Slides presented during Alcoa Inc. second quarter 2006 earnings call

EX-99.2 3 dex992.htm SLIDES PRESENTED DURING ALCOA INC. SECOND QUARTER 2006 EARNINGS CALL Slides presented during Alcoa Inc. second quarter 2006 earnings call

Exhibit 99.2

[Alcoa logo]

2nd Quarter 2006

Analyst Conference

July 10, 2006

Today’s discussion may include “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 results to differ materially from those expressed in the

forward-looking statements, please refer to Alcoa’s Form 10-K

for the year ended December 31, 2005 and Form 10-Q for the

quarter ended March 31, 2006 filed with the Securities and

Exchange Commission.

Forward-Looking Statements

[Alcoa logo]

Alain J. P. Belda

Chairman and Chief Executive Officer

2nd

Quarter 2006 Financial Highlights

Record income from continuing operations

of $752m or $0.86 per share

Highest quarterly revenues in company

history

of $7.96b

Record profits

in the Alumina, Primary Metals

and Engineered Solutions segments

Year to date annualized ROC

of 15.4% well

in excess of cost of capital

Safety -

1st

Half of 2006

Lost Work Days

Total Recordables

52%

Zero Incident Locations

48%

88%

12%

329

100

150

200

250

300

350

No LWD

LWD

# of

Locations

194

178

100

150

200

250

300

350

No TRR

TRR

# of

Locations

Operational Excellence

Production records set in Alumina Segment

Quarterly production record for the refinery system

Flat-Rolled Products Segment excels

Record production at our Texarkana rolling mills

Engineered Solutions Segment has record results

Record production at Cleveland and Kofem facilities for Class 8

truck wheels

Record shipments for Class 8 truck wheels –

2nd

quarter in a

row

Record productivity in Fasteners Business –

2nd

quarter in a row

Innovation and New Products

Vino-Seal™:

First commercial use in the U.S. of new

Alcoa designed glass wine closure

Nike’s Aero Torque®

and Aero Strobe®:

Multi-year

contract to supply specialty aluminum drawn tube using

custom alloys for premium brand baseball bats

Reynobond®

with KEVLAR®

Successfully tested the

Hurricane-Resistant architectural panel system

Process Breakthroughs:

Natural Media Filtration

Growth, Sustainable Development

and Portfolio Management

–

Formed aluminum brazing sheet joint venture in China

–

Signed an MOU to explore the feasibility of a bauxite mine and alumina

refinery in Vietnam

–

Opened a new Consumer Products plant in Bulgaria

–

“First Pour”

of Howmet’s newly installed vacuum furnace at the Whitehall,

Michigan facility

–

Established a new entity in Johannesburg, South Africa for the sale and

distribution of aluminum forged truck wheels in Africa

–

Acquired the minority interests in our Eastalco and Intalco aluminum

smelters

–

Announced our plans to divest the Home Exteriors business

–

Reviewing options for Soft Alloy Extrusion business

Global Environment

Premiums have Firmed

Source: Platts

Global Environment

Days of Consumption

Source: IAI, Reuters and LME

Global Environment

Aluminum Price Lags Other Base Metals

Source: LME and Dow Jones Steel Index

[Alcoa logo]

Joseph Muscari

Executive Vice President

Chief Financial Officer

Record income from continuing operations of $752 million ($0.86 per

share) was 22% and 52% higher than the previous and prior year quarter

respectively

Included in the results is the negative impact of strike prep and settlement

costs of $35m or $0.04 per share

Highest quarterly revenues of $7.96 billion –

10% and 19% higher than

the previous and prior year quarter respectively

Capital expenditures were $729 million –

64% was devoted to growth

projects

Working capital increased; however Days of Working Capital improved

three days year over year

Debt-to-cap in target range at 32%

Trailing four quarters ROC of 11.2%; ROC excluding growth investments

of 12.8%

2nd

Quarter 2006 Financial Overview

Impact of Strike Prep & Settlement Costs

Signing Bonus

$12.5 MM

Strike preparation and

other contract settlement costs

$22.5 MM

Total

$35.0 MM

Earnings per share

$0.04

2nd

Quarter 2006 Financial Review

In Millions

1Q'06

2Q'06

Change

Sales

$7,244

$7,959

$715

Cost of Goods Sold

$5,459

$5,967

$508

% of Sales

75.4%

75.0%

(0.4) pts

SG&A

$369

$368

($1)

% of Sales

5.1%

4.6%

(0.5 pts)

Restructuring and Other Charges

($9)

($10)

Interest Expense

$92

$98

Other Income, Net (Income)

($35)

($61)

($26)

Effective Tax Rate

28.1%

0 pts

Minority Interests

$105

$124

$19

GAAP Net Income

$608

$744

$136

(Loss) Income from Discontinued Operations

($7)

($8)

($1)

Cumulative effect of Accounting Change

GAAP Income From Continuing Operations

$615

$752

$137

Cash from Operations

Working Capital / DWC

Capex

Debt to Capital

2nd

Quarter 2006 Cash Flow Review

Revenue and ATOI Performance

Historical Performance of Combined Segments

($million)

Total ATOI is the sum of the segment ATOI.

200

400

600

800

1,000

1,200

2,500

5,000

7,500

10,000

ATOI

Revenue

Alumina

2Q vs 2Q

2Q vs 1Q

2Q’06

53%

15%

278

ATOI ($MM)

34%

14%

713

3rd

Party Sales ($MM)

3,746

Production (kmt)

2,108

3rd

Party Shipmts (kmt)

2nd

Quarter Highlights

Realized benefit of strong LME

Production record for the entire

system

Unfavorable currency

2nd

Quarter Dynamics

3rd

Quarter Outlook

ATOI Performance

Productivity gains

Pinjarra expansion continues its

ramp up to capacity

100

150

200

250

300

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

$ Millions

Primary Metals

2nd

Quarter Highlights

2nd

Quarter Dynamics

3rd

Quarter Outlook

ATOI Performance

Increases in LME and premiums

driven by strong demand

Higher production at Alumar and

Portland

Higher energy costs, unfavorable

currency and one-time labor

contract related costs

Higher production

Power and raw materials costs will

increase

One-third of the 3rd

quarter is priced

Average June cash LME = $2,477/MT

2Q vs 2Q

2Q vs 1Q

2Q’06

162%

10%

489

ATOI ($MM)

41%

13%

1,589

3rd

Party Sales ($MM)

(2%)

882

Production (kmt)

38%

$2,728

3rd

Party Price ($/MT)

(2%)

508

3rd

Party Shipmts (kmt)

100

150

200

250

300

350

400

450

500

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

$ Millions

Flat-Rolled Products

Can Sheet

Aerospace

Automotive

Building &

Construction

Distribution

Industrial

2nd

Quarter Highlights

2nd

Quarter Dynamics

3rd

Quarter Outlook

ATOI Performance

Strong demand in the aerospace,

commercial transportation and

distribution markets

Seasonal jump in North America

can sheet volume

One time labor contract related

costs

Aerospace demand to remain

strong

Scheduled maintenance outages

2Q vs

2Q’06

13%

20%

ATOI ($MM)

20%

2,115

Revenue ($MM)

100

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

$ Millions

Extruded & End Products

Commercial

Vehicle

Aerospace

Automotive

Building &

Construction

Distribution

Industrial

2nd

Quarter Highlights

2nd

Quarter Dynamics

3rd

Quarter Outlook

ATOI Performance

Stronger volumes in commercial

transportation, building &

construction and distribution across

all businesses

Improved profitability in the Soft

Alloy Extrusion business

Improved productivity

Consistent market and operational

conditions from 2nd

quarter

2Q vs

2Q’06

ATOI ($MM)

15%

14%

1,328

Revenue ($MM)

-5

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

$ Millions

Engineered Solutions

(5)

(6)

Other

(5)

1Q06

Total

Investment Castings,

Forgings, Fasteners

AFL, Auto. Castings

and Structures

100

2Q06

(8)

2Q05

ATOI ($MM)

2nd

Quarter Dynamics

3rd

Quarter Outlook

AFL, Auto Castings & Structures

Continued improved performance at AFL

Strong productivity gains

2005 restructuring generates benefits

Investment Castings, Forgings, Fasteners

Market demand remains strong

Productivity gains sustained

Product mix enrichment

European seasonal slowdown

Seasonal declines in North America

automotive production

$20

$40

$60

$80

$100

$120

Q1 '05

Q2 '05

Q3 '05

Q4 '05

Q1 '06

Q2 '06

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

ATOI

Third Party Revenue

Packaging & Consumer

(1)

(2)

Other

(11)

1Q06

Total

Reynolds Food

Packaging and

Flexible Packaging

Closure Systems and

Consumer Products

(1)

2Q06

2Q05

ATOI ($MM)

2nd

Quarter Dynamics

3rd

Quarter Outlook

Record revenue of $834 million

Seasonal volume increases,

especially in Closure Systems

Productivity gains

Moderating resin prices quarter

over quarter

Normal seasonal slowdown

expected in Closure Systems

Consumer

Products

Closures

Flexible

Packaging

Reynolds Food

Packaging

$10

$20

$30

$40

$50

Q1 '05

Q2 '05

Q3 '05

Q4 '05

Q1 '06

Q2 '06

$600

$650

$700

$750

$800

$850

ATOI

Revenue

3rd Quarter 2006 Outlook Summary

Continued strong operational performance

Continued downstream market strength

Traditional seasonality

Metal sensitivity

Strong market fundamentals

For Additional Information, Contact:

Tony Thene

Director, Investor Relations

Alcoa

390 Park Avenue

New York, N.Y. 10022-4608

Telephone: (212) 836-2674

Facsimile: (212) 836-2813

www.alcoa.com

[Alcoa logo]

[Alcoa logo]

Appendix

2nd

Quarter 2006 Cash Flow Review

$ In Millions

2Q'05

2Q'06

Net Income

$460

$744

DD&A

312

325

Change in Working Capital

(270)

(428)

Other Adjustments

(90)

Pension Contributions

(28)

(25)

Cash From Operating Activities

384

699

Dividends to Shareholders

(132)

(131)

Change in Debt

(430)

191

Other Financing Activities

(6)

(90)

Cash From Financing Activities

(568)

(30)

Capital Expenditures

(487)

(729)

Acquisitions

Other Investing Activities

634

Cash From Investing Activities

$147

($685)

Reconciliation of Return on Capital

Return on Capital (ROC) is presented based on Bloomberg Methodology which calculates ROC based on

trailing four quarters.

2Q'06

1Q'06

4Q'05

3Q'05

2Q'05

2006 YTD

Bloomberg

2Q'06

Bloomberg

1Q'06

Bloomberg

In Millions

Annlzd

Method

Annlzd

Method

Annlzd

Method

Net Income

$2,704

$1,865

$2,976

1,581

$2,432

$1,233

$1,277

$1,271

Minority Interest

$458

$368

$496

304

$420

$259

$227

$240

Interest Expense (After-tax)

$273

$268

$282

$274

$264

$261

$263

$237

Numerator (Sum Total)

$3,435

$2,501

$3,754

$2,159

$3,116

$1,753

$1,767

$1,748

Average Balances

Short-term borrowings

$331

$309

$366

$350

$335

$284

$153

$152

Short-term debt

$60

$55

$63

$53

$59

$58

$272

$273

Commercial paper

$1,405

$1,501

$1,785

$1,652

$1,292

$771

$946

$1,093

Long-term debt

$5,219

$5,335

$5,192

$5,246

$5,253

$5,312

$5,382

$5,381

Preferred Stock

$55

Minority interests

$1,419

$1,340

$1,432

$1,280

$1,378

$1,391

$1,332

$1,253

Common equity

$13,842

$13,834

$14,120

$13,611

$13,596

$13,282

$13,045

$12,761

Denominator (Sum Total)

$22,331

$22,427

$23,013

$22,247

$21,968

$21,153

$21,185

$20,968

Return on Capital

15.4%

11.2%

16.3%

9.7%

14.2%

8.3%

Reconciliation of Adjusted Return on Capital

Return on capital, excluding growth investments is a non-GAAP financial measure. Management believes that this

measure is meaningful to investors because it provides greater insight with respect to the underlying operating

performance of the company’s productive assets. The company has significant growth investments underway in its

upstream and downstream businesses, as previously noted, with expected completion dates over the next several

years. As these investments generally require a period of time before they are productive, management believes that a

return on capital measure excluding these growth investments is more representative of current operating performance.

2Q'06

1Q'06

4Q'05

3Q'05

2Q'05

2006 YTD

Bloomberg

2Q'06

Bloomberg

1Q'06

Bloomberg

In Millions

Annlzd

Method

Annlzd

Method

Annlzd

Method

Numerator (Sum Total)

$3,435

$2,501

$3,754

$2,159

$3,116

$1,753

$1,767

$1,748

Russia & Bohai Net Loss

($99)

($78)

($88)

($86)

($110)

($71)

($48)

($41)

Adjusted Net Income

$3,534

$2,579

$3,841

$2,245

$3,226

$1,824

$1,815

$1,789

Average Balances

Denominator (Sum Total)

$22,331

$22,427

$23,013

$22,247

$21,968

$21,153

$21,185

$20,968

Capital Projects in Progress,

Russia & Bohai Capital Base

$3,057

$2,330

$3,220

$2,139

$2,892

$1,981

$1,736

$1,539

Adjusted Capital Base

$19,274

$20,097

$19,792

$20,108

$19,076

$19,172

$19,449

$19,429

Return on Capital Excluding

Growth Investments

18.3%

12.8%

19.4%

11.2%

16.9%

9.5%

9.3%

9.2%

Days of Working Capital Definition

In Millions

2Q'05

4Q'05

2Q'06

Add: Receivables from customers, less allowances

3,195

2,914

3,625

Add: Inventories

3,462

3,446

4,087

Less: Accounts payable, trade

2,339

2,659

2,822

Working Capital

4,318

3,701

4,890

Sales

6,693

6,666

7,959

Days of Working Capital *

58.7 d

51.1 d

55.9 d

* Days of Working Capital = Working Capital divided by (Sales/number of days in the quarter)

Reconciliation of ATOI to Net Income

Prior periods segment information has been reclassified to reflect the movement of the Hawesville, KY automotive casting

facility to discontinued operations in 2006.

The difference between total segment third-party sales and consolidated third-party sales is in Corporate.

(2) Prior periods Corporate LIFO expense has been reclassified from “Other”

to combine the total impact of inventory