O. Segment and Geographic Area Information

Arconic is a producer of products including precision castings and aerospace and industrial fasteners. Arconic’s products are used worldwide in transportation (including aerospace, automotive, truck, trailer, rail, and shipping), packaging, building and construction, oil and gas, defense, and industrial applications. Arconic’s segments are organized by product on a worldwide basis. Segment performance under Arconic’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the after-tax operating income (ATOI) of each segment. Certain items such as 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 lag is favorable and when the price of metal decreases, metal lag is unfavorable); interest expense; noncontrolling interests; corporate expense (general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities, corporate research and development expenses, along with depreciation and amortization on corporate-owned assets); restructuring and other charges; and other items, including intersegment profit eliminations, differences between tax rates applicable to the segments and the consolidated effective tax rate, and other nonoperating items such as foreign currency transaction gains/losses and interest income are excluded from segment ATOI. Segment assets exclude, among others, cash and cash equivalents; deferred income taxes; goodwill not allocated to businesses for segment reporting purposes; corporate fixed assets; and LIFO reserves.

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:

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 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.

Engineered Products and Solutions. This segment produces products that are used mostly in the aerospace (commercial and defense), 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, industrial products, 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.

Transportation and Construction Solutions. This segment produces products that are used mostly in the nonresidential building and construction and commercial transportation 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:


	Global Rolled Products		Engineered Products and Solutions		Transportation and Construction Solutions		Total
2016
Sales:
Third-party sales	$	4,864	$	5,728	$	1,802	$	12,394
Intersegment sales		118		-		-		118
Total sales	$	4,982	$	5,728	$	1,802	$	12,512
Profit and loss:
Depreciation and amortization		201		255		48		504
Income taxes		107		298		67		472
ATOI		269		642		176		1,087
2015
Sales:
Third-party sales	$	5,253	$	5,342	$	1,882	$	12,477
Intersegment sales		125		-		-		125
Total sales	$	5,378	$	5,342	$	1,882	$	12,602
Profit and loss:
Depreciation and amortization		203		233		43		479
Income taxes		85		282		63		430
ATOI		225		595		166		986
2014
Sales:
Third-party sales	$	6,344	$	4,217	$	2,021	$	12,582
Intersegment sales		185		-		-		185
Total sales	$	6,529	$	4,217	$	2,021	$	12,767
Profit and loss:
Depreciation and amortization		211		137		42		390
Income taxes		67		298		69		434
ATOI		224		579		180		983
2016
Assets:
Capital expenditures	$	293	$	333	$	63	$	689
Goodwill		181		4,579		57		4,817
Total assets		3,891		10,542		982		15,415
2015
Assets:
Capital expenditures	$	256	$	383	$	77	$	716
Goodwill		201		4,660		58		4,919
Total assets		3,861		10,732		947		15,540

The following tables reconcile certain segment information to consolidated totals:


	2016			2015			2014
Sales:
Total segment sales	$	12,512		$	12,602		$	12,767
Elimination of intersegment sales		(118	)		(125	)		(185	)
Corporate		-			(64	)		(40	)
Consolidated sales	$	12,394		$	12,413		$	12,542


	2016			2015			2014
Net (loss) income attributable to Arconic:
Total segment ATOI	$	1,087		$	986		$	983
Unallocated amounts (net of tax):
Impact of LIFO		(11	)		66			(52	)
Metal price lag		21			(115	)		68
Interest expense		(324	)		(307	)		(287	)
Noncontrolling interests		-			(1	)		-
Corporate expense		(306	)		(252	)		(268	)
Impairment of goodwill		-			(25	)		-
Restructuring and other charges		(114	)		(192	)		(249	)
Discontinued operations		121			(165	)		329
Other ⁽¹⁾		(1,415	)		(317	)		(256	)
Consolidated net (loss) income attributable to Arconic	$	(941	)	$	(322	)	$	268

⁽¹⁾	Other for 2016, includes a charge for valuation allowances related to the Separation Transaction ($1,267), slightly offset by a favorable adjustment to the contingent earn-out liability and a post-closing adjustment both of which related to the November 2014 acquisition of Firth Rixson ($76).


December 31,	2016			2015
Assets:
Total segment assets	$	15,415		$	15,540
Unallocated amounts:
Cash and cash equivalents		1,863			1,362
Deferred income taxes		1,234			1,308
Corporate goodwill		331			330
Corporate fixed assets, net		308			279
LIFO reserve		(371	)		(387	)
Fair value of derivative contracts		24			-
Investment in common stock of Alcoa Corporation		1,020			-
Assets of discontinued operations		-			17,154
Other		214			891
Consolidated assets	$	20,038		$	36,477

Sales by major product grouping were as follows:


	2016		2015		2014
Sales:
Flat-rolled aluminum		4,864		5,253		6,344
Fastening systems		2,060		2,168		1,647
Investment castings		1,870		1,812		1,784
Other extruded and forged products		1,495		1,332		1,019
Architectural aluminum systems		1,010		951		1,002
Aluminum wheels		689		790		786
Other		406		107		(40	)
	$	12,394	$	12,413	$	12,542

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


	2016		2015		2014
Sales:
United States	$	7,823	$	8,044	$	7,205
France		930		802		915
United Kingdom		711		698		464
Hungary		619		622		630
China		582		565		415
Russia		433		455		642
Germany		284		264		229
Canada		262		180		125
Brazil		250		297		417
Japan		145		138		157
Italy		127		139		150
Australia		53		49		523
Spain		4		2		460
Other		171		158		210
	$	12,394	$	12,413	$	12,542

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


December 31,	2016		2015
Long-lived assets:
United States	$	3,966	$	3,833
China		336		352
Russia		295		303
United Kingdom		232		312
Hungary		194		190
France		118		107
Other		358		328
	$	5,499	$	5,425