Segment Information

6 Months Ended

Jun. 30, 2019

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 2019, management transferred its aluminum extrusions operations (Aluminum Extrusions) from the Arconic Engineered Structures (AES) business unit within the Engineered Products and Solutions (EP&S) segment to the Global Rolled Products (GRP) segment, based on synergies with GRP including similar customer base, technologies, and manufacturing capabilities. Prior period financial information has been recast to conform to current year presentation.

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. Segment operating profit includes 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.

As a result of the reorganization of Aluminum Extrusions noted above, management assessed and concluded that the remaining AES business unit and the Aluminum Extrusions business unit represent reporting units for purposes of evaluating goodwill for impairment. Goodwill of $110 was reallocated from the AES reporting unit to the Aluminum Extrusions reporting unit and these reporting units were evaluated for impairment during the first quarter of 2019. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was no goodwill impairment. In the second quarter of 2019, management transferred its castings operations from the AES business unit to the Arconic Engines (AEN) business unit within the EP&S segment based on process expertise for investment castings that existed within AEN. As a result, goodwill of $105 was reallocated from the AES reporting unit to the AEN reporting unit and these reporting units were evaluated for impairment during the second quarter of 2019. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was no impairment. Also in the second quarter of 2019, as a result of the decline in the forecasted financial performance and related impairment of long-lived assets of the Disks asset group within the AEN business unit (see Note M), an additional evaluation of the AEN reporting unit goodwill was performed. The estimated fair value of the reporting unit was substantially in excess of its carrying value; thus, there was no impairment of goodwill.

The Company will continue to evaluate its organizational structure and portfolio in conjunction with its planned separation (see Note S), which may result in further changes to its reportable segments and the need to evaluate assets for impairment in future periods.

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



	Engineered Products and Solutions		Global Rolled Products		Transportation and Construction Solutions		Total Segment
Second quarter ended June 30, 2019
Sales:
Third-party sales	$	1,565	$	1,577	$	548	$	3,690
Intersegment sales	—		55		—		55
Total sales	$	1,565	$	1,632	$	548	$	3,745
Profit and loss:
Segment operating profit	$	286	$	145	$	107	$	538
Restructuring and other charges	442		2		25		469
Provision for depreciation and amortization	62		54		13		129

Second quarter ended June 30, 2018
Sales:
Third-party sales	$	1,474	$	1,573	$	562	$	3,609
Intersegment sales	—		61		—		61
Total sales	$	1,474	$	1,634	$	562	$	3,670
Profit and loss:
Segment operating profit	$	224	$	111	$	97	$	432
Restructuring and other charges	8		2		—		10
Provision for depreciation and amortization	65		59		12		136



	Engineered Products and Solutions		Global Rolled Products		Transportation and Construction Solutions		Total Segment
Six months ended June 30, 2019
Sales:
Third-party sales	$	3,067	$	3,080	$	1,083	$	7,230
Intersegment sales	—		110		—		110
Total sales	$	3,067	$	3,190	$	1,083	$	7,340
Profit and loss:
Segment operating profit	$	539	$	252	$	194	$	985
Restructuring and other charges	456		8		34		498
Provision for depreciation and amortization	126		108		26		260

Six months ended June 30, 2018
Sales:
Third-party sales	$	2,900	$	3,054	$	1,099	$	7,053
Intersegment sales	—		118		—		118
Total sales	$	2,900	$	3,172	$	1,099	$	7,171
Profit and loss:
Segment operating profit	$	433	$	235	$	164	$	832
Restructuring and other charges	9		1		—		10
Provision for depreciation and amortization	130		115		25		270

The following table reconciles Total segment operating profit to Consolidated (loss) income before income taxes:



	Second quarter ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Total segment operating profit	$	538		$	432		$	985		$	832
Unallocated amounts:
Restructuring and other charges	(499		)	(15		)	(511		)	(22		)
Corporate expense	(120		)	(93		)	(181		)	(153		)
Consolidated operating (loss) income	$	(81	)	$	324		$	293		$	657
Interest expense	(85		)	(89		)	(170		)	(203		)
Other expense, net	(29		)	(41		)	(61		)	(61		)
Consolidated (loss) income before income taxes	$	(195	)	$	194		$	62		$	393

The total assets of Arconic's reportable segment were as follows:



	June 30, 2019		December 31, 2018
Engineered Products and Solutions	$	9,681	$	9,797
Global Rolled Products	4,714		4,486
Transportation and Construction Solutions	1,216		1,089
Total segment assets	$	15,611	$	15,372

Segment assets at June 30, 2019 included operating lease right-of-use assets (see Notes B and N). Segment assets for the Engineered Products and Solutions segment at June 30, 2019 were impacted by a long-lived asset impairment charge of $428 (see Note M).

The following table reconciles Total segment assets to Consolidated assets:



	June 30, 2019		December 31, 2018
Total segment assets	$	15,611	$	15,372
Unallocated amounts:
Cash and cash equivalents	1,357		2,277
Deferred income taxes	568		573
Corporate fixed assets, net	302		305
Fair value of derivative contracts	5		37
Other	70		129
Consolidated assets	$	17,913	$	18,693

The following table disaggregates revenue by major end market served. Differences between segment totals and consolidated Arconic are in Corporate. For the second quarter and six months ended June 30, 2018, Corporate included $38 of costs related to settlements of certain customer claims primarily related to product introductions.



	Engineered Products and Solutions		Global Rolled Products		Transportation and Construction Solutions			Total Segment
Second quarter ended June 30, 2019
Aerospace	$	1,283	$	328	$	—		$	1,611
Transportation	85		632		258			975
Building and construction	—		54		291			345
Industrial and Other	197		563		(1		)	759
Total end-market revenue	$	1,565	$	1,577	$	548		$	3,690

Second quarter ended June 30, 2018
Aerospace	$	1,187	$	280	$	—		$	1,467
Transportation	93		638		253			984
Building and construction	—		60		297			357
Industrial and Other	194		595		12			801
Total end-market revenue	$	1,474	$	1,573	$	562		$	3,609

Six months ended June 30, 2019
Aerospace	$	2,533	$	630	$	—		$	3,163
Transportation	172		1,281		513			1,966
Building and construction	—		103		572			675
Industrial and Other	362		1,066		(2		)	1,426
Total end-market revenue	$	3,067	$	3,080	$	1,083		$	7,230

Six months ended June 30, 2018
Aerospace	$	2,328	$	528	$	—		$	2,856
Transportation	166		1,260		496			1,922
Building and construction	—		108		582			690
Industrial and Other	406		1,158		21			1,585
Total end-market revenue	$	2,900	$	3,054	$	1,099		$	7,053