Alcoa Reports 2Q 2012 Profits

　　2Q 2012 Highlights

　　Earnings per share of $0.00 based on a $2 million loss from continuing operations; excluding special items, income from continuing operations of $61 million, or $0.06 per share

　　Revenue of $6.0 billion, steady sequentially despite decline in realized aluminum prices

　　Record quarterly results in Engineered Products and Solutions; record first half results in Global Rolled Products, Engineered Products and Solutions

　　Cash from operations of $537 million

　　Positive free cash flow of $246 million

　　Days working capital a record low for second quarter

　　Strong liquidity with cash on hand of $1.7 billion

　　Company reaffirms global aluminum demand growth projection of 7 percent and a global aluminum supply deficit in 2012

　　Alcoa (NYSE:AA) today reported $0.00 earnings per share, based on a loss from continuing operations of $2 million, which includes special items of $63 million. Excluding the impact of special items, income from continuing operations was $61 million, or $0.06 per share.

　　The company reported strong revenue of $6.0 billion, solid free cash flow and lower debt despite a 4 percent decline in realized aluminum prices sequentially and 18 percent year-on-year.

　　“Alcoa maintained revenue strength and solid liquidity by driving high profitability in our mid and downstream businesses and by reducing costs and improving performance in our upstream businesses,” said Klaus Kleinfeld, Chairman and CEO.

　　“Although aluminum prices are down, the fundamentals of the aluminum market remain sound with strong demand and tight supply, and Alcoa is successfully capitalizing on accelerating demand in high-growth end markets such as aerospace and automotive.”

　　Second quarter 2012 net loss of $2 million, or $0.00 per share, compared to net income of $94 million, or $0.09 per share, in first quarter 2012 and net income of $322 million, or $0.28 per share, in second quarter 2011. Adjusted EBITDA for the second quarter was $517 million, down 17 percent from first quarter 2012, and 50 percent from second quarter 2011.

　　Special items in second quarter 2012 included reserves for environmental remediation, uninsured losses related to the Massena fire, a net discrete tax charge, and restructuring and other charges. In addition, during the quarter, Alcoa proposed to settle the Alba civil suit by offering Alba a cash payment of $45 million. Alcoa has also offered Alba a long-term alumina supply contract. Based on the cash offer, Alcoa recorded a $45 million charge. Alcoa currently estimates an additional possible charge of up to $75 million to settle the suit. In addition, Alcoa has been in dialogue with the Department of Justice and the Securities and Exchange Commission regarding their investigations. If a settlement of the government's investigations can be reached, it is probable that the amount would be material in a particular period to Alcoa's results of operations.

　　Second quarter 2012 revenue was $6.0 billion, steady sequentially and down 9 percent compared with second quarter 2011, primarily due to an 18 and 17 percent year-on-year decline in the realized metal price and realized alumina price, respectively.

　　Alcoa recorded revenue growth in the second quarter across global end markets, including packaging (5 percent), aerospace (4 percent), and commercial transportation (3 percent), compared to first quarter 2012.

　　Alcoa continues to project a global aluminum supply deficit in 2012 and reaffirmed its forecast that global aluminum demand would grow 7 percent in 2012, on top of the 10 percent growth seen in 2011.

　　Strength in the midstream and downstream businesses continued to mitigate volatility in the upstream businesses. Engineered Products and Solutions once again turned in record results, with second quarter adjusted EBITDA margin at 19.4 percent, the highest to date. Despite continued European weakness, Global Rolled Products achieved record first half adjusted EBITDA per metric ton of $409, 74 percent higher than the 10-year average, and record first half ATOI of $191 million.

　　For the first half of 2012, revenues were $12.0 billion, down 5 percent over the first half of 2011. Income from continuing operations in the first half of 2012 was $92 million, or $0.08 per share, compared to $635 million, or $0.56 per share, in the first half of 2011. Net income in the first half of 2012 was $92 million, or $0.08 per share, compared with net income in the first half of 2011 of $630 million, or $0.55 per share.

　　Alcoa continues to deliver on its Cash Sustainability Program in 2012, maintaining a stable balance sheet in a volatile economic environment. The Company generated free cash flow in the quarter of $246 million, an improvement of $752 million sequentially. Following the record low in days working capital achieved for first quarter 2012, Alcoa also achieved a record low in working capital for the second quarter at 33 days, five days lower than the previous second quarter record set in 2011. The quarterly trend in reduction of days working capital has been ongoing since first quarter 2009.

　　The Company continued strong productivity growth across all businesses this quarter, driven by higher utilization rates, process innovations, lower scrap rates, and usage reductions.

　　Debt-to-capital ratio stood at 36.1 percent, while liquidity remained strong with cash on hand of $1.7 billion. Capital spending was $291 million in the quarter, compared to $270 million in first quarter 2012. Expenditures on the Saudi Arabia joint venture project were also on track at $55 million.

　　Alcoa remains on track to meet its 2012 pension obligations, with year-to-date cash contributions of $352 million representing more than 50 percent of total 2012 estimated payments.

　　Alcoa is executing on its previously announced curtailments in the upstream business, improving competitiveness and driving toward the Company’s stated goal of moving down the cost curve 10 percentage points in smelting and 7 percentage points in refining by 2015. In second quarter 2012, 390,000 metric tons of Alcoa’s system refining capacity was taken offline. Previously announced smelter curtailments are on track and expected to be complete by the end of the year.

　　Segment Information

　　Alumina

　　After-tax operating income (ATOI) was $23 million, down $12 million from first quarter 2012 and $163 million versus second quarter 2011. Adjusted EBITDA was $127 million, down from $147 million in first quarter 2012. Sequentially, continued productivity gains and favorable currency offset the impact of lower volumes due to curtailments, and higher costs from raw materials, fuel oil, and planned maintenance.

　　Primary Metals

　　ATOI in the second quarter was a negative $3 million, a $13 million decrease sequentially and a $204 million decrease from the year-ago quarter. Adjusted EBITDA decreased to $119 million from $134 million in the previous quarter. Third-party realized prices during the second quarter were down 4 percent sequentially and 18 percent year-over-year. Sequentially, regional premiums and continued strength in our value-added sales helped offset the decrease in aluminum prices this quarter. Strong performance improvements delivered sequential productivity gains, in addition to reductions in raw materials and energy costs.

　　Global Rolled Products

　　ATOI for the second quarter was $95 million, down 1 percent sequentially and 4 percent compared with second quarter 2011. Sequentially, higher volumes and productivity gains offset less favorable price/mix and increased costs. Third party shipments were up 7 percent over first quarter 2012, with adjusted EBITDA per metric ton of $390. Days working capital was a record for the second quarter at 40.3 days, down 6 days year-over-year.

　　Engineered Products and Solutions

　　ATOI in the second quarter was $160 million, up $5 million, or 3 percent, sequentially from first quarter 2012 and up $11 million, or 7 percent, from the year-ago quarter despite the negative impact of the Massena fire. Adjusted EBITDA of $276 million increased $9 million sequentially and $15 million year-on-year. The sequential increase in ATOI was driven by continued productivity improvements and improved volume, partially offset by higher costs and the unfavorable impact from Massena. Despite the Massena impact, adjusted EBITDA margin was still a quarterly record at 19.4 percent.