2013 Revenue of $23.0 billion Driven by Value-Add Businesses; Generated Positive Free Cash Flow for Fourth Consecutive Year

Forecasting 7 Percent Growth in Global Aluminum Demand in 2014

4Q 2013 Highlights


Net loss of $2.3 billion, or $2.19 per share; excluding special items, net income of $40 million, or $0.04 per share
$1.7 billion in non-cash goodwill impairment tied to legacy smelting acquisitions
Solid revenue of $5.6 billion, despite 7 percent lower realized aluminum prices year-over-year
Engineered Products and Solutions fourth quarter record after-tax operating income, up 20 percent year-over-year
Upstream business improves performance for ninth consecutive quarter
Cash from operations of $920 million, up $706 million sequentially
Positive free cash flow of $498 million
Strong liquidity with $1.4 billion cash on hand and the lowest year-end net debt since December 2006
Record low 20 days working capital, a year-over-year decrease of 4 days, equal to approximately $240 million of cash


Full-Year 2013 Highlights


Net loss of $2.3 billion, or $2.14 per share
Excluding special items, net income of $357 million, or $0.33 per share, up 36 percent from 2012
Revenue of $23.0 billion
Record results in Engineered Products and Solutions
Cash from operations of $1.6 billion
Free cash flow of $385 million; fourth consecutive year of positive free cash flow generation
$1.1 billion in year-over-year productivity gains
16 percent of Alcoa global smelting capacity offline


NEW YORK--Alcoa (NYSE:AA) today reported solid operating performance in the fourth quarter and full-year 2013 as the Company’s repositioning gains traction, offset by special items primarily to address legacy matters in the Primary Metals business. As a result, Alcoa reported a fourth quarter 2013 net loss of $2.3 billion, or $2.19 per share.

Special items in fourth quarter 2013 totaled $2.4 billion and included a non-cash goodwill impairment of $1.7 billion related to Primary Metals. The impairment has no impact on the Company’s liquidity and does not affect the ongoing operating performance of Primary Metals.

Excluding the negative impact of special items, Alcoa reported net income of $40 million, or $0.04 per share, in fourth quarter 2013. Engineered Products and Solutions (EPS) reported record fourth quarter after-tax operating income (ATOI), the upstream business improved performance for the ninth consecutive quarter, and all business segments produced productivity gains in the fourth quarter. The Company reported fourth quarter revenue of $5.6 billion.

"We delivered strong operating performance in the fourth quarter, led by record downstream profitability, as our strategy to build-out the value-add businesses and lower the cost base in the commodity segment gains traction,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. “In addition, we put a number of legacy matters behind us, clearing a path for Alcoa’s continued transformation in 2014.” Kleinfeld added, “We started growing our value-add businesses and lowering the cost base of our commodity businesses at the height of the economic crisis. Today, this transformation is paying off, with the value-add businesses driving 57 percent of our revenues and 80 percent of our segment profits.”

Alcoa’s value-add businesses comprise EPS and Global Rolled Products.

In 2014, Alcoa projects global growth in the aerospace (7 percent to 8 percent), automotive (1 percent to 4 percent), packaging (2 percent to 3 percent), and building and construction (4 percent to 6 percent) markets. After a strong 2013, Alcoa projects a steady commercial transportation market (-1 percent to 3 percent), and a decline in the industrial gas turbine market (-8 percent to -12 percent) on lower orders for new gas turbines and spare parts.

Alcoa sees global aluminum demand growth of 7 percent in 2014, after 7 percent growth in 2013.

Fourth Quarter 2013 Results

Alcoa reported a fourth quarter 2013 net loss of $2.3 billion, or $2.19 per share, compared to net income of $24 million, or $0.02 per share, in third quarter 2013 and $242 million, or $0.21 per share, in fourth quarter 2012. Adjusted EBITDA in fourth quarter 2013 was $565 million, compared to $675 million in third quarter 2013 and $597 million in fourth quarter 2012.

Special items in fourth quarter 2013 reflect the results of the goodwill impairment analysis that the Company performs annually. As a result of this analysis, the Company recorded a non-cash goodwill impairment of $1.7 billion related to its Primary Metals business for goodwill arising primarily from the acquisitions of Alumax Inc. (1998) and Reynolds Metals Company (2000), which included significant smelting assets. The impairment is a result of unfavorable trends that impact the estimated fair value of the Primary Metals business such as lower metal prices, reduced operating margins and increased discount rates.

Other special items in fourth quarter 2013 included:


$361 million of non-cash discrete tax items, primarily for valuation allowances recorded against certain deferred tax assets whose benefits are unlikely to be realized, largely due to reduced earnings in the Primary Metals business;
$13 million non-cash charge to write-off certain upstream capital projects no longer being pursued;
$243 million charge in connection with the resolution of the U.S. government investigations of the Alba matter (see “Alba Resolution” below);
$46 million of restructuring charges primarily tied to overhead cost reductions across all business segments; and
$9 million unfavorable impact tied to the temporary shutdown of one smelter potline at the Ma’aden-Alcoa joint venture project.


Excluding special items, Alcoa reported fourth quarter 2013 net income of $40 million, or $0.04 per share, compared to net income of $120 million, or $0.11 per share, in third quarter 2013. Sequentially, results were affected by lower London Metal Exchange (LME) prices, volume and cost headwinds, somewhat offset by productivity gains. Excluding special items, fourth quarter 2013 results compare to net income of $64 million, or $0.06 per share, in the year-ago period.

Fourth quarter 2013 revenue was $5.6 billion, compared with $5.8 billion sequentially, and $5.9 billion in fourth quarter 2012, as realized aluminum prices declined 1 percent sequentially, and 7 percent year-over-year.

Alcoa generated $498 million in free cash flow in fourth quarter 2013. Cash from operations was $920 million, up from $214 million sequentially. The Company achieved an all-time low in days working capital at 20 days, four days lower than fourth quarter 2012. This milestone was the 17th successive year-over-year improvement in days working capital and equates to approximately $240 million in cash.

Alcoa also maintained its strong liquidity position, ending the quarter with $1.4 billion cash on hand, up from $1.0 billion in third quarter 2013.

2013 Full-Year Results

In 2013, Alcoa reported a net loss of $2.3 billion, or $2.14 per share, compared to 2012 net income of $191 million, or $0.18 per share.

Excluding the impact of special items, 2013 net income was $357 million, or $0.33 per share, a 36 percent increase from $262 million, or $0.24 per share, in 2012. Full year net income, excluding special items, increased on record EPS profitability and productivity savings, partially offset by cost increases and lower metal prices.

Revenue in 2013 was $23.0 billion, compared to $23.7 billion in 2012 as realized aluminum prices declined 4 percent year-over-year.

Alcoa executed against its financial targets, and for full-year 2013, delivered $385 million in free cash flow, with cash from operations of $1.6 billion. This is the fourth consecutive year Alcoa has generated positive free cash flow even as LME prices reached four-year lows.

Alcoa achieved $1.1 billion year-over-year productivity savings exceeding a $750 million annual target; managed growth capital expenditures of $407 million against a $550 million annual plan and controlled sustaining capital expenditures of $786 million against a $1.0 billion annual plan. Progress on the Saudi Arabia joint venture project is on track with $159 million invested in 2013 against a $350 million annual plan.

The Company reduced its total debt from $8.8 billion in 2012, to $8.3 billion in 2013, with year-end net debt of $6.9 billion, the lowest since December 2006. Alcoa’s debt-to-capital ratio stood at 38.1 percent; excluding the impact of the goodwill impairment and deferred tax valuation allowances, debt-to-capital was 34.8 percent. Net debt-to-capital stood at 33.7 percent.

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