Good day, ladies and gentlemen and welcome to the Third Quarter 2016 Alcoa Earnings Conference Call. My name is Shannon 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, Matthew Garth, Vice President of Financial Planning & Analysis and Investor Relations. Please proceed.

Thank you, Shannon. I’m joined today 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’d like to remind you that today’s discussion will contain forward-looking statements relating to future events and expectations. You can find factors that may 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. Reconciliations to the most directly comparable GAAP financial measures can be found in today’s press release and in the appendix to today’s presentation. Any reference in our discussion today to historical EBITDA means adjusted EBITDA, for which we have provided reconciliations and calculations in the appendix. Lastly, the completed a one-for-three reverse stock split on October 5. The per share amounts in our discussion today reflect the reverse split. Now I’d like to turn it over to Klaus.

Thank you, Matt. So, let’s me characterize the quarter and let’s start with the Arconic segments. Revenues of 3.4 billion, that’s down 1% year-over-year and this basically reflects the customer adjustments of the delivery schedules in the aerospace industry, softness in the North American commercial transportation market, pricing pressures partially offset by the North American automotive volume. The after tax operating income at 267 million, up 4%, and if you go down to the segments of Arconic and Global Rolled Products, 58 million of after tax operating income, up 23% year-over-year. This is without the impact of Warrick, changing Warrick over in to what we call a cold metal plant. Remember we have closed the Warrick smelter before, and you all see in global rolled products, a big driver of profitability and is the automotive sheet shipments’ up 495. In the Engineering Products and Solutions segment, record third quarter profit of 162 million, up 7%, the Transportation and Construction Solutions business, 47 million of profit, up 7%. Overall, also strong productivity, 187 million this quarter, and if you look at the year-to-date number, it stands at 547 million. So that’s really good and on track to deliver the 650 million target for 2016. We also adjusted the targets for 2016 to reflect the near-term industry challenges, and I will talk about this in depth when we come to the presentation at a later point in time. So then let’s also talk about our future Alcoa Corporation. Total revenues of 2.3 billion, flat sequentially, continued low alumina prices as well as the impact of curtailed and closed operations. After tax operating income of 128 million, down 15% sequentially, improved metal prices offset by low alumina prices and unfavorable currency impacts. New third party bauxite contracts in this quarter alone, 53 million,…

Thanks Klaus. As you’ve all seen by now, adjusted earnings for the third quarter are $0.32 per share, up 48% from a year ago on strong productivity across all segments and higher volumes, driven by the RTI acquisition. These gains are partially offset by unfavorable pricing mix primarily in our downstream businesses and by some higher costs. Third quarter revenue totaled 5.2 billion, down 6% year-over-year. This is driven largely by lower alumina prices and curtailments and closures in the upstream businesses. Cost of goods sold as a percentage of sales increased by 130 basis points sequentially, largely due to the impact of lower alumina prices on revenue. Overhead spending increased year-over-year primarily as a result of costs related to the planned separation of the company. Other income of $117 million relates to the gain on the sale of the Wharf at our Intalco smelter location. The third quarter effective tax rate of 44% was driven by non-deductible separation costs and discrete tax items in the quarter. Excluding these impacts, our operational rate was 30%. Overall, net income for the quarter was 166 million or $0.33 per share, preferred dividends were $18 million in the quarter. Excluding special items, net income was $161 million or $0.32 a share. Note that our earnings per share reflects as Matt commented, the reduced number of shares following the one-for-three reverse stock split approved by our shareholders on October 5. Let’s take a closer look at the special items. In the quarter, we recorded after-tax income related to special items of $5 million or $0.01 per share primarily related to the gain on sale of the Intalco Wharf, and the settlement received on a prior acquisition. These gains were mostly offset by separation costs in the aforementioned tax items. Restructuring included charges related to…

Thank you very much Bill. So let me customarily start with a view on the end market and start with aerospace deliveries. We said in the second quarter that we see flat to plus 3% for this year. The airline fundamentals are solid, and profitability of the airlines is at an all-time high, travel demand is up. The robust commercial jet orders, the order book is still over nine years. There’s very low level of cancellation, 1.9% of the order book well below the historic numbers. But at the same time, we do see 2016 as a transition year. In the third quarter, we’ve seen large commercial aircraft deliveries up 3%. The growth year-to-date is kind of flat and so we believe that the year 2016 is more likely to come out at the low end of the range and the range being 0 to plus 3%. We also see solid growth of narrow and softening demand for wide body segment. And as I already explained last time around, it is really important to understand what’s going on there also inside of our business to distinguish between the airframe components and the aero engine components. So let me repeat that because the picture continues as I described it already in this end of the second quarter. Airframe, this is for us the spectrum of fast enough excursion, forging, casting, sheet and plate and what we see there is a reflection a build rate reduction that has been announced by the OEMs for A380, the B777 and the C Series and the part standardization of supply chain optimization, all of this and the kind of the overbuy that we saw and expectation of the ramp up of the new platforms has led to an oversupply and currently on the airframe component…

[Operator Instructions] Your first question comes from the line of David Gagliano from BMO Capital Markets. Your line is open. Please go ahead.

I wanted to focus in on the Arconic businesses specifically for 2017. I noticed in the slide deck, the expectations were for more than 10% growth in 2017. I noticed that’s not in the slide deck this quarter. Wondering given the change that we’ve seen in aerospace, what do you expect for 2017 growth in Aerospace?

Dave you are very attentive. So you notice that and there’s obviously a reason why we didn’t put it in there. The range that - I mean you’ve seen there’s a lot going on the aero structural side as well as on the aero engine side, right. And the environment has been more dynamic than what we had expected even in the first quarter, second quarter, and third quarter, and you’ve seen what we are projecting for the rest of the year. So if you look at - if you talk to the experts and look at 2017, the range that people put out there is huge, absolutely huge. And I would say it’s basically using a stick hunting gorillas in the fog. So I don’t know whether this picture works well, but it’s very hard to predict. What we are planning to do is, once 2017 hits and actually once we go on to the road show, which will be coming up soon, we will provide for both companies for Arconic as well Alcoa Corporation. We will go more in depth into the 2017 view and give you also some numbers on what we see there. So that’s our goal here. The same thing is going to hold true for Alcoa Corporation.

We’ll give better view on supply and demand for ’17 as we go in to the webcast towards the separation.

Just as a follow-up, just as you build out these expectations obviously and the downstream businesses, your order books are -- I’m assuming the visibility is very high there at least for 2017 and we’ve seen these challenges in aerospace. I’m just wondering just directionally given those challenges, you still delivered solid growth year-over-year in the EPS business. What do you think in terms of directionally growth potential in the EPS business for 2017? Do you still foresee for example, an up 0% to 5% sort of year in the EPS business in terms of revenues?

The good news is the order book is full and the other real good news is the demand for aero engines is gigantic. So the new engines which are technically highly advanced, you can expect that they caused some teething problem in a relatively complex supply chain situation, right. So that’s what we are going through. But the desire to ramp up fast is enormously high. So this all depends on how quickly can we get through this. And we are doing all that we can with every one of our customers as well as a part of the supply chain to get through this relatively quickly. But frankly Dave, we will give you a 2017 outlook when we go on to the road and then provide, which is two weeks from now. So you will get it very, very soon.

Your next question comes from the line of Timna Tanners from Bank of America. Your line is open. Please go ahead.

I just thought you may answer my question similar as to the last one, but I’m going to go ahead and ask them anyway. So I know that a lot has changed over the last year, year and a half. But I was just looking at the Firth Rixson forecast from 2014, and just wondering how do we think about the EBITDA guidance of 350 that was initially for 2016. Is that still a good long term number for what Firth Rixson is capable of aside from some of the near term headwind that you’ve described in its own operational challenges, or can you give us any color on how you’re thinking about Firth Rixson’s past and its going forward prospects?

Firth Rixson, as I’ve already said earlier, the major reason why we acquired Firth Rixson is because they are a very important part of our aero engine components portfolio, right. So the aero engine heating problems affects them squarely. At the same time, we have really made very good progress on driving the synergies out. We are basically ahead of where we originally thought we would come out and also in getting the operational productivity. And we are trying to take advantage of the aero engine ramp ups. At the same time these heating problems do affect them. So I think in the long run, we’ll get there, but you saw that we are taking revenue targets down for the year as well as adjusting the profitability to the lower end, so obviously we are not where we wished we had been. A good part of it is just the situation that we face in the market. I mean in terms of our old control, I’m actually pretty happy with the progress that we’re making. But its work, and let’s not forget everybody Timna focuses on Firth Rixson. I also talked a little bit about IGI, and on IGI we are ahead of our plan. We have confirmed that the revenues are coming in the range that we always thought, but we are going to be at the upper range of the margin at 90% much, much earlier than we thought, and frankly also IGI is in the main aerospace. But what you see there, the team has not so much focused on the aero engine side, more focused on the frame side with titanium, and the team has been very, very good in overcoming the headwinds, and we are ahead there with the synergies and also we’ve been able to get a lot of productivity there too. So that’s very good. And on TITAL, the number on TITAL are even more stunning. Now granted its smaller, but we’ve had over 100% growth of revenues compared to last year and similarly a strong profit increase, so we’re happy with where that is going on the nets and titanium investment task basically for your [office].

Got that. Wanted to ask about Alcoa on the aluminum side, I feel like we had a flurry of announcements a couple of quarters ago about curtailing capacity of high cost US operations, and I just wondered if there’s any progress on looking at some of the other operations at may be higher cost on any programs or plans that you can detail for us.

Yes, that’s a good point Timna and we have good part of that, because we announced a couple of closures as you know in the US. We originally have plans to close Massena and we also have plan to close Intalco. We did close Wenatchee, right. Then on --.

We curtailed Wenatchee not closed.

And in the discussions here in the north country in New York, we were able to achieve a power contract that got us in to a profitable situation. So we didn’t have to close it, and actually to our surprise happened on the Intalco side, and that’s why we also kept Intalco running and profitably running. So that’s what has been going on there.

Your next question comes from the line of Evan Kurtz from Morgan Stanley. Your line is open. Please go ahead.

Just a quick one on the new segments as we start to think about how to model these things going forward, when should we expect more updates as far as your revised content or securing some of the blanks that we got in that Form 10 as far as segment ATOI’s for the new groupings.

So we’ve had four versions of the Form 10 at this point. If you recall, we were able to give you the first quarter and then the first half. We will have more information available to you in the early part of November. So right after the close of the separation, you’ll get more information on the segments then.

And then just a question on how you price third party bauxite sales? We can for the first time look at what the revs are in that business and get a sense of what revenue per ton. What’s included in that revenue is there other freight costs like when you sell bauxite what’s the delivery point. Is it the mine, is it the port, is it delivered in China?

Just to be clear, all our revenues in bauxite you’ve got a combination of internal and external and so the internal revenues are internal transfer pricing where we try to approximate market as best as we can. It’s very difficult to approximate a market where the mine is sitting right next to the refinery, but we’re making a best attempt to have a market in arm’s length pricing there. For the external revenues they are largely including shipping cost over to China. So they are delivered in to China basis.

And then just one last question on working capital; it’s been a big use of cash this year, and actually compared to the first nine months of last year. Is there a seasonal pattern here, should we expect some sort of release as we get in to the year-end.

Absolutely, and you’ve seen it year in and year out. We’ve tried to do a better job of smoothing out over time, but we typically burn working capital, it’s a consumption of cash through the first nine months and then we deliver cash back in the fourth quarter and that’s been consistent and historically you see it in both businesses, probably a little bit more on the Arconic side, but both businesses will typically generate cash in the fourth quarter.

Your next question comes from the line of Jorge Beristain from Deutsche Bank. Your line is open. Please go ahead.

Just trying fall off a bit on the downstream businesses. I’m just going to recap, over the last three years roughly since 2014, you’ve added over 1.5 billion of revenue particularly in the EPS business, but we’ve yet to see any real incremental pick up in EBITDA. So I’m trying to understand what is it that fixes this business going forward. What is going to be turnaround inflexion, is it going to be revenue starting to flow through in 2017, are there inter cost cuts that you can keep doing because it just seems that those assets have just not been performing, just not been - or the stuff that was in downstream is just performing a lot weaker than it was also previously expected. So I’m just trying to understand what is the inflexion point and what should we be looking for this business to start to perform as to what the guidance was when you initially acquired them?

When you talk about downstream, I assume you’re talking about all of the Arconic businesses?

I was sorry more focused just on engineered products and solutions.

On engineered products and solutions, let me recap what is hitting here and why the revenue is trending below our expectations. The airframe structures we see strong demand for narrow bodies but softer demand for wide bodies. That’s public knowledge, we can’t make the market, we would love to have it in a different way, but you look at the A380 announcement, the 777, the C- Series, plus the Boeing third quarter deliveries a 5% lower than third quarter last year. At the same time, we additional pleasures from the destocking and the supply chain, so that’s one factor. The second factor is the aero engine launches, and that’s a major driver of our revenues here in EPS. So we do see that there is a lot of demand there, but it’s a multi-step supply chain and we currently do see some supply chain challenges here on the aero engine side and the supply chain is long, it goes from the material to the metal forming to machining to final assembly. And when you go through this, you actually have to invest in the qualification and that’s the phase that’s currently going on. But the interesting thing on both sides, I mean the fundamentals of the businesses are very strong. At the aerospace market, the number that I find most convincing as always to look at, because it’s all driven by the macro growth of middle class and urbanization. The number that I find most interesting is every year the aerospace industry adds about a 100 million more passengers from Asia alone. So that gives you an idea of a strong market that’s out there. At the same time, when you look at the margin level here, we are performing at a margin level of about 21%. When you look at Jorge and you have been one who has been following us for a long time, so when you look at where we were in 2008 with all of these businesses and with the organic businesses as well as what we’ve added organically and inorganically, this was an 8% business and we’ve brought it to this level. We will continue to work on that and continue to improve and continue to grow. A right way of focusing on those things that we can influence and there are certain things that we can’t influence. But as I said, the fundamentals are very strong, we have to get through these launch issues that exists. \

But just to recap in on the launch issues, is it that there is the qualification kind of growing pains that are happening right now with the new engine launches and you would expect margin to improve say in ’17 once you are kind of flowing the product better? I’m just trying to understand what the driver could be next year?

Yes, you’re absolutely right, because what is happening in the qualification period, you have a low or first class yield, you have additional qualification cost, you have a lower utilization of your equipment. This is changing dramatically once you are going in to steady state and dramatically once you go in to steady stage, because the other thing keep in mind, this is the crazy thing here, demand is massive and everybody is working tirelessly on getting this done.

Your next question comes from the line of Justin Bergner from Gabelli & Company. Your line is open. Please go ahead.

Couple of quick questions, in regards to the EPS segment, could you help us understand the breakout between engines and air frame and if air frame is what’s driving the weakness, how is it that RTI’s guidance on the sales basis is unchanged within this segment?

Let me start with the last one, the RTI is really a big complement to what the RTI folks have been achieving there. This is spectacular that they have been able to get to this level, and largely its two factors or three factors I would say. One is the synergies that we had planned for all the time. We get them implemented very fast, secondly its productivity that we have been getting out partially also by doing some things there, taking best practices that we are moving over from other businesses over to RTI. And thirdly through a very, very good positioning in the market, and a huge proximity to the customers, a great job by the team. So on to your second point is, when you look at EPS, I mean out of EPS about 76% of the EPS revenues are in - and this 2015 number in approximation. So 76% is the aero market and then if you break that out in to engine and structure, I would say its roughly 50-50 between engine and structure.

One other question if I may, have you clarified what the costs are to undergo the separation in total and what the extra cost will be to have two standalone businesses versus one? And if not, when do you expect to provide those numbers?

I’ll answer the second one first, on a dis-synergies basis we have identified fairly small levels of dis-synergies that we think we can largely overcome with efficiencies. So the dis-synergies that we’d be looking at of course you’ve got two CFOs for example, but we are looking at ways that we can - but not a great example. But it is dis-synergy right. So you’ve got two different companies and we’re looking for ways to stream one.

I would not recommend a company without a CFO.

You get the point. But as far as the overall separation cost, at this point we haven’t given much in the way of guidance, but I can tell you we have spent around $200 million in cash year-to-date on separation. But we still have some spend left to do in this last month.

And also just as a little fun fact on the side, we have been very substantially benchmarking as we always do how the cost of separation typically are for others and we are very proud of how efficient we have been in this separation and how low our separation cost has been relatively to what we’ve seen at other places.

Great. No, it does seem like the cost have come in lower but we’ll await final detail.

And you will really get this when both teams go on to the road shows. And as I said, both are planning to start this in two weeks from now. So you also get a glimpse on to 2017. Okay, I guess we probably have time for one more question. So one is that possible? Operator.

Your final question comes from the line of Tony Rizzuto from Cowen and Company. Your line is open. Please go ahead.

My question is on the jet engine side and Klaus you mentioned some of the supply chain challenges. And I was wondering how were those jet engine deliveries facing in the fourth quarter? Earlier you were expecting a fairly good ramp in 4-Q and then also possibly associated with that, when you talk about teasing pains I notice that one of the Japanese airline ANA has been talking about issues revolving around the turbine blade material at least on the Rolls Royce engine for the 787. I don’t know if GE is experiencing similar issues. But I guess about the engine deliveries that you are seeing in 4-Q is [Arcana] currently sourcing any of the materials that go in go that blade material? And whatever you could tell us on that would be great.

I cannot speak for our customers, but one thing I can tell you, we are supplying and you know this, we’ve gotten the charts up there where you see we are literally supplying every commercial jet engine that exists on this planet and have on many of those we have lot of material on there. So we are basically supporting all of them to manage this what I would call an unprecedented ramp up with really multiple, very challenging new technologies. And what we typically have is, because in this phase the supply chain as I described is relatively long. So we are supplying aluminum lithium for instance for fan blades and then it goes to a machine shop and then it goes to some coating and then it goes to somebody who basically puts all these pieces together. So the chain is long and then its tested, final tested and build in. So the only way how you can get hold of these issues is to get your arms around the whole supply chain under the guidance of the OEM, and that’s how this industry is working this out. So with pretty much everybody we have jointly committed action plans and we are fulfilling those.

That’s very helpful and I appreciate that. I was going to ask another, but I’ll get that offline. Thank you

Okay, so we got to move on. So let me conclude. I think you saw that with all that’s going on we steered steady through this quarter, deliver our profits growth at Arconic and Alcoa Corporation performed well in a low pricing environment. Productivity was exceptional. Alcoa Corporation has delivered on its 26 cost curve goals that we over achieved them. The three year target adjustment at Arconic reflect basically the near term industry realities. The fundamentals let’s not forget that, and the questions. Thank you very much for the questions. \ The fundamental in the key markets remain solid, separation is on track, and we are looking forward very much to launching two new companies on November 1. So this will be the last time we will get together on this constellation after 128 years and not with everybody in the room. So thank you very much for listening to us and paying attention. I’m very much looking forward to also see you as investors and its interested parties going forward for Alcoa Corporation as well Arconic. Thank you very much.

This concludes today’s conference call. You may now disconnect.