Alcoa Inc. (AA)

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Alcoa, Inc. (AA)

Q1 2009 Earnings Call

April 7, 2009 5:00 pm ET

Executives

Elizabeth Besen - Director of Investor Relations

Charles D. McLane, Jr. - Chief Financial Officer, Executive Vice President

Klaus Kleinfeld - President, Chief Executive Officer, Director

Analysts

Kuni Chen - Banc of America/Merrill Lynch

Mark Liinamaa - Morgan Stanley

Charles Bradford – Bradford Research

Brian MacArthur – UBS Securities

John Redstone - Desjardins Securities

John Tumazos – John Tumazos Independent

Anthony Rizzuto - Dahlman Rose & Co.

Presentation

Operator

Welcome to the first quarter 2009 Alcoa, Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms. Elizabeth Besen, Director of Investor Relations. Please proceed, Ma’am.

Elizabeth Besen

Good afternoon everyone. Thank you for attending Alcoa’s 2009 first quarter analyst conference. At today’s conference Chuck McLane, Executive Vice President and Chief Financial Officer will review the first quarter financial results. Klaus Kleinfeld, President and Chief Executive Officer, will review current market conditions and discuss the company’s recent initiatives.

Before I turn it over to Chuck, I would like to remind you that in discussing the company’s performance today we have included some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Alcoa’s actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of the specific risk factors that could cause actual results to differ materially from those expressed in the forward-looking statements, please refer to Alcoa’s Form 10K for the year ended December 31, 2008 and other reports filed with the Securities and Exchange Commission.

In our discussion today we have also included some non-GAAP financial measures. You will find our presentation of the most directly comparable GAAP financial measures calculated in accordance with Generally Accepted Accounting Principles and our related reconciliation on our website at www.alcoa.com under the Invest section.

At this point, let me turn it over to Chuck.

Charles McLane, Jr.

Thanks Elizabeth. Hello everyone. Thanks for joining us today. Let me start off, in our financial review today we are going to try and accomplish several objectives. First, we will provide insight around first quarter results. We will also describe the company’s liquidity position including the recent public offerings and we will provide a second quarter outlook for each of our segments.

With that as an outline let’s begin. For the quarter our loss from continuing operations was $480 million or $0.59 per share. The fourth quarter weakness was followed by an even softer first quarter in almost every end market as the economic recession continued in its hunt to find a bottom. Prices declined and inventories on the exchange continued to climb. Our results for the quarter were adversely affected by both prices and volumes as revenues were down 27% sequentially and 41% on a year-over-year basis.

The collapse in demand was due not only to weaker end markets but also to the significant de-stocking occurring throughout the supply chain. To effectively manage in the midst of this environment we undertook a holistic set of actions to improve performance, lower cost and strengthen our liquidity. Klaus will cover in more detail but we have taken both operational and financial actions to reposition the company and to emerge even stronger once conditions improve.

As a result of these actions cash on hand was $1.1 billion at quarter end and debt-to-cap decreased from 42.5% to 40.6%. In addition, in January we provided a forecast for the cash cost of production for both alumina and primary aluminum. These estimates were exceeded as alumina and aluminum cash costs were down 33% and 30% respectively from the third quarter of 2008.

Let’s now review the income statement. The restructuring and other special charges make it difficult to see the underlying operational impacts on the income statement. Over the next few slides we will break down and isolate those charges as well as provide insight around the operational items particularly the cost components.

Let me highlight a few of the line items on the income statement before isolating the discrete items in the quarter. First, SG&A. SG&A declined 11% sequentially. On a year-over-year basis after excluding $34 million of expense in the 2008 first quarter related to the divested patching consumer businesses, SG&A declined 15%. We expect the lower cost level to continue as actions are being taken to further the reductions. Interest expense of $114 million declined by 9% due to the reduced cost on short-term borrowings. Lastly, the loss from discontinued operations is comprised of AEES, our wire harness business, which is one of the targeted for divestiture.

Let’s now move to a summary of the restructuring and other discrete items in the quarter. This chart is provided to assist in understanding the components of the restructuring and special charges by listing the after-tax and EPS impact for each category of charges. We have also described whether the charge impacted the segment results and identified the geography of each on the income statement.

The company continued to focus on streamlining its operations and reducing costs during the first quarter. Restructuring charges in the first quarter were $69 million before tax, the majority of which related to an additional 2,500 headcount reductions. We recorded a non-cash gain on the completion of the Elkem/SAPA Swap of $133 million. We incurred a loss on the redemption of our interest in Shining Prospect of $118 million. Lastly, there was a discrete tax benefit of $28 million which resulted from a tax law change. The net of these items reduced results by $3 million but were detailed here to assist you in your analysis.

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