Alcoa's CEO Hosts 124th Annual Meeting of Shareholders (Transcript)

May. 4.12 | About: Alcoa, Inc. (AA)

Alcoa, Inc. (NYSE:AA)

124th Annual Meeting of Shareholders

May 04, 2012 9:30 am ET


Donna C. Dabney - Vice President, Secretary and Corporate Governance Counsel

Klaus Kleinfeld - Chairman, Chief Executive Officer, Chairman of Executive Committee and Chairman of International Committee

Donna C. Dabney

Good morning, welcome to the 124th Annual Meeting of the Alcoa Shareholders. I'm Donna Dabney, and joining me on this stage is Klaus Kleinfeld, our Chairman and Chief Executive Officer.

As we always do at Alcoa, we'll discuss safety first. On the screen is a diagram of this room and the emergency exits. Please take a moment to familiarize yourself with the exit nearest to you. In the event of an emergency, it will be announced either by an alarm or from this podium.

The agenda for today's meeting is listed on this slide and on the brochure at your seat. Our Chairman and Chief Executive Officer, Mr. Kleinfeld, will now welcome you and introduce the Board of Directors.

Klaus Kleinfeld

Good morning. Well, welcome -- as I don't know what's going on here, let me try this. Is that working? Okay, good. Well, look, my task here is, before we go on to the presentation I'm giving you a little bit of the background on what happened this year. Let me first, also, introduce the Alcoa Board of Directors. And let me start with those ones that are up for reelection this year. So each candidate, you know the spiel of the Board of Directors. Please stand up when you are introduced and then be seated after that. And the audience, please, hold your applause until the very end.

So let's start with the start. Okay, on the upper left-hand side, you see Kathryn Fuller, Kathryn? There she is. The Chair of the Smithsonian National Museum of History, Retired Chair of the Ford Foundation, Past President and CEO of the World Wildlife Fund, U.S. Kathryn held several positions in that organization from 1982 to 2005, and she is an Alcoa board member since 2002.

Next, Judy Gueron. There's Judy. Dr. Gueron is the Lead Director of the Alcoa Board. She's a scholar in residence, and a President Emerita of MDRC. MDRC is a nonprofit research organization that designs, manages and studies projects to increase the self-sufficiency of economically disadvantaged groups, and she is a member of the board since 1988.

Okay? Thank you.

Patricia Russo, that's the next person here. Pat is a former CEO of Alcatel Lucent. And prior to the merger, she was a Chairman and CEO of Lucent. She is the Lead Director of General Motors and she serves on the boards of Hewlett Packard and Merck. And she is a Director at Alcoa since 2008. Thank you, Pat.

Ernesto Zedillo. President Zedillo is the Yale Center -- is the Director of the Yale Center for the Study of Globalization. He's a former President of Mexico. He's an expert in finance international trade, and in addition to serving on the Alcoa board since 2002, he also serves on the boards of Procter & Gamble and Citigroup. Thank you very much.

So this concludes those that are up for reelection. And let's now go to the remainder of the board. Okay?

Art Collins, Art is a retired Chairman and Chief Executive Officer of Medtronic. Medtronic is a medical device and technology company. He serves, in addition to being on the board of Alcoa since 2010, he's on the board of Boeing, U.S. Bancorp and Cargill. Thank you very much.

Mike Morris. Mike is the Chairman and retired President and CEO of American Electric Power Corp. This is one of the largest public utilities here in the U.S., and from 1997 to 2003, he was a Chairman and President and CEO of Northeast Utilities. Other business affiliations of Mike Morris are that he's on the board of Battel, and Battel is one of the world's largest independent research and development organization, and Mike is on our board since 2008.

Thank you very much.

Next one, Stan O'Neal. Stan is the former Chairman of the Board and Chief Executive Officer of Merrill Lynch. He worked at Merrill Lynch for 21 years, and before that, he held senior financial positions at General Motors. And he's on our board since 2008.

Okay, let's go to the next slide.

Jim Owens. Jim is the retired Chairman and CEO of Caterpillar. And in addition to being on our board since 2005, he's on the board of IBM and Morgan Stanley. Thank you very much.

A new addition to our board, which we're very happy to announce and have him here. Martin, thank you for coming. So Martin Sorrell. Martin is the Founder and Chief Executive Officer of WPP. WPP is the largest advertising and marketing services group, and he has just been appointed to the Board of Directors of Alcoa. Thank you very much.

Last but not least, Ratan Tata. Ratan is -- could not -- can not be here with us today. Ratan is the Chairman of Tata Services Limited, which is the holding company of the Tata Group. And the Tata Group, for those that are not aware of this, is one of India's largest business conglomerates with over 96 companies in 7 business sectors. And he's a member of the Alcoa board since 2007.

So let me join everybody here in thanking the board for their service. Thank you very much.

Let's move on to the Executive Council. So what I would like to do is, in the fashion that we did it before, everybody from the Executive Council, once I name your name, please stand and remain standing until the very end. So not the end of the session here, but the end -- until the applause. So even though we started a wellness programs so we could alter that. So let me start with -- in the alphabetic order, so Kevin Anton who is our Chief Sustainability Officer. And please hold your applause, I know you're working hard on that. So Nick, Nick Ashooh, Head of Corporate Affairs, there is Nick. Chris Ayers, who is our group President for our Global Primary Products; Mike Barriere, who has just been named as our Head of Human Resources; Jack Bergen, who is now heading our Corporate Projects -- Jack, where's Jack? Where's Jack? Okay, that's great. Okay. We just retired him as the Head of HR and here he goes. That's the way he goes -- Graeme Bottger is our Controller. Daniel Cruise, Head of Public and Government Affairs; Mark Davies, President of Global Business Services; Roy Harvey, CFO for Global Primary Products; Olivier Jarrault, who's heading up our Engineered Products and Solutions Group; Ray Kilmer, who's a Chief Technology Officer; Gerhard Kschwendt, who is the Head of Business Excellence and Corporate Strategy; Charles McLane, our CFO; Kay Meggers, the Head of Global Rolled Products; Matthias Obermayer, Head of Business Excellence and Corporate Strategies; Bill Oplinger, Global Primary Products; Judy Schrecker, CFO of our Global Rolled Products; Audrey Strauss, Chief Legal and Compliance Officer and Secretary; Tony Thene, CFO of our Engineered Products and Solutions Business; and last but not least, Kurt Waldo, who is handing over to Audrey as we speak, and he's the Executive Vice President, but he's here. So that was obvious.

Okay, thank you very much. Go ahead and share your thoughts.

Donna C. Dabney

So I'm going to try to use this microphone a little bit better and not blast you out of here. Can you hear me okay? Okay.

So this is the business portion of the meeting. Notice of this meeting and the proxy voting materials were made available to each shareholder entitled to vote beginning on March 15 of this year. The inspector of election reports that proxies were received from Alcoa shareholders holding approximately 796 million shares of common stock or about 75% of the total common stock entitled to vote at this meeting, which satisfies the quorum requirements under Pennsylvania law. Therefore, this meeting is properly organized and a quorum is present, and we can proceed with business.

The proxy committee appointed by Alcoa's board is here this morning to represent those shareholders who gave their proxies to the committee. There are 8 items of business for this meeting. The first item is the election of the board directors who are nominated by the board: Kathryn S. Fuller, Judith M. Gueron, Patricia F. Russo and Ernesto Zedillo. As no other persons have been nominated in accordance with the company's governing documents, the nominations are now closed.

The second item of business is a proposal to ratify the independent auditor. Representatives from PricewaterhouseCoopers are here today. Please stand to be recognized, George Milo and Chris Hagedorn. They are here to answer your questions the after business portion of the meeting is over, if you should have any.

The third item of business is a proposal to approve an advisory vote on executive compensation.

The next 3 items of business relate to eliminating all of the supermajority voting provisions of our Articles of Incorporation, and they require more than a majority of shares outstanding.

The seventh item of business is a proposal to phase out the classified board by amending the Articles of Incorporation and providing, instead, for the annual election of directors.

The last item of business is a proposal to permit shareholder action by written consent, also by amending the Articles of Incorporation and bylaws.

Under Pennsylvania law, the affirmative vote of not less than 80% of the shares outstanding is required to approve amendments to the Articles of Incorporation under Items 4, 5, 6 and 7.

Before I report the preliminary vote count for these 8 proposals, I would like to offer a ballot to any shareholder present at this meeting who wishes to vote in person at the meeting. If you have already submitted a proxy, you do not need to vote again.

Does anyone need a ballot to vote who hasn't already voted by proxy?

Seeing no hands raised, the voting polls are now closed.

I will now report to you the preliminary results of the proxy voting that occurred before this meeting. Based on the preliminary report of the inspector of election, all 4 nominees have been elected to the board with nominees receiving at least 87% of the votes cast. The proposal to ratify the independent auditor has been approved with approximately 98% of the votes cast. The advisory vote on executive compensation has been approved with approximately 83% of the votes cast. And the proposals to eliminate the supermajority voting requirements have not been approved. All 3 proposals have received less than 80% of the shares outstanding. The approximate number of shares outstanding voted for these proposals is 47%. The proposal to eliminate the supermajority voting requirement in the Articles of Incorporation to -- I'm sorry, the proposal to authorize shareholder action by written consent by approving the amendments to the bylaws have been approved by 98%. And the proposal to phase out the classified board has not been approved with only 47% percent of the shares outstanding. The 80% was required for the approval of that vote.

We will file the election return on Form 8-K within four days of this meeting. And that completes the formal business. And the business portion of this meeting is adjourned.

The next item is Mr. Kleinfeld's report to shareholders. Mr. Kleinfeld's report, in 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, 2011, and other reports filed with the Securities and Exchange Commission.

In addition, we've included some non-GAAP financial measures in our discussion. Reconciliation to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation and on our website,, under the Invest section. Any reference in our discussion today, to EBITDA, means adjusted EBITDA for which we have provided calculations.

I would also like to mention one more rule before Mr. Kleinfeld's presentation. Alcoa encourages questions and comments, and time has been reserved at the end of the meeting for this purpose. If you have a question or comment, raise your hand and an usher will come to you with a microphone. After you are recognized by the Chairman, please give your name clearly, state if you're an Alcoa shareholder and present your question or comment. We're asking that you please limit questions and comments to matters that are of general interest to the shareholders, and we do reserve the right to limit comments that are lengthy, repetitive or disruptive and not of general interest to the shareholders.

Thank you very much. That does conclude the business portion of the meeting.


Klaus Kleinfeld

I don't know how you feel about it. I mean, it's almost become a standard of using this video as a start, and I feel it tells the story so well, about Alcoa. And for those that have seen it more than once, you noticed that we kind of -- it's continued to tell the story of what's been happening, newly, in it. And you may have noticed that it doesn't end with Alcoa, we can't wait for tomorrow but now it says, advancing each generation. In a way, I mean, this is really what the story is about and this is also what we feel very committed about, and there couldn't be another place than here in Pittsburgh and then here at the annual shareholder meeting, I think, to reemphasize it. And that's also the presentation that I've put together, basically giving you an overview of what happened last year and also putting into a little a bit of bigger picture of what are we doing with the company.

So let's get this thing rolling.

So in the usual fashion, we want to start with safety. Safety is a very, very important aspect of our day-to-day life and no matter which safety statistic you look at here, there's 3 here. I mean, you cannot come to another conclusion than the one that this is a really impressive improvement there. And the most impressive thing I think is that, also last year, we have continued to improve from an excellent, outstanding, and world-class level. We are setting the new standard, not just for our industry. We, a long time ago, we've left our industry behind, but really become a benchmark in the world for being one of the top-rated companies in terms of safety. 79% of all of our locations worldwide have 0 lost work days. That's fantastic. That's fantastic, and that -- that statistic alone could make you very, very proud. But obviously, there's always a little bit of water into the wine. And as you know, and I think that's not just a point for Alcoa but for every human, every life is important and every human counts. And, I mean, one could say, look, this has been the second year in which no Alcoan died at the workplace doing work. Which is fantastic, we never had that before. Second consecutive year. But we did have a loss of life in our properties during work by a contractor. And as you know, we review that very thoroughly to learn from that and learn from it worldwide. I think it's one of those reminders when these things happen that the safety culture requires attention every second. And the moment you don't look, the moment you don't care, something happens, right? So we will continue to focus on that, that is an important point.

The other thing is Alcoa a very strong and values-driven company. You all know that, you've been with us and you understand the company. And it shows, very nicely, the attitude of all Alcoans in giving back. As you know, years ago, we started to have October as the month of service worldwide. And look at the statistics here. On the left-hand side, you see the employee participation. Basically, from the dates that we started that month of service worldwide. Last year, again, another record. 56% of all our employees, worldwide, participated in the month of service and gave back in their communities. That's pretty spectacular, because we're talking about 31,327 people that did something during the month of service. And very often, it wasn't just one activity. Very often, it's obviously not limited to just that. I mean, what did they do? I mean, if you look at the right-hand side. We' planted 34,000 trees, substantially up from last year. Many activities deal with children, very often school -- for the schools. 81,000 children affected by that. Ours volunteered 378,000 hours volunteered and community members benefited -- 890,000 community members have benefited directly or indirectly from our activities. And those numbers, by itself, are impressive but what I'm particularly happy about is to see that it's up compared to last year. And I think it will continue to go that way, because that's the right attitude. And when you see where it happens from China, 63%; to Spain, 95% participation. That's fantastic. And if you look at a place like Russia -- Russia, when we came, they shrugged their shoulders and they said, what is that, giving back to community? That's what the state has been taking care of and now you see people really have a passion about it. 58% of the people volunteering around it.

Well, that already makes us very happy. But obviously, it's also nice when it gets externally recognized. And I only picked out a few of those recognitions here. When we look at the reputation awards here one of the, at least, nameplate ones is the Fortune's Most Admired. We regained our #1 position as The Most Admired Company in the Metals Space. Ethisphere, recognized us as one of the 145 companies that are seen as highly ethical business standards. We are one of the 100 best companies to work for in Brazil, the 10th consecutive year. And same thing holds true on the sustainability and climate. Climate Fund, as you know, this is another important aspect of our value system. Dow Sustainability Index, the 10th consecutive year, very few companies that have that. [indiscernible] and can go on and on and on.

This is very, very good. We live our values, we live them here everyday, and it's also seen from the outside. And it's not just important for us. In our industry, it's also important to win the license to operate again and again every year. And in many places, it truly is a license to operate, as you know.

So let's also look at the financials.

Another strong value that we have is we do what we say. And that's why I'm showing you this and I will have some more on the financials, obviously. This has been the targets that we set for ourself in 2011. And as you can see here, no matter where you look at, sustaining CapEx, growth CapEx, a Saudi joint venture, we're going to talk more about the debt-to-cap ratio or the free cash flow. We reached or exceeded our targets, all of them, last year. That's really, really the great achievement. However, when you look at our stock price, you'd say, wow, I mean, what the hell has been going on there? And this is the curve of last year. And you really see -- last year seems to happen 2 years. I mean, very, very strange patterns in the year. The first part of the year we actually, together with 2 other companies, were leaders in the Dow. We led the Dow in terms of value appreciation. The highest stock price came out around $18.34, something like that, in that neighborhood. But we closed at $8-something at the end of the year. And that was obviously extremely frustrating, extremely frustrating to you, extremely frustrating to every employee and extremely frustrating, particularly, to every employee because it totally overshadowed the great work that has been going on all across the company and you will see some of that. So what has been going on? What has been going on here? What drove this? And there's a pretty simple, but unfortunately not positive, news in that. We've seen -- the metal price dropped substantially, basically starting from the middle of last year, and you see it dropped by 30% in a very, very short time frame. What drove that? What drove that? It was not changes in the physical market. We actually had market demand for aluminum grow by 10% last year. There was no structural changes in the market. It was purely the worries over the general economic condition that were very strongly driven by the Eurozone debt crisis. And I'm not telling you any news, that is not over yet. So this worry continues to be a substantial overhang in our market. And you see, when such a sudden and strong drop of your price happens, it has an impact on your profits. And you see here, the profits on the right-hand side in the first half of the year, decent profit levels I would say in the second half. I don't want to say indecent but certainly not -- nothing that makes us very, very happy. But that's exactly what happened.

If you take a look under the hood and basically look at the profitability of all 4 business segments, you actually see, operationally, a very different picture. And what you see here -- and the chart looks more complicated than it is -- it is, over 10 years, you see the profitability over 10 years there, for each one of the businesses. And the last column, the one in dark blue, basically is the performance of last year. And the dotted black line shows the 10-year average profitability. So what you do see is that, in the segments of alumina, profitability above the 10-year average, right? In spite of the headwinds that I just showed you on the last slide. You see that on the global product side, profitability that has not been above the 10-year average only, but it has been at a record. We've never achieved such a profitability and you see the same thing, by the way, on the Engineered Products and Solutions side. Here on the right-hand side, 18% profit margin, we've never achieved that before in spite of the headwinds that we have been seeing last year. The hit was particularly strong here on the left -- lower left side here, on the primary metal side because, there, the hit was particularly strong that's why you see a performance below the 10-year average. But still, I mean, not necessarily weak performance. So that's been happening inside of the company. But obviously, as long as the external forces are as they are, there's not much that can be done about it. And if you go further and basically look at the cash side of things, you also kind of look at free cash flow. You see the free cash flow, again, the free cash flow massively improved. Significant cash on hand, $1.9 billion by the end of the fourth quarter and our debt-to-cap ratio is back to the target range. We always said we want to be around 30% to 35%, and that's where it is. So we have a very, very healthy balance sheet. But it took a lot of work to get there. And if there's one chart that kind of gives the feeling for how many people have been working day in and day out, and have to improve whatever they are doing inside of the organization, is this chart. This chart shows you the days working capital. So it basically shows you, I mean, how much working capital do we need to get the job done? And you see here, from the fourth quarter of '08 until the fourth quarter of '11, we took 16 days of working capital out. The 16 days of working capital equals $1.1 billion in cash. An achievement like that, and you'll see that we're locking that in. An achievement like that is only doable by an approach of all-hands-on-deck. Every single Alcoan had a contribution in that, whether they worked in manufacturing and optimized the process with was less inventory there, whether they work in accounts receivable or accounts payable, they are relentlessly focusing on improving that. And we will see that -- we believe we can even get better on that.

So that's what happened last year. But let me give you a little bit of a frame to understand what are we doing with the company. What are we doing with the company, because I think that's probably on your mind. To understand what we're doing with the company, you need to understand that -- our 3 strategic priorities, very simple. They are the overriding principle. Profitable growth, the Alcoa advantage, and what does that mean? It basically means, when we own a business, we can bring something to the business that makes us a better owner to that business than any other parent could be. Very simple concept. And last but not least, I said it before, we do what we say and we execute, and we relentlessly execute on things.

Right? What -- at the end of 2010, we put these midterm goals out. We set -- on the upstream business, because that's a commodity business. So there, it's very, very much determined on your cost position. Where you stand relative to others in regards to your cost. We said, on the refining side, we're going to come down from the 30s percentile, where we are today, to the 23 percentile, 7 percentage points down by 2015. And on the smelting side where we have a less favorable position, we're right in the middle of the cost curve, 51 percentile. We're going to come down 10 percentage point to 41 percentile. So that was what we set on the upstream side.

On the midstream side, we said we're going to add $2.5 billion revenues and we're going to do this in an environment where the profitability, overall, not just for the $2.5 billion, is above the historic norm. We set a similar target for downstream business, $1.6 billion additional profit -- additional revenues and profit margins above the historic norm.

Where do we stand with this? Let's go through the one segment after the other. Alumina, this is where we stand. We actually are very, very clear, in execution mode, how we are going to get there. Seven percentage points down on the cost curve. We optimized the refining portfolio, that's going to get us 2% to 3%. You saw the announcement that we made, curtailing some plans, and that partially is driven by this and partially is driven by the economic environment. We're moving to less expensive energy where we have some projects under way. Saudi Arabia plays a major role in here. And then there's the usual productivity, the cost reductions there.

The other thing that we've done here, in this industry, is we've introduced a new pricing model. We call it Alumina Pricing Index, API. We are going away from pricing alumina as a percentage of aluminum. Because in reality, these things have very little to do with each other. Right? Other than probably half of the name, but that's all. Right? And that change is underway. It's not easy, but it's underway and it is the right thing to do.

On the aluminum side, similar approach. Here, it's 10 percentage points down. How do we do that? Restructuring our portfolio. We announced early this year to curtail or permanently close 530,000 tons of our smelting system. This is fully ensuing. You see some of the elements here on the right-hand side. That's a big thing and obviously takes quite a bit of time. We're modernizing operations, and some of you know, we're putting big-time money behind our Baie-Comeau -- our whole Canadian system, Baie-Comeau is a strong recipient of that. And we are in final negotiations on Massena which is in upstate New York, also to modernize that. All of that is very strongly driven by long-term power contracts that makes this a very profitable operation -- allow us to invest there.

In Saudi Arabia, I'm going to talk about that, and then typical productivity. Another thing, here, to mention is the Casthouse. We I think have ramped up our capabilities in making money with the Casthouse. Last year, we've been able to get the additional $262 million margin from the utilization -- smart utilization of the Casthouse.

GRP, where do we stand on that? I gave you the targets, $2.5 billion incremental. Gross, this is all organic, above historic profit margins. What have we done? In the first year of that target, they already got 55% of the growth target done. That is pretty amazing. That's pretty amazing. And as I showed to you, this was not an easy year. A year with a lot of headwinds, right? The headwinds continue, right? So I don't believe that we're going to be able -- and that the GRP is going to be able, even though they have strong aspirations to get similar levels done, but I know that the team is very committed to get it done. And if you look at the profitability margins here in 2011, I think is fantastic. And some of you remember the profit margins that we showed here in this business. In the first quarter of this year, they are extremely well on track. And I mean, I can only say we need it, right?

So next one, Engineered Products and Solutions, $1.6 billion higher margins than in the last years. On the margin side, you see it extremely well underway. Same story is true, by the way, for the first quarter and they did 44% of the $1.6 billion revenue target already in the first year. That's really outstanding.

Good. So let me talk for a second about our project in Saudi Arabia. But I thought that before I talk I'll show you some pictures. And we, literally -- we have a small video here that shows how things are coming out of the sand. And I hope that this is going to play now.


Yes, this gives you a good impression where this stands. Always keep in mind, we signed the contract on the 21st of December, 2009, right? And that's where we are today. And at that time, and when Jack and I were there, I still have a picture on my BlackBerry, which shows us standing kind of on the sand and we were saying where is that thing going to be, right? And we made a picture and both -- this might be a very historic picture. So it's coming out of the sand. As you can see, it's on time and I can also tell you it's on budget. For those that might not recall, it has 2 phases. The first phase is smelter and the rolling mill and we will bring that online in 2013, and the second phase is the mine and the refinery, and that comes online in 2014.

So good progress on that. So let me also talk about a few other things that happened last year, which are really, really -- things that are fundamental for our business and that we can be very proud of and Alcoa had a lot to do with that. There was a decision in the -- you remember the aerospace industry? I think there was a debate here, years ago. What happens in aerospace? Has aluminum lost the battle to composites? Is it all going to composites? And frankly, I mean we were very worried. But you know that we have, outside of Pittsburgh here, our technology center, and in the true good Alcoa spirit, we never give up and we fight. And that's what we did here, we brought all the resources together and came up with good solutions. You actually see some of the solutions outside. We brought some of that with us. What has happened last year? First, Airbus decided and announced that their bread-and-butter plane, their high-volume plane, the Airbus A320, is going to be turned into new version, A320neo, and it's going to be an all-aluminum plane. And then Boeing came out and made the same announcement for also their high-volume plane, the Boeing 737. They will call it 737 MAX. Both planes are going to be in full aluminum. The planes are very, very exciting, because they offer to the ones that they will replace, they offer 50% fuel efficiency improvement per seat. So you can tell that even in an economic difficult environment, it's very attractive for a fleet operator to buy this, 15% to 16% improvement compared to the current generation. And the success already speaks for it. I mean, since the announcement, more than 1,700 orders have been placed for those 2 planes alone. The greatest new is it's an all-aluminum plane, it's not our normal aluminum. As one would say, what is our normal aluminum? Because in the end, I mean 90% of all aerospace alloys that exist on this planet have been invented by Alcoa, right? And now we invented another one, which we call aluminum lithium, and that's been the success here. And the great news is it not only meets and exceeds all performance requirements, also in regarding to weight, strength, as well as maintenance goals. Not just compared to other aluminum options, but also compared to composite options. And obviously, because people know how to deal with aluminum, it's a far less risky option. So great, great, great success, because in reality, this decision locks aluminum in for the next 10 to 15 years in the aerospace industry. Fantastic result and a great team achievement.

So second one that I'd like to talk about, also, great change last year. You might have noticed, on our video, that it shows the Model T, Henry Ford's Model T. Henry Ford actually already used aluminum in some of the door panels, is my understanding. But from then on, up to today it's basically been a niche market in high-end automotive applications. And that's changing now. We're seeing it changing, now, here in the U.S. We're seeing the strong interest from the major 3 manufacturers to do light-weighting. And that's driven partially by the changing regulations on the corporate fuel efficiency. So we believe that there is a big, big opportunity here for us, and we are putting our money where our mouth is. We are investing $300 million in Davenport purely for an expander for automotive. And the good news is most of that capacity is already committed.

So that's great news.

Let me also talk for a second about the Defense business. We don't talk about that very often, but I chose to give you 2 examples here because I think both are moving and they also show how we live our values. When the troops were deployed in the fields, they faced another enemy than the one that their strategists expected, because the new vehicles that they came with were very, very well prepared to face attacks from sides or from the top, but they were not prepared really to face something coming from bottom. And you might have heard about these things called IEDs, Improvised Explosive Devices, that can be, simply -- that were simply built in kind of home shops and then you attach a starter with a cell phone to it. And then you blow it up when the car goes over it via cell phone. A simple cell phone call that. That has been causing a lot of death in the early days in the field. The military came to us and said don’t you have a solution to that? Can't you come up with a blast shield? And we did come up with ArmX blast shield. The ArmX blast is 30% lighter, so obviously it goes on vehicle, that's an important thing. I mean, they still have to drive. And it has superior blast performance through the steel solutions that were there. So usually successful. But I think the biggest success is, above and beyond the technology one, is the rapid deployment. Because we knew that this was costing lives, we really came together and in an unbelievable way. We're able to deliver in just 10 weeks and we could only do that by utilizing our logistics chain that also has some facilities over in Europe, so that we could bring it very, very quickly into the theater and ready for deployment.

We received some feedback from the field, and that's what you see here. I don't know whether you can read it, I'll read it out to you. Here, a cutout from one of those blast shield and in handwriting it says, this truck saved my life as well as those of 5 others. That's the best feedback I think that you can get for something like that. I also couldn't withstand the temptation to show you the latest baby addition. It's not really a baby when you see that, because it needs about a million pounds of aluminum to make it in the defense line, the aluminum defense line. And to see it, you really got to see it, so there's a video.


So this is the Littoral combat ship, fast, agile, it's a trimaran, all aluminum. Top speed, according to official sources, is 84 kilometers an hour, 45 knots. And the cool thing here, it can go into shallow drafts. And you may have some idea as which regions of this world have shallow drafts. I actually spoke at the Gulf Aluminum Convention on Sunday, this Sunday actually, and also showed this video and this image there. And they were very attracted by it, let me put it that way. All comforted is another way to say it.

Last slide here, but very important. The 50 is back. For those that know our operations well or those that are up in Cleveland. This is an iconic piece of industrial equipment. It's the 50,000-ton press in Cleveland. You may remember, we had cracks, we had crack -- we found cracks in the structure, a couple of years ago, and therefore had to take it down. And basically had to leave the market for large forges. And this is the empty pit that you see up there, and I very much hope that in the next 100 years, you will never see the empty pit again. Right? Because it would only be empty if something else happens with it. We invested about $100 million for it, and now we're reentering the market for large structural forges. To give you an idea of how big this thing is, this is a human, right? This is a human. So whoever has not seen that and wants to see it, I'd be happy to offer a tour to the Cleveland facilities.

I think that concludes my presentation. We're executing on our strategy. I hope I gave you a little bit of an idea what we're doing, meeting our targets. And we continue to fight very hard for good performance.

Thank you very much. Any comments, questions, not just related to the presentation but in general, please feel free.

Question-and-Answer Session

Klaus Kleinfeld

Yes, one question here? There's a question here. We got too many microphones in the room, nobody can agree who goes there.

Jim Robinson

Good morning. My name is Jim Robinson, I'm District Director with United Steelworkers. And I chair the United Steelworkers Negotiating Committee with Alcoa here in the United States. After an absence of a couple of years, we have reinstituted our practice of holding a meeting of Alcoa unions from around the world on the day before the shareholders meeting and then attending the shareholders meeting. We have here with us about 40 people from 9 countries. We have union leaders from Alcoa facilities in Canada, in the U.S., both United Steelworkers and United Auto Workers from Cleveland, from Brazil, from Surinam, from Australia, from Greenland, Iceland and the U.K., as well as representatives of the International Metalworkers Federation and the European Metalworkers Federation. So I want to thank Kevin O'Brien helping us with the arrangements today, and I want to thank you, Klaus, for the dialogue yesterday. And we hope that we can -- we took a couple of years off because, like everyone else in global labor organizations, had to scratch and pinch to get through the bad economic times. But we think this is very valuable and we intend to continue to be here at the annual meeting and continue the dialogue on the day before. I believe we have 2 people who have questions.

Klaus Kleinfeld

Sure. By the way, I think it's a good practice, and I think it's important to have a dialogue. I mean, I said that yesterday and we should that build in regularly. If we schedule it a little in advance, I think we can make it less time compressed and you have a commitment from my side that I'll come.

Jim Robinson

And we will work with you too.

Klaus Kleinfeld

Very good.

Unknown Shareholder

I'm Brett Newman [ph], I'm from Victoria, in Geelong, Victoria, Australia. Spent 25 years at Alcoa. For those of you who don't know, Alcoa is the biggest exporter in Victoria. They're also the biggest importer in Geelong, where I come from. They've been there 49 years. They've had, really, loyal support from Geelong community and their employees for 49 years. My question is simple, are you going to continue to be supporting the community that supported you?

Klaus Kleinfeld

Well, as you know, I mean, we have 2 operations there, 1 is a rolling mill and 1 is a smelter and the situation is different for each of the 2. And we're looking into it. I think the most important thing is that we continue to look into making this a very competitive environment and we discussed yesterday the Australia situation. And you know it better than I do. I mean, there are some unique challenges, starting with the energy cost and going into the question of where does the currency end up with, some of the stuff that, unfortunately, we all don't have on our control. But I think we work well together, we're looking at it and then we'll see where we come out. I mean, that's the maximum we can do. You want to work with translation?

Unknown Shareholder

[Portuguese] Yes. My name is [Portuguese]. He represents the workers of Brazil. He's from the Alcoa Aluminio Union in São Luis, Maranhão. First, I want to thank USW for inviting me here today and to recognize the gestures of the executives of Alcoa for receiving us. Can we ask that arise at our local plant in Brazil, that the management can recognize the union and open more dialogue. Workers have they have the knowledge and they know what's going on in the world economy and the social conditions in the world. Brazil has an economic stability and is growing. Just like shareholders, the workers want return on their capital as well that they're investing. They also ask that the management respects their rights in collective negotiation. And something has to change, so the theory and practice of union respected. You said that we do what we say, and so here I would like to ask that there's a better change, something that will make our plant conditions better. Thank you one more time, and we are always open to dialogue in Brazil.

Klaus Kleinfeld

Well, we had -- we talked yesterday and I understand that you also had a meeting with Chris yesterday afternoon. So as you know, I'm a big fan of dialogue and a good teamwork. And as I described to you yesterday, we really have to change how we operate in Brazil. And we have invested more than $3 billion there. And frankly, the returns have not yet come, and we're currently in a loss making situation in Brazil. So which partially cannot be influenced by us, partially it's due to the unbelievably high energy costs that are there. We're operating on the highest level of government. President Dilma Rousseff has initiated a task force to look into changing this. The task force has been going on for a while. And let's jointly work on the task force also getting a resolution on this. Because that is probably the single most important thing. And I think the union side can tremendously help on that, and that would put us into a very different position there. But I believe very strongly in the dialogue.

Unknown Shareholder

Thank you for that, and I want to just add, and I know I speak on behalf of unions around the world when I say this, including the unions here in the United States. Where there are public policy issues that need to be addressed for the sustainability of the operations and the jobs that those operations support, please don't hesitate to come to us. Because, often times, these -- especially these power issues, involve conflicting interests in the private sector. We have utility companies that would rather sell the power to somebody that'll buy it for more than is realistic in the aluminum industry. But we can often make the political difference, because we're the voters that ultimately the decision-makers need to pay attention to. I think much of the success story in Massena is due to exactly that. So I have a perception, perhaps, that the relationship in Brazil is less than ideal. I'm not making -- I'm not going to take sides as to blame, but from my discussions with José Maria, my perception is that if the company in Brazil went to talk to the union about supporting the efforts with the government that, that would be very useful, especially since the workers party is empowering Brazil, it would be good to have workers on your side.

Klaus Kleinfeld

I couldn't agree more, and I think you're absolutely right that in Massena and in other places, I think we work very well together, I couldn't agree more. And in Brazil, as I said, I think -- I will take that up and talk to Frank and Marcos about it. So we'll encourage them to have that dialogue more. Okay. There's one more?

Unknown Shareholder

I'm from Greenland. [indiscernible] I am delighted that United Steelworkers has facilitated for us to participate in this general meeting at Alcoa. I would like to ask our Chairman Kleinfeld of giving some update on the proposed investment plans in Greenland with the smelter. As you might know, we have had very fruitful dialogue with your people for the past 3 or 4 years. And we've had some very fruitful discussions. But we have some conflicting interests in regards to the migrant workers that Alcoa is proposed to use for the construction of the smelter in Greenland, especially in regards to the Chinese migrant workers, which were proposed to, to get through a lot less than what the collective agreements are in Greenland. Could you give me an update on that?

Klaus Kleinfeld

Sure. First of all, welcome here. Well, the status is pretty much as it was probably about half a year, 1 year ago. And that's partially because the industry has been going through quite a bit of turmoil. So we continue to cooperate with the government and continue to look into the technical feasibility study, because they are still -- apart from the points that you mentioned, which I think are -- probably we're ahead of ourselves to discuss that, we first have to have a technical feasibility done and understand is that really doable, where would we come out there and what other geological, as well as logistics, aspects and then I think we can come to the next discussion there. But good points. Any other points, questions, remarks? There's one on the back there. Wait for the microphone, please.

Unknown Shareholder

I'm strong enough to hold this. Thank you for inviting me, Chairman. This sort of remind me of that walking in the Macy's or Target or a neighborhood store in West Mifflin called Gabriels. I looked for a jacket in Macy's, it was $60. I got the same kind of jacket for $5 in Gabriels. I've still got my jacket. I think the booklet, which you've sent out in the annual shareholders voting sheet, I think would cost me about $60 if I was in the 6th year of college taking economics or industrial organization. I am not a participant with Alcoa. I own at least one share, and I live in Allegheny County, retired and by the way, I apologize for being out of uniform, mine's in mothballs. If you think about the booklet, you didn't send about 3 financial people or statistical people, I wish you wouldn't take my picture. To understand what the booklet said, it's so difficult. So upgrade, beautiful to admire, but I only come here once a year to learn about Alcoa. This invitation pamphlet on the chair was the most informational. I was able to see some of the related progress, developments in related fields. To me, progress is a spiritual answer to man's needs. And I think Alcoa is doing a fine job on it. In the booklet itself, on the last page of the hard sheet, it has an indication of the quarterly common stock information. Again, I ask not to be taken picture of. 2/11 first quarter, $17.75. Fourth quarter, $11.80. 2010, $17.80. Fourth quarter, $15. Dividend, $0.12. What is that 1%? Money market rate? 19 -- July 4, 2009 I bought about at least one share of Alcoa for $8.50. Today, it's I think it was $9.53. One share of ATI, Allegheny Technologies, I paid $27.75 for it. Yesterday it was $42.30. Curtiss-Wright, $30.75. Yesterday, it was $33.90. TDY, Teledyne, get this, $30 in 2009. Yesterday, $64. Intel, $15. Yesterday, it was $25. The point I'm getting to, I paid $8.50 per share, 2 years, 2 dollars it goes up. I can understand reinvestment. I can understand redevelopment, new innovations, makes life easier for everybody. But when I walk out that door, as a retiree, for my investment, 1% isn't that satisfactory. Everybody here is attentive as if they were in church. But I know for myself, if you gave me a multiple-choice test question on the beauty of your informational lecture and the booklet itself, I doubt if I would go 10% correct. And that will be the hit and miss proposition. It's nice to see this, it's nice to hear people talk, comradeship and the varieties of people that are represented here. But there has to be a little bit more to making Alcoa want people to invest in Alcoa. And I for one -- while you're modeling your big book -- new booklet says Alcoa won't wait. They can't wait, I can't wait. I can't keep waiting for the investment at Alcoa to stay stagnant, fluctuate to weather, seasonally. There has to be some explanation as to why we cannot get more, either in dividends, which I would rather have the growth of the stock prevail, that's more meaningful to me.

Klaus Kleinfeld

Thank you. Are you finished?

Unknown Shareholder

But I thought I would make my commentary more along the value of the stock with nice information to know about the progress and facts which are being developed by Alcoa. I'm sure a lot of the companies can do the same thing. But it's very nice to know, and I thank you very much for the progress Alcoa is making to society, to the global world. Thank you.

Klaus Kleinfeld

Well, thank you. I think on the booklet, you have to keep in mind the annual share report basically has a letter in there from me I hope that, that's a little informative and that it has a part in there which is obligated, basically, by the legal requirement that I totally agree is not easy to understand. So that's not meant to be, I mean, to be totally easy to understand, but that's just a requirement the way it is. So I hope that my presentation gave you a little bit of an idea why things are the way they are. So and other than that, I mean, I wish we could all influence the stock prices going up, going up all the time. I certainly believe if you look at the operational performance that Alcoa deserves that, but I can't control the Eurozone and I certainly can't control the metal price. Any other comments, questions? Okay, thank you very much.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!