Profit in Future Combined Arconic Segments Grew Year-Over-Year
Profit in Future Combined Alcoa Corporation Segments Rose Sequentially
Company on Track to Separate in the Second Half of 2016

2Q 2016 Consolidated Highlights


Net income of $135 million, or $0.09 per share;
excluding special items, adjusted net income of $213 million, or $0.15 per share
Revenue of $5.3 billion, down 10 percent year-over-year, reflects:
4 percent revenue increase from recent acquisitions and organic growth, more than offset by a 14 percent revenue decline due primarily to lower aluminum and alumina pricing and the impact of curtailed, divested and closed operations
Announced sales of non-essential assets expected to generate total cash proceeds of $1.2 billion during 2016; $815 million received year-to-date, strengthening the balance sheet
$1.9 billion cash on hand
Strong productivity gains of $375 million, year-over-year, across all segments


Overview of Arconic and Alcoa Corporation Segments 1 :
2Q 2016 Arconic Segments (Value-Add)


Revenue of $3.5 billion, up 1 percent year-over-year, reflects:
5 percent revenue increase related to acquisitions, mostly offset by a 4 percent revenue decline predominately from metal price impacts
Record Engineered Products and Solutions revenue of $1.5 billion, up 15 percent year-over-year
After-tax operating income of $294 million, up 3 percent year-over-year
Global Rolled Products: $68 million after-tax operating income;
record quarter for automotive sheet shipments, up 17 percent year-over-year
Engineered Products and Solutions: Record after-tax operating income of $180 million, up 9 percent year-over-year
Transportation and Construction Solutions: $46 million after-tax operating income, up 5 percent year-over-year



Signed a multi-year contract with Embraer valued at approximately $470 million
Opened state-of-the-art, 3D printing metal powder production facility to develop and produce proprietary titanium, nickel and aluminum powders
Achieved $176 million in productivity savings ($360 million year-to-date), on target to deliver $650 million in 2016


2Q 2016 Alcoa Corporation Segments (Upstream)


Total revenue of $2.3 billion, up 7 percent sequentially
Predominately due to 22 percent higher alumina prices, 2 percent higher aluminum pricing and organic growth, slightly offset by the impact of curtailed, divested and closed operations
Third-party revenue of $1.8 billion, up 9 percent sequentially
After-tax operating income of $150 million, up sequentially, as improved pricing, productivity savings and the realized benefit of a more competitive portfolio lifted Alumina and Primary Metals segments profits
Alcoa World Alumina and Chemicals secured $60 million of new third-party bauxite sales over the next two years
Reached power agreement to improve competitiveness of Intalco smelter in Washington State and curtailed Pt. Comfort, Texas refinery
Achieved $199 million in productivity savings ($379 million year-to-date), on target to deliver $550 million in 2016


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1 The Arconic segments described in this release consist of Alcoa’s existing Value-Add segments: Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions. The Alcoa Corporation segments described herein consist of the existing Upstream segments: Alumina and Primary Metals. Until the separation is effected, financial information about the future Arconic and Alcoa Corporation companies herein relates solely to the Value-Add and Upstream segments, respectively, and does not include any of the corporate-related items that are currently presented in Alcoa’s Reconciliation of Total Segment ATOI to Consolidated Net Income. Following the separation, the rolling mill operations in Warrick, IN and Saudi Arabia (which are currently in the Global Rolled Products segment) will belong to Alcoa Corporation.

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NEW YORK--(BUSINESS WIRE)--Lightweight metals leader Alcoa (NYSE:AA) today reported second quarter 2016 results. Profit in the future combined Arconic (Value-Add) segments grew year-over-year and the future combined Alcoa Corporation (Upstream) segments strengthened sequentially. The Company is on track to complete its separation in the second half of 2016.

"As markets ever more rapidly evolve, we have made Alcoa increasingly agile; results continue to improve,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. “In the face of a transforming aerospace market, we moved quickly to bring our costs down while capturing new opportunities. Contract wins continued as did our innovation leadership with the opening of a state-of-the-art metals powder plant geared toward rising demand for 3D-printed parts. Our automotive sheet revenue hit an all-time high. After substantially reshaping our Upstream segments they are now performing well even in a low pricing environment; we are building out our bauxite business and continue to win new supply contracts. Exceptional productivity and monetization of non-essential assets has put us in an excellent cash position. Our separation is on track for later this year.”

Alcoa reported second quarter 2016 net income of $135 million, or $0.09 per share, including $78 million in special items primarily related to separation costs, restructuring-related charges and associated tax impacts, discussed below. Year-over-year, second quarter 2016 results compare to net income of $140 million, or $0.10 per share.

Excluding the impact of special items, second quarter 2016 adjusted net income was $213 million, or $0.15 per share. All segments contributed to $375 million in productivity gains, partially offsetting the negative effects of lower year-over-year alumina and aluminum pricing and cost increases. In second quarter 2015, Alcoa reported adjusted net income, excluding special items, of $250 million, or $0.19 per share.

The second quarter effective tax rate of 46 percent was affected by special items during the quarter, including certain non-deductible expenses related to the separation and tax costs associated with the sale of company-owned life insurance policies. Excluding the impact of all special items, the quarterly tax rate on operating results was 31 percent.

Year-over-year, a 4 percent revenue increase from recent acquisitions and organic growth was more than offset by a 14 percent revenue decline due primarily to lower aluminum and alumina pricing and the impact of curtailed, divested and closed operations. As a result of these combined factors, Alcoa reported second quarter 2016 revenue of $5.3 billion, down 10 percent from $5.9 billion in the second quarter of 2015.

Asset Sales

Alcoa continues to strengthen its balance sheet and maximize cash flow through sales of non-essential assets. Announced sales are expected to generate total cash proceeds of $1.2 billion during 2016, of which $815 million has been received year-to-date. In the second quarter of 2016, Alcoa:


Liquidated additional company-owned life insurance policies for gross proceeds of $223 million;
Sold its Remmele Medical business, which was part of the RTI International Metals acquisition, to LISI MEDICAL, for $102 million; and
Sold for $111 million equity and fixed income securities held by its captive insurance company.


Additionally in the second quarter, Alcoa reached agreement to sell the following assets for a total of approximately $400 million:


Real estate in Ferndale, Washington to Petrogas and property associated with a former Alcoa smelter in Frederick, Maryland to a regional commercial real estate company; and
The Yadkin Hydroelectric Project in North Carolina to Cube Hydro Carolinas LLC, an affiliate of Cube Hydro Partners LLC, which will manage the assets.


The transactions above are expected to close in the second half of 2016.

Cash Flows

Alcoa ended second quarter 2016 with cash on hand of $1.9 billion. Cash from operations was $332 million. Free cash flow for the quarter was $55 million, which reflected an additional planned prepayment of $200 million related to a natural gas supply agreement in Australia and pension contributions of $77 million. Additionally, cash used for financing activities and cash provided from investing activities were $100 million and $311 million, respectively.

Market Update

In the global aerospace market, 2016 continues to be a transition year for original equipment manufacturers. Within jet engines, new launches are accelerating demand, outpacing near-term demand for structural airframe components, which is being partially absorbed through de-stocking.

The Company is forecasting improvement in the second half of 2016 as new platforms ramp up, and a strong 2017. Large commercial aircraft deliveries declined approximately 1 percent year-over-year in the first half of 2016, but are expected to rise 6 percent in the second half of 2016 compared to the first. As a result, Alcoa forecasts full-year 2016 deliveries to be flat to up 3 percent, followed by strong double-digit growth in 2017.

In automotive, Alcoa continues to forecast global automotive production growth of 1 to 4 percent. This includes 1 to 4 percent growth in North America, where the United States continues to record strong sales, particularly in the light truck segment. The global outlook is driven by a variety of factors, including low fuel prices, sustained demand, stable consumer confidence and recovery of global economies.

Alcoa also projects solid growth in other end markets. Low natural gas prices in North America and the adoption of new, high-efficiency industrial gas turbine models continue to drive orders for both heavy-duty gas turbines and spare parts. Alcoa projects global airfoil market growth to be 2 to 4 percent for 2016. The 2016 packaging market is projected to grow 1 to 3 percent and the global building and construction market, 4 to 6 percent.

Growth in the heavy duty truck, trailer and bus market in Europe and China is expected to be offset by continued production declines in North America, setting the global production outlook for the commercial transportation market at negative 4 to negative 1 percent for the year.

In 2016, Alcoa projects an approximately 775 thousand metric ton global aluminum deficit as 5 percent global aluminum demand growth outweighs 2.5 percent global aluminum supply growth. In addition, the Company projects a global alumina deficit of 1.5 million metric tons.

Arconic Overview

After the Company’s separation, the innovation and technology-driven Arconic will include Global Rolled Products (other than the rolling mill operations in Warrick, IN and Saudi Arabia, which will move to Alcoa Corporation), Engineered Products and Solutions and Transportation and Construction Solutions. In second quarter 2016, these Value-Add segments reported combined revenue of $3.5 billion, after-tax operating income (ATOI) of $294 million, and adjusted EBITDA of $567 million.

ATOI and adjusted EBITDA increased 3 and 6 percent, respectively, year-over-year. The combined segments also generated $176 million in productivity ($360 million year-to-date) as part of their business improvement programs announced in the first quarter. All Arconic segments are on track to deliver a combined $650 million in productivity savings in 2016.

In addition, in the second quarter, the future Arconic:


Signed a long-term contract valued at approximately $470 million with Embraer for aluminum sheet and plate for Embraer’s new E2 jet airliners; and
Opened a state-of-the-art, 3D printing metal powder production facility located at the Alcoa Technology Center to develop and produce proprietary titanium, nickel and aluminum powders optimized for 3D printed aerospace parts.


Alcoa Corporation Overview

Following the Company’s separation, Alcoa Corporation will comprise Bauxite, Alumina, Aluminum, Cast Products, and Energy – today’s Alumina and Primary Metals segments – as well as the rolling mill operations in Warrick, IN, and Saudi Arabia that are currently part of the Global Rolled Products segment. In second quarter 2016, the Alumina and Primary Metals segments reported revenue of $2.3 billion, ATOI of $150 million and adjusted EBITDA of $358 million. These segments generated $199 million in productivity in the second quarter ($379 million year-to-date) as part of its business improvement program, and are on track to deliver a combined $550 million in productivity savings for 2016.

In the second quarter, Alcoa Corporation continued to successfully build its third-party bauxite business. Alcoa World Alumina and Chemicals (AWAC) signed new third-party bauxite contracts valued at $60 million over the next two years for a total of $410 million in the first half of 2016. Under the contracts, AWAC will supply bauxite to external customers from four of its global mines. The new contracts, which will triple Alcoa Corporation’s third-party bauxite sales in 2016 from 2015, serve customers in China, the United States, Europe and Brazil. AWAC is an unincorporated joint venture that consists of a group of companies, which are owned 60 percent by Alcoa and 40 percent by Alumina Limited of Australia.

In addition, Alcoa Corporation continued to take aggressive action to improve its competitiveness and reached a new power agreement for its Intalco smelter in Washington State and completed the curtailment of the Pt. Comfort, Texas refinery.

As a result of these activities, Alcoa Corporation remains on target to meet or exceed its 2016 goals of moving to the 38th percentile on the global aluminum cost curve and 21st percentile on the global alumina cost curve.

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