Segment and Geographic Area Information

Arconic is a global leader in lightweight metals engineering and manufacturing. Arconic’s innovative, multi-material products, which include aluminum, titanium, and nickel, are used worldwide in aerospace, automotive, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications. Arconic’s segments are organized by product on a worldwide basis. In the first quarter of 2017, the Company changed its primary measure of segment performance from After-tax operating income (ATOI) to Adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”). Segment performance under Arconic’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance in 2017 was Adjusted EBITDA. Arconic’s definition of Adjusted EBITDA is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. Prior period information has been recast to conform to current year presentation. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

Items required to reconcile Combined segment adjusted EBITDA to Net loss attributable to Arconic include: the Provision for depreciation and amortization; Impairment of goodwill; Restructuring and other charges; the impact of LIFO inventory accounting; metal price lag (the timing difference created when the average price of metal sold differs from the average cost of the metal when purchased by the respective segment — generally, when the price of metal increases, metal price lag is favorable, and when the price of metal decreases, metal price lag is unfavorable); corporate expense (general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities and corporate research and development expenses); other items, including intersegment profit eliminations; Other income, net; Interest expense; Income tax expense; and the results of discontinued operations.

The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (see Note A). Transactions among segments are established based on negotiation among the parties. Differences between segment totals and Arconic’s consolidated totals for line items not reconciled are in Corporate.

Arconic’s operations consist of three worldwide reportable segments as follows:

Engineered Products and Solutions. This segment produces products that are used mostly in the aerospace (commercial and defense), industrial, commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys) and seamless rolled rings (mostly nickel superalloys); investment castings (nickel superalloys, titanium, and aluminum), including airfoils and forged jet engine components (e.g., jet engine disks); and extruded, machined and formed aircraft parts (titanium and aluminum), all of which are sold directly to customers and through distributors. More than 75% of the third-party sales in this segment are from the aerospace end market. A small part of this segment also produces various forged, extruded, and machined metal products (titanium, aluminum and steel) for the oil and gas, automotive, and land and sea defense end markets. Seasonal decreases in sales are generally experienced in the third quarter of the year due to the European summer slowdown across all end markets.

Global Rolled Products. This segment produces aluminum sheet and plate for a variety of end markets. This segment includes sheet and plate sold directly to customers and through distributors in the aerospace, automotive, commercial transportation, packaging, building and construction, and industrial products (mainly used in the production of machinery and equipment and consumer durables) end markets. A small portion of this segment also produces aseptic foil for the packaging end market. While the customer base for flat-rolled products is large, a significant amount of sales of sheet and plate is to a relatively small number of customers.

Transportation and Construction Solutions. This segment produces products that are used mostly in the commercial transportation and nonresidential building and construction end markets. Such products include integrated aluminum structural systems, architectural extrusions, and forged aluminum commercial vehicle wheels, which are sold directly to customers and through distributors. A small part of this segment also produces aluminum products for the industrial products end market.

The operating results and assets of Arconic’s reportable segments were as follows:



	Engineered Products and Solutions		Global Rolled Products		Transportation and Construction Solutions		Total
2017
Sales:
Third-party sales	$	5,935	$	4,992	$	1,985	$	12,912
Intersegment sales	—		148		—		148
Total sales	$	5,935	$	5,140	$	1,985	$	13,060
Profit and loss:
Depreciation and amortization	268		205		50		523
Adjusted EBITDA	1,224		599		321		2,144
2016
Sales:
Third-party sales	$	5,728	$	4,864	$	1,802	$	12,394
Intersegment sales	—		118		—		118
Total sales	$	5,728	$	4,982	$	1,802	$	12,512
Profit and loss:
Depreciation and amortization	$	255	$	201	$	48	$	504
Adjusted EBITDA	1,195		577		291		2,063
2015
Sales:
Third-party sales	$	5,342	$	5,253	$	1,882	$	12,477
Intersegment sales	—		125		—		125
Total sales	$	5,342	$	5,378	$	1,882	$	12,602
Profit and loss:
Depreciation and amortization	$	233	$	203	$	43	$	479
Adjusted EBITDA	1,111		512		271		1,894
2017
Assets:
Capital expenditures	$	308	$	178	$	57	$	543
Goodwill	3,949		193		60		4,202
Total assets	10,252		4,179		1,068		15,499
2016
Assets:
Capital expenditures	$	333	$	293	$	63	$	689
Goodwill	4,579		181		57		4,817
Total assets	10,542		3,891		982		15,415

The following tables reconcile certain segment information to consolidated totals:



	2017			2016			2015
Sales:
Total segment sales	$	13,060		$	12,512		$	12,602
Elimination of intersegment sales	(148		)	(118		)	(125		)
Corporate	48			—			(64		)
Consolidated sales	$	12,960		$	12,394		$	12,413



	2017			2016			2015
Combined segment adjusted EBITDA	$	2,144		$	2,063		$	1,894
Unallocated amounts:
Depreciation and amortization	(551		)	(535		)	(508		)
Impairment of goodwill	(719		)	—			(25		)
Restructuring and other charges	(165		)	(155		)	(214		)
Impact of LIFO	(110		)	(18		)	101
Metal price lag	72			27			(175		)
Corporate expense	(274		)	(454		)	(371		)
Other	(71		)	(109		)	(74		)
Operating income	326			819			628
Interest expense	(496		)	(499		)	(473		)
Other income, net	640			94			28
Income from continuing operations before income taxes	470			414			183
Provision for income taxes	(544		)	(1,476		)	(339		)
Discontinued operations	—			121			(165		)
Net income attributable to noncontrolling interest	—			—			(1		)
Net loss attributable to Arconic	$	(74	)	$	(941	)	$	(322	)



December 31,	2017			2016
Assets:
Total segment assets	$	15,499		$	15,415
Unallocated amounts:
Cash and cash equivalents	2,150			1,863
Deferred income taxes	743			1,234
Corporate goodwill	333			331
Corporate fixed assets, net	310			308
LIFO reserve	(481		)	(371		)
Fair value of derivative contracts	91			24
Investment in common stock of Alcoa Corporation	—			1,020
Other	73			214
Consolidated assets	$	18,718		$	20,038

Sales by major product grouping were as follows:



	2017		2016		2015
Sales:
Flat-rolled aluminum	$	4,992	$	4,864	$	5,253
Fastening systems and rings	2,102		2,060		2,168
Investment castings	1,983		1,870		1,812
Other extruded and forged products	1,565		1,495		1,332
Architectural aluminum systems	1,065		1,010		951
Aluminum wheels	805		689		790
Other	448		406		107
	$	12,960	$	12,394	$	12,413

Geographic information for sales was as follows (based upon the country where the point of sale occurred):



	2017		2016		2015
Sales:
United States	$	8,167	$	7,823	$	8,044
France	965		930		802
Hungary	739		619		622
United Kingdom	721		711		698
China	615		582		565
Russia	500		433		455
Germany	309		284		264
Brazil	285		250		297
Canada	261		262		180
Japan	141		145		138
Italy	37		127		139
Other	220		228		209
	$	12,960	$	12,394	$	12,413

Geographic information for long-lived assets was as follows (based upon the physical location of the assets):



December 31,	2017		2016
Long-lived assets:
United States	$	4,005	$	3,966
China	347		336
Russia	276		295
United Kingdom	259		232
Hungary	227		194
France	159		118
Germany	88		64
Canada	63		58
Brazil	62		97
Other	108		139
	$	5,594	$	5,499