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, building and construction, industrial applications, defense, and packaging. Arconic’s segments are organized by product on a worldwide basis. In the first quarter of 2018, the Company changed its primary measure of segment performance from Adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) to Segment operating profit, which more closely aligns segment performance with Operating income as presented in the Statement of Consolidated Operations. Segment performance under Arconic’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Segment operating profit. Arconic’s definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and other charges and Impairment of goodwill. Segment operating profit also includes certain items that, under the previous segment performance measure, were recorded in Corporate, such as the impact of LIFO inventory accounting, metal price lag, intersegment profit eliminations, and derivative activities. Segment operating profit may not be comparable to similarly titled measures of other companies. Differences between segment totals and consolidated Arconic are in Corporate. Prior period financial information has been recast to conform to current year presentation.

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 primarily in the aerospace (commercial and defense), industrial, commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys); 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. Sheet and plate is sold directly to customers and through distributors related to 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 both 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
2018
Sales:
Third-party sales	$	6,316	$	5,604		$	2,126	$	14,046
Intersegment sales	—		160			—		160
Total sales	$	6,316	$	5,764		$	2,126	$	14,206
Profit and loss:
Segment operating profit	$	891	$	386		$	304	$	1,581
Restructuring and other charges	71		(156		)	1		(84		)
Provision for depreciation and amortization	282		212			50		544
2017
Sales:
Third-party sales	$	5,943	$	5,000		$	2,011	$	12,954
Intersegment sales	—		148			—		148
Total sales	$	5,943	$	5,148		$	2,011	$	13,102
Profit and loss:
Segment operating profit	$	964	$	424		$	290	$	1,678
Restructuring and other charges	30		72			52		154
Provision for depreciation and amortization	268		205			50		523
2016
Sales:
Third-party sales	$	5,728	$	4,865		$	1,802	$	12,395
Intersegment sales	—		118			—		118
Total sales	$	5,728	$	4,983		$	1,802	$	12,513
Profit and loss:
Segment operating profit	$	955	$	421		$	246	$	1,622
Restructuring and other charges	78		40			14		132
Provision for depreciation and amortization	255		201			48		504
2018
Assets:
Capital expenditures	$	349	$	255		$	111	$	715
Goodwill	4,179		245			76		4,500
Total assets	10,346		3,934			1,089		15,369
2017
Assets:
Capital expenditures	$	308	$	178		$	57	$	543
Goodwill	4,205		252			78		4,535
Total assets	10,325		3,955			1,041		15,321

The following tables reconcile certain segment information to consolidated totals:



For the year ended December 31,	2018			2017			2016
Sales:
Total segment sales	$	14,206		$	13,102		$	12,513
Elimination of intersegment sales	(160		)	(148		)	(118		)
Corporate	(32		)	6			(1		)
Consolidated sales	$	14,014		$	12,960		$	12,394



For the year ended December 31,	2018			2017			2016
Total segment operating profit	$	1,581		$	1,678		$	1,622
Unallocated amounts:
Impairment of goodwill	—			(719		)	—
Restructuring and other charges	(9		)	(165		)	(155		)
Corporate expense	(247		)	(314		)	(513		)
Consolidated operating income	$	1,325		$	480		$	954
Interest expense	(378		)	(496		)	(499		)
Other (expense) income, net	(79		)	486			(41		)
Consolidated income before income taxes	$	868		$	470		$	414



December 31,	2018		2017
Assets:
Total segment assets	$	15,369	$	15,321
Unallocated amounts:
Cash and cash equivalents	2,277		2,150
Deferred income taxes	573		743
Corporate fixed assets, net	305		310
Fair value of derivative contracts	37		91
Other	132		103
Consolidated assets	$	18,693	$	18,718

Sales by major product grouping were as follows:



For the year ended December 31,	2018		2017		2016
Sales:
Innovative flat-rolled products	$	5,588	$	4,992	$	4,864
Engines	2,940		2,708		2,560
Engineered structures	1,839		1,743		1,683
Fastening systems	1,531		1,484		1,463
Architectural aluminum systems	1,140		1,065		1,010
Aluminum wheels	969		805		689
Other	7		163		125
	$	14,014	$	12,960	$	12,394

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



For the year ended December 31,	2018		2017		2016
Sales:
United States	$	9,137	$	8,167	$	7,823
France	936		965		930
Hungary	823		739		619
United Kingdom	737		721		711
China	632		615		582
Russia	553		500		433
Germany	302		309		284
Canada	285		261		262
Brazil	214		285		250
Japan	170		141		145
Other	225		257		355
	$	14,014	$	12,960	$	12,394

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



December 31,	2018		2017
Long-lived assets:
United States	$	4,148	$	4,005
China	326		347
Hungary	257		227
Russia	253		276
United Kingdom	253		259
France	163		159
Germany	84		88
Canada	61		63
Brazil	54		62
Other	105		108
	$	5,704	$	5,594