Good day, ladies and gentlemen, and welcome to the Third Quarter 2015 Alcoa Earnings Conference Call. My name is Kelly and I will be your operator for today. As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Nahla Azmy, Vice President of Investor Relations. Please proceed.

Thank you, Kelly. Good afternoon, and welcome to Alcoa's Third Quarter 2015 Earnings Conference Call. I’m joined by Klaus Kleinfeld, Chairman and Chief Executive Officer; and William Oplinger, Executive Vice President and Chief Financial Officer. After comments by Klaus and Bill, we will take your questions. Before we begin, I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that cause the company's actual results to differ materially from these projections listed in today's press release and presentation and in our most recent SEC filings. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliation to the most directly comparable GAAP financial measures can be found in today's press release in the appendix of today's presentation and on our website at www.alcoa.com under the Invest section. Any reference in our discussion today to EBITDA means adjusted EBITDA for which we have provided calculations and reconciliations in the appendix. And with that, I would like to turn the call over to Klaus.

Thank you, Nahla. So let me characterize the quarter. We have had a very strong value creation focus and we're managing through the headwinds. On the business side, 5.6 billion revenues and this is really two factors, this is a 21% decline done on purpose a lot coming from divestitures and closures and some also from headwinds and partially it gets offset by a 10% increase coming from aero and auto growth, acquisitions and Alumina sales and that basically what leads to this 11% there. In addition to that, I mean, we have shown 698 million of EBITDA. There is strong productivity, solid value-add profitability and Alumina strength. If you then look under the hood on the value-add businesses, 3.4 billion revenues, 508 million adjusted EBITDA, engineered products and solutions and there is record revenue of 1.4 billion year-over-year, aerospace revenues are up 39%. On the Global rolled products side, in the year-over-year auto sheet revenues up 133% and then if you go to the other part of the company and what we call the upstream company 2.2 billion revenues, 379 million EBITDA. Best Alumina profitability in the first nine months here since 2007, productivity gains overall for all of Alcoa of 849 million year-to-date and really coming from all segments. Free cash flow, cash from operations 420 million, cash on hand 1.7 billion. So, then let's take a look also and the transformation, it's a little bit more than a week ago when we announced here that we are separating into two companies, into the upstream company and the value-add company. The value-add company being a premier provider of high performance multi-material product in growth markets and the upstream one having an attractive portfolio in bauxite, alumina, energy, aluminum and casting. Also in this quarter we completed the RTI acquisition, growing our titanium offerings and advanced manufacturing technologies. We also signed two significant multi-year aero contracts, 1.1 billion with Lockheed, 100% of titanium milled products going into the Joint Strike Fighter and 1 billion contracts with Airbus, supplying multi-material superalloy fastening systems. And we also advanced the commercialization of Micromill and I called it revolutionary material's process as well as business system and we reached an agreement with Ford, joint development agreement with Ford and also Ford is as we speak building it into the F-150 and we also signed a letter of intent with Danieli to license the Micromill technology worldwide. So a lot’s going on and with this I’ll hand it over, Bill, to you.

Thanks, Klaus. Let's review the income statement. Third quarter 2015 revenue totaled $5.6 billion, down approximately 11% year-over-year. Organic growth in aerospace, automotive and alumina as well as acquisitions added 10% to the top line but were more than offset by market headwinds from pricing, currency and the impact of the divested closed businesses. Cost of goods sold percentage increased by 270 basis points sequentially driven by lower revenue and somewhat offset by stronger U.S. dollar and productivity gains. Overhead spending increased sequentially as a result of acquisition costs associated with the purchase of RTI and cost related to separation of the upstream and value-add companies. The third quarter effective tax rate of 49% was higher than our expected operational tax rate due to net unfavorable discrete tax and special items in the quarter. Excluding these impacts, our operational rate was 31%, which is consistent with our expected operational rate for the year. Overall, net income for the quarter was $44 million or $0.02 a share. Excluding special items, net income was $109 million or $0.07 a share. Let’s take a closer look at the special items. In the quarter we recorded an after tax charge of $65 million or $0.05 per share primarily related to restructuring and acquisition. The announced curtailment of the remaining capacity at the Surinam refinery resulted in a $33 million after tax charge. Other restructuring across the businesses included restructuring related to capturing synergies in the acquisitions, headcount reduction programs and a favorable adjustment as a result of a land sale in Australia. Roughly half of the restructuring related charges are non-cash. Other special items include a gain of $25 million on asset sales related to the disposition of the land in Texas and our remaining stake in a Chinese rolling mill. We also had…

Thank you, Bill, very-very good. So let’s start as usual with an overview on the end markets that we cater to and let’s start here with aerospace. Aerospace we continue to see an 8% to 9% growth rate for this year and that of commercial aircraft growth of 8.3%, strong demand continues. After Paris Air Show actually Boeing got $38 billion in orders and commitments from China, this is the new record and Airbus $26.5 billion from Indigo. So the order book stands at over nine years of production, the fundamentals continue to be strong 6.7% passenger and 5.5% cargo demand up and airline profitability is expected to be at $29 billion this year just as a comparison that last year it was at $16.4 billion, so this s a really healthy industry. Automotive, North America we believe it’s going to grow 2% to 4%, actually we are narrowing our projection here. In the last quarter we said 1% to 4%, so as we see the year go by we think that’s going to be 2% to 4%. Actually you can see here from the sales, sales in the U.S. up 5.1% year-to-date light trucks dominating this with a penetration rate now of 58% -- 58.3% to be precise of all the sales in there. And there continues to be pent up demand, that’s another good story here the average vehicle age has actually gone up a little bit, now 11.5 years whereas this previous one was 11.4. The long term average in the U.S. is the 10 years so that where we see the pent up demand production actually is also up 2.8% year-to-date, inventories are down with 59 days, so it’s five days year-over-year decreased roughly 60 to 65 days as the averages are listed at the lower…

[Operator Instructions] Your first question comes from the line of Brian Yu from Citi. Your line is open.

Klaus that was a great overview of the two businesses that you’re separating into; just along those lines as I think about this, what do you think that these companies or the two businesses on a standalone basis can accomplish that will be difficult on a combined basis to offset some of the synergies and additional pubic company cost?

Well, look, I mean, the thing that they can accomplish is that the -- let’s start with the value-add. The value-add business, the value-add business side you get a feel for the value that is in there when you look at what have been the trading multiples for instance of those type of businesses. So, you just seen the acquisition for PCC that’s underway by Warren Buffett's Berkshire Hathaway and he paid for a business that is having $10 billion of revenue whereas six of those 10 are having a full overlap with us, $37 billion, right. So you get a feel for the value that's possible there and on the upstream side, I think that the focus on optimizing -- continuing to optimize the upstream effort will continue to be the same, right. But it allows investors to have a choice between those two, that's the major point here. I mean we know from conversations with all of you that there are some of you who say I love the upstream business and I really, I love how you're managing it, I love how you’re making it more resilient and I don't understand the value-add business, I believe it might be exciting but not for me, right. And we have other investors some of them have never invested with us, that have said hey I -- we love what you are doing in these really cool growth businesses and how you're using technology to grow in there, but we are really concerned about the upstream volatility because we don't understand, we really don't understand what's going on in the commodity markets and we have no way to cope with it. So that's a big, big plus in my view Brian.

Okay, thanks, and maybe a second question. On the Micromill can you talk about the volume contributions that you would expect from next year and will this be sufficient to offset some of the R&D costs so that Micromill business, the expansion as well as existing ramp up, that that becomes profit neutral or perhaps it just starts to contribute to the GRP business?

Brian, there are lot of variables in there and on top of it I think we want to stick to not providing a specific guidance on the business unit level, right. But you are absolutely right to point out one thing that I would like to emphasize. This is still doing some development while we already have commercial revenue right. The revenues that we are getting today we're getting out of our pilot mill in San Antonio, which is the one that we developed this on. That's very rare that you see this. Very often you actually have to develop a tool, then you have to build a new one and it takes another few years until you get the revenues. So this is what I think is worth noting. And on top of it, I mean Ford has been so convinced to put it on their crown jewel the F150, I mean the biggest selling car for the last 33 years here in the U.S. which actually gives you an indication of how good the material is for them to go the step with something that is so new.

Okay, thank you.

And on top of it we have nine others that we're going to the qualification process and many of those not in the US, I mean that's another good point here, yes. Thank you Brian, thank you. Let's have the next question.

And your next question comes from the line of David Gagliano from BMO, go ahead caller, your line is open.

I wanted to just focus in a little bit on the downstream results in the third quarter, first of all. And I was wondering if you'd give us a little more color. I think you know in total the ATOI was down 6% year-over-year. Some of that may be explainable by the $16 million number whereas though the guidance as of Q2 is up 5% to 10% year-over-year, so I'm trying to figure out what changed versus the Q2 guidance.

So Dave there's really a couple of things going on within the EPS result. The first is as, just as it was with Firth Rixson in the first quarter when you buy a company, you have significant purchase accounting adjustments that run through the financials in that first quarter. So we had negative impact of $16 million associated with RTI and just to elaborate a little bit more on that, when you buy a company you step up the inventory to market value, -- that first turn of inventory you don't get any margin on and so that's what negatively impacting EPS. The second big issue in EPS is currency and as you probably know a weaker, sorry, a stronger U.S. dollar really significantly hurts the plants that are overseas and so that has had a negative impact on the EPS segment in the third quarter.

Okay, that's helpful on the EPS side. I was actually doing it broader from just you know all three of the segments. You know when I add that 16 million in those three segments were down about 1% year-over-year whereas the guidance was up 5 to 10%, so as a whole is it all currency or there's something else going on.

So let's go, I mean you almost have to go one by one Dave, in TCS they also have a negative impact from currency, you’ve got a big exposure in Europe with our truck wheels business in Europe also exposure in Latin America in the extrusions business, they had great productivity that offset some of the other cost increases and then as I discussed in my section, GRP had a number of things going on, negative currency impact also but the auto volumes were very-very strong and very-very good productivity offsetting much of some of the cost increases and then we did have some growth spending on a couple of projects first of all largely the Micromill project and then also we were spending some money on increasing throughput projects on the GRP side. So that's really what was going on in the mid, in the downstream.

Okay and then just quick follow-up, another numbers question really quickly on the metal lag number, the $48 million negative this quarter, we had a $39 million negative in the second quarter, I would have thought that would have started to reverse and should we be thinking about that reversing in the next quarter for example?

Well it will reverse depending on what metal prices do and it's always best and in a reconciliation we have shown you both the metal lag impact and the impact from LIFO and largely those two offset, in any given quarter they might be somewhat different but if metal prices were to go up just to be clear you would get a metal lag benefit, but you would also get a little bit of negative coming out of LIFO.

Alright thanks very much. That’s helpful.

Your next question comes from the line of Paul Massoud of Stifel. Your line is open.

First of all on the downstream side $1.1 billion contract that you signed with Lockheed Martin I believe you said all of that was a result of the RTI acquisition and the capabilities you got there and so I kind of wanted to get a sense of margins. I think when RTI was purchased EBITDA margins were somewhere there in the 15, mid-teens percent range, 15% or so and I appreciate you're pushing for 25% by 2019, but at least at the beginning part of this contract should we assume something a little bit closer to legacy RTI margins on the early part of the contract?

Paul we’re not going to comment on the contract -- margins on contracts and -- what I’ve said I mean is -- I am really pleased that -- look 23rd of July was the closing date and here we are eight weeks later and we have $1.1 billion contract for the Joint Strike Fighter and the interesting thing is the Joint Strike Fighter, Alcoa has already a big share in it when it comes to the fabricating part on the aluminum side and for instance forges as well as on the jet engine side. So you see that we are catering now with this integrated capability to the customer and that’s a very unique position where we can bring our joint knowledge in aerospace, let's say this is the most advance piece of flying equipment that exist on this planet, I think this is also a tribute to showing their trust in our capabilities there, otherwise this wouldn’t happen.

Thanks. Maybe just one other question for, for the strategic review that you're planning to finish by the end of this first quarter, I mean as you [multiple speakers] review, could you just remind us of the volumes that are still under review for both smelting and refining capacity? And then also just given where market conditions are right now, let’s assume -- assuming that aluminum prices stay at these levels and is it possible to see that, the review expand?

Well on the second one you know us well, we always look at where market conditions are and never sit still. So depending on where it goes we will respond to this, right. And so at the same time you’ve heard Bill in a very clear way talking about what we believe we’re seeing in the market and I think that was a very, very good analysis where we’re seeing that the market is most likely going into the deficit next year at a time when the warehouse stocks are relatively low particularly when you look at the enormous amount of 20 days of financial method [ph] sitting in there. So a lot points to this and on the review side if I remember this correctly 500,000 tons.

500,000 tons [multiple speakers] on the refining side of which we’ve already taken action on the aluminum side, on smelting side about a third of that and roughly half of that on the refining side with the [indiscernible].

Yes, but don’t just read into it that this means that it's all closures. I mean the very fact that we have been able to renegotiate power contract, and Telco is a major part of it, it's all about -- I mean looking at how can we make certain things competitive, right and that’s a big win and we’re not into the business of closing things, we’re in the business of running it for profit that’s what we do and I think the very effect that we’re able also to get those type of contract renegotiations is one of our core strength and will continue to be.

Your next question comes from the line of Timna Tanners from Bank of America Merrill Lynch. Your line is open.

So I apologize in advance if I sound a little dense, but there are some answers that I just wanted to clarify that you’ve gone through in some of the other questions, but just to start on the comments you just made on the upstream side, I was a little confused on the one hand I know that there is a review and since the timing of the review prices have worsened on the LME. However if you're believing that a more tighter market is around the corner would that you make less inclined to close capacities, how do I think about that?

Well we always look at the -- when we -- one part of the review is that we look at the total package by side and each side has its specificity. I mean there are some side for instance that have taken up power agreement, there are some sides where the closures costs are enormously high, and there are some sides which are really difficult, so once you ramp them down to ramp up again, all of this goes into all of evaluation, what we do and including also at this point that I just pointed out to Paul, where we sometime see is there an opportunities because we know the power of supplier to sit down with the power supplier and say look I mean, we are in a dire situation here and your costs are relatively low on the power maybe we have a better way, how to have a power sharing agreement, very often this ends them having an index power price, where we say let’s index it to the metal's price, so that we can -- in good times, you make more and in bad times, you give us more competitiveness and we both win. I mean, those are the things, but Timna on that end this is how we've really done it basically since the crises, nothing has changed on that and it doesn't always mean to full closure, it also means simple things like we're not relining. So, you are just not relining the pot which also brings the capacity down and it's a very cost effective way.

Okay. That's helpful. And the other question I want to clarify is, I think just generically, we get this question from investors a lot, is the concern over a slowing aerospace market, I know you have been adamant that your confident in the aerospace outlook, but I think when people look at the results and the formally known as EPS segment and don't see the growth that they were expecting, that does beg the question of if the market isn't what it was expected. Is there a way that you can talk to that and I know that you didn’t back out, allotted the startup cost and the purchase accounting cost, but is there a way that we can try to understand the underlying growth that would have shown up in your business if it weren’t for those items?

Why are you not seeing the aero growth? I mean when you look at aero revenues in the downstream segment, they're up 39% year-over-year. So, part of it is organic and part of it is acquisitions. And Timna, we provided in the last quarter, I spend quite a bit of time because this was a question that we got a lot on what do we see in the aerospace market and we really put a lot of research into it and just to give you a few of those factoids than you see the charts on that in my presentation for the last quarter. In emerging Asia at 100 million new passengers each year. So the belief of, I mean the combined expertise is that you will see a 5% compound average growth in travel demand in the next 20 years, that's one thing. Than secondly is the aircraft retirement of 600 aircraft per annum between 2015 and 2024 and the third thing is one thing that I've mentioned here also is the lower operating cost of the next generation aircraft, typically they give you a 20% fuel efficiency, improved another 30% lower maintenance cost, then on top of it you have a nine year order backlog and you have a more diversified customer base today with many, many different airlines. So -- and we have shown and we continue to believe that this market is basically going to grow pretty substantially until 2019 and on average we provided an outlook until 2024 growth between 3% to 5% on average.

I understand the aerospace growth, I think the question is whether or not Alcoa's earnings are growing with the aerospace story and if there is anything noiresque happening in the margins for your business, is there greatest competition, titanium prices under pressure that kind of thing, I understand.

But you know what's happening, I think -- there are somethings in this quarter, Timna, you are right and the two big factors are met and that are in there is this, RTI acquisition quarter cost and then the second thing is the currency side, I mean this is the interesting thing now as we are starting to think, I mean also externally about those two companies, most people probably don't understand yet that the currency -- a strong dollar is very, very good for the upstream business but really bad for the value-add business. So, which is kind of when you think about it is what’s expected and that's one thing that has been happening here and putting somewhat pressure on the value-add side.

And you will see it very clearly in both sets of results.

Yes, exactly, moving up the upstream side and moving down value-add side.

Okay, thanks.

And your next question comes from the line of Josh Sullivan from Sterne CRT. Your line is open.

Just some questions on the free cash flow, so you kept your $500 million target for the year. I believe you're running at about negative 60 million through nine months, now what happens in the fourth quarter to bring in the difference there and then if you could just provide a little color between the cash flow for these value-added businesses versus the upstream businesses in this quarter might help us just scope those two different business.

So, very good question, Josh. And you said, year-to-date we're flat to down about $60 million, we are continuing to target the $500 million, if you go back in history and look at the fourth quarter cash generation that we have year in and year out, we generally generate a lot of cash in the fourth quarter. So that's why we're sticking to the target. As I said in my prepared remarks, clearly more difficult this year with the metal price where it’s at, but we're committed to doing that and we have a number of levers to be able to make it happened right, so what we do each year we try to take down inventories. Every year we typically are able to take down inventories lower than the prior year before that. We accelerate receivables collections, things like that. So while it's going to be a tough straight we continue to target that $500 million. When we look at cash generation of the two businesses over the year, you really have to look at the fact that we've been investing heavily in the mid and the downstream businesses. So we've done the La Porte expansion, we've done the Tennessee expansion, the Davenport expansion and that has taken a lot of the cash flow that would be normally be generated out of the mid and the downstream and conversely we've not been investing significantly in the upstream business and so year-to-date very similar levels of cash generation between the two companies.

And then can you just update us on the progress of Firth Rixson and what the EBITDA was for the quarter? And then maybe related to the last question, about 2016, how do you think about the cadence as the LEAP engine really engages?

Well on Firth Rixson, I mean, we also refer to that in the last time and what’s different to RTI, Firth Rixson has been fully integrated into two business segments inside of engineered products and solution. And we already pointed out that we have it in the last quarter, we have been path to achieve our 2016 target. We actually said that we’re going to have an EBITDA target of 350 million, 2016 and revenues of 1.6 billion and starting from basically the 16.8% EBITDA in the second quarter 2015 and an EBITDA of 160 million. So and here is what we are doing as we speak, I mean the one big lever is around productivity and synergies so we're lifting those, I mean, the one thing is the center loan incremental productivity that we're getting out of there and then on top of it the synergies and we're at this point in time roughly around 190% to 200% deployed. So you know we have this [indiscernible] and the use of implementation system, which gives us a good view inside of it and gives me some comfort that we are on a good path here. So that’s seeing the productivity and synergies we believe is going to get us an up lift between 70 million to 80 million and then the second part is about 100 million to 110 million coming from market and share gains and I mean we're well on our way here to build out all positions. I mean you've mentioned the LEAP-X which is one which we're very much working on and we have some growth opportunities also on rings forging and metal growth in different areas right and particularly as we have seen that we had some negative elements in there coming from all the lower growth or decline actually in oil and gas as well as in mining, so to compensate for it. So this is our plan, we are in the process of executing the plan and this is, Josh, what we have planned, what we're doing.

And your next question comes from the line of Jorge Beristain from Deutsche Bank. Your line is open.

My question is for Bill. Just on the pension, how should we think about the unfundedness of the pension and given that you're kind of in the process of rounding off your contribution this year, is that something that materially lowers your unfunded pension balances or those payments are just simply required so it's not really going to affect? That's my first question

Yes, so the overall underfunded status is about 78% currently, Jorge and we're making the minimum payments, so that they would not significantly reduce the underfunded status.

Great and another question I had was just, how should we think about the equity investments that Alcoa owns from what I understand Ma'aden was funded by the -- at the corporate level, but in the event of a split what's the thinking in terms of where some of these equity investments would sit, would they just be allocated amongst the segment levels or would it be completely out of left field for the downstream business to take say Ma'aden with it as an equity investment?

The initial plans -- currently, each sector, each section of the modern project sits in the results of the particular segment. So the refinery and the mine sit in the refining segment, smelting sits in smelting, so the currency thinking would be that the upstream portion of the modern project would go with the upstream company and the rolling mill portion of the modern project would go with the value-add company.

Got it and just a last question on allocations, how should we think about the corporate overhead and eliminations of Alcoa this seems to have been one of the also reason perhaps for the miss a little bit this quarter sequentially, you're kind of elimination costs were up about 20 million inter-company, could you just talk about what those are and if you guys have any control of those to bring those down as a way to I guess in other words improve your EBITDA?

So if you go through the reconciliation, first of all, we’ve now provided two reconciliations of segment results to the absolute net income we’ve done it both on a pre-special items level and a post special items level. So I think Nahla will spend a good deal of time with most everyone on the call individually, but if you look at Page 53 of our deck it provides that reconciliation Jorge, and just if you don’t mind I’ll take just a moment to talk through it. Metal lag and LIFO generally tends to offset, you can see interest expense, interest expense are also very predictable. Non-controlling interest you know we just have one major non-controlling interest now and that’s the AWAC entity, corporate expenses are fairly predictable restructuring another charges are going to be dependent on what restructuring gets done and then there is the other category and the other category can vary a little bit from time-to-time but essentially it's a couple of major items and that’s the pension for retirees that are not in a particular business and also the -- a true up output taxes. So Nahla can walk you through all of that, but we’re trying to provide much more clarity around it in the reconciliation.

Extremely helpful and sorry I did miss going to Page 53, but thanks a lot.

I apologize, I just gave you the actual number because it is in a long deck.

And that is all the time we have for questions. I will now turn the call back to Klaus Kleinfeld.

Okay, well first of all thank you very much for listening. I mean obviously there was a lot to digest in this quarter, very volatile world that we’re in, currency swings, interest rate speculations, perceived uncertainties in China, emerging countries, commodity prices decline. All of this effects all of us, right. And against this backdrop we have seen very resilient results. I think it's a testament of our transformation, the company is today much, much stronger. We cannot control the outside factors but we are laser focused on what we can control and I believe our resilience shows our course is the right one and we will give you more update on the separation as we go. Thank you very much that concludes this call. Thank you.