoa logo] $ Millions $ Millions $ Millions $ Millions EPS Sequential Quarter Bridge GRP Sequential Quarter Bridge Energy $10 Prod- uctivity $46 Price / Mix $3 Volume $1 Currency $95 2Q15 $215 Cost Increases / Other -$32 API $50 LME $4 2Q14 $38 2Q15 $67 Cost Increases / Other -$10 Energy -$62 Prod- uctivity $56 Price / Mix -$42 Volume $2 FX $52 API -$11 LME -$15 2Q14 $97 2Q15 $210 Cost Increases/ Other -$6 Productivity $18 Price / Mix -$6 Volume $11 Currency -$1 1Q15 $194 Alumina Year-over-Year Bridge Primary Metals Year-over-Year Bridge $76 2Q15 -$5 Cost Increases / Other Productivity Energy $1 $1 Price / Mix $12 $6 Volume Currency $4 LME $3 1Q15 $54 |
Revenue Change by Market - 2Q 2015 37 [Alcoa logo] 1% 9% 7% 3% (0%) 15% (1%) (17%) 4% (2%) 24% 54% (20%) 5% (32%) (9%) (18%) 209% 21% (8%) 22% 5% 5% 7% 5% 2% 11% 1% 16% 26% Aerospace Automotive B&C Comm. Transport Industrial Products IGT Packaging Distribution/Other Alumina Primary Metals 2Q15 Third-Party Revenue Sequential Change Year-Over-Year Change |
Revenue Change by Market YTD 2015 38 [Alcoa logo] Year-Over-Year Change 22% 5% 5% 7% 5% 1% 11% 1% 16% 27% Aerospace Automotive B&C Comm. Transport Industrial Products IGT Packaging Distribution/Other Alumina Primary Metals 2Q YTD Third-Party Revenue 24% 50% (19%) 9% (30%) (7%) (12%) 195% 13% 1% |
Composition of Upstream Production Costs
39 [Alcoa logo] Fuel Oil 6% Natural gas 14% Caustic 9% Bauxite 29% Conversion 42% Input Cost Inventory flow Pricing convention Annual ATOI Sensitivity Fuel oil 1 2 months Prior month $2m per $1/bbl Natural gas N/A Spot 1 $13m per $1/GJ 1 Caustic soda 3 - 6 months Spot & semi- annual $8m per $10/DMT Refining Cost Structure Alumina 35% Carbon 12% Power 24% Materials 7% Conversion 22% Smelting Cost Structure Input Cost Inventory flow Pricing convention Annual ATOI Sensitivity Coke Spot, quarterly & semi-annual $7m per $10/MT Pitch Spot, quarterly & semi-annual $2m per $10/MT Natural gas information corresponds to Point Comfort, as Australia is priced on a rolling 16 quarter average 1 - 2 months 1 - 2 months 1 |
Alcoa
Upstream capacity closed, sold and idled 40
Facility Year kmt Baie Comeau 2008 53 Eastalco 2010 195 Badin 2010 60 Warrick 2010 40 Tennessee 2011 215 Rockdale 2011 76 Baie Comeau 2013 105 Fusina 2013 44 Massena East 2013 41 Massena East 2014 84 Point Henry 2014 190 Portovesme 2014 150 Mt. Holly (sale of 50.33% interest) 2014 115 Pocos 2015 96 Total 1,464 Closed/sold since December 2007 Facility kmt Rockdale 191 Sao Luis 268 Intalco 49 Wenatchee 41 Aviles 32 Portland 30 La Coruna 24 Total 635 Smelting Capacity Idled Refining Capacity Facility Year kmt Jamalco (sale of 55% interest) 2014 779 Total 779 Closed/sold since December 2007 Facility kmt 1,324 Point Comfort 295 Total 1,619 Idled 1) Does not include a potential sale transaction with the Government of Suriname.
[Alcoa logo]
Suriname 1 |
Source:
Alcoa estimates, CRU, Harbor, Wood Mackenzie 6.5% 2015E Demand
Growth 41
[Alcoa logo]
29.2 6.7 6.7 4.3 2.3 2.1 2.1 1.0 0.9 4% 1.5% 5% 9.5% 5% 1% 10% 7% -1% -3% 57.5 mmt 1 Other includes Africa, E. Europe, Latin America ex Brazil, and Oceania 2015E Primary Aluminum Consumption (mmt), Annualized Growth (%) China Europe North America North Asia India SE Asia MENA Russia Brazil Other ¹ 2.1 2015 demand +6.5% World ex China +3.5% |
Source:
Alcoa estimates, IAI, LME, Marubeni, Shanghai Metal Exchange Global
Inventories Fall to 62 days; Down 8 days YoY 42
[Alcoa logo]
$1,000 $1,500 $2,000 $2,500 $3,000 0 7 14 21 28 35 42 49 56 63 70 77 84 91 98 105 China Incl SRB Producer Japan Port LME On Warrant Cancelled Warrants Off Exchange LME Cash Days of Consumption 108 days LME Cash Price $2,180/MT Days of Consumption 83 days LME Cash Price $2,663/MT Global Inventories -46 days from the 09 peak; -8 days YoY Days of Consumption Days of Consumption 62 days LME Cash Price $1,683/MT $ per metric ton Global inventories vs. LME price over time $ Days of Consumption 70 days LME Cash Price $1,834/MT |
Premiums Down from Record Highs, Break Below 2014 Levels
43 Source: Graph shows monthly average of daily prices - Platts Metals Week 2Q15 and 2Q14 bubble/table data shows quarterly average of daily prices [Alcoa logo] $0 $100 $200 $300 $400 $600 $0 $100 $200 $300 $400 $500 $600 Regional Premiums over time $ per metric ton $ per metric ton Region 2Q15 Average Europe $203/MT Japan $184/MT Midwest USA $264/MT Average 2Q15 vs. 2Q14 Europe -48% Japan -50% Midwest USA -36% $500 |
Special
Items NCI: Non-controlling interest. 1) Total restructuring-related
charges in 2Q15 of $143 million (55 percent cash, 45 percent non-cash).
44 [Alcoa logo] Pre-tax, Before NCI After-tax, After NCI $ Millions, except per-share amounts 1Q15 2Q15 1Q15 2Q15 Income Statement Classification Segment Net Income $481 $282 $195 $140 Net Income Per Diluted Share - - $0.14 $0.10 Restructuring-Related 1 ($177) ($221) ($158) ($143) Restructuring and Other Charges/COGS Corporate/ Primary metals Tax Items - - ($4) $22 Income Taxes Corporate/GRP Gain on Land Sale - $28 - $19 Other Income, Net Corporate Acquisition Costs ($9) ($6) ($7) ($5) SG&A Corporate Mark -to-Market Energy Contracts $2 ($4) $1 ($3) Other Expenses (Income), Net Corporate Special Items ($184) ($203) ($168) ($110) Net Income excl Special Items $665 $485 $363 $250 Net Income per Diluted Share excl Special Items - - $0.28 $0.19 |
Reconciliation of ATOI to Consolidated Net (Loss) Income Attributable to Alcoa 45 (in millions) 1Q14 2Q14 3Q14 4Q14 2014 1Q15 2Q15 Total segment ATOI* $318 $407 $581 $659 $1,965 $656 $568 Unallocated amounts (net of tax): Impact of LIFO (7) (8) (18) (21) (54) 7 36 Metal price lag* 7 11 38 22 78 (23) (39) Interest expense (78) (69) (81) (80) (308) (80) (80) Noncontrolling interests 19 9 18 45 91 (60) (67) Corporate expense (67) (70) (74) (83) (294) (64) (66) Restructuring and other charges (321) (77) (189) (307) (894) (161) (159) Other (49) (65) (126) (76) (316) (80) (53) Consolidated net (loss) income attributable to Alcoa $(178) $138 $149 $159 $268 $195 $140 [Alcoa logo] * Effective in the second quarter of 2015, management removed the impact of metal price lag from the results of the Engineered Products and
Solutions and Global Rolled Products segments in order to enhance
the visibility of the underlying operating performance of these businesses. Metal price lag describes the timing difference created when the average price of metal sold differs from the average cost of the metal when purchased by the respective segment. The impact of metal price
lag is now reported as a separate line item in Alcoas
reconciliation of total segment ATOI to consolidated net income (loss) attributable to Alcoa. As a result, this revision does not impact the consolidated results of Alcoa. Segment information for all prior periods presented was revised to reflect this change.
|
Reconciliation of Adjusted Income
46 [Alcoa logo] (in millions, except per-share amounts) Income Diluted EPS (3) Quarter ended Quarter ended June 30, March 31, June 30, June 30, March 31, June 30, 2014 2015 2015 2014 2015 2015 Net income attributable to Alcoa $138 $195 $140 $0.12 $0.14 $0.10 Restructuring and other charges 54 158 141 Discrete tax items (1) (2) (5) Other special items (2) 26 10 (26) Net income attributable to Alcoa as adjusted $216 $363 $250 0.18 0.28 0.19 Net income 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 other special items (collectively, special items). There can be no assurances that
additional special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Net income attributable to Alcoa determined under GAAP as well as Net income attributable to Alcoa as adjusted.
Discrete tax items include the following:
for the quarter ended June 30, 2015, a net benefit for a number of small items;
and for the quarter ended June 30, 2014, a net benefit for a
number of small items.
Other special items include the following: for the
quarter ended June 30, 2015, a favorable tax impact related to the interim period treatment of operational losses in certain foreign jurisdictions for which no tax benefit was recognized ($21), a gain on the sale of land ($19), costs associated with
a future acquisition of an aerospace business ($5), an unfavorable
tax impact resulting from the difference between Alcoas consolidated estimated annual effective tax rate and the statutory rates applicable to special items ($4), a net unfavorable change in
certain mark-to-market energy derivative contracts ($3), and a write-down of
inventory related to the permanent closure of a smelter in Brazil and a power station in Australia ($2); for the quarter ended March 31, 2015, an unfavorable tax impact related to the interim period treatment of operational losses in certain
foreign jurisdictions for which no tax benefit was recognized ($35), a favorable tax impact resulting from the difference between Alcoas consolidated estimated annual effective tax rate and the statutory rates applicable to special items ($31), costs associated
with current and future acquisitions of aerospace businesses ($7), and a net favorable change in certain mark-to-market energy derivative contracts ($1); and for the quarter ended June 30, 2014, a favorable tax impact related to the interim period treatment of operational losses in certain
foreign jurisdictions for which no tax benefit was recognized ($20), an unfavorable tax impact resulting from the difference between Alcoas consolidated estimated annual effective tax rate and the statutory rates applicable to special items ($24), costs associated with
(i) a then-planned acquisition of an aerospace business ($11) and (ii) preparation for and ratification of a new labor agreement with the United Steelworkers ($11), a net favorable change in certain mark-to-market energy derivative contracts ($6), and an unfavorable
impact related to the restart of one potline at the joint venture in Saudi Arabia that was previously shut down due to a period of pot instability ($6). The average number of shares applicable to diluted EPS for Net income attributable to Alcoa excludes certain share equivalents as their effect
was anti-dilutive (see footnote 3 to the Statement of Consolidated Operations). However, certain of these share equivalents may become dilutive in the EPS calculation applicable to Net income attributable to Alcoa as adjusted due to a larger, positive
numerator. Specifically, these share equivalents were associated with mandatory convertible preferred stock for the quarter ended March 31, 2015. As a result, the average number of shares applicable to diluted EPS for Net income attributable to Alcoa as adjusted
was 1,315,558,890 for the quarter ended March 31, 2015. Additionally, the subtraction of preferred stock dividends declared from the numerator (see footnote 1 to the Statement of Consolidated Operations) needs to be reversed for the quarter ended March 31, 2015
since the related mandatory convertible preferred stock was dilutive in the EPS calculation for Net income attributable to Alcoa as adjusted. (1) (2) (3) - |
Reconciliation of Alcoa Adjusted EBITDA
47 ($ in millions) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2Q14 1Q15 2Q15 Net income (loss) attributable to Alcoa $1,310 $1,233 $2,248 $2,564 $(74) $(1,151) $254 $611 $191 $(2,285) $268 $138 $195 $140 Add: Net income (loss) attributable to noncontrolling interests 233 259 436 365 221 61 138 194 (29) 41 (91) (9) 60 67 Cumulative effect of accounting changes 2 Loss (income) from discontinued operations 27 50 (22) 250 303 166 8 3 Provision (benefit) for income taxes 546 464 853 1,623 342 (574) 148 255 162 428 320 78 226 75 Other (income) expenses, net (266) (478) (236) (1,920) (59) (161) 5 (87) (341) (25) 47 5 (12) Interest expense 271 339 384 401 407 470 494 524 490 453 473 105 122 124 Restructuring and other charges (29) 266 507 268 939 237 207 281 172 782 1,168 110 177 217 Impairment of goodwill 1,731 Provision for depreciation, depletion, and amortization 1,142 1,227 1,252 1,244 1,234 1,311 1,450 1,479 1,460 1,421 1,371 349 321 319 Adjusted EBITDA $3,234 $3,362 $5,422 $4,795 $3,313 $359 $2,704 $3,260 $2,105 $2,546 $3,556 $776 $1,089 $942 Sales $21,370 $24,149 $28,950 $29,280 $26,901 $18,439 $21,013 $24,951 $23,700 $23,032 $23,906 $5,836 $5,819 $5,897 Adjusted EBITDA Margin 15.1% 13.9% 18.7% 16.4% 12.3% 1.9% 12.9% 13.1% 8.9% 11.1% 14.9% 13.3% 18.7% 16.0% [Alcoa logo] Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back
for depreciation, depletion, and amortization. Net margin is
equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation,
depletion, and amortization. Adjusted EBITDA is a non-GAAP financial
measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Alcoas operating performance and the Companys ability to meet its financial obligations. The
Adjusted EBITDA presented may not be comparable to similarly titled
measures of other companies.
|
Reconciliation of Alumina Adjusted EBITDA
48 ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2Q14 1Q15 2Q15 After-tax operating income (ATOI) $632 $682 $1,050 $956 $727 $112 $301 $607 $90 $259 $370 $38 $221 $215 Add: Depreciation, depletion, and amortization 153 172 192 267 268 292 406 444 455 426 387 100 80 77 Equity (income) loss (1) 2 (1) (7) (8) (10) (25) (5) 4 29 7 7 11 Income taxes 240 246 428 340 277 (22) 60 179 (27) 66 153 12 92 87 Other (46) (8) (6) 2 (26) (92) (5) (44) (8) (6) (28) Adjusted EBITDA $978 $1,092 $1,666 $1,564 $1,239 $282 $752 $1,161 $505 $749 $911 $157 $400 $390 Production (thousand metric tons) (kmt) 14,343 14,598 15,128 15,084 15,256 14,265 15,922 16,486 16,342 16,618 16,606 4,077 3,933 3,977 Adjusted EBITDA / Production ($ per metric ton) $68 $75 $110 $104 $81 $20 $47 $70 $31 $45 $55 $39 $102 $98 [Alcoa logo] Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back
for depreciation, depletion, and amortization. Net margin is equivalent
to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation, depletion, and amortization. The Other line in the table above includes gains/losses on
asset sales and other non-operating items. Adjusted EBITDA is a
non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Alcoas operating performance and the Companys ability to meet its
financial obligations. The Adjusted EBITDA presented may not be
comparable to similarly titled measures of other companies. |
Reconciliation of Primary Metals Adjusted EBITDA
49 ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2Q14 1Q15 2Q15 After-tax operating income (ATOI) $808 $822 $1,760 $1,445 $931 $(612) $488 $481 $309 $(20) $594 $97 $187 $67 Add: Depreciation, depletion, and amortization 326 368 395 410 503 560 571 556 532 526 494 129 109 109 Equity (income) loss (58) 12 (82) (57) (2) 26 (1) 7 27 51 34 17 3 5 Income taxes 314 307 726 542 172 (365) 96 92 106 (74) 203 30 57 6 Other 20 (96) (13) (27) (32) (176) (7) 2 (422) (8) (6) (5) (1) Adjusted EBITDA $1,410 $1,413 $2,786 $2,313 $1,572 $(567) $1,147 $1,138 $552 $475 $1,319 $268 $355 $187 Production (thousand metric tons) (kmt) 3,376 3,554 3,552 3,693 4,007 3,564 3,586 3,775 3,742 3,550 3,125 795 711 701 Adjusted EBITDA / Production ($ per metric ton) $418 $398 $784 $626 $392 $(159) $320 $301 $148 $134 $422 $337 $499 $267 [Alcoa logo] Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back
for depreciation, depletion, and amortization. Net margin is
equivalent to Sales minus the following items: Cost of goods sold; Selling, general
administrative, and other expenses; Research and development expenses; and Provision for depreciation, depletion, and amortization. The Other line in the table above includes gains/losses on asset sales and other non-operating
items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to
Alcoas operating performance and the Companys ability
to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. |
Reconciliation of Global Rolled Products Adjusted EBITDA
(1) 50 [Alcoa logo] ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2012 (2) 2013 2014 2Q14 1Q15 2Q15 After-tax operating income (ATOI) $290 $300 $317 $151 $(41) $(106) $241 $260 $346 $252 $245 $70 $54 $76 Add: Depreciation, depletion, and amortization 200 220 223 227 216 227 238 237 229 226 235 58 56 56 Equity loss 1 2 3 6 13 27 6 9 7 Income taxes 97 135 113 77 14 12 103 98 159 108 89 18 36 25 Other 1 1 20 1 6 (2) 1 1 (2) (1) 2 Adjusted EBITDA $589 $656 $675 $456 $195 $131 $583 $599 $738 $599 $595 $154 $155 $164 Total shipments (thousand metric tons) (kmt) 2,136 2,250 2,376 2,482 2,361 1,888 1,755 1,866 1,943 1,989 2,056 533 447 479 Adjusted EBITDA / Total shipments ($ per metric ton ) $276 $292 $284 $184 $83 $69 $332 $321 $380 $301 $289 $289 $347 $342 Effective in the second quarter of 2015, management removed the impact of metal price lag from the results of the Global Rolled Products segment
in order to enhance the visibility of the underlying operating
performance of this business. Metal price lag describes the timing difference created
when the average price of metal sold differs from the average cost of the metal when purchased by this segment. This revision does not impact the consolidated results of Alcoa. Segment information for all prior 2014 and 2015 periods presented was revised to
reflect this change.
The average Adjusted EBITDA per metric ton of these three years equals $344 and represents the average historical high for the Global Rolled
Products segment. Alcoa has a 2016 target to meet or exceed
this average historical high.
(1) (2) 2011 (2) 2010 (2) Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back
for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and
Provision for depreciation, depletion, and amortization. The Other line in
the table above includes gains/losses on asset sales and other non-operating items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to
investors because Adjusted EBITDA provides additional information with respect to
Alcoas operating performance and the Companys ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. |
Reconciliation of Engineered Products and Solutions Adjusted EBITDA
(1) 51 [Alcoa logo] ($ in millions) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (2) 2014 (3) 2Q14 1Q15 (4) 2Q15 (4) After-tax operating income (ATOI) $161 $276 $382 $423 $522 $311 $419 $537 $612 $726 $756 $202 $194 $210 Add: 168 160 152 163 165 177 154 158 158 159 173 41 60 64 Equity loss (income) 6 (2) (2) (1) Income taxes 70 120 164 184 215 138 198 258 297 348 368 101 90 99 Other 106 (11) (2) (7) 2 1 (1) (9) (2) 1 (1) Adjusted EBITDA $505 $545 $702 $763 $904 $625 $769 $951 $1,058 $1,231 $1,297 $344 $345 $372 Third-party sales $4,283 $4,773 $5,428 $5,834 $6,199 $4,689 $4,584 $5,345 $5,525 $5,733 $6,006 $1,502 $1,689 $1,733 Adjusted EBITDA Margin 11.8% 11.4% 12.9% 13.1% 14.6% 13.3% 16.8% 17.8% 19.1% 21.5% 21.6% 22.9% 20.4% 21.5% Depreciation, depletion, and amortization (1) (2) (3) (4) Effective in the second quarter of 2015, management removed the impact of metal price lag from the results of the Engineered Products and
Solutions segment in order to enhance the visibility of the underlying
operating performance of this business. Metal price lag describes the timing difference
created when the average price of metal sold differs from the average cost of the metal when purchased by this segment. This revision does not impact the consolidated results of Alcoa. Segment information for all prior 2014 and 2015 periods presented was revised to
reflect this change. The Adjusted EBITDA Margin for the
year ended December 31, 2013 represents the historical high for the Engineered Products and Solutions segment. Alcoa has a 2016 target to exceed this historical high. In the year ended December 31, 2014, the Third-party sales and Adjusted EBITDA of Engineered Products and Solutions includes $81 and $(10),
respectively, related to the acquisition of an aerospace business, Firth
Rixson. Excluding these amounts, Adjusted EBITDA Margin was 22.1% for the year
ended December 31, 2014.
In the quarters ended March 31, 2015 and June 30, 2015, the
Third-party sales and Adjusted EBITDA of Engineered Products and Solutions includes $233 and $27, respectively, and $268 and $42, respectively, related to the acquisition of two aerospace businesses, Firth Rixson and TITAL. Excluding these amounts, Adjusted EBITDA Margin was 21.8%
and 22.6% for the quarters ended March 31, 2015 and June 30, 2015,
respectively. Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back
for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and
Provision for depreciation, depletion, and amortization. The Other line in the table above includes gains/losses on asset sales and other non-operating items. Adjusted EBITDA is a non-GAAP financial
measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Alcoas operating performance and the Companys ability to meet its
financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. |
Reconciliation of Firth Rixson Adjusted EBITDA
($ in millions) 1/1/14 11/18/14 (1) 11/19/14 12/31/14 2014 (2) 2Q15 2Q15 Annualized After-tax operating income (ATOI) $77 $(12) $65 $15 $60 Add: Depreciation, depletion, and amortization 47 9 56 20 80 Equity loss (income) Income taxes 28 (6) 22 7 28 Other (3) (1) (4) Adjusted EBITDA $149 $(10) $139 $42 $168 Third-party sales $889 $81 $970 $247 Adjusted EBITDA Margin 16.8% (12.3)% 14.3% 16.8% 52 On November 19, 2014, Alcoa completed the acquisition of Firth Rixson, an aerospace jet engine components company, from Oak
Hill Capital Partners. Firth Rixson was integrated into Alcoas Engineered Products and Solutions segment. Alcoas primary measure of performance for its reportable segments is after-tax operating income (ATOI).
As such, Alcoa estimated the ATOI, and therefore the Adjusted EBITDA, of Firth Rixson for the January 1, 2014 through November 18, 2014 timeframe using unaudited internal management financial statements of Firth Rixson. The ATOI
estimate and calculation of Adjusted EBITDA for Firth Rixson does not purport to be the manner in which Firth Rixsons prior management would have calculated Firth Rixsons ATOI and Adjusted EBITDA.
Additionally, this calculation of ATOI and Adjusted EBITDA is not intended to suggest that Firth Rixsons prior management used ATOI or Adjusted EBITDA as a
measure of Firth Rixsons profitability. In 2014, the Adjusted EBITDA of Firth Rixson includes a negative impact of $13 due to the integration of Firth Rixson, primarily
driven by the remeasurement of inventory to fair value, in accordance with purchase accounting requirements. Excluding this amount, Firth Rixsons Adjusted EBITDA and Adjusted EBITDA Margin was $152 and 15.7%, respectively, for
2014. (1) (2) Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back
for 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, and amortization. The Other line in the table above includes gains/losses on asset sales and other non-operating items. Adjusted EBITDA is a non-GAAP financial measure.
Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Alcoas operating performance and the Companys ability to meet its financial obligations.
The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. |
Reconciliation of Free Cash Flow
53 (in millions) Year ended Quarter ended December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 June 30, 2014 March 31, 2015 June 30, 2015 Cash from operations $2,261 $2,193 $1,497 $1,578 $1,674 $518 $(175) $472 Capital expenditures (1,015) (1,287) (1,261) (1,193) (1,219) (258) (247) (267) Free cash flow $1,246 $906 $236 $385 $455 $260 $(422) $205 [Alcoa logo] Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management
reviews cash flows generated from operations after taking into
consideration capital expenditures due to the fact that these expenditures are considered necessary to maintain and expand Alcoas asset base and are expected to generate future cash flows from operations. It is important to note that Free Cash Flow does not represent the residual cash
flow available for discretionary expenditures since other
non-discretionary expenditures, such as mandatory debt service requirements, are not deducted from the measure. |
Days
Working Capital 54
[Alcoa logo]
(1) (2) (3) ($ 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 30-Sep-14 31-Dec-14 31-Mar-15 (3) 30-Jun-15 (3) 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 $1,526 $1,513 $1,487 $1,548 Add: Deferred purchase price receivable (1) 85 144 104 53 50 223 347 339 238 371 438 395 389 421 Receivables from customers, less allowances, as adjusted 1,794 1,794 1,704 1,626 1,754 1,706 1,774 1,722 1,629 1,772 1,964 1,908 1,876 1,969 Add: Inventories 3,079 3,097 3,051 2,894 2,961 2,949 2,932 2,783 2,974 3,201 3,194 3,064 3,189 3,230 Less: Accounts payable, trade 2,660 2,594 2,496 2,587 2,656 2,820 2,746 2,816 2,813 2,880 3,016 3,021 2,936 2,978 Working Capital (2) $2,213 $2,297 $2,259 $1,933 $2,059 $1,835 $1,960 $1,689 $1,790 $2,093 $2,142 $1,951 $2,129 $2,221 Sales $6,006 $5,963 $5,833 $5,898 $5,833 $5,849 $5,765 $5,585 $5,454 $5,836 $6,239 $6,377 $5,819 $5,897 Days Working Capital 34 35 36 30 32 29 31 28 30 33 32 28 33 34 Days Working Capital = Working Capital divided by (Sales/number of days in the quarter).
The deferred purchase price receivable relates to an
arrangement to sell certain customer receivables to several financial institutions on a recurring basis. Alcoa is adding back this receivable for the purposes of the Days Working Capital calculation. The Working Capital for each period presented represents an average quarter Working Capital, which reflects the capital tied
up during a given quarter. As such, the components of Working
Capital for each period presented represent the average of the ending balances in each of the three months during the respective quarter. In the quarters ended March 31, 2015 and June 30, 2015, Working Capital and Sales include $279 and $233, respectively, and
$315 and 268 respectively, related to the acquisition of two aerospace
businesses, Firth Rixson and TITAL. Excluding these amounts, Days Working Capital was 30 and 31 for the quarters ended March 31, 2015 and June 30, 2015, respectively. |
Reconciliation of Net Debt
55 [Alcoa logo] (in millions) December 31, March 31, June 30, 2010 2011 2012 2013 2014 2015 2015 Short-term borrowings $92 $62 $53 $57 $54 $80 $50 Commercial paper 224 Long-term debt due within one year 231 445 465 655 29 26 26 Long-term debt, less amount due within one year 8,842 8,640 8,311 7,607 8,769 8,711 8,713 Total debt 9,165 9,371 8,829 8,319 8,852 8,817 8,789 Less: Cash and cash equivalents 1,543 1,939 1,861 1,437 1,877 1,191 1,311 Net debt $7,622 $7,432 $6,968 $6,882 $6,975 $7,626 $7,478 Net debt is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management assesses
Alcoas leverage position after factoring in available cash that
could be used to repay outstanding debt. |
Reconciliation of Debt-to-Adjusted EBITDA Ratio
56 [Alcoa logo] ($ in millions) 2010 2011 2012 2013 2014 1Q15* 2Q15* Net income (loss) attributable to Alcoa $254 $611 $191 $(2,285) $268 $641 $643 Add: Net income (loss) attributable to noncontrolling interests 138 194 (29) 41 (91) (12) 64 Loss from discontinued operations 8 3 Provision for income taxes 148 255 162 428 320 623 620 Other expenses (income), net 5 (87) (341) (25) 47 10 5 Interest expense 494 524 490 453 473 475 494 Restructuring and other charges 207 281 172 782 1,168 884 991 Impairment of goodwill 1,731 Provision for depreciation, depletion, and amortization 1,450 1,479 1,460 1,421 1,371 1,352 1,322 Adjusted EBITDA $2,704 $3,260 $2,105 $2,546 $3,556 $3,973 $4,139 Total Debt $9,165 $9,371 $8,829 $8,319 $8,852 $8,817 $8,789 Debt-to-Adjusted EBITDA Ratio 3.39 2.87 4.20 3.27 2.49 2.22 2.12 * The calculation of Adjusted EBITDA for the quarters ended March 31, 2015 and June 30, 2015 is based on the respective trailing twelve months.
Alcoas definition of Adjusted EBITDA (Earnings before interest,
taxes, depreciation, and amortization) is net margin plus an add-back for 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, and amortization. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Alcoas operating performance and the
Companys ability to meet its financial obligations. The
Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. |
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