C. Separation Transaction and Discontinued Operations

On November 1, 2016, Arconic completed the Separation Transaction. Alcoa Inc., which was re-named Arconic Inc., continues to own the Global Rolled Products (except for the Warrick, IN rolling operations and the equity interest in the rolling mill at the joint venture in Saudi Arabia), Engineered Products and Solutions, and Transportation and Construction Solutions segments. Alcoa Corporation includes the Alumina and Primary Metals segments and the aforementioned Warrick, IN rolling operations and equity interest in the rolling mill at the joint venture in Saudi Arabia, both of which were formally part of the Global Rolled Products segment.

Arconic completed the Separation Transaction by distribution on November 1, 2016 of 80.1% of the outstanding common stock of Alcoa Corporation to the Company’s shareholders of record (the “Distribution”) as of the close of business on October 20, 2016 (the “Record Date”). Arconic retained 19.9% of the Alcoa Corporation common stock (36,311,767 shares). In the Distribution, each Company shareholder received one share of Alcoa Corporation common stock for every three shares of Arconic common stock held as of the close of business on the Record Date. Shareholders received cash in lieu of fractional shares of Alcoa Corporation common stock.

Arconic has recorded the 19.9% retained interest in Alcoa Corporation common stock as a cost method investment in Investment in common stock of Alcoa Corporation in the December 2016 Consolidated Balance Sheet. The fair value was based on the closing stock price of Alcoa Corporation as of December 31, 2016 multiplied by the number of shares of Alcoa Corporation common stock owned by the Company as of December 31, 2016. The changes in fair value since November 1, 2016 were recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheet.

On October 31, 2016, Arconic entered into several agreements with Alcoa Corporation that govern the relationship of the parties following the completion of the Separation Transaction. These agreements include the following: Separation and Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Alcoa Corporation to Arconic Inc. Patent, Know-How, and Trade Secret License Agreement, Arconic Inc. to Alcoa Corporation Patent, Know-How, and Trade Secret License Agreement, Alcoa Corporation to Arconic Inc. Trademark License Agreement, Toll Processing and Services Agreement, Master Agreement for the Supply of Primary Aluminum, Massena Lease and Operations Agreement, Fusina Lease and Operations Agreement, and Stockholder and Registration Rights Agreement.

Effective November 1, 2016, Arconic entered into a Toll Processing and Services Agreement with Alcoa Corporation for the tolling of metal for the Warrick, IN rolling mill which became a part of Alcoa Corporation upon completion of the Separation Transaction. As part of this arrangement, Arconic will provide a toll processing service to Alcoa Corporation to produce can sheet products at its facility in Tennessee through the expected end date of the contract, December 31, 2018. Alcoa Corporation will supply all required raw materials to Arconic and Arconic will process the raw materials into finished can sheet coils ready for shipment to the end customer. Tolling revenues for the two month period ending December 31, 2016 and accounts receivable were not material to the consolidated results of operations and financial position for the year ended December 31, 2016.

As part of the Separation Transaction, Arconic was required to provide maximum potential future payment guarantees for Alcoa Corporation issued on behalf of a third party, guarantees related to two Alcoa Corporation energy supply contracts and certain Alcoa Corporation environmental liabilities, letters of credit and surety bonds related to Alcoa Corporation workers’ compensation claims which occurred prior to November 1, 2016, and letters of credit for certain Alcoa Corporation equipment leases and energy contracts (see Note L).

Additionally, under the Separation and Distribution Agreement, the Company has recorded a receivable of $243 due from Alcoa Corporation for a certain asset sale. This amount was included in Other receivables in the December 2016 Consolidated Balance Sheet.

The results of operations of Alcoa Corporation are presented as discontinued operations in the Statement of Consolidated Operations as summarized below:


	Ten months ended October 31,			Year ended December 31,
	2016			2015			2014
Sales	$	6,752		$	10,121		$	11,364
Cost of goods sold (exclusive of expenses below)		5,655			7,965			8,782
Selling, general administrative, and other expenses		164			214			231
Research and development		28			69			95
Provision for depreciation, depletion and amortization		593			772			935
Restructuring and other charges		102			981			854
Interest expense		28			25			31
Other (income) expenses, net		(75	)		30			52
Income from discontinued operations before income taxes		257			65			384
Provision for income taxes		73			106			146
Income (loss) from discontinued operations after income taxes		184			(41	)		238
Less: Net income (loss) from discontinued operations attributable to noncontrolling interests		63			124			(91	)
Net income (loss) from discontinued operations	$	121		$	(165	)	$	329

During 2016 and 2015, Arconic recognized $193 ($158 after-tax) and $24 ($24 after-tax), respectively, in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations for costs related to the Separation Transaction. In addition, Arconic also incurred capital expenditures and debt issuance costs of $110 during 2016 related to the Separation Transaction. None of the aforementioned costs and expenses related to the Separation Transaction were reclassified into discontinued operations.

On November 1, 2016, management evaluated the net assets of Alcoa Corporation for potential impairment and determined that no impairment charge was required.

The carrying amount of the major classes of assets and liabilities related to Alcoa Corporation classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheet at December 31, 2015 consisted of the following:


Total assets of discontinued operations:
Cash and cash equivalents	$	557
Receivables from customers		380
Other receivables		128
Inventories		1,158
Prepaid expenses and other current assets		333
Current assets of discontinued operations		2,556
Properties, plants, and equipment, net		9,390
Goodwill		152
Investments		1,472
Deferred income taxes		1,360
Other noncurrent assets		2,224
Noncurrent assets of discontinued operations		14,598
Total assets of discontinued operations	$	17,154
Total liabilities of discontinued operations:
Accounts payable, trade	$	1,379
Accrued compensation and retirement costs		440
Taxes, including income taxes		136
Other current liabilities		563
Long-term debt due within one year		18
Current liabilities of discontinued operations	$	2,536
Long-term debt less amount due within one year		207
Accrued pension benefits		1,373
Accrued other postretirement benefits		1,189
Other noncurrent liabilities and deferred credits		1,910
Noncurrent liabilities of discontinued operations		4,679
Total liabilities of discontinued operations	$	7,215

The cash flows related to Alcoa Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows for all periods presented. The following table presents depreciation, depletion and amortization, restructuring and other charges, and purchases of property, plant and equipment of the discontinued operations related to Alcoa Corporation:


For the year ended December 31,	2016		2015		2014
Depreciation, depletion and amortization	$	593	$	772	$	935
Restructuring and other charges	$	102	$	981	$	854
Capital expenditures	$	298	$	391	$	444