This is a summary of the third quarter fiscal 2008 earnings call conducted by Alcoa, Inc. (AA: chart) on October 7, 2008.

Management:

- CFO, Executive Vice President: Charles D. McLane, Jr.
- President, CEO, Director: Klaus Kleinfeld
- Director of Investor Relations: Greg Aschman

Key Investor Issues:

- Earnings were $268 million, or 33 cents per share, compared with $555 million, or 63 cents per share, during the same period last year.
- Revenue slid 2% from a year ago to $7.23 billion.
- Aluminum prices have dropped 32% from an all-time high in July.
- China''s aluminum demand is forecast to grow about 15% this year, down from a previous forecast of 22%.

Third Quarter Highlights:

The third quarter saw a drop in alumina aluminum prices of nearly $1,000 a ton from a high of $3,271 on July 11 to a low of $2,377 on September 30. In fact from the end of the second quarter to the end of the third quarter the price dropped nearly $700, the largest quarterly price decline ever.

The move was generated by a host of factors, specifically the flight to liquidity during the financial crisis, the weakening end market fundamentals and subsequent inventory builds, and the strengthening of the US dollar. During this downturn several of the raw material input costs have continued to rise.

Earnings for the quarter were $268 million or $0.33 per share.

Included in those results were restructuring charges of $29 million or $0.04 per share which were primarily associated with the idling of the Rockdale smelter. Sequentially currency translation was a negative impact of $52 million or $0.06 per share, which is essentially non-cash in nature. The single biggest contributor to the currency decline in this quarter arises from the depreciation of the Real to the US dollar against an intercompany loan in Brazil. You may remember in the second quarter that Alcoa had a similar phenomenon albeit in a different direction.

In the second quarter the US dollar depreciated and Alcoa had a favorable impact of $49 million in currency translation.

Revenues in the quarter were $7.2 billion down from the second quarter revenue of $7.6 billion and up from the third quarter 2007 revenue of $6.5 billion excluding divested businesses. Higher sequential input costs of $52 million comprised of coke, fuel oil and electricity continued to compress margins albeit at a slower rate than the first two quarters.

- Debt-to-capital stands at 36.3%.
- Net debt-to-capital including cash stands at 34.3%.
- Return on capital stands at 11.5% excluding growth investments.

Higher metal prices in the first half of 2008 as compared to the first half of 2007 were more than offset by increases to energy, raw material costs and the depreciation of the US dollar.

On a year-over-year basis coke, caustic, fuel oil and natural gas were up between 40% to over 100%. These are market prices and may differ from actual cost increases but they do give an idea of both the trend and magnitude of escalation.

In the third quarter of 2007 Alcoa sold its interest in Chalco and realized a significant gain.

The company took several restructuring charges and also incurred the last cost from the Alcan offer. Excluding these gains and losses, which net out to $218 million, profit declined from $340 million in the third quarter of ’07 to $298 million in the recent quarter or from $0.39 a share to $0.37 a share.

LME prices improved results by $145 million but were more than offset by the previously described raw materials, energy and currency costs.

The company has been successful in mitigating a portion of the margin shortfall by enhancing the product mix in the downstream and midstream businesses, bringing on new low-cost volume in Iceland, and reducing both operating and administrative costs. In addition, the run rate on taxes also declined and contributed $50 million.