Business News

Alcoa Takes Decisive Action: Cost Structure Improved and Liquidity Reinforced

Tuesday 17. March 2009 - $2 Billion in Procurement Efficiencies by 2010; $400 Million in Overhead Rationalization by 2010; Capital Expenditures Reduced to $850 Million Sustaining Rate in 2010; $800 Million of Working Capital Cash Improvement in 2009 Quarterly Dividend Reduced from $.17 to $.03, Saving More Than $400 Million Annually; Public Offering of Approximately $1.1 Billion of Common Stock and Convertible Notes

Alcoa (NYSE:AA) announced today a series of operational and financial actions to significantly improve the Company’s cost structure and liquidity. The operational actions will reduce costs by more than $2.4 billion annually, reduce capital expenditures an additional $1.0 billion in 2010, and improve working capital by $800 million in 2009. The Company is reducing the quarterly common stock dividend from $0.17 to $0.03 per share, saving more than $400 million annually, and launching a public offering of common stock and convertible notes planned to yield proceeds of approximately $1.1 billion.

“By taking quick and decisive actions, Alcoa has been able to stay ahead of the evolving economic crisis,” said Klaus Kleinfeld, President and CEO of Alcoa. “Today’s actions better prepare Alcoa to manage through a prolonged downturn and position the Company for the future. We believe that we now have in place the strategic and operational fundamentals that will enable Alcoa to emerge even stronger when the economy recovers.”

Operational Initiatives

Alcoa has launched a new series of operational measures to enhance the Company’s 2009-2010 performance and improve the Company’s cost structure. The targeted results of these operational measures are: by 2010, procurement efficiencies reducing costs by $2 billion annually and overhead rationalization, reducing costs by $400 million annually; in 2009, working capital efficiency initiatives yielding $800 million in cash improvements; and by the second half of 2009, a 50 % reduction of capital spending to a sustaining level of $850 million annually. As previously announced, the Company is exiting four mid and downstream businesses and the Shining Prospect special purpose vehicle that held shares in Rio Tinto with an expected yield of approximately $1.1 billion in cash in connection with these two actions. These initiatives, together with the dividend reduction and new financings, will further strengthen Alcoa’s balance sheet and enhance its liquidity.

Dividend Reduction

Alcoa’s Board of Directors is reducing the Company’s quarterly common stock dividend to $0.03 per share from $0.17 per share, payable May 25, 2009 to shareholders of record at the close of business May 8, 2009. The decision will preserve more than $400 million of cash annually.

“Given the impact of the economy on Alcoa’s capital structure, the Board of Directors decided to reduce the dividend,” said Kleinfeld. “This decision was made after comparisons to peer companies and consideration of the interests of our shareholders. We are pleased to be able to continue Alcoa’s record of paying a dividend every quarter for the past 60 years.”

New Financings

Alcoa plans to offer, subject to market and other conditions, 150 million shares of common stock in an underwritten registered public offering. In connection with this offering, Alcoa intends to grant the underwriters an over-allotment option with respect to an additional 22.5 million shares of common stock. Based on the closing price of Alcoa’s common stock on the New York Stock Exchange on March 13, 2009, the offering (without giving effect to any exercise of the over-allotment option) is expected to result in proceeds of approximately $850 million.

Alcoa also plans to offer, subject to market and other conditions, $250 million aggregate principal amount of convertible notes due 2014 in a concurrent underwritten registered public offering. In connection with this offering, Alcoa intends to grant the underwriters an over-allotment option with respect to an additional $37.5 million aggregate principal amount of convertible notes. The convertible notes will be convertible at the holder’s option into shares of Alcoa common stock at a conversion rate to be determined in connection with the pricing of the proposed offering.

Neither the completion of the convertible notes offering nor the completion of the common stock offering will be contingent on the completion of the other. The Company intends to use the net proceeds from the offerings to repay outstanding indebtedness under its senior unsecured 364-day revolving credit facility. The Company intends to use any remaining proceeds for general corporate purposes.