Alcoa Reports Fourth Quarter Income From Continuing Operations Of $0.21 Per Share; Income Of $0.06 Per Share Excluding Special Items

Alba Update

Alcoa is actively negotiating with the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to reach a resolution of their investigations of the Alba matter; however, we have not reached any agreement with either agency. Given the uncertainty regarding whether a settlement can be reached and, if reached, on what terms, we are not able to estimate a range of reasonably possible loss with regard to any such settlement. If a settlement of the government investigations is reached, we believe that the settlement amount would be material to Alcoa’s results of operations for the relevant fiscal period. If a settlement cannot be reached, Alcoa will proceed to trial with the DOJ and the SEC and under those circumstances is unable to predict an outcome or to estimate its reasonably possible loss. There can be no assurance that the final outcome of the government’s investigations will not have a material adverse effect on Alcoa.

Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on January 8, 2013 to present the quarter and full-year results. The meeting will be webcast via alcoa.com. Call information and related details are available at www.alcoa.com under “Invest.”

About Alcoa

Alcoa is the world’s leading producer of primary and fabricated aluminum, as well as the world’s largest miner of bauxite and refiner of alumina. In addition to inventing the modern-day aluminum industry, Alcoa innovation has been behind major milestones in the aerospace, automotive, packaging, building and construction, commercial transportation, consumer electronics and industrial markets over the past 125 years. Among the solutions Alcoa markets are flat-rolled products, hard alloy extrusions, and forgings, as well as Alcoa® wheels, fastening systems, precision and investment castings, and building systems in addition to its expertise in other light metals such as titanium and nickel-based super alloys. Sustainability is an integral part of Alcoa’s operating practices and the product design and engineering it provides to customers. Alcoa has been a member of the Dow Jones Sustainability Index for 11 consecutive years and approximately 75 percent of all of the aluminum ever produced since 1888 is still in active use today. Alcoa employs approximately 61,000 people in 31 countries across the world. For more information, visit www.alcoa.com and follow @Alcoa on Twitter at twitter.com/Alcoa.

Forward-Looking Statements

This release 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,” “expects,” “forecasts,” “goal,” “outlook,” “plans,” “projects,” “should,” “targets,” “will,” or other words of similar meaning. All statements that reflect Alcoa’s expectations, assumptions or projections about the future other than statements of historical fact are forward-looking statements, including, without limitation, forecasts concerning global demand for aluminum, end market conditions, growth opportunities for aluminum in automotive, aerospace, and other applications, or other trend projections, targeted financial results or operating performance, and statements about Alcoa’s strategies, outlook, and business and financial prospects. Forward-looking statements are subject to a number of known and unknown risks, uncertainties, and other factors and are not guarantees of future performance. 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 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, 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, including electricity, natural gas, and fuel oil, or the unavailability or interruption of energy supplies; (f) increases in the costs of other raw materials, including calcined petroleum coke, caustic soda, and liquid pitch; (g) Alcoa’s 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 refining and smelting businesses down on the industry cost curves and increasing revenues in its Global Rolled Products and Engineered Products and Solutions segments), anticipated from its restructuring programs, productivity improvement, cash sustainability, and other initiatives; (h) Alcoa’s inability to realize expected benefits from newly constructed, expanded or acquired facilities or from international joint ventures as planned and by targeted completion dates, including the joint venture in Saudi Arabia or the upstream operations and investments in hydropower projects in Brazil; (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, and other events beyond Alcoa’s control; (j) the outcome of contingencies, including legal proceedings, government investigations, and environmental remediation; (k) the business or financial condition of key customers, suppliers, and business partners; (l) changes in tax rates or benefits; (m) adverse changes in discount rates or investment returns on pension assets; (n) the impact of cyber attacks and potential information technology or data security breaches; and (o) the other risk factors summarized in Alcoa’s Form 10-K for the year ended December 31, 2011, Forms 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012, 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.

Alcoa and subsidiaries
Statement of Consolidated Operations (unaudited)
(in millions, except per-share, share, and metric ton amounts)
		Quarter ended
		December 31,				September 30,				December 31,
		2011				2012				2012
Sales		$	5,989			$	5,833			$	5,898
Cost of goods sold (exclusive of expenses below)			5,228				5,266				4,968
Selling, general administrative, and other expenses			268				234				277
Research and development expenses			48				51				56
Provision for depreciation, depletion, and amortization			367				366				362
Restructuring and other charges			232				2				60
Interest expense			125				124				120
Other income, net			(40	)			(2	)			(345	)
Total costs and expenses			6,228				6,041				5,498
(Loss) income from continuing operations before income taxes			(239	)			(208	)			400
(Benefit) provision for income taxes			(74	)			(33	)			143
(Loss) income from continuing operations			(165	)			(175	)			257
Income from discontinued operations			2				–				–
Net (loss) income			(163	)			(175	)			257
Less: Net income (loss) attributable to noncontrolling interests			28				(32	)			15
NET (LOSS) INCOME ATTRIBUTABLE TO ALCOA		$	(191	)		$	(143	)		$	242
AMOUNTS ATTRIBUTABLE TO ALCOA COMMON SHAREHOLDERS:
(Loss) income from continuing operations		$	(193	)		$	(143	)		$	242
Income from discontinued operations			2				–				–
Net (loss) income		$	(191	)		$	(143	)		$	242
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA COMMON SHAREHOLDERS:
Basic:
(Loss) income from continuing operations		$	(0.18	)		$	(0.13	)		$	0.23
Income from discontinued operations			–				–				–
Net (loss) income		$	(0.18	)		$	(0.13	)		$	0.23
Diluted:
(Loss) income from continuing operations		$	(0.18	)		$	(0.13	)		$	0.21
Income from discontinued operations			–				–				–
Net (loss) income		$	(0.18	)		$	(0.13	)		$	0.21
Average number of shares used to compute:
Basic earnings per common share			1,064,363,032				1,067,000,575				1,067,197,166
Diluted earnings per common share			1,064,363,032				1,067,000,575				1,167,549,803
Shipments of aluminum products (metric tons)			1,280,000				1,317,000				1,280,000

Alcoa and subsidiaries
Statement of Consolidated Operations (unaudited), continued
(in millions, except per-share, share, and metric ton amounts)
		Year ended
		December 31,
		2011				2012
Sales		$	24,951			$	23,700
Cost of goods sold (exclusive of expenses below)			20,480				20,486
Selling, general administrative, and other expenses			1,027				997
Research and development expenses			184				197
Provision for depreciation, depletion, and amortization			1,479				1,460
Restructuring and other charges			281				87
Interest expense			524				490
Other income, net			(87	)			(341	)
Total costs and expenses			23,888				23,376
Income from continuing operations before income taxes			1,063				324
Provision for income taxes			255				162
Income from continuing operations			808				162
Loss from discontinued operations			(3	)			–
Net income			805				162
Less: Net income (loss) attributable to noncontrolling interests			194				(29	)
NET INCOME ATTRIBUTABLE TO ALCOA		$	611			$	191
AMOUNTS ATTRIBUTABLE TO ALCOA COMMON SHAREHOLDERS:
Income from continuing operations		$	614			$	191
Loss from discontinued operations			(3	)			–
Net income		$	611			$	191
EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA COMMON SHAREHOLDERS:
Basic:
Income from continuing operations		$	0.58			$	0.18
Loss from discontinued operations			(0.01	)			–
Net income		$	0.57			$	0.18
Diluted:
Income from continuing operations		$	0.55			$	0.18
Loss from discontinued operations			–				–
Net income		$	0.55			$	0.18
Average number of shares used to compute:
Basic earnings per common share			1,061,039,969				1,066,650,500
Diluted earnings per common share			1,160,695,735				1,076,478,519
Common stock outstanding at the end of the period			1,064,412,066				1,067,211,953
Shipments of aluminum products (metric tons)			5,037,000				5,197,000

Alcoa and subsidiaries
Consolidated Balance Sheet (unaudited)
(in millions)
		December 31,				December 31,
		2011				2012
ASSETS
Current assets:
Cash and cash equivalents		$	1,939			$	1,861
Receivables from customers, less allowances of $46 in 2011 and $39 in 2012			1,571				1,322
Other receivables			371				405
Inventories			2,899				2,825
Prepaid expenses and other current assets			933				1,328
Total current assets			7,713				7,741
Properties, plants, and equipment			37,608				38,137
Less: accumulated depreciation, depletion, and amortization			18,326				19,190
Properties, plants, and equipment, net			19,282				18,947
Goodwill			5,157				5,170
Investments			1,626				1,860
Deferred income taxes			3,546				3,738
Other noncurrent assets			2,796				2,707
Total assets		$	40,120			$	40,163
LIABILITIES
Current liabilities:
Short-term borrowings		$	62			$	53
Commercial paper			224				–
Accounts payable, trade			2,692				2,692
Accrued compensation and retirement costs			985				1,058
Taxes, including income taxes			438				389
Other current liabilities			1,167				1,283
Long-term debt due within one year			445				465
Total current liabilities			6,013				5,940
Long-term debt, less amount due within one year			8,640				8,311
Accrued pension benefits			3,261				3,746
Accrued other postretirement benefits			2,583				2,603
Other noncurrent liabilities and deferred credits			2,428				3,056
Total liabilities			22,925				23,656
EQUITY
Alcoa shareholders’ equity:
Preferred stock			55				55
Common stock			1,178				1,178
Additional capital			7,561				7,560
Retained earnings			11,629				11,689
Treasury stock, at cost			(3,952	)			(3,881	)
Accumulated other comprehensive loss			(2,627	)			(3,418	)
Total Alcoa shareholders' equity			13,844				13,183
Noncontrolling interests			3,351				3,324
Total equity			17,195				16,507
Total liabilities and equity		$	40,120			$	40,163

Alcoa and subsidiaries
Statement of Consolidated Cash Flows (unaudited)
(in millions)
		Year ended
		December 31,
		2011					2012
CASH FROM OPERATIONS
Net income		$	805				$	162
Adjustments to reconcile net income to cash from operations:
Depreciation, depletion, and amortization			1,481					1,462
Deferred income taxes			(181	)				(105	)
Equity (income) loss, net of dividends			(26	)				2
Restructuring and other charges			281					87
Net gain from investing activities – asset sales			(41	)				(321	)
Loss from discontinued operations			3					–
Stock-based compensation			83					67
Excess tax benefits from stock-based payment arrangements			(6	)				(1	)
Other			53					89
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
(Increase) decrease in receivables			(115	)				117
(Increase) decrease in inventories			(339	)				96
Decrease (increase) in prepaid expenses and other current assets			74					(49	)
Increase (decrease) in accounts payable, trade			394					(22	)
(Decrease) in accrued expenses			(38	)				(97	)
Increase in taxes, including income taxes			118					15
Pension contributions			(336	)				(561	)
(Increase) in noncurrent assets			(154	)				(13	)
Increase in noncurrent liabilities			147					572
CASH PROVIDED FROM CONTINUING OPERATIONS			2,203					1,500
CASH USED FOR DISCONTINUED OPERATIONS			(10	)				(3	)
CASH PROVIDED FROM OPERATIONS			2,193					1,497
FINANCING ACTIVITIES
Net change in short-term borrowings (original maturities of three months or less)			(31	)				(10	)
Net change in commercial paper			224					(224	)
Additions to debt (original maturities greater than three months)			1,256					1,072
Debt issuance costs			(17	)				(5	)
Payments on debt (original maturities greater than three months)			(1,194	)				(1,589	)
Proceeds from exercise of employee stock options			37					12
Excess tax benefits from stock-based payment arrangements			6					1
Dividends paid to shareholders			(131	)				(131	)
Distributions to noncontrolling interests			(257	)				(95	)
Contributions from noncontrolling interests			169					171
CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES			62					(798	)
INVESTING ACTIVITIES
Capital expenditures			(1,287	)				(1,261	)
Acquisitions, net of cash acquired			(240	)				–
Proceeds from the sale of assets and businesses			38					615
Additions to investments			(374	)				(300	)
Sales of investments			54					31
Net change in restricted cash			(4	)				87
Other			(39	)				69
CASH USED FOR INVESTING ACTIVITIES			(1,852	)				(759	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			(7	)				(18	)
Net change in cash and cash equivalents			396					(78	)
Cash and cash equivalents at beginning of year			1,543					1,939
CASH AND CASH EQUIVALENTS AT END OF YEAR		$	1,939				$	1,861

Alcoa and subsidiaries
Segment Information (unaudited)
(dollars in millions, except realized prices; production and shipments in thousands of metric tons [kmt])
	4Q11				2011				1Q12				2Q12				3Q12				4Q12				2012
Alumina:
Alumina production (kmt)		4,178				16,486				4,153				4,033				4,077				4,079				16,342
Third-party alumina shipments (kmt)		2,378				9,218				2,293				2,194				2,368				2,440				9,295
Third-party sales	$	847			$	3,462			$	775			$	750			$	764			$	803			$	3,092
Intersegment sales	$	620			$	2,727			$	617			$	576			$	575			$	542			$	2,310
Equity (loss) income	$	(2	)		$	25			$	1			$	1			$	2			$	1			$	5
Depreciation, depletion, and amortization	$	112			$	444			$	114			$	114			$	120			$	107			$	455
Income taxes	$	33			$	179			$	(1	)		$	(6	)		$	(22	)		$	2			$	(27	)
After-tax operating income (ATOI)	$	125			$	607			$	35			$	23			$	(9	)		$	41			$	90
Primary Metals:
Aluminum production (kmt)		962				3,775				951				941				938				912				3,742
Third-party aluminum shipments (kmt)		805				2,981				771				749				768				768				3,056
Alcoa’s average realized price per metric ton of aluminum	$	2,374			$	2,636			$	2,433			$	2,329			$	2,222			$	2,325			$	2,327
Third-party sales	$	1,991			$	8,240			$	1,944			$	1,804			$	1,794			$	1,890			$	7,432
Intersegment sales	$	633			$	3,192			$	761			$	782			$	691			$	643			$	2,877
Equity loss	$	(3	)		$	(7	)		$	(2	)		$	(9	)		$	(5	)		$	(11	)		$	(27	)
Depreciation, depletion, and amortization	$	136			$	556			$	135			$	133			$	130			$	134			$	532
Income taxes	$	(37	)		$	92			$	(13	)		$	(19	)		$	(19	)		$	157			$	106
ATOI	$	(32	)		$	481			$	10			$	(3	)		$	(14	)		$	316			$	309
Global Rolled Products:
Third-party aluminum shipments (kmt)		407				1,780				452				484				483				448				1,867
Third-party sales	$	1,691			$	7,642			$	1,845			$	1,913			$	1,849			$	1,771			$	7,378
Intersegment sales	$	39			$	218			$	44			$	44			$	42			$	33			$	163
Equity loss	$	(3	)		$	(3	)		$	(1	)		$	(2	)		$	(1	)		$	(2	)		$	(6	)
Depreciation, depletion, and amortization	$	58			$	237			$	57			$	57			$	57			$	58			$	229
Income taxes	$	10			$	104			$	49			$	43			$	44			$	31			$	167
ATOI	$	26			$	266			$	96			$	95			$	98			$	69			$	358
Engineered Products and Solutions:
Third-party aluminum shipments (kmt)		53				221				58				59				53				52				222
Third-party sales	$	1,355			$	5,345			$	1,390			$	1,420			$	1,367			$	1,348			$	5,525
Equity income	$	–			$	1			$	–			$	–			$	–			$	–			$	–
Depreciation, depletion, and amortization	$	39			$	158			$	40			$	39			$	39			$	40			$	158
Income taxes	$	59			$	260			$	72			$	77			$	79			$	69			$	297
ATOI	$	122			$	539			$	155			$	160			$	160			$	137			$	612
Reconciliation of ATOI to consolidated net (loss) income attributable to Alcoa:
Total segment ATOI	$	241			$	1,893			$	296			$	275			$	235			$	563			$	1,369
Unallocated amounts (net of tax):
Impact of LIFO		11				(38	)			–				19				(7	)			8				20
Interest expense		(81	)			(340	)			(80	)			(80	)			(81	)			(78	)			(319	)
Noncontrolling interests		(28	)			(194	)			(5	)			17				32				(15	)			29
Corporate expense		(71	)			(290	)			(64	)			(69	)			(62	)			(87	)			(282	)
Restructuring and other charges		(161	)			(196	)			(7	)			(10	)			(2	)			(56	)			(75	)
Discontinued operations		2				(3	)			–				–				–				–				–
Other		(104	)			(221	)			(46	)			(154	)			(258	)			(93	)			(551	)
Consolidated net (loss) income attributable to Alcoa	$	(191	)		$	611			$	94			$	(2	)		$	(143	)		$	242			$	191

The difference between certain segment totals and consolidated amounts is in Corporate.

Alcoa and subsidiaries
Calculation of Financial Measures (unaudited)
(dollars in millions)
Adjusted EBITDA Margin			Quarter ended															Year ended
			December 31, 2011					September 30, 2012					December 31, 2012					December 31, 2011					December 31, 2012
Net (loss) income attributable to Alcoa			$	(191	)			$	(143	)			$	242				$	611				$	191
Add:
Net income (loss) attributable to noncontrolling interests				28					(32	)				15					194					(29	)
(Income) loss from discontinued operations				(2	)				–					–					3					–
(Benefit) provision for income taxes				(74	)				(33	)				143					255					162
Other income, net				(40	)				(2	)				(345	)				(87	)				(341	)
Interest expense				125					124					120					524					490
Restructuring and other charges				232					2					60					281					87
Provision for depreciation, depletion, and amortization				367					366					362					1,479					1,460
Adjusted EBITDA			$	445				$	282				$	597				$	3,260				$	2,020
Sales			$	5,989				$	5,833				$	5,898				$	24,951				$	23,700
Adjusted EBITDA Margin				7.4	%				4.8	%				10.1	%				13.1	%				8.5	%

Alcoa’s 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 Alcoa’s operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

Free Cash Flow			Quarter ended															Year ended
			December 31, 2011					September 30, 2012					December 31, 2012					December 31, 2011					December 31, 2012
Cash from operations			$	1,142				$	263				$	933				$	2,193				$	1,497
Capital expenditures				(486	)				(302	)				(398	)				(1,287	)				(1,261	)
Free cash flow			$	656				$	(39	)			$	535				$	906				$	236

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 Alcoa’s 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.

Alcoa and subsidiaries
Calculation of Financial Measures (unaudited), continued
(dollars in millions, except per-share amounts)
Adjusted Income			Quarter ended									Year ended
			December 31, 2012									December 31, 2011										December 31, 2012
			Income					Diluted EPS				Income						Diluted EPS				Income						Diluted EPS
Net income attributable to Alcoa			$	242				$	0.21			$		611				$	0.55			$		191				$	0.18
Loss from discontinued operations				–										(3	)									–
Income from continuing operations attributable to Alcoa				242					0.21					614					0.55					191					0.18
Restructuring and other charges				54										181										73
Discrete tax items*				(58	)									2										(22	)
Other special items**				(174	)									15										20
Income from continuing operations attributable to Alcoa – as adjusted			$	64					0.06			$		812					0.72			$		262					0.24

Income from continuing operations 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 Income from continuing operations attributable to Alcoa determined under GAAP as well as Income from continuing operations attributable to Alcoa – as adjusted.

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