UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2018March 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3610
 
ARCONIC INC.
(Exact name of registrant as specified in its charter)
 
Delaware 25-0317820
(State of
incorporation)
 
(I.R.S. Employer
Identification No.)
  
390 Park Avenue, New York, New York 10022-4608
(Address of principal executive offices) (Zip code)
Investor Relations 212-836-2758
Office of the Secretary 212-836-2732
(Registrant’s telephone number including area code)

(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No      
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No      
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
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Non-accelerated filer__  Smaller reporting company
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  Emerging growth company
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__  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes          No  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareARNCNew York Stock Exchange
$3.75 Cumulative Preferred Stock, par value $100 per shareARNC PRNYSE American
As of July 25, 2018,April 29, 2019, there were 482,954,718448,629,078 shares of common stock, par value $1.00 per share, of the registrant outstanding.
 


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Arconic and subsidiaries
Statement of Consolidated Operations (unaudited)
(in millions, except per-share amounts)
Second quarter ended Six months endedFirst quarter ended
June 30, June 30,March 31,
2018 2017 2018 20172019 2018
Sales (C & D)$3,573
 $3,261
 $7,018
 $6,453
Sales (C)
$3,541
 $3,445
Cost of goods sold (exclusive of expenses below)2,903
 2,549
 5,671
 5,007
2,818
 2,768
Selling, general administrative, and other expenses158
 200
 330
 417
178
 172
Research and development expenses29
 29
 52
 57
22
 23
Provision for depreciation and amortization144
 137
 286
 270
137
 142
Restructuring and other charges (E)15
 26
 22
 99
Restructuring and other charges (D)
12
 7
Operating income324
 320
 657
 603
374
 333
Interest expense (N)89
 183
 203
 298
85
 114
Other expense (income), net (F)41
 (132) 61
 (448)
Other expense, net (E)
32
 20
Income before income taxes194
 269
 393
 753
257
 199
Provision for income taxes (H)74
 57
 130
 219
Provision for income taxes (G)
70
 56
Net income$120
 $212
 $263
 $534
$187
 $143
          
Amounts Attributable to Arconic Common Shareholders (I):       
Amounts Attributable to Arconic Common Shareholders (I):
   
Net income$120
 $194
 $262
 $499
$186
 $142
Earnings per share - basic$0.25
 $0.44
 $0.54
 $1.13
$0.40
 $0.30
Earnings per share - diluted$0.24
 $0.43
 $0.53
 $1.07
$0.39
 $0.29
Dividends paid per share$0.06
 $0.06
 $0.12
 $0.12
Average Shares Outstanding (I):       
Average Shares Outstanding (I):
   
Average shares outstanding - basic483
 441
 483
 440
471
 482
Average shares outstanding - diluted502
 462
 502
 500
489
 503
The accompanying notes are an integral part of the consolidated financial statements.



Arconic and subsidiaries
Statement of Consolidated Comprehensive Income (unaudited)
(in millions)
Arconic 
Noncontrolling
Interests
 TotalArconic 
Noncontrolling
Interests
 Total
Second quarter ended June 30,2018 2017 2018 2017 2018 2017
First quarter ended March 31,2019 2018 2019 2018 2019 2018
Net income$120
 $212
 $
 $
 $120
 $212
$187
 $143
 $
 $
 $187
 $143
Other comprehensive (loss) income, net of tax (J):           
Other comprehensive income, net of tax (J):
           
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits
29
 48
 
 
 29
 48
40
 143
 
 
 40
 143
Foreign currency translation adjustments(201) 99
 
 
 (201) 99
26
 122
 
 
 26
 122
Net change in unrealized gains on available-for-sale securities(2) (101) 
 
 (2) (101)3
 
 
 
 3
 
Net change in unrecognized losses/gains on cash flow hedges4
 (2) 
 
 4
 (2)7
 (7) 
 
 7
 (7)
Total Other comprehensive (loss) income, net of tax(170) 44
 
 

(170) 44
Comprehensive (loss) income$(50) $256
 $
 $

$(50) $256
           
Arconic 
Noncontrolling
Interests
 Total
Six months ended June 30,2018 2017 2018 2017 2018 2017
Net income$263
 $534
 $
 $
 $263
 $534
Other comprehensive income, net of tax (J):           
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits
172
 79
 
 
 172
 79
Foreign currency translation adjustments(79) 166
 
 
 (79) 166
Net change in unrealized gains on available-for-sale securities(2) (134) 
 
 (2) (134)
Net change in unrecognized gains/losses on cash flow hedges(3) 3
 
 
 (3) 3
Total Other comprehensive income, net of tax88
 114
 
 
 88
 114
76
 258
 
 

76
 258
Comprehensive income$351
 $648
 $
 $
 $351
 $648
$263
 $401
 $
 $

$263
 $401
The accompanying notes are an integral part of the consolidated financial statements.


Arconic and subsidiaries
Consolidated Balance Sheet (unaudited)
(in millions)
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Assets      
Current assets:      
Cash and cash equivalents$1,455
 $2,150
$1,319
 $2,277
Receivables from customers, less allowances of $5 in 2018 and $8 in 2017 (K)1,159
 1,035
Other receivables (K)478
 339
Inventories (L)2,659
 2,480
Receivables from customers, less allowances of $4 in 2019 and 2018 (K)
1,170
 1,047
Other receivables (K)
646
 451
Inventories (L)
2,612
 2,492
Prepaid expenses and other current assets324
 374
306
 314
Total current assets6,075
 6,378
6,053
 6,581
Properties, plants, and equipment, net (M)5,582
 5,594
Goodwill (A & M)4,518
 4,535
Properties, plants, and equipment, net (M)
5,727
 5,704
Goodwill (C)
4,509
 4,500
Deferred income taxes626
 743
480
 573
Intangibles, net963
 987
912
 919
Other noncurrent assets455
 481
Other noncurrent assets (N)
680
 416
Total assets$18,219
 $18,718
$18,361
 $18,693
Liabilities      
Current liabilities:      
Accounts payable, trade$2,024
 $1,839
$2,193
 $2,129
Accrued compensation and retirement costs364
 399
339
 370
Taxes, including income taxes69
 75
114
 118
Accrued interest payable113
 124
97
 113
Other current liabilities362
 349
Other current liabilities (N)
481
 356
Short-term debt45
 38
435
 434
Total current liabilities2,977
 2,824
3,659
 3,520
Long-term debt, less amount due within one year (N & O)6,312
 6,806
Accrued pension benefits (G)2,184
 2,564
Accrued other postretirement benefits815
 841
Other noncurrent liabilities and deferred credits713
 759
Long-term debt, less amount due within one year (O and P)
5,899
 5,896
Accrued pension benefits (F)
2,172
 2,230
Accrued other postretirement benefits (F)
636
 723
Other noncurrent liabilities and deferred credits (B and N)
817
 739
Total liabilities13,001
 13,794
13,183
 13,108
Contingencies and commitments (Q)

 

Contingencies and commitments (R)


 

Equity      
Arconic shareholders’ equity:      
Preferred stock55
 55
55
 55
Common stock483
 481
453
 483
Additional capital8,295
 8,266
7,644
 8,319
Accumulated deficit(1,073) (1,248)(134) (358)
Accumulated other comprehensive loss (J)(2,556) (2,644)
Accumulated other comprehensive loss (J)
(2,852) (2,926)
Total Arconic shareholders’ equity5,204
 4,910
5,166
 5,573
Noncontrolling interests14
 14
12
 12
Total equity5,218
 4,924
5,178
 5,585
Total liabilities and equity$18,219
 $18,718
$18,361
 $18,693
The accompanying notes are an integral part of the consolidated financial statements.


Arconic and subsidiaries
Statement of Consolidated Cash Flows (unaudited)
(in millions)
Six months endedThree months ended
June 30,March 31,
2018 20172019 2018
Operating activities      
Net income$263
 $534
$187
 $143
Adjustments to reconcile net income to cash used for operations:      
Depreciation and amortization286
 270
137
 142
Deferred income taxes47
 27
8
 18
Restructuring and other charges22
 99
12
 7
Net loss (gain) from investing activities - asset sales (F)5
 (515)
Net periodic pension benefit cost (G)71
 108
Net loss from investing activities - asset sales2
 3
Net periodic pension benefit cost (F)
29
 41
Stock-based compensation29
 48
10
 15
Other50
 115
11
 49
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:      
(Increase) in receivables (B)(709) (567)(489) (403)
(Increase) in inventories(220) (150)(118) (141)
Decrease in prepaid expenses and other current assets8
 30
Increase (decrease) in accounts payable, trade218
 (69)
(Increase) in prepaid expenses and other current assets(14) (12)
Increase in accounts payable, trade65
 14
(Decrease) in accrued expenses(84) (105)(69) (118)
Increase in taxes, including income taxes37
 121
47
 8
Pension contributions(237) (163)(55) (177)
(Increase) in noncurrent assets(4) (60)
(Increase) decrease in noncurrent assets(1) 1
(Decrease) in noncurrent liabilities(42) (39)(20) (26)
Cash used for operations(260) (316)(258) (436)
Financing Activities  
  
Net change in short-term borrowings (original maturities of three months or less)5
 9
1
 5
Additions to debt (original maturities greater than three months)300
 512
150
 150
Premiums paid on early redemption of debt (B & N)(17) (52)
Payments on debt (original maturities greater than three months) (N)(801) (1,333)
Payments on debt (original maturities greater than three months)(151) (651)
Premiums paid on early redemption of debt
 (17)
Proceeds from exercise of employee stock options13
 26
1
 12
Dividends paid to shareholders(60) (88)(29) (30)
Distributions to noncontrolling interests
 (14)
Repurchase of common stock (H)
(700) 
Other(17) (15)(13) (11)
Cash used for financing activities(577) (955)(741) (542)
Investing Activities  
  
Capital expenditures(288) (229)(168) (117)
Proceeds from the sale of assets and businesses (P)5
 (9)4
 
Sales of investments (F)
9
 888
Cash receipts from sold receivables (B & K)420
 285
Sales of investments47
 9
Cash receipts from sold receivables (K)
160
 136
Other
 244
(1) 1
Cash provided from investing activities146
 1,179
42
 29
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2) 4
1
 4
Net change in cash, cash equivalents and restricted cash (B)(693) (88)(956) (945)
Cash, cash equivalents and restricted cash at beginning of year (B)2,153
 1,878
2,282
 2,153
Cash, cash equivalents and restricted cash at end of period (B)$1,460
 $1,790
$1,326
 $1,208
The accompanying notes are an integral part of the consolidated financial statements.


Arconic and subsidiaries
Statement of Changes in Consolidated Equity (unaudited)
(in millions, except per-share amounts)

 Arconic Shareholders    
 Preferred
stock
 Common
stock
 Additional
capital
 Accumulated deficit Accumulated
other
comprehensive
loss
 Noncontrolling
interests
 Total
Equity
Balance at December 31, 2017$55
 $481
 $8,266
 $(1,248) $(2,644) $14
 $4,924
Net income
 
 
 143
 
 
 143
Other comprehensive income (J)

 
 
 
 258
 
 258
Cash dividends declared:             
Preferred-Class A @ $0.9375 per share
 
 
 (1) 
 
 (1)
Common @ $0.12 per share
 
 
 (58) 
 
 (58)
Stock-based compensation
 
 15
 
 
 
 15
Common stock issued: compensation plans
 2
 (1) 
 
 
 1
Balance at March 31, 2018$55

$483

$8,280

$(1,164)
$(2,386)
$14

$5,282
 Arconic Shareholders    
 
Preferred
stock
 
Mandatory
convertible
preferred
stock
 
Common
stock
 
Additional
capital
 Accumulated
deficit
 
Accumulated
other
comprehensive
loss
 
Noncontrolling
interests
 
Total
Equity
Balance at December 31, 2016$55
 $3
 $438
 $8,214
 $(1,027) $(2,568) $26
 $5,141
Net income
 
 
 
 534
 
 
 534
Other comprehensive income (J)
 
 
 
 
 114
 
 114
Cash dividends declared:              
Preferred-Class A @ $1.875 per share
 
 
 
 (1) 
 
 (1)
Preferred-Class B @ $13.4375 per share
 
 
 
 (34) 
 
 (34)
Common @ $0.12 per share
 
 
 
 (54) 
 
 (54)
Stock-based compensation
 
 
 48
 
 
 
 48
Common stock issued: compensation plans
 
 3
 
 
 
 
 3
Distributions
 
 
 
 
 
 (14) (14)
Other
 
 
 
 15
 
 1
 16
Balance at June 30, 2017$55
 $3
 $441
 $8,262
 $(567) $(2,454) $13
 $5,753
Arconic Shareholders    Arconic Shareholders    
Preferred
stock
 
Mandatory
convertible
preferred
stock
 
Common
stock
 
Additional
capital
 
Accumulated
deficit
 
Accumulated
other
comprehensive
loss
 
Noncontrolling
interests
 
Total
Equity
Preferred
stock
 Common
stock
 Additional
capital
 Accumulated deficit Accumulated
other
comprehensive
loss
 Noncontrolling
interests
 Total
Equity
Balance at December 31, 2017$55
 $
 $481
 $8,266
 $(1,248) $(2,644) $14
 $4,924
Balance at December 31, 2018$55
 $483
 $8,319
 $(358) $(2,926) $12
 $5,585
Adoption of accounting standards (B)

 
 
 75
 (2) 
 73
Net income
 
 
 
 263
 
 
 263

 
 
 187
 
 
 187
Other comprehensive income (J)
 
 
 
 
 88
 
 88
Other comprehensive income (J)

 
 
 
 76
 
 76
Cash dividends declared:              
             
Preferred-Class A @ $1.875 per share
 
 
 
 (1) 
 
 (1)
Common @ $0.18 per share
 
 
 
 (87) 
 
 (87)
Preferred-Class A @ $0.9375 per share
 
 
 (1) 
 
 (1)
Common @ $0.08 per share
 
 
 (38) 
 
 (38)
Repurchase and retirement of common stock (H)

 (32) (668) 
 
 
 (700)
Stock-based compensation
 
 
 29
 
 
 
 29

 
 8
 
 
 
 8
Common stock issued: compensation plans
 
 2
 
 
 
 
 2

 2
 (15) 
 
 
 (13)
Balance at June 30, 2018$55
 $
 $483
 $8,295
 $(1,073) $(2,556) $14
 $5,218
Other
 
 
 1
 
 
 1
Balance at March 31, 2019$55
 $453
 $7,644

$(134)
$(2,852)
$12

$5,178
The accompanying notes are an integral part of the consolidated financial statements.



Arconic and subsidiaries
Notes to the Consolidated Financial Statements (unaudited)
(dollars in millions, except per-share amounts)
A. Basis of Presentation
The interim Consolidated Financial Statements of Arconic Inc. and its subsidiaries (“Arconic” or the “Company”) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The 20172018 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). This Form 10-Q report should be read in conjunction with Arconic’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period presentation (see below and Note D)C).
On January 1, 2018, Arconic adopted new guidance issued by the Financial Accounting Standards Board (FASB) related to the following: presentation of net periodic pension cost and net periodic postretirement benefit cost that required a reclassification of costs within the Statement of Consolidated Operations; presentation of certain cash receipts and cash payments within the Statement of Consolidated Cash Flows that required a reclassification of amounts between operating and either financing or investing activities; and the classification of restricted cash within the statement of cash flows. See Note B for further details.
In January 2018, management changed the organizational structure of the businesses in its Engineered Products and Solutions (EP&S) segment, from four business units to three business units, with a focus on aligning its internal structure to core markets and customers and reducing cost. As a result of this change in the EP&S segment organizational structure, management assessed and concluded that each of the three business units represent reporting units for goodwill impairment evaluation purposes.  Also, as a result of the reorganization, goodwill was reallocated to the three new reporting units and evaluated for impairment during the first quarter of 2018.  The estimated fair value of each reporting unit substantially exceeded its carrying value; thus, there was no goodwill impairment. More than 92% of Arconic’s total goodwill at March 31, 2018 was allocated to the following three EP&S reporting units: Arconic Engines ($2,095), Arconic Fastening Systems ($1,623) and Arconic Engineered Structures ($517). See Note M for further details of an interim goodwill impairment evaluation that was performed for the Arconic Engines reporting unit during the second quarter of 2018.
B. Recently Adopted and Recently Issued Accounting Guidance
Adopted
In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. These changes became effective for Arconic on January 1, 2018. Arconic adopted this new guidance using the modified retrospective transition approach applied to those contracts that were not completed as of January 1, 2018. There was no cumulative effect adjustment to the opening balance of retained earnings in the Consolidated Balance Sheet in the first quarter of 2018, as the adoption did not result in a change to our timing of revenue recognition, which continues to be at a point in time. See Note C for further details.
In January 2016, the FASB issued changes to equity investments. These changes require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values using the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Also, the impairment assessment of equity investments without readily determinable fair values has been simplified by requiring a qualitative assessment to identify impairment. Also, the new guidance required changes in fair value of equity securities to be recognized immediately as a component of net income instead of being reported in accumulated other comprehensive loss until the gain (loss) is realized. These changes became effective for Arconic on January 1, 2018 and have been applied on a prospective basis. Arconic elected the measurement alternative for its equity investments that do not have


readily determinable fair values. The adoption of this guidance did not have a material impact on the Consolidated Financial Statements.
In August 2016, the FASB issued changes to the classification of certain cash receipts and cash payments within the statement of cash flows. The guidance identifies eight specific cash flow items and the sections where they must be presented within the statement of cash flows. These changes became effective for Arconic on January 1, 2018 and have been be applied retrospectively. As of result of the adoption, Arconic reclassified cash received related to beneficial interest in previously transferred trade accounts receivables from operating activities to investing activities in the Statement of Consolidated Cash Flows. This new accounting standard does not reflect a change in our underlying business or activities. The reclassification of cash received related to beneficial interest in previously transferred trade accounts receivables was $285 for the six months ended June 30, 2017. In addition, Arconic reclassified $52 of cash paid for debt prepayments including extinguishment costs from operating activities to financing activities for the six months ended June 30, 2017.
In November 2016, the FASB issued changes to the classification of cash and cash equivalents within the statement of cash flow. Restricted cash and cash equivalents will be included within the cash and cash equivalents line on the cash flow statement and a reconciliation must be prepared to the statement of financial position. Transfers between restricted cash and cash equivalents and cash and cash equivalents will no longer be presented as cash flow activities in the Statement of Consolidated Cash Flows and for material balances of restricted cash and restricted cash equivalents Arconic will disclose information regarding the nature of the restrictions. These changes became effective for Arconic on January 1, 2018 and have been applied retrospectively. Management has determined that the adoption of this guidance did not have a material impact on the Statement of Consolidated Cash Flows. Restricted cash was $5, $4 and $5 at June 30, 2018, December 31, 2017 and June 30, 2017, respectively.
In March 2017, the FASB issued changes to the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires registrants to present the service cost component of net periodic benefit cost in the same income statement line item or items as other employee compensation costs arising from services rendered during the period. Also, only the service cost component will be eligible for asset capitalization. Registrants will present the other components of net periodic benefit cost separately from the service cost component; and, the line item or items used in the income statement to present the other components of net periodic benefit cost must be disclosed. These changes became effective for Arconic on January 1, 2018 and were adopted retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the Statement of Consolidated Operations, and prospectively for the asset capitalization of the service cost component of net periodic benefit cost. The Company recorded the service related net periodic benefit cost within Cost of goods sold, Selling, general administrative, and other expenses and Research and development expenses and recorded the non-service related net periodic benefit cost (except for the curtailment cost which was recorded in Restructuring and other charges) separately from service cost in Other expense (income), net within the Statement of Consolidated Operations. The impact of the retrospective adoption of this guidance was an increase to consolidated Operating income of $39 and $77 while there was no impact to consolidated Net income for the second quarter or six months ended June 30, 2017, respectively.
In May 2017, the FASB issued clarification to guidance on the modification accounting criteria for share-based payment awards. The new guidance requires registrants to apply modification accounting unless three specific criteria are met. The three criteria are 1) the fair value of the award is the same before and after the modification, 2) the vesting conditions are the same before and after the modification and 3) the classification as a debt or equity award is the same before and after the modification. These changes became effective for Arconic on January 1, 2018 and were applied prospectively to new awards modified after adoption. The adoption of this guidance did not have a material impact on the Consolidated Financial Statements.
Issued
In February 2016, the FASBFinancial Accounting Standards Board (FASB) issued changes to the accounting and presentation of leases. These changes require lessees to recognize a right of useright-of-use asset and lease liability on the balance sheet, initially measured at the present value of the future lease payments for all leases with terms longer than 12 months. Foroperating leases with a term ofgreater than 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. Also, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option, or not exercise an option to terminate the lease. As originally released, the standards update required application at the beginning of the earliest comparative period presented at the time of adoption. However, in July 2018, the FASB provided entities the option to instead apply the provisions of the new leases guidance at the effective date, without adjusting the comparative periods presented. months.
These changes becomebecame effective for Arconic on January 1, 2019. Arconic’s current2019 and have been applied using the modified retrospective approach as of the date of adoption, under which leases existing at, or entered into after, January 1, 2019 were required to be recognized and measured. Prior period amounts have not been adjusted and continue to be reflected in accordance with the Company’s historical accounting. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company also elected to separate lease components from non-lease components for all classes of assets.
The adoption of this new standard resulted in the Company recording operating lease portfolio is primarily comprisedright-of-use assets and lease liabilities of land and buildings, plant equipment, vehicles, and computer equipment.  A cross-functional implementation team is in the process of determining the scope of arrangements that will be subject to this standard as well as assessing the impact to the Company’s systems, processes and internal controls.  Arconic has contracted with a third-party vendor to implement a software solution. Concurrently, Arconic is compiling lease data to be uploaded into


the software solution to account for leases under the new standard. Management is evaluating the impact of these changesapproximately $320 on the Consolidated Balance Sheet which will require rightas of useJanuary 1, 2019. Also, the Company reclassified cash proceeds of $119 from Other noncurrent liabilities and deferred credits, assets of $24 from Properties, plants, and lease liabilities be recorded for operating leases; therefore,equipment, net, and deferred tax assets of $22 from Other noncurrent assets to Accumulated deficit reflecting the cumulative effect of an estimateaccounting change related to the sale-leaseback of the impact is not currently determinable.  However,Texarkana, Texas cast house (see Note Q). The adoption of the adoption is not expected to have a materialstandard had no impact on the Statement of Consolidated Operations or Statement of Consolidated Cash Flows.
In August 2017, the FASB issued guidance that made more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amended the presentation and disclosure requirements and changed how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. These changes became effective for Arconic on January 1, 2019. For cash flow hedges, Arconic recorded a cumulative effect adjustment of $2 related to eliminating the separate measurement of ineffectiveness by decreasing Accumulated other comprehensive loss and increasing Accumulated deficit on the accompanying Consolidated Balance Sheet. The amendments to presentation and disclosure are required prospectively. Arconic has determined that under the new accounting guidance it will be able to more broadly use cash flow hedge accounting for its variable priced inventory purchases and customer sales.
Issued
In June 2016, the FASB added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. These changes become effective for Arconic on January 1, 2020. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.
In August 2017, the FASB issued guidance that will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. These changes become effective for Arconic on January 1, 2019. For cash flow and net investment hedges existing at the date of adoption, Arconic will apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year in which the amendment is adopted. The amended presentation and disclosure guidance is required only prospectively. Management is currently evaluating the potential impact of this guidance on the Consolidated Financial Statements.
In February 2018, the FASB issued guidance that allows an optional reclassification from Accumulatedimpacts disclosures for defined benefit pension plans and other comprehensive loss to Accumulated deficit for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017.postretirement benefit plans. These changes become effective for Arconic on January 1, 2019.Arconic's annual report for the year ending December 31, 2020, with early adoption permitted. Management is currently evaluatinghas determined that the potential impactadoption of this guidance will not have a material impact on the Consolidated Financial Statements.



C. Revenue from Contracts with Customers
The Company's contracts with customers are comprised of acknowledged purchase orders incorporating the Company’s standard terms and conditions, or for larger customers, terms under negotiated multi-year agreements. These contracts with customers typically consist of the manufacture of products which represent single performance obligations that are satisfied upon transfer of control of the product to the customer. The Company produces fastening systems; seamless rolled rings; investment castings, including airfoils and forged jet engine components; extruded, machined and formed aircraft parts; aluminum sheet and plate; integrated aluminum structural systems; architectural extrusions; and forged aluminum commercial vehicle wheels. Transfer of control is assessed based on alternative use of the products we produce and our enforceable right to payment for performance to date under the contract terms. Transfer of control and revenue recognition generally occur upon shipment or delivery of the product, which is when title, ownership and risk of loss pass to the customer and is based on the applicable shipping terms. The shipping terms vary across all businesses and depend on the product, the country of origin, and the type of transportation (truck, train, or vessel). An invoice for payment is issued at time of shipment. The Company’s objective is to have net 30-day terms. Our business units set commercial terms on which Arconic sells products to its customers. These terms are influenced by industry custom, market conditions, product line (specialty versus commodity products), and other considerations.
The following table disaggregates revenue by major end market served. Differences between segment totals and consolidated Arconic are in Corporate. In 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, 2018       
Aerospace$1,241
 $226
 $
 $1,467
Transportation119
 612
 253
 984
Building and construction
 60
 297
 357
Industrial and other236

553
 12
 801
Total end-market revenue$1,596
 $1,451
 $562
 $3,609
        
Second quarter ended June 30, 2017
 
 
 
Aerospace$1,141
 $241
 $
 $1,382
Transportation97
 475
 200
 772
Building and construction
 51
 283
 334
Industrial and other247
 504
 21
 772
Total end-market revenue$1,485
 $1,271
 $504
 $3,260
        
Six months ended June 30, 2018       
Aerospace$2,431
 $425
 $
 $2,856
Transportation216
 1,210
 496
 1,922
Building and construction
 108
 582
 690
Industrial and other490
 1,074
 21
 1,585
Total end-market revenue$3,137
 $2,817
 $1,099
 $7,053
        
Six months ended June 30, 2017       
Aerospace$2,296
 $456
 $
 $2,752
Transportation190
 968
 373
 1,531
Building and construction
 100
 545
 645
Industrial and other486
 995
 42
 1,523
Total end-market revenue$2,972
 $2,519
 $960
 $6,451



D. Segment 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 2018,2019, management transferred its aluminum extrusions operations (Aluminum Extrusions) from the Company changed its primary measure ofArconic Engineered Structures (AES) business unit within the Engineered Products and Solutions (EP&S) segment performance from Adjusted earnings before interest, tax, depreciationto the Global Rolled Products (GRP) segment, based on synergies with GRP including similar customer base, technologies, and amortization (“Adjusted EBITDA”)manufacturing capabilities. Prior period financial information has been recast to Segment operating profit, which more closely aligns segment performance with Operating income as presented in the Statement of Consolidated Operations. 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 and Impairment of goodwill.charges. 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. Prior period financial information has been recast to conform to current year presentation. Differences between segment totals and consolidated Arconic are in Corporate.

As a result of the reorganization of the business noted above, management assessed and concluded that the remaining AES business unit within the EP&S segment and the Aluminum Extrusions business unit within the GRP segment represent reporting units for purposes of evaluating goodwill for impairment. Goodwill of approximately $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.
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
Engineered
Products and
Solutions
 
Global Rolled
Products
 
Transportation
and Construction
Solutions
 
Total
Segment
Second quarter ended June 30, 2018       
First quarter ended March 31, 2019       
Sales:              
Third-party sales$1,596
 $1,451
 $562
 $3,609
$1,502
 $1,503
 $535
 $3,540
Intersegment sales
 46
 
 46

 55
 
 55
Total sales$1,596
 $1,497
 $562
 $3,655
$1,502
 $1,558
 $535
 $3,595
Profit and loss:              
Segment operating profit$212
 $123
 $97
 $432
$253
 $107
 $87
 $447
Restructuring and other charges9
 1
 
 10
14
 6
 9
 29
Provision for depreciation and amortization70
 53
 12
 135
64
 54
 13
 131
              
Second quarter ended June 30, 2017       
First quarter ended March 31, 2018       
Sales:              
Third-party sales$1,485
 $1,271
 $504
 $3,260
$1,426

$1,481
 $537
 $3,444
Intersegment sales
 37
 
 37

 57
 
 57
Total sales$1,485
 $1,308
 $504
 $3,297
$1,426
 $1,538
 $537
 $3,501
Profit and loss:              
Segment operating profit$250
 $133
 $71
 $454
$209
 $124
 $67
 $400
Restructuring and other charges8
 17
 6
 31
1
 (1) 
 
Provision for depreciation and amortization66
 51
 12
 129
65
 56
 13
 134


 
Engineered
Products and
Solutions
 
Global Rolled
Products
 
Transportation
and Construction
Solutions
 
Total
Segment
Six months ended June 30, 2018       
Sales:       
Third-party sales$3,137
 $2,817
 $1,099
 $7,053
Intersegment sales
 88
 
 88
Total sales$3,137
 $2,905
 $1,099
 $7,141
Profit and loss:       
Segment operating profit$433
 $235
 $164
 $832
Restructuring and other charges10
 
 
 10
Provision for depreciation and amortization141
 104
 25
 270
        
Six months ended June 30, 2017       
Sales:       
Third-party sales$2,972
 $2,519
 $960
 $6,451
Intersegment sales
 71
 
 71
Total sales$2,972
 $2,590
 $960
 $6,522
Profit and loss:       
Segment operating profit$497
 $269
 $139
 $905
Restructuring and other charges14
 74
 9
 97
Provision for depreciation and amortization130
 101
 24
 255


The following table reconciles Total segment operating profit to Consolidated income before income taxes:
Second quarter ended Six months endedFirst quarter ended
June 30, June 30,March 31,
2018 2017 2018 20172019 2018
Total segment operating profit$432
 $454
 $832
 $905
$447
 $400
Unallocated amounts:          
Restructuring and other charges(15) (26) (22) (99)(12) (7)
Corporate expense(93) (108) (153) (203)(61) (60)
Consolidated operating income$324
 $320
 $657
 $603
$374
 $333
Interest expense(89) (183) (203) (298)(85) (114)
Other (expense) income, net(41) 132
 (61) 448
Other expense, net(32) (20)
Consolidated income before income taxes$194
 $269
 $393
 $753
$257
 $199
The total assets of Arconic's reportable segment were as follows:
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Engineered Products and Solutions$10,447
 $10,325
$10,153
 $9,797
Global Rolled Products4,153
 3,955
4,768
 4,486
Transportation and Construction Solutions1,087
 1,041
1,206
 1,089
Total segment assets$15,687
 $15,321
$16,127
 $15,372
Segment assets at March 31, 2019 included operating lease right-of-use assets (see Notes B and N).
The following table reconciles Total segment assets to Consolidated assets:
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Total segment assets$15,687
 $15,321
$16,127
 $15,372
Unallocated amounts:      
Cash and cash equivalents1,455
 2,150
1,319
 2,277
Deferred income taxes626
 743
480
 573
Corporate fixed assets, net304
 310
308
 305
Fair value of derivative contracts57
 91
8
 37
Other90
 103
119
 129
Consolidated assets$18,219
 $18,718
$18,361
 $18,693


The following table disaggregates revenue by major end market served. Differences between segment totals and consolidated Arconic are in Corporate:
 
Engineered
Products and
Solutions
 
Global Rolled
Products
 
Transportation
and Construction
Solutions
 
Total
Segment
First quarter ended March 31, 2019       
Aerospace$1,250
 $302
 $
 $1,552
Transportation87
 649
 255
 991
Building and construction
 49
 281
 330
Industrial and Other165
 503
 (1) 667
Total end-market revenue$1,502
 $1,503
 $535
 $3,540
        
First quarter ended March 31, 2018       
Aerospace$1,141
 $248
 $
 $1,389
Transportation73
 622
 243
 938
Building and construction
 48
 285
 333
Industrial and Other212
 563
 9
 784
Total end-market revenue$1,426
 $1,481
 $537
 $3,444
E.D. Restructuring and Other Charges
In the secondfirst quarter of 2019, Arconic recorded Restructuring and other charges of $12 ($10 after-tax), which included $65 ($51 after-tax) for layoff costs, including the separation of approximately 800 employees (425 in Corporate, 168 in the Engineered Products and Solutions segment, 121 in the Transportation and Construction Solutions segment, and 86 in the Global Rolled Products segment); a $2 ($1 after-tax) net charge for executive severance net of the benefit of forfeited executive stock compensation; a pension settlement charge of $2 ($2 after-tax); and $1 ($1 after-tax) for other miscellaneous items; offset by a benefit of $58 ($45 after-tax) related to the elimination of life insurance benefits for U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries.
In the first quarter of 2018, Arconic recorded Restructuring and other charges of $15$7 ($125 after-tax), which included $9$5 ($74 after-tax) for pension curtailment charges; $4 ($3 after-tax) for layoff costs, including the separation of approximately 2416 employees (all in the Engineered Products and Solutions segment)Corporate); a charge of $5 ($4 after-tax) for exit costs primarily related to the New York office; a charge of $2 ($21 after-tax) for other miscellaneous items; and a benefit of $5 ($4 after-tax) for the reversal of a number of small layoff reserves related to prior periods.
In the six months ended June 30, 2018, Arconic recorded Restructuring and other charges of $22 ($17 after-tax), which included $14 ($11 after-tax) for pension curtailment charges; $8 ($6 after-tax) for layoff costs, including the separation of approximately 40 employees (24 in the Engineered Products and Solutions segment and 16 in Corporate); a charge of $5 ($4 after-tax) for exit costs primarily related to the New York office; a charge of $4 ($3 after-tax) for other miscellaneous items; and a benefit of $9 ($7 after-tax) for the reversal of a number of small layoff reserves related to prior periods.
In the second quarter of 2017, Arconic recorded Restructuring and other charges of $26 ($17 after-tax), which included $29 ($19 after-tax) for layoff costs related to cost reduction initiatives including the separation of approximately 352 employees (129 in the Engineered Products and Solutions segment, 110 in the Global Rolled Products segment, 93 in the Transportation and Construction Solutions segment, and 20 in Corporate); a net charge of $4 ($3 after-tax) for other miscellaneous items; a net benefit of $6 ($4 after-tax), for the reversal of forfeited executive stock compensation of $13, partially offset by a charge of $7 for the related severance; and a favorable benefit of $1 ($1 after-tax) for the reversal of a number of small layoff reserves related to prior periods.
In the six months ended June 30, 2017, Arconic recorded Restructuring and other charges of $99 ($86 after-tax), which included $48 ($32 after-tax) for layoff costs related to cost reduction initiatives including the separation of approximately 680 employees (243 in the Engineered Products and Solutions segment, 242 in the Global Rolled Products segment, 133 in the Transportation and Construction Solutions segment, and 62 in Corporate); a charge of $60 ($60 after-tax) related to the sale of the Fusina, Italy rolling mill; a net benefit of $6 ($4 after-tax), for the reversal of forfeited executive stock compensation of $13, partially offset by a charge of $7 for the related severance; a net benefit of $1 ($0 after-tax) for other miscellaneous items; and a favorable benefit of $2 ($2 after-tax) for the reversal of a number of small layoff reserves related to prior periods.
As of June 30, 2018,March 31, 2019, approximately 20247 of the 40800 employees associated with 2019 restructuring programs, approximately 115 of the 125 employees associated with 2018 restructuring programs, and approximately 530570 of the 760660 employees (previously 830) associated with 2017 restructuring programs (with planned departures in 2018) were separated; all of the separations associated with 2016 restructuring programs were essentially complete.separated. Most of the remaining separations for the 20182019 restructuring programs and all of the remaining separations for the 2018 and 2017 restructuring programs, are expected to be completed by the end of 2018.


2019.
For the secondfirst quarter and six months ended June 30, 2018,of 2019, cash payments of $2$7, $3, and $3, respectively, were made against layoff reserves related to 2018 restructuring programs, cash payments of $8 and $23, respectively, were made against layoff reserves related to 2017 restructuring programs, and cash payments of $0 and $4 respectively, were made against the layoff reserves related to 2016the 2019, 2018, and 2017 restructuring programs.programs, respectively.


Activity and reserve balances for restructuring and other charges were as follows:
Layoff
costs
 
Other exit
costs
 Total
Layoff
costs
 
Other exit
costs
 Total
Reserve balances at December 31, 2016$50
 $9
 $59
Cash payments(59) (6) (65)
Restructuring charges64
 1
 65
Other(1)
1
 (2) (1)
Reserve balances at December 31, 201756
 2
 58
$56
 $2
 $58
Cash payments(30) 
 (30)(47) (2) (49)
Restructuring charges23
 5
 28
111
 13
 124
Other(1)
(23) 
 (23)(110) 2
 (108)
Reserve balances at June 30, 2018$26
 $7
 $33
Reserve balances at December 31, 201810
 15
 25
Cash payments(14) (3) (17)
Restructuring charges11
 
 11
Other(1)
57
 (9) 48
Reserve balances at March 31, 2019$64
 $3
 $67
(1) 
Other includes reversalsadjustments of previously recorded restructuring charges and credits, and the effects of foreign currency translation. In 2019, Other for layoff costs included reclassifications of a $58 credit for elimination of life insurance benefits for U.S. salaried and non-bargaining hourly retirees and a $2 pension settlement charge, as the impacts were reflected in Arconic's separate liabilities for Accrued pension benefits and Accrued postretirement benefits. Other for other exit costs included a reclassification of $9 in lease exit costs to right-of-use assets within Other noncurrent assets in accordance with the new lease accounting standard. In 2018, Other for layoff costs also included a reclassificationreclassifications of $14$119 in pension costs and a $28 credit in postretirement benefits, as this liability wasthe impacts were reflected in Arconic’sArconic's separate liabilityliabilities for Accrued pension obligations.  In 2017, Other for layoff costs also included a reclassificationbenefits and Accrued postretirement benefits, and reversals of a stock awards reversalpreviously recorded restructuring charges of $13.$19.
The remaining reserves are expected to be paid in cash during 2018.2019, with the exception of approximately $3, which is expected to be paid in 2020 related to severance payments.
F.E. Other Expense, (Income), Net

Second quarter ended
Six months ended
 June 30,
June 30,

2018 2017
2018 2017
Non-service related net periodic benefit cost$28
 $39
 $56
 $77
Interest income(4) (4) (10) (8)
Foreign currency gains (losses), net17
 2
 14
 (3)
Net loss (gain) from asset sales2
 (166) 5
 (515)
Other, net(2) (3) (4) 1
 $41
 $(132) $61
 $(448)
For the second quarter of 2017, Net loss (gain) from asset sales included a $167 gain on the debt-for-equity exchange with two investment banks (the “Investment Banks”) of the remaining portion of Arconic’s retained interest in Alcoa Corporation common stock for a portion of the Company’s outstanding notes held by the Investment Banks (the “Debt-for-Equity Exchange”). For the six months ended June 30, 2017, Net loss (gain) from asset sales included a gain on the sale of a portion of Arconic’s investment in Alcoa Corporation common stock of $351 that resulted in cash proceeds of $888 which were recorded in Sale of investments within Investing Activities in the Statement of Consolidated Cash Flows.

First quarter ended
 March 31,

2019
2018
Non-service related net periodic benefit cost$29
 $28
Interest income(10) (6)
Foreign currency gains, net
 (3)
Net loss from asset sales2
 3
Other, net11
 (2)
 $32
 $20


G.F. Pension and Other Postretirement Benefits
The components of net periodic benefit cost were as follows:
Second quarter ended
Six months endedFirst quarter ended
June 30,
June 30,March 31,
2018 2017
2018 20172019 2018
Pension benefits          
Service cost$8
 $21
 $28
 $44
$7
 $20
Interest cost55
 58
 110
 116
59
 55
Expected return on plan assets(77) (82) (154) (165)(72) (77)
Recognized net actuarial loss42
 55
 84
 110
35
 42
Amortization of prior service cost (benefit)1
 2
 2
 3

 1
Settlements2
 
Curtailments9
 
 14
 

 5
Net periodic benefit cost(1)
$38
 $54
 $84
 $108
$31
 $46
          
Other postretirement benefits          
Service cost$2
 $2
 $4
 $4
$2
 $2
Interest cost7
 7
 14
 15
7
 7
Recognized net actuarial loss2
 1
 4
 2
1
 2
Amortization of prior service cost (benefit)(2) (2) (4) (4)(1) (2)
Curtailments(58) 
Net periodic benefit cost(1)
$9
 $8
 $18
 $17
$(49) $9
 
(1) 
Service cost was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development expenses; curtailments were included in Restructuring and other charges; and all other cost components were recorded in Other expense, (income), net in the Statement of Consolidated Operations.
In the first quarter of 2018,2019, the Company announcedcommunicated to plan participants that, effective May 1, 2019, it will eliminate the life insurance benefit for its U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries. As a result of this change, in the first quarter of 2019, the Company recorded a decrease to the Accrued other postretirement benefits liability of $63 which was offset by a curtailment benefit of $58 in Restructuring and other charges and $5 in Accumulated other comprehensive loss.
Additionally, in the first quarter of 2019, the Company communicated to plan participants that, effective December 31, 2019, it will eliminate certain health care subsidies for its U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries. As a result of this change, in the first quarter of 2019, the Company recorded a decrease to the Accrued other postretirement benefits liability of $12 which was offset in Accumulated other comprehensive loss.
In the first quarter of 2019, the Company applied settlement accounting to a U.S. pension plan due to lump sum payments to participants which resulted in a settlement charge of $2 that was recorded in Restructuring and other charges.
On April 1, 2018, benefit accruals for future service and compensation under all of the Company's qualified and non-qualified defined benefit pension plans for U.S. salaried and non-bargaining hourly employees ceased. As a result of this change, in the first quarter of 2018, the Company recorded a decrease to the accruedAccrued pension benefit liability of $136 related to the reduction of future benefits ($141 offset in Accumulated other comprehensive loss) and curtailment charges of $5 in Restructuring and other charges.
In conjunction withDuring the separationthird quarter of Alcoa Inc. on November 1, 2016, the Pension Benefit Guaranty Corporation approved management’s plan to separate the Alcoa Inc. pension plans between Arconic Inc. and Alcoa Corporation. The plan stipulatesstipulated that Arconic will make cash contributions of $150 over a period of 30 months (from November 1, 2016) to its two largest pension plans. Payments are expected to be made in three increments of no less than $50 each ($150 total) over this 30-month period. The Company madesatisfied the requirements of the plan by making payments of $50 in March 2018$34, $66, and $50 in April 2017. Upon finalization of2019, March 2018, pension plan valuations, which are expected to be complete during the third quarter of 2018, additional cash contributions that were made in the first quarter of 2018 may be used to satisfy the $150 requirement.and April 2017, respectively.

On April 13, 2018, the United Auto Workers ratified a new five-year labor agreement, effective May 1, 2018, covering approximately 1,300 U.S. employees of Arconic.  A provision within the agreement includes a retirement benefit increase for future retirees that participate in a defined benefit pension plan, which impacts approximately 300 of those employees. In addition, effective January 1, 2019, benefit accruals for future service will cease.  As result of these changes, a curtailment charge of $9 was recorded in Restructuring and other charges in the second quarter of 2018.
H.G. Income Taxes
Arconic’s year-to-date tax provision is comprised of the most recent estimated annual effective tax rate applied to year-to-date pre-tax ordinary income. The tax impact of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur. In addition, the tax provision is adjusted for the interim period impact of non-benefited pre-tax losses.
For the six months ended June 30,first quarter of 2019 and 2018, the estimated annual effective tax rate, before discrete items, applied to ordinary income was 27.0%. This25.9% and 26.5%, respectively. The rate in each period was higher than the U.S. federal statutory rate of 21%, which was enacted by the Tax Cuts and Jobs Act (the “2017 Act”) on December 22, 2017, primarily due to the additional estimated U.S. tax on Global Intangible Low-


TaxedLow-Taxed Income, (GILTI) pursuant to the 2017 Act, domestic taxable income in certain U.S. states no longer subject to valuation allowance, and foreign income taxtaxed in higher rate jurisdictions.
For the six months ended June 30, 2017, the estimated annual effective tax rate, before discrete items, applied to ordinary income was 28.4%. This rate was lower than the federal statutory ratefirst quarter of 35% applicable to 2017 due to foreign income taxed in lower rate jurisdictions, a tax basis in excess of book basis in Alcoa Corporation common stock sold,2019 and a nontaxable gain on the Debt-for-Equity Exchange. These beneficial items were partially offset by a loss on the sale of a rolling mill in Fusina, Italy for which no net tax benefit was recognized and valuation allowances related to U.S. foreign tax credits.
For the second quarter ended June 30, 2018, and June 30, 2017, the tax rate including discrete items was 38.1%27.2% and 21.2%28.1%, respectively. Discreterespectively and included a discrete charge of $1 related to other items of $21 were recorded in the secondfirst quarter ended June 30, 2018, primarilyof 2019 anda discrete tax charge of $2 related to revised estimates of the provisional impact of the enactment of the 2017 Act discussed further below. There were no individually material discrete items recordedstock compensation in the secondfirst quarter ended June 30, 2017.of 2018.
The tax provisions for the secondfirst quarter of 2019 and six months ended June 30, 2018 and 2017 were comprised of the following:
Second quarter ended Six months endedFirst quarter ended
June 30, June 30,March 31,
2018 2017 2018 20172019 2018
Pre-tax income at estimated annual effective income tax rate before discrete items$52
 $60
 $106
 $214
$67
 $53
Catch-up adjustment to revalue previous quarter pre-tax income at current estimated annual effective tax rate1
 
 
 
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized
 (3) 1
 4
2
 1
Other discrete items21
 
 23
 1
1
 2
Provision for income taxes$74
 $57
 $130
 $219
$70
 $56
H. Common Stock
On December 22, 2017,February 19, 2019, the 2017 Act was signedCompany entered into law, making significant changesan accelerated share repurchase (ASR) agreement with JPMorgan Chase Bank to repurchase $700 of its common stock, pursuant to the Internal Revenue Code. Alsoshare repurchase programs previously authorized by its Board of Directors (the Board). Under the ASR agreement, Arconic received an initial delivery of 31,908,831 shares on December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118"), Income Tax Accounting ImplicationsFebruary 21, 2019, which were immediately retired. On April 25, 2019, the ASR concluded with the Company receiving 4,525,592 additional shares on April 29, 2019, which were immediately retired. A total of 36,434,423 shares, at an average price of $19.21 per share, were repurchased under the Tax Cuts and Jobs Act, was issuedagreement. As of April 29, 2019, there were 448,629,078 shares of common stock outstanding.
After giving effect to the ASR, $300 remains available under the prior authorizations by the Securities and Exchange Commission to addressBoard for share repurchases through the applicationend of U.S. GAAP for financial reporting. SAB 118 permits the use of provisional amounts based on reasonable estimates in the financial statements. SAB 118 also provides that the tax impact may be considered incomplete in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act. Any adjustments to provisional or incomplete amounts should be included in income from continuing operations as an adjustment to tax expense or benefit in the reporting period that the amounts are determined within one year.2020.
The Company's analysis of U.S. tax reform legislation, updated through June 30, 2018, resulted in an additional charge of $21 to the 2017 year-end provisional charge of $272. A charge of $18 was recorded for an increase in the provisional estimate of the one-time transition tax. An additional charge of $3 was also recorded for the portion of Alternative Minimum Tax ("AMT") credits expected to be refunded upon filing the 2018 tax return that will result in no benefit under government sequestration. The Company's estimates of the impact of the 2017 Act remain provisional through June 30, 2018.
The impact of the rate reduction will be finalized as part of the filing of the 2017 U.S. income tax return during 2018. Arconic will continue to analyze the amount of foreign earnings and profits, the associated foreign tax credits, and additional guidance that may be issued during 2018 in order to further update the estimated deemed repatriation calculation as necessary under SAB 118. Arconic has not yet gathered, prepared and analyzed all the necessary information in sufficient detail to determine whether any excess foreign tax credits that may result from the deemed repatriation will be realizable.
Provisional estimates of the impact of the 2017 Act on the realizability of certain deferred tax assets, including, but not limited to, foreign tax credits, AMT credits, and state tax loss carryforwards have been made based on information and computations that were available, prepared, and analyzed as of February 2, 2018. Through June 30, 2018, there were no changes to the estimates used to evaluate the realizability of deferred tax assets. Further analysis, or the issuance of additional guidance, could result in changes to the realizability of deferred tax assets.
As a result of the 2017 Act, the non-previously taxed post-1986 foreign earnings and profits (calculated based on U.S. tax principles) of certain U.S.-owned foreign corporations has been subject to U.S. tax under the one-time transition tax provisions. In the fourth quarter of 2017, Arconic had no plans to distribute such earnings in the foreseeable future and considered that conclusion to be incomplete under SAB 118. There is no change to this conclusion through June 30, 2018.
The 2017 Act creates a new requirement that certain income earned by foreign subsidiaries, GILTI, must be included in the gross income of the U.S. shareholder. The 2017 Act also established the Base Erosion and Anti-Abuse Tax (BEAT). Arconic


anticipates that it will be subject to GILTI and has included an estimate of GILTI in the calculation of the 2018 estimated annual effective tax rate. At this time, Arconic does not anticipate being subject to BEAT for 2018. In the first quarter ended March 31, 2018, Arconic made a final accounting policy election to treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current period expense when incurred.
In July 2018, the Company received notification from a foreign tax authority that their inquiry into the 2016 tax return was completed. The uncertain tax position taken on the tax return is effectively settled, and as a result, a previously unrecognized tax benefit of up to approximately $38 would be recognized in the third quarter of 2018 after evaluating the need for a valuation allowance.
Also in July 2018, Spain’s National Court upheld an assessment against the Company related to the 2006 through 2009 tax years. Arconic is preparing to petition the Supreme Court of Spain to review the National Court’s decision (see Note Q). As a result of the National Court’s decision, the Company will reassess its recognition and measurement of tax benefits related to the uncertain tax positions in the 2006 to 2009 tax years in the third quarter of 2018. The potential impact on the Provision for income taxes could be a charge of up to approximately $59 (€51) which would be recognized in the third quarter of 2018. As discussed in Note Q, under the Tax Matters Agreement, Alcoa Corporation is responsible for 49% of the net liability.
I. Earnings Per Share
Basic earnings per share (EPS) amounts are computed by dividing earnings, after the deduction of preferred stock dividends declared, by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive share equivalents outstanding.
The information used to compute basic and diluted EPS attributable to Arconic common shareholders was as follows (shares in millions):
Second quarter ended
Six months endedFirst quarter ended
June 30,
June 30,March 31,
2018 2017
2018 20172019 2018
Net income$120
 $212
 $263
 $534
$187
 $143
Less: Preferred stock dividends declared
 (18) (1) (35)
Less: preferred stock dividends declared(1) (1)
Net income available to Arconic common shareholders - basic120
 194


262
 499
186
 142
Add: Interest expense related to convertible notes3
 2
 6
 4
4
 3
Add: Dividends related to mandatory convertible preferred stock
 
 
 34
Net income available to Arconic common shareholders - diluted$123
 $196

$268
 $537
$190
 $145
          
Average shares outstanding - basic483
 441
 483
 440
471
 482
Effect of dilutive securities:          
Stock options
 2
 
 2

 5
Stock and performance awards5
 5
 5
 5
4
 2
Mandatory convertible preferred stock
 
 
 39
Convertible notes14
 14
 14
 14
14
 14
Average shares outstanding - diluted502
 462
 502
 500
489
 503
Common stock outstanding at March 31, 2019 and 2018 was 453 and 483, respectively. The decrease in common stock outstanding at March 31, 2019 was due to the impact of share repurchases of approximately 32 in the first quarter of 2019 (see Note H). As average shares outstanding are used in the calculation for both basic and diluted EPS, the full impact of share repurchases was not realized in the first quarter of 2019 EPS as the share repurchases occurred midway through the quarter on February 21, 2019.
The following shares were excluded from the calculation of average shares outstanding – diluted as their effect was anti-dilutive (shares in millions).
 Second quarter ended Six months ended
 June 30, June 30,
 2018 2017 2018 2017
Mandatory convertible preferred stock
 39
 
 
Stock options(1)
9
 7
 9
 7
 First quarter ended
 March 31,
 2019 2018
Stock options(1)
8
 6
(1) 
The average exercise price per share of options per share was $26.80$26.67 and $30.75 for the secondfirst quarter of 2019 and six months ended June 30, 2018, and $28.85 for the second quarter and six months ended June 30, 2017.respectively.


J. Accumulated Other Comprehensive Loss
The following table details the activity of the four components that comprise Accumulated other comprehensive loss for both Arconic’s shareholders and noncontrolling interests:
Arconic Noncontrolling Interests
Second quarter ended June 30,2018 2017 2018 2017
Pension and other postretirement benefits (G)       
First quarter ended March 31,2019 2018
Pension and other postretirement benefits (F)
   
Balance at beginning of period$(2,087) $(1,979)
$
 $
$(2,344) $(2,230)
Other comprehensive income:          
Unrecognized net actuarial loss and prior service cost/benefit(15) 17


 
72
 137
Tax benefit (expense)3
 (5)

 
Total Other comprehensive (loss) income before reclassifications, net of tax(12) 12
 
 
Tax expense(16) (31)
Total Other comprehensive income before reclassifications, net of tax56
 106
Amortization of net actuarial loss and prior service cost(1)
52
 56


 
(21) 48
Tax expense(2)
(11) (20)

 
Tax benefit (expense)(2)
5
 (11)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(5)
41
 36
 
 
(16) 37
Total Other comprehensive income29
 48
 
 
40
 143
Balance at end of period$(2,058) $(1,931)
$
 $
$(2,304) $(2,087)
Foreign currency translation          
Balance at beginning of period$(315) $(622)
$
 $(2)$(583) $(437)
Other comprehensive (loss) income(3)
(201) 99


 
Other comprehensive income(3)
26
 122
Balance at end of period$(516) $(523) $
 $(2)$(557) $(315)
Available-for-sale securities          
Balance at beginning of period$(2) $99

$
 $
$(3) $(2)
Other comprehensive loss(4)
(2) (101)

 
Other comprehensive income(4)
3
 
Balance at end of period$(4) $(2) $
 $
$
 $(2)
Cash flow hedges          
Balance at beginning of period$18
 $4
 $
 $
$4
 $25
Adoption of accounting standards (B)
(2) 
Other comprehensive income (loss):          
Net change from periodic revaluations9
 (4) 
 
8
 (6)
Tax (expense) benefit(1) 1
 
 
(1) 1
Total Other comprehensive income (loss) before reclassifications, net of tax8
 (3) 
 
7
 (5)
Net amount reclassified to earnings(4) 1
 
 

 (3)
Tax benefit(2)

 
 
 

 1
Total amount reclassified from Accumulated other comprehensive loss, net of tax(5)
(4) 1
 
 
Total amount reclassified from Accumulated other comprehensive income, net of tax(5)

 (2)
Total Other comprehensive income (loss)4
 (2) 
 
7
 (7)
Balance at end of period$22
 $2
 $
 $
$9
 $18
          
Total balance at end of period$(2,556) $(2,454) $
 $(2)$(2,852) $(2,386)
 
(1) 
These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note G)F).
(2) 
These amounts were included in Provision for income taxes on the accompanying Statement of Consolidated Operations.
(3) 
In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.
(4) 
Realized gains and losses were included in Other expense, (income), net on the accompanying Statement of Consolidated Operations.
(5) 
A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings.


 Arconic Noncontrolling Interests
Six months ended June 30,2018 2017 2018 2017
Pension and other postretirement benefits (G)       
Balance at beginning of period$(2,230) $(2,010) $
 $
Other comprehensive income:       
Unrecognized net actuarial loss and prior service cost/benefit122
 11
 
 
Tax expense(28) (4) 
 
Total Other comprehensive income before reclassifications, net of tax94
 7
 
 
Amortization of net actuarial loss and prior service cost(1)
100
 111
 
 
Tax expense(2)
(22) (39) 
 
Total amount reclassified from Accumulated other comprehensive loss, net of tax(5)
78
 72
 
 
Total Other comprehensive income172
 79
 
 
Balance at end of period$(2,058) $(1,931) $
 $
Foreign currency translation       
Balance at beginning of period$(437) $(689) $
 $(2)
Other comprehensive (loss) income(3)
(79) 166
 
 
Balance at end of period$(516) $(523) $
 $(2)
Available-for-sale securities       
Balance at beginning of period$(2) $132
 $
 $
Other comprehensive loss(4)
(2) (134) 
 
Balance at end of period$(4) $(2) $
 $
Cash flow hedges       
Balance at beginning of period$25
 $(1) $
 $
Other comprehensive (loss) income:       
Net change from periodic revaluations3
 4
 
 
Tax expense
 (2) 
 
Total Other comprehensive income before reclassifications, net of tax3
 2
 
 
Net amount reclassified to earnings(7) 1
 
 
Tax benefit(2)
1
 
 
 
Total amount reclassified from Accumulated other comprehensive loss, net of tax(5)
(6) 1
 
 
Total Other comprehensive (loss) income(3) 3


 
Balance at end of period$22
 $2
 $
 $
        
Total balance at end of period$(2,556) $(2,454) $
 $(2)
(1)
These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note G).
(2)
These amounts were included in Provision for income taxes on the accompanying Statement of Consolidated Operations.
(3)
In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.
(4)
Realized gains and losses were included in Other expense (income), net on the accompanying Statement of Consolidated Operations.
(5)
A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings.



K. Receivables
Arconic has an arrangement with three financial institutions to sell certain customer receivables without recourse on a revolving basis. The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is a consolidated subsidiary of Arconic. This arrangement provides for minimum funding of $200 up to a maximum funding of $400 for receivables sold. Arconic maintains a beneficial interest, or a right to collect cash, on the sold receivables that have not been funded (deferred purchase program). On March 30, 2012, Arconic initially sold $304 of customer receivables in exchange for $50 in cash and $254 of deferred purchase program under the arrangement. Arconic has received additional net cash funding of $300 ($2,6583,108 in draws and $2,358$2,808 in repayments) since the program’s inception, including net cash draws totaling $0 ($300150 in draws and $300$150 in repayments) for the six months ended June 30, 2018.first quarter of 2019.
As of June 30, 2018March 31, 2019 and December 31, 2017,2018, the deferred purchase program receivable was $313$430 and $187,$234, respectively, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving program, the sale of new receivables will result in an increase in the deferred purchase program receivable. The gross amount of receivables sold and total cash collected under this program since its inception was $38,547$43,899 and $37,885,$43,190, respectively. Arconic services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.
Cash receipts from customer payments on sold receivables (which are cash receipts on the underlying trade receivables that have been previously sold in this program) as well as cash receipts and cash disbursements from draws and repayments under the program are presented as cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash Flows.
L. Inventories
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Finished goods$682
 $669
$699
 $668
Work-in-process1,485
 1,349
1,448
 1,371
Purchased raw materials401
 381
371
 366
Operating supplies91
 81
94
 87
Total inventories$2,659
 $2,480
$2,612
 $2,492
At June 30, 2018March 31, 2019 and December 31, 2017,2018, the portion of inventories valued on a last-in, first-out (LIFO) basis was $1,372$1,340 and $1,208,$1,292, respectively. If valued on an average-cost basis, total inventories would have been $527 and $481$530 higher at June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
In the second quarter of 2018, a charge of $23 was recorded in Cost of goods sold and Inventories to reflect a physical inventory adjustment at one plant in the EP&S segment. While a portion of this charge relates to prior years, the majority relates to 2018.  The out-of-period amounts are not material to any interim or annual periods.
M. Properties, Plants, and Equipment, Net
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Land and land rights$139
 $140
$137
 $136
Structures2,376
 2,395
2,357
 2,364
Machinery and equipment9,148
 8,830
Machinery and equipment:9,267
 9,234
11,663
 11,365
11,761
 11,734
Less: accumulated depreciation and amortization6,674
 6,392
6,811
 6,769
4,989
 4,973
4,950
 4,965
Construction work-in-progress593
 621
777
 739
$5,582
 $5,594
$5,727
 $5,704
During the second quarter of 2018, the Company updated its three-year strategic plan and determined that there was a decline in the forecasted financial performance for the disks operations, an asset group within the Arconic Engines business unit. As such, the Company evaluated the recoverability of the long-lived assets by comparing their carrying value of approximately $515 to the estimated undiscounted net cash flows of the disk operations, resulting in an estimated fair value in excess of their


carrying valueN. Leases
The Company determines whether or not a contract contains a lease at inception. The Company leases land and buildings, plant equipment, vehicles, and computer equipment which have been classified as operating leases. Certain real estate leases include one or more options to renew; the exercise of approximately 13%; thus, there was no impairment. Iflease renewal options is at the disks operations do not achieve the revised forecasted financial performance or if there are changes in any significant assumptions, a material non-cash impairment of long-lived assets may occur in future periods. These significant assumptions include sales growth, cost of raw materials, ramp up of additional production capacity, and working capital. A 1% decreaseCompany’s discretion. The Company includes renewal option periods in the forecasted net cash flows would reducelease term when it is determined that the undiscounted cash flows by approximately $6.options are reasonably certain to be exercised. Certain of Arconic's real estate lease agreements include rental payments that either have fixed contractual increases over time or adjust periodically for inflation. Certain of the Company's lease agreements include variable lease payments. The variable portion of payments is not included in the initial measurement of the right-of-use asset or lease liability due to the uncertainty of the payment amount and is recorded as lease cost in the period incurred. The Company also performedrents or subleases certain real estate to third parties, which is not material to the consolidated financial statements.
Operating lease right-of-use assets and lease liabilities with an interim impairment evaluation of goodwill forinitial term greater than 12 months are recorded on the Arconic Engines reporting unit as a result ofbalance sheet at the decline in the forecasted performance of the disks operations during the second quarter of 2018.  The estimated fairpresent value of the reporting unit was substantiallyfuture minimum lease payments over the lease term at the lease commencement date and are recognized as lease expense on a straight-line basis over the lease term. The Company uses an incremental collateralized borrowing rate based on the information available at the lease commencement date in excessdetermining the present value of future payments, as most of its leases do not provide an implicit rate. The operating lease right-of-use assets also include any lease prepayments made and were reduced by lease incentives and accrued exit costs as of the carrying value; thus, thereadoption date.
Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was no impairment of goodwill.$37 and $38 in the first quarter ended March 31, 2019 and 2018, respectively.
Operating lease right-of-use assets and lease liabilities in the Consolidated Balance Sheet were as follows:
 March 31, 2019
Right-of-use assets classified in Other noncurrent assets$302
  
Current portion of lease liabilities classified in Other current liabilities
94
Long-term portion of lease liabilities classified in Other noncurrent liabilities and deferred credits215
Total lease liabilities$309
Future minimum contractual operating lease obligations were as follows:
 March 31, 2019 December 31, 2018
2019$75
 $94
202079
 74
202159
 54
202243
 40
202331
 30
Thereafter91
 87
Total lease payments$378
 $379
Less: Imputed interest(69)  
Present value of lease liabilities$309
 
Right-of-use assets obtained in exchange for operating lease obligations in the first quarter ended March 31, 2019 was $6. The weighted-average remaining lease term and weighted-average discount rate at March 31, 2019 was 6 years and 6.2%, respectively.

N.
O. Debt
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
5.72% Notes, due 2019$
 $500
1.63% Convertible Notes, due 2019403
 403
403
 403
6.150% Notes, due 20201,000
 1,000
1,000
 1,000
5.40% Notes due 20211,250
 1,250
1,250
 1,250
5.87% Notes, due 2022627
 627
627
 627
5.125% Notes, due 20241,250
 1,250
1,250
 1,250
5.90% Notes, due 2027625
 625
625
 625
6.75% Bonds, due 2028300
 300
300
 300
5.95% Notes, due 2037625
 625
625
 625
Iowa Finance Authority Loan, due 2042250
 250
250
 250
Other(1)
(15) (23)(26) (29)
Total debt6,315
 6,807
6,304
 6,301
Less: amount due within one year3
 1
405
 405
Total long-term debt$6,312
 $6,806
$5,899
 $5,896
 
(1) 
Includes various financing arrangements related to subsidiaries, unamortized debt discounts related to outstanding notes and bonds listed in the table above, an equity option related to the convertible notes due in 2019, and unamortized debt issuance costs.
Public Debt – During the first quarter of 2018, the Company completed the early redemption of its remaining outstanding 5.72% Notes due in 2019, with aggregate principal amount of $500, for $518 in cash including accrued and unpaid interest. As a result, the Company recorded a charge of $19 in Interest expense in the accompanying Statement of Consolidated Operations for the first quarter of 2018 primarily for the premium paid on the early redemption of these notes in excess of their carrying value.
Credit Facilities. On July 25, 2014, Arconic entered intomaintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein whichthat matures on June 29, 2023 and provides for a senior unsecured revolving credit facility (the “Credit Facility”). By an Extension Request and Amendment Letter dated as of June 5, 2015, the maturity date of the Credit Facility was extended to July 25, 2020. On September 16, 2016, Arconic entered into Amendment No. 1 to the Five-Year Revolving Credit Agreement to permit the Separation Transaction and to amend certain terms of the Credit Agreement, including the replacement of the existing financial covenant with a leverage ratio and reduction of total commitments available from $4,000 to $3,000. On June 29, 2018, Arconic entered into Amendment No. 2 (“Amendment No. 2”) to amend and restate the Five-Year Revolving Credit Agreement. The Five-Year Revolving Credit Agreement, as so amended and restated, is herein referred to as the “Credit Agreement.”
The Credit Agreement provides a $3,000 Credit Facility, the proceeds of which are to be used to provide working capital or for other general corporate purposes of Arconic. Subject to the terms and conditions of the Credit Agreement, Arconic may from time to time request increases in lender commitments under the Credit Facility, not to exceed $500 in aggregate principal amount, and may also request the issuance of letters of credit, subject to a letter of credit sublimit of $1,000 of the Credit Facility. Pursuant to the Credit Agreement, Arconic shall not permit the ratio of Consolidated Net Debt to Consolidated EBITDA (each as defined in the Credit Agreement) as of the end of each fiscal quarter for the period of the four fiscal quarters most recently ended, to be greater than 4.50 to 1.00, which maximum level will step down successively to 4.00 to 1.00 on December 31, 2018, and to 3.50 to 1.00 on December 31, 2019 and thereafter.


The Credit Agreement includes additional covenants, including, among others, (a) limitations on Arconic’s ability to incur liens securing indebtedness for borrowed money, (b) limitations on Arconic’s ability to consummate a merger, consolidation or sale of all or substantially all of its assets, and (c) limitations on Arconic’s ability to change the nature of its business. As of June 30, 2018, Arconic was in compliance with all such covenants.
The Credit Facility matures on June 29, 2023, unless extended or earlier terminated in accordance with the provisions of the Credit Agreement. Arconic may make two one-year extension requests during the term of the Credit Facility, subject to the lender consent requirements set forth in the Credit Agreement. Under the provisions of the Credit Agreement, Arconic will pay a fee of 0.25% per annum (based on Arconic’s long-term debt ratings as of June 30, 2018) of the total commitment to maintain the Credit Facility.
The Credit Facility is unsecured and amounts payable under it will rank pari passu with all other unsecured, unsubordinated indebtedness of Arconic. Borrowings under the Credit Facility may be denominated in U.S. dollars or euros. Loans will bear interest at a base rate or a rate equal to LIBOR, plus, in each case, an applicable margin based on the credit ratings of Arconic’s outstanding senior unsecured long-term debt. The applicable margin on base rate loans and LIBOR loans will be 0.50% and 1.50% per annum, respectively, based on Arconic’s long-term debt ratings as of June 30, 2018. Loans may be prepaid without premium or penalty, subject to customary breakage costs.
The obligation of Arconic to pay amounts outstanding under the Credit Facility may be accelerated upon the occurrence of an “Event of Default” as defined in the Credit Agreement. Such Events of Default include, among others, (a) non-payment of obligations; (b) breach of any representation or warranty in any material respect; (c) non-performance of covenants and obligations; (d) with respect to other indebtedness in a principal amount in excess of $100 million, a default thereunder that causes such indebtedness to become due prior to its stated maturity or a default in the payment at maturity of any principal of such indebtedness; (e) the bankruptcy or insolvency of Arconic; and (f) a change in control of Arconic.
There were no amounts outstanding at June 30, 2018March 31, 2019 or December 31, 2017,2018, and no amounts were borrowed during 20182019 or 20172018 under the Credit Facility.
Agreement. In addition to the Credit Agreement, above, Arconic has a number of other credit agreements that provide a combined borrowing capacity of $715 as of June 30, 2018,March 31, 2019, of which $350$465 is due to expire in 20182019 and $365$250 is due to expire in 2019.2020. The purpose of any borrowings under these credit arrangements is to provide for working capital requirements and for other general corporate purposes. The covenants contained in all these arrangements are the same as the Credit Agreement. During the sixthree months ended June 30, 2018,March 31, 2019, Arconic borrowed and repaid $300$150 and $300,$150, respectively, under these other credit facilities. The weighted-average interest rate and weighted-average days outstanding during the secondfirst quarter of 2019 were 3.9% and six months ended June 30, 2018 were 3.3% and 70 days and 3.2% and 6514 days, respectively.
O.P. Fair Value of Financial Instruments
The carrying values of Cash and cash equivalents, Restricted cash, Derivatives, Noncurrent receivables, and Short-term debt included in the Consolidated Balance Sheet approximate their fair values. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities whichthat are carried at fair value which is based on quoted market prices.
The following table summarizes Arconic’s financial liabilities that were not carried atprices which are classified in Level 1 of the fair value at June 30, 2018 and December 31, 2017:
 June 30, 2018 December 31, 2017
 
Carrying
value
 
Fair
value
 
Carrying
value
 
Fair
value
Long-term debt, less amount due within one year$6,312
 $6,457
 $6,806
 $7,443
hierarchy. The fair value of Long-term debt, less amount due within one year was based on quoted market prices for public debt and on interest rates that are currently available to Arconic for issuance of debt with similar terms and maturities for non-public debt. The fair value amounts for all Long-term debt were classified in Level 2 of the fair value hierarchy.
 March 31, 2019 December 31, 2018
 
Carrying
value
 
Fair
value
 
Carrying
value
 
Fair
value
Long-term debt, less amount due within one year$5,899
 $6,125
 $5,896
 $5,873
Restricted cash was $7 and $6 at March 31, 2019 and December 31, 2018, respectively.


P.Q. Acquisitions and Divestitures
In March 2017, Arconic completed the sale of its Fusina, Italy rolling mill to Slim Aluminium. While owned by Arconic, the operating results and assets and liabilities of the Fusina, Italy rolling mill were included in the Global Rolled Products segment. As part of the transaction, Arconic injected $10 of cash into the business and provided a third-party guarantee with a fair value of $5 related to Slim Aluminium’s environmental remediation. The Company recorded a loss on the sale of $60, which was recorded in Restructuring and other charges (see Note E) on the Statement of Consolidated Operations in the first quarter of 2017. The rolling mill generated third-party sales of approximately $37 in the first quarter of 2017. At the time of the divestiture, the rolling mill had approximately 312 employees.
2018 Divestitures. On April 2, 2018, Arconic completed the sale of its Latin America extrusions business to a subsidiary of Hydro Extruded Solutions AS for $5 in cash, subject to post-closing adjustments that are not expected to be significant. The sales price approximates the carrying value of the net assets sold on the closing date,$2 following the settlement of post-closing and other adjustments in December 2018. As a result of entering into the agreement to sell the Latin America extrusions business in December 2017, a charge of $41 was recognized in the fourth quarter of 2017 in Restructuring and other charges in the Statement of Consolidated Operations related to the non-cash impairment of the net book value of the business.business and an additional charge of $2 related to a post-closing adjustment was recognized in the fourth quarter of 2018. The operating results and assets and liabilities of the business were included in the Transportation and Construction Solutions segment. This business generated sales of approximately $30$25 in the secondfirst quarter of 2017,2018 and $25had 612 employees at the time of divestiture.
On July 31, 2018, the Company announced that it had initiated a sale process of its Building and $56Construction Systems (BCS) business, as part of the Company’s ongoing strategy and portfolio review. In the first quarter of 2019, the Company decided to no longer pursue the sale of BCS and the business continues to be reported in the Transportation and Construction Solutions segment.
On October 31, 2018, the Company sold its Texarkana, Texas rolling mill and cast house, which had a combined net book value of $63, to Ta Chen International, Inc. for $302 in cash, including the settlement of post-closing adjustments, plus additional contingent consideration of up to $50. The contingent consideration relates to the achievement of various milestones within 36 months of the transaction closing date associated with operationalizing the rolling mill equipment. The operating results and assets and liabilities of the business were included in the Global Rolled Products segment. The Texarkana rolling mill facility had previously been idle since late 2009. In early 2016, the Company restarted the Texarkana cast house to meet demand for aluminum slab. As part of the agreement, the Company will continue to produce aluminum slab at the facility for a period of 18 months through a lease back of the cast house building and equipment, after which time, Ta Chen will perform toll processing of metal for the Company for a period of six months ended June 30,months. The Company will supply Ta Chen with cold-rolled aluminum coil during this 24-month period.
The sale of the rolling mill and cast house has been accounted for separately. The gain on the sale of the rolling mill of $154, including the fair value of contingent consideration of $5, was recorded in Restructuring and other charges in the Statement of Consolidated Operations in the fourth quarter of 2018. The Company will reevaluate its estimate of the remaining $45 of contingent consideration to which it will be entitled at the end of each reporting period and recognize any changes thereto in the Statement of Consolidated Operations.
The Company has continuing involvement related to the lease back of the cast house. As a result, in 2018, the Company continued to treat the cast house building and 2017, respectively.equipment that it sold to Ta Chen as owned and therefore reflected the following balances in its Consolidated Balance Sheet at December 31, 2018: assets of $24 in Properties, plants, and equipment, net; cash proceeds of $119 in Other noncurrent liabilities and deferred credits (which included a deferred gain of $95); and a deferred tax asset of $22 in Other noncurrent assets. In the first quarter of 2019, in conjunction with the adoption of the new lease accounting standard (see Note B), the Company's continuing involvement no longer requires deferral of the recognition of the cast house sale. As such, the cash proceeds, fixed assets, and deferred tax asset related to the cast house were reclassified to Accumulated deficit as a cumulative effect of an accounting change.
Q.R. Contingencies and Commitments
Contingencies
Environmental Matters
Arconic participates in environmental assessments and cleanups at more than 100 locations. These include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)) sites.
A liability is recorded for environmental remediation when a cleanup program becomes probable and the costs can be reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of remedial actions and related costs. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, and technological changes, among others.
Arconic’s remediation reserve balance was $287$261 at June 30, 2018March 31, 2019 and $294$266 at December 31, 20172018 (of which $51$79 and $41,$81, respectively, was classified as a current liability), and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated.
Payments related to remediation expenses applied against the reserve were $5 and $8$3 in the secondfirst quarter of 2019 and six months ended June 30, 2018, respectively. This amount includes expenditures currently mandated, as well as those not required by any regulatory authority or third party.


Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be approximately 1% or less of cost of goods sold.
The following discussion provides details regarding the current status of the most significant remediation reserves related to a current Arconic site.
Massena, West, NY—Arconic has an ongoing remediation project related to the Grasse River, which is adjacent to Arconic’s Massena plant site. Many years ago, it was determined that sediments and fish in the river contain varying levels of polychlorinated biphenyls (PCBs). The project, which was selected by the U.S. Environmental Protection Agency (EPA) in a Record of Decision issued in April 2013, is aimed at capping PCB contaminated sediments with concentration in excess of one part per million in the main channel of the river and dredging PCB contaminated sediments in the near-shore areas where total PCBs exceed one part per million. At June 30, 2018March 31, 2019 and December 31, 2017,2018, the reserve balance associated with this matter was $211$195 and $215,$198, respectively. In the first quarter of 2019, Arconic received approval from the EPA of its final remedial design which is in the planningnow under construction and design phase of the project, which is expected to be completed in 2018. Following the submittal of the final design and EPA approval, the actual remediation fieldwork is expected to commence and take approximately four years. The majority of2022. As the project funding is expectedproceeds, the liability may be updated due to be incurred between 2018factors such as changes in remedial requirements, site restoration costs, and 2022.ongoing operation and maintenance costs, among others.
Tax
Pursuant to the Tax Matters Agreement entered into between Arconic and Alcoa Corporation in connection with the separation transaction with Alcoa Corporation, Arconic shares responsibility with Alcoa Corporation, and Alcoa Corporation has agreed to partially indemnify Arconic for 49% of the ultimate liability, with respect to the following matter.


As previously reported, in July 2013, following a Spanish corporate income tax audit covering the 2006 through 2009 tax years, an assessment was received mainly disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by the Company. The assessment was $151 (€131), including interest. In August 2013, the Company filed an appeal of this assessment in Spain’s Central Tax Administrative Court, which was denied in January 2015. Arconic filed another appeal in Spain’s National Court in March 2015 which was denied in July 2018. The Company is preparing to petition the Supreme Court of Spain to review the National Court’s decision. If the petition is accepted, the Supreme Court will review the assessment on its merits and render a final decision. The National Court’s decision requires the assessment for the 2006 through 2009 tax years to be reissued to take into account the outcome of the 2003 to 2005 audit which was closed in 2017. The Company estimates the revised assessment to be $175$171 (€152), including interest.
In March 2019, the Supreme Court of Spain accepted the Company's petition to review the National Court’s decision. The Company will proceed with filing a formal appeal of the assessment with the Supreme Court of Spain, who will review the assessment on its merits and render a final decision. In the event the Company is unsuccessful in appealing the assessment toreceives an unfavorable ruling from the Supreme Court of Spain, a portion of the assessment may be offset with existing net operating losses and tax credits available to the Spanish consolidated tax group, which would be shared between the Company and Alcoa Corporation as provided for in the Tax Matters Agreement.
Arconic has an income tax reserve, including interest, of $59 (€52) and an indemnification receivable of $28 (€25), representing Alcoa Corporation’s 49% share of the liability. The Company will reassess the recognitionreserve and measurement of tax benefits related to the uncertain tax positions in the 2006 to 2009 tax yearsindemnification receivable were established in the third quarter of 2018. The potential impact of the revised assessment on the Provision for income taxes could be a charge of up to approximately $59 (€51) which would be recognized in the third quarter of 2018. As stated above, Alcoa Corporation is responsible for 49% of the net liability.
Additionally, while the tax years 2010 through 2013 are closed to audit, it is possible that the Company may receive assessments for tax years subsequent to 2013. Any potential assessment for an individual tax year is not expected to be material to the Company’s consolidated operations.
Reynobond PE
As previously reported, on June 13, 2017, the Grenfell Tower in London, UK caught fire resulting in fatalities, injuries and damage. A French subsidiary of Arconic, Arconic Architectural Products SAS (AAP SAS), supplied a product, Reynobond PE, to its customer, a cladding system fabricator, which used the product as one component of the overall cladding system on Grenfell Tower. The fabricator supplied its portion of the cladding system to the façade installer, who then completed and installed the system under the direction of the general contractor. Neither Arconic nor AAP SAS was involved in the design or installation of the system used at the Grenfell Tower, nor did it have a role in any other aspect of the building’s refurbishment or original design. Regulatory investigations into the overall Grenfell Tower matter are being conducted, including a criminal investigation by the London Metro Police, a Public Inquiry by the British government and a consumer protection inquiry by a French public authority. AAP SAS has sought and received core participant status in the Public Inquiry. The Company will no longer sell the PE product for architectural use on buildings.
Howard v. Arconic Inc. et al. As previously reported, a purported class action complaint related to the Grenfell Tower fire was filed on August 11, 2017 in the United States District Court for the Western District of Pennsylvania against Arconic Inc. and Klaus Kleinfeld. A related purported class action complaint was filed in the United States District Court for the Western District of Pennsylvania on August 25, 2017, under the caption Sullivan v. Arconic Inc. et al., against Arconic Inc., two former Arconic


executives, several current and former Arconic directors, and banks that acted as underwriters for Arconic’s September 18, 2014 preferred stock offering (the “Preferred Offering”). The plaintiff in Sullivan had previously filed a purported class action against the same defendants on July 18, 2017 in the Southern District of New York and, on August 25, 2017, voluntarily dismissed that action without prejudice. On February 7, 2018, on motion from certain putative class members, the court consolidated Howard and Sullivan, closed Sullivan, and appointed lead plaintiffs in the consolidated case. On April 9, 2018, the lead plaintiffs in the consolidated purported class action filed a consolidated amended complaint. The consolidated amended complaint alleges that the registration statement for the Preferred Offering contained false and misleading statements and omitted to state material information, including by allegedly failing to disclose material uncertainties and trends resulting from sales of Reynobond PE for unsafe uses and by allegedly expressing a belief that appropriate risk management and compliance programs had been adopted while concealing the risks posed by Reynobond PE sales. The consolidated amended complaint also alleges that between November 4, 2013 and June 23, 2017 Arconic and Kleinfeld made false and misleading statements and failed to disclose material information about the Company’s commitment to safety, business and financial prospects, and the risks of the Reynobond PE product, including in Arconic’s Form 10-Ks for the fiscal years ended December 31, 2013, 2014, 2015 and 2016, its Form 10-Qs and quarterly financial press releases from the fourth quarter of 2013 through the first quarter of 2017, its 2013, 2014, 2015 and 2016 Annual Reports, and its 2016 Annual Highlights Report. The consolidated amended complaint seeks, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses. On June 8, 2018, all defendants moved to dismiss the consolidated amended complaint for failure to state a claim. Briefing on that motion remains ongoing.is now closed and the parties await a ruling.
Raul v. Albaugh, et al. OnAs previously reported, on June 22, 2018, a derivative complaint was filed nominally on behalf of Arconic by a purported Arconic shareholder against all current members of Arconic’s Board of Directors, Klaus Kleinfeld and Ken Giacobbe, naming Arconic as a nominal defendant, in the United States District Court for the District of Delaware. The complaint raises similar allegations as the consolidated amended complaint in Howard, as well as allegations that the defendants improperly authorized the sale of Reynobond PE for unsafe uses, and asserts claims under Section 14(a) of the Securities Exchange Act of 1934 and Delaware state law. On July 13, 2018, the parties filed a stipulation agreeing to stay this case until the final resolution of the Howard case, the Grenfell Tower public inquiry in London, and the investigation by the London Metropolitan Police Service and on June 23, 2018, the Court approved the stay.
While the Company believes that these cases are without merit and intends to challenge them vigorously, there can be no assurances regarding the ultimate resolution of these matters. Given the preliminary nature of these matters and the uncertainty of litigation, the Company cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of an unfavorable outcome. The Board of Directors has also received letters, purportedly sent on behalf of shareholders, reciting allegations similar to those made in the federal court lawsuits and demanding that the Board authorize the Company to initiate litigation against members of management, the Board and others. The Board of Directors has


appointed a Special Litigation Committee of the Board to review and make recommendations to the Board regarding the appropriate course of action with respect to these shareholder demand letters. The Special Litigation Committee and the Board are continuing to consider the appropriate responses to the shareholder demand letters in view of developments in proceedings concerning the Grenfell Tower fire. In addition, the Company has settled lawsuits with another shareholder that had been pending in state court in New York and federal court in Pennsylvania concerning the shareholder’s demand to inspect certain of the Company’s books and records related to the Grenfell Tower fire and Reynobond PE.
Other
In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against Arconic, including those pertaining to environmental, product liability, safety and health, employment, tax and taxantitrust matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot currently be determined because of the considerable uncertainties that exist. Therefore, it is possible that the Company’s liquidity or results of operations in a period could be materially affected by one or more of these other matters. However, based on facts currently available, management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the results of operations, financial position or cash flows of the Company.
Commitments
Guarantees
At June 30, 2018,March 31, 2019, Arconic had outstanding bank guarantees related to tax matters, outstanding debt, workers’ compensation, environmental obligations, energy contracts, and customs duties, among others. The total amount committed under these guarantees, which expire at various dates between 20182019 and 2026, was $33$29 at June 30, 2018.March 31, 2019.
Pursuant to the Separation and Distribution Agreement between Arconic and Alcoa Corporation, Arconic was required to provide certain guarantees for Alcoa Corporation, which had a combined fair value of $7 and $8$6 at June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, and were included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet. Arconic was required to provide payment guarantees for Alcoa Corporation issued on behalf of a third party, and amounts outstanding under these payment guarantees were $111 and $197 at June 30, 2018 and December 31, 2017, respectively. These guarantees expire at various times between 2018 and 2024, and relate to project financing for Alcoa Corporation’s aluminum complex in Saudi Arabia. Furthermore, Arconic was required to provide a guarantee up to an estimated present value amount of


approximately $1,156$1,143 and $1,297$1,087 at June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, related to a long-term supply agreement for energy for an Alcoa Corporation facility in the event of an Alcoa Corporation payment default. This guarantee expires in 2047. For eachthis guarantee, subject to its respective provisions, Arconic is secondarily liable in the event of a payment default by Alcoa Corporation. Arconic currently views the risk of an Alcoa Corporation payment default on its obligations under the respective contractscontract to be remote.
Letters of Credit
Arconic has outstanding letters of credit, primarily related to workers’ compensation, environmental obligations, and leasing obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, mostly in 2018,2019, was $128$136 at June 30, 2018.March 31, 2019.
Pursuant to the Separation and Distribution Agreement, Arconic was required to retain letters of credit of $53$54 that had previously been provided related to both Arconic and Alcoa Corporation workers’ compensation claims which occurred prior to November 1, 2016. Alcoa Corporation workers’ compensation claims and letter of credit fees paid by Arconic are being proportionally billed to and are being fully reimbursed by Alcoa Corporation.
Surety Bonds
Arconic has outstanding surety bonds, primarily related to tax matters, contract performance, workers’ compensation, environmental-related matters, and customs duties. The total amount committed under these surety bonds, which expire at various dates, primarily in 2018,2019, was $49$50 at June 30, 2018.March 31, 2019.
Pursuant to the Separation and Distribution Agreement, Arconic was required to provide surety bonds related to Alcoa Corporation workers’ compensation claims which occurred prior to November 1, 2016 and, as a result, Arconic has $25 in outstanding surety bonds relating to these liabilities. Alcoa Corporation workers’ compensation claims and surety bond fees paid by Arconic are being proportionately billed to and are being fully reimbursed by Alcoa Corporation.


S. Proposed Separation Transaction
R.On February 8, 2019, Arconic announced, as part of its strategy and portfolio review, a separation of its portfolio into two independent, publicly-traded companies. One company will comprise the Engineered Products and Forgings businesses and the other company will comprise the Global Rolled Products businesses. The Company will also consider the sale of businesses that do not best fit into Engineered Products and Forgings and Global Rolled Products. The businesses of the current Transportation and Construction Solutions segment will be divided, with BCS to become part of Global Rolled Products and the Arconic Wheel and Transportation Products business to become part of Engineered Products and Forgings. Arconic is targeting to complete the separation in the second quarter of 2020. The separation transaction is subject to a number of conditions, including, but not limited to, final approval by Arconic’s Board of Directors, receipt of a favorable opinion of legal counsel with respect to the tax-free nature of the transaction for U.S. federal income tax purposes, completion of financing, and the effectiveness of a Form 10 registration statement to be filed with the U.S. Securities and Exchange Commission. Arconic may, at any time and for any reason until the proposed transaction is complete, abandon the separation plan or modify or change its terms.In the first quarter of 2019, Arconic recognized $3 pre-tax in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations for costs related to the proposed separation transaction.
T. Subsequent Events
Management evaluated all activity of Arconic and concluded that no subsequent events have occurred that would require recognition in the Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial Statements, except as noted below:
See Notes H and QNote F for details of subsequent events related to an uncertain tax position that was effectively settled and an ongoing tax matter in Spain.
On July 31,2018,the final cash contribution the Company announced that it had initiated a sale processmade to its pension plan associated with the separation of its Building and Construction Systems (BCS) business, as partAlcoa Inc.
See Note H for details of the Company’s ongoing strategycompleted ASR.
On April 30, 2019, Arconic reached an agreement to sell a small manufacturing facility.  The sale is expected to close in the second quarter of 2019 and portfolio review that commenced in January 2018.  BCS is partthe Company expects to record a restructuring-related charge of approximately $10 to $15 pre-tax.  The charge primarily relates to the non-cash impairment of the Transportation and Construction Solutions segment and generated third-party salesnet book value of approximately $1,070 for the year ended December 31, 2017.business.



Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Arconic Inc.

Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of Arconic Inc. and its subsidiaries (the “Company”) as of June 30, 2018,March 31, 2019, and the related statements of consolidated operations, and consolidated comprehensive income, for the three-month and six-month periods ended June 30, 2018 and 2017 and the statements of consolidated cash flows and changes in consolidated equity, and consolidated cash flows for the six-monththree-month periods ended June 30,March 31, 2019 and 2018, and 2017, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2017,2018, and the related statements of consolidated operations, consolidated comprehensive income (loss) income,, changes in consolidated equity, and consolidated cash flows for the year then ended (not presented herein), and in our report dated February 23, 2018,21, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2017,2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These interim financial statements are the responsibility of the Company’s management.We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
August 2, 2018May 1, 2019


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(dollars in millions, except per share amounts)amounts; shipments in thousands of metric tons [kmt])
Overview
Our Business
Arconic (“Arconic” or the “Company”) 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.
Results of Operations
Earnings Summary:
Sales. Sales were $3,573$3,541 in the secondfirst quarter of 20182019 compared to $3,261$3,445 in the secondfirst quarter of 2017 and $7,018 in the six months ended June 30, 2018 compared to $6,453 in the six months ended June 30, 2017.2018. The increase of $312,$96, or 10%3%, in the second quarter of 2018 and $565, or 9%, in the six months ended June 30, 2018, was the result of strongprimarily due to volume growth across all segments, primarily in the aerospace, engines and defense,commercial transportation, automotive, commercial transportation,packaging, and building and construction end markets; higherfavorable product pricing and mix in the Global Rolled Products segment; and favorable aerospace product pricing in the Engineered Products and Solutions segment when fulfilling volume above contractual share, renewing contracts, and selling non-contractual spot business; partially offset by lower sales of $78 related to the completed ramp down of Arconic's North American packaging operations (in December 2018) and the divestitures of the extrusions business in Latin America (divested in April 2018) and the forgings business in Eger, Hungary (divested in December 2018); lower aluminum prices; and favorableunfavorable foreign currency movements; partially offset by costs of $38 related to settlements of certain customer claims primarily related to product introductions; the absence of sales from the rolling mill in Fusina, Italy, which was divested in March 2017, and the Latin America extrusions business, which was divested in April 2018; unfavorable aerospace wide-body production mix; and a decline in the industrial gas turbine end market.movements.
Cost of goods sold (COGS). COGS as a percentage of Sales was 81.2%79.6% in the secondfirst quarter of 20182019 compared to 78.2%80.3% in the secondfirst quarter of 20172018. The decrease was primarily due to favorable product pricing, net cost savings, and 80.8% in the six months ended June 30, 2018 compared to 77.6% in the six months ended June 30, 2017. The increase in the second quarter and six months ended June 30, 2018 was the result of higherlower aluminum prices, partially offset by unfavorable product mix, higher input costs, costs related to settlements of certain customer claims noted above, performance shortfalls in the rings and disks operations, and the impact of a $23 charge related to a physical inventory adjustment at one plant in the Engineered Products and Solutions segment. While a portion of this charge for the physical inventory adjustment relates to prior years, the majority relates to 2018.  The out-of-period amounts are not material to any interim or annual periods.mix.
Selling, general administrative, and other expenses (SG&A). SG&A expenses were $158$178 in the secondfirst quarter of 20182019 compared to $200$172 in the secondfirst quarter of 20172018. The increase of $6, or 3%, was primarily due to higher annual incentive compensation accruals and $330 in the six months ended June 30, 2018 compared to $417 in the six months ended June 30, 2017. The decrease of $42, or 21%, in the second quarter of 2018 was the result of proxy, advisoryexecutive compensation costs, strategy and governance-relatedportfolio review costs of $42 in$6, and costs associated with the second quarterplanned separation of 2017 which did not recur in 2018. Also,Arconic of $3, partially offset by lower expensescosts driven by overhead cost reductions were partially offset by the impactand a decrease of $3 in legal and other advisory costs related to Grenfell Tower of $4. The decrease of $87, or 21%, in the six months ended June 30, 2018 was the result of costs related to the separation of Alcoa Inc. of $18 and proxy, advisory and governance-related costs of $58 in the six months ended June 30, 2017, neither of which recurred in 2018. Also, lower expenses driven by overhead cost reductions were partially offset by the impact of legal and other advisory costs related to Grenfell Tower of $9.Tower.
Restructuring and other charges. Restructuring and other charges were $15was $12 in the secondfirst quarter of 20182019 compared to $26$7 in the secondfirst quarter of 2017 and $22 in the six months ended June 30, 2018 compared to $99 in the six months ended June 30, 2017.2018. The decreaseincrease of $11,$5, or 42%71%, in the second quarter of 2018 was the result of lower restructuring activity.The decrease of $77, or 78%, in the six months ended June 30, 2018, was primarily due to an increase in layoff charges of $61, partially offset by a credit of $58 related to the resultelimination of a loss of $60 on the salelife insurance benefits for U.S. salaried and non-bargaining hourly retirees of the Fusina, Italy rolling mill in March 2017.Company and its subsidiaries. See Note ED to the Consolidated Financial Statements.
Interest expense. Interest expense was $89$85 in the secondfirst quarter of 20182019 compared to $183$114 in the secondfirst quarter of 2017 and $203 in the six months ended June 30, 2018 compared to $298 in the six months ended June 30, 2017.2018. The decrease of $94,$29, or 51%25%, in the second quarterwas primarily due to a charge of 2018 was the result of costs incurred in the second quarter of 2017$19 related to premiumsthe premium paid foron the early redemption of the Company’s outstanding debt of $76 which5.72% Senior Notes due 2019 incurred during 2018 that did not recur in 2018,during 2019 and lower interest expense due to lower debt outstanding. The decrease of $95, or 32%, in the six months ended June 30, 2018, was the result of higher costs incurred in the six months ended June 30, 2017 related to the early redemption of the Company’s outstanding debt than were incurred during 2018 and lower interest expense due to lower debt outstanding.
Other expense, (income), net. Other expense, net was $41$32 in the secondfirst quarter of 20182019 compared to Other income, net of $132$20 in the secondfirst quarter of 2017 and Other expense, net was $61 in the six months ended June 30, 2018 compared to Other income, net2018. The increase of $448 in the six months ended June 30, 2017. The decrease of $173 in the second quarter of 2018$12, or 60%, was primarily due to the $167 gain on the Debt-for-Equity Exchange (see Note F to the Consolidated Financial Statements)an increase in the second quarter of 2017 that did not recur in 2018. The decrease of $509 in the six months ended June 30, 2018 was primarily due to gains recorded during the six months ended June 30, 2017deferred compensation arrangements related to the sale of a portion of Arconic’s investment in Alcoa Corporation common stock of $351 and the Debt-for-Equity Exchange of $167, neither of which recurred in 2018.performance.


Provision for income taxes.The tax rate, including discrete items, was 38.1%27.2% and 21.2%28.1% for the secondfirst quarter of 2019 and 2018, respectively. Discrete charges of $1 and 2017, respectively. A discrete charge of $21 was$2 were recorded in the secondfirst quarter of 2018.2019 and 2018, respectively. The estimated annual effective tax rate, before discrete items, applied to ordinary income was 27.0%25.9% and 28.4% for26.5% in the six monthsfirst quarter ended June 30,March 31, 2019 and 2018, and 2017, respectively. See Note H to the Consolidated Financial Statements.
Net income. Net income was $120$187 in the secondfirst quarter of 20182019 or $0.24$0.39 per diluted share, compared to $212$143 in the secondfirst quarter of 2017, or $0.43 per diluted share, and $263 in the six months ended June 30, 2018, or $0.53 per diluted share, compared to $534 in the six months ended June 30, 2017, or $1.07$0.29 per diluted share. The decreaseincrease of $92,$44, or 43%31%, in the second quarter of 2018 was primarily attributabledue to the gain on the Debt-for-Equity Exchange in the second quarter of 2017 that did not recur in 2018, higher aluminum prices,volume growth, favorable product pricing, net cost savings, and costs related to settlements of certain customer claims and a physical inventory adjustment,lower Interest expense, partially offset by volume growthunfavorable product mix, higher Provision for income taxes, and lower SG&A and interest expense. The decrease of $271, or 51%, in the six months ended June 30, 2018 was primarily attributable to gains recorded during the six months ended June 30, 2017 related to the sale of a portion of Arconic’s investment in Alcoa Corporation common stock and the Debt-for-Equity Exchange, neither of which recurred in 2018, higher aluminum prices, and costs related to settlements of certain customer claims and a physical inventory adjustment, partially offset by volume growth and lower expenses for Restructuring and other charges, SG&A, interest and income taxes.Other expense, net.
Segment Information
In the first quarter of 2018,2019, the Company changedtransferred its primary measure ofaluminum extrusions operations (Aluminum Extrusions) from the Arconic Engineered Structures (AES) business unit within the Engineered Products and Solutions (EP&S) segment performance from Adjusted earnings before interest, tax, depreciationto the Global Rolled Products (GRP) segment, based on synergies with GRP including similar customer base, technologies, and amortization (“Adjusted EBITDA”)manufacturing capabilities. Prior period financial information has been recast to Segment operating profit, which more closely aligns segment performance with Operating income as presented in the Statement of Consolidated Operations.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 and Impairment of goodwill.charges. Segment operating profit also includes certain items which 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. Prior period financial information has been recastDifferences between segment totals and consolidated Arconic are in Corporate.
Arconic produces aerospace engine parts and components, aerospace fastening systems, and aluminum sheet and plate products for Boeing 737 MAX airplanes. The Company does not expect a significant impact to conform to current year presentation.revenues or segment operating profit in the second quarter based on the temporary reduction in the production rate of the 737 MAX airplanes that was announced by Boeing in April. A prolonged reduction in the production rate could have a negative impact on revenues and segment operating profit in the second half of 2019 in the EP&S and GRP segments.
Engineered Products and Solutions
Second quarter ended Six months endedFirst quarter ended
June 30, June 30,March 31,
2018 2017
2018 20172019 2018
Third-party sales$1,596
 $1,485
 $3,137
 $2,972
$1,502
 $1,426
Segment operating profit212
 250
 433
 497
253
 209
Third-party sales for the Engineered Products and Solutions segment increased $111,$76, or 7%5%, in the secondfirst quarter of 2018 and $165, or 6%, in2019 compared to the six months ended June 30,first quarter of 2018, compared with the corresponding periods in 2017, primarily as a result of higher volumes and favorable product pricing in the aerospace engines and defense end markets and favorablemarket, partially offset by unfavorable foreign currency movements partially offset by a declineand the absence of sales of $10 from the forgings business in the industrial gas turbine market and unfavorable product pricing.Eger, Hungary (divested in December 2018).
Segment operating profit for the Engineered Products and Solutions segment decreased $38,increased $44, or 15%21%, in the secondfirst quarter of 2019 compared to the first quarter of 2018 and $64, or 13%, in the six months ended June 30, 2018 compared to the corresponding periods in 2017, due to performance shortfalls in the ringshigher aerospace volumes and disks operations, unfavorable product mix, and the negative impact of a physical inventory adjustment of $23,pricing, as well as net cost savings, partially offset by the strengthunfavorable impact of new product introductions in aerospace engine volumes.engines.
On December 31, 2018, as part of the Company’s ongoing strategy and portfolio review, Arconic completed the sale of its Eger, Hungary forgings business to Angstrom Automotive Group LLC.
In 2018,2019, demand in the commercial aerospace end market is expected to remain strong, driven by the ramp-up of new aerospace engine platforms. Demand in the defense end market is expected to grow due to the continuing ramp-up of certain aerospace programs, while declines in the industrial gas turbine market are likelyexpected to continue.continue, albeit at lower levels than in 2018. Net cost savings and favorable pricing are anticipated despite higher input costs, and pricing pressures and challenges at the rings and disks operations are expected to continue.


expected.
Global Rolled Products
Second quarter ended Six months endedFirst quarter ended
June 30, June 30,March 31,
2018 2017 2018 20172019 2018
Third-party sales$1,451
 $1,271
 $2,817
 $2,519
$1,503
 $1,481
Intersegment sales46
 37
 88
 71
55
 57
Total sales$1,497
 $1,308
 $2,905
 $2,590
$1,558
 $1,538
Segment operating profit123
 133
 235
 269
107
 124
Third-party aluminum shipments (kmt)315
 307
 623
 617
331
 322
 
Third-party sales for the Global Rolled Products segment increased $180,$22, or 14%1%, in the secondfirst quarter of 2018 and $298, or 12%, in2019 compared to the six months ended June 30,first quarter of 2018, compared with the corresponding periods in 2017, primarily as a result of higher aluminum prices, higher volumes in the automotivepackaging, commercial transportation, and commercial transportationaerospace end markets and favorable foreign currency movements,product mix and pricing, partially offset by lower aluminum prices, the absence of sales of $43 from the rolling millcompleted ramp down of Arconic's North American packaging operations (completed in Fusina, Italy, which was divested in March 2017.December 2018), and unfavorable foreign currency movements.
Segment operating profit for the Global Rolled Products segment decreased $10,$17, or 8%14%, in the secondfirst quarter of 2019 compared to the first quarter of 2018, and $34, or 13%, in the six months ended June 30, 2018 compared with the corresponding periods in 2017, principally driven by the Tennessee plant transition to enable industrial production, operational headwinds in the Aluminum Extrusions business, and unfavorable aerospace wide-body productionproduct mix, and higher aluminum prices, partially offset by higher automotivefavorable pricing adjustments on industrial and commercial transportation products and higher volumes and net cost savings.as noted previously.


In 2018,2019, demand in the North America commercial transportation, brazing, and industrial end markets is expected to grow as a result of the International Trade Commission initiated common alloy trade case. Demand in the automotive end market is expected to continue to grow due to the growing demand for innovative products and aluminum-intensive vehicles.be flat. Demand from the commercial airframe end market is expected to be flatup as the ramp-up of new programs is partially offset by lower build rates for aluminum intensive wide-body programs. The ramp-down of Arconic's North American packaging operations is expected to continue. Higher aluminum prices are expected to continue to negatively impact this segmentFavorable pricing on a year over year basis. Net cost savingsindustrial and commercial transportation as well as net productivity improvements are anticipated to continue.
Russia Sanctions
On April 6, 2018, the U.S. Administration announced new sanctions against Russian “oligarchs” and extended those sanctions to companies that are majority-owned or substantively controlled by those oligarchs. These sanctions block U.S. persons - both individuals and companies - from engaging in transactions with listed oligarchs and their companies.  These new sanctions extend to UC Rusal PLC (“Rusal”), which supplies primary aluminum to Arconic in Europe, the United States, and to the Company’s Samara plant in Russia. The Company complies with and expects to continue to comply with these sanctions.  We do not anticipate any interruption in Samara’s supply of metal from Rusal based on these sanctions, and we expect that our facilities in Europe and the United States will be able to obtain metal from alternate sources if necessary. We anticipate that the price of aluminum will continue to fluctuate based upon supply/demand balance and the supply uncertainty created by the sanctions.
Transportation and Construction Solutions
Second quarter ended Six months endedFirst quarter ended
June 30, June 30,March 31,
2018 2017 2018 20172019 2018
Third-party sales$562
 $504
 $1,099
 $960
$535
 $537
Segment operating profit97
 71
 164
 139
87
 67
Third-party sales for the Transportation and Construction Solutions segment increased $58, or 12%,decreased $2 in the secondfirst quarter of 2019 compared to the first quarter of 2018 and $139, or 14%, in the six months ended June 30, 2018 compared with the corresponding periods in 2017, primarily as a result of higher volumes in the commercial transportation and building and construction end markets higher aluminum prices and favorable foreign currency movements, partiallywere more than offset by the absence of sales resultingof $25 from the divestiture of the Latin America extrusions business in Latin America (divested in April 2018.2018) and unfavorable foreign currency movements.
Segment operating profit for the Transportation and Construction Solutions segment increased $26,$20, or 37%30%, in the secondfirst quarter of 2018 and $25, or 18%, in2019 compared to the six months ended June 30,first quarter of 2018, compared with the corresponding periods in 2017, principally as a result of higher volume in the commercial transportation and building and construction end markets, favorable foreign currency movementsvolumes as noted previously, and net cost savings, partially offset by higher aluminum prices.


savings.
On April 2, 2018, Arconic completed the sale of its Latin America extrusions business to a subsidiary of Hydro Extruded Solutions AS. The
On July 31, 2018, the Company announced that it had initiated a sale isprocess of its Building and Construction Systems (BCS) business, as part of Arconic’s continued drivethe Company’s ongoing strategy and portfolio review. In the first quarter of 2019, the Company decided to streamline itsno longer pursue the sale of BCS and the business portfolio, reduce complexitycontinues to be reported in the Transportation and further focus on its higher-margin products and profitable growth.Construction Solutions segment.
In 2018,2019, we expect continued growth in the North American and European commercial transportation and building and construction markets and continued demand for innovative products. Net cost savingsproductivity improvements are anticipated to continue.
Reconciliation of Total segment operating profit to Consolidated income before income taxes
Second quarter ended
Six months endedFirst quarter ended
June 30,
June 30,March 31,
2018 2017 2018 20172019 2018
Total segment operating profit$432

$454

$832

$905
$447

$400
Unallocated amounts:









Restructuring and other charges(15)
(26)
(22)
(99)(12)
(7)
Corporate expense(93)
(108)
(153)
(203)(61)
(60)
Consolidated operating income$324
 $320
 $657
 $603
$374
 $333
Interest expense(89)
(183)
(203)
(298)(85)
(114)
Other (expense) income, net(41)
132

(61)
448
Other expense, net(32)
(20)
Consolidated income before income taxes$194
 $269
 $393
 $753
$257
 $199
The changes in the reconciling items between Total segment operating profit and Consolidated income before income taxes in the second quarter and six months ended June 30, 2018 compared to the corresponding periods in 2017 consisted of:
a decrease inSee Restructuring and other charges, Interest expense, and Other expense, net discussions above under Results of Operations for reference.
Corporate expense increased $1, or 2%, in the six months months ended June 30, 2018, primarily due to a lossfirst quarter of $60 on the sale of the Fusina, Italy rolling mill in March 2017. See Note E2019 compared to the Consolidated Financial Statements;
a decrease in Corporate expense in the secondfirst quarter of 2018, primarily due to proxy, advisoryas a result of strategy and governance-relatedportfolio review costs of $42 incurred in$6 and costs associated with the second quarterplanned separation of 2017 which did not recur in 2018, as well asArconic of $3, partially offset by lower expenses driven bycosts due to overhead cost reductions partially offset by costs incurredand a decrease of $3 in the second quarter of 2018 of $38 related to settlements of certain customer claims primarily related to product introductions and $4 for legal and other advisory costs related to Grenfell Tower. The decrease in Corporate expense in the six months ended June 30, 2018 was primarily due to costs related to the separation of Alcoa Inc. of $18 and proxy, advisory and governance-related costs of $58 incurred during the six months ended June 30, 2017, neither of which recurred in 2018, as well as lower expenses driven by overhead cost reductions, partially offset by costs incurred in the six months ended June 30, 2018 of $38 related to the settlements of certain customer claims primarily related to product introductions and $9 for legal and other advisory costs related to Grenfell Tower;
a decrease in Interest expense in the second quarter of 2018, primarily due to costs incurred in the second quarter of 2017 related to the early redemption of the Company’s outstanding debt which did not recur in 2018, and lower interest expense due to lower debt outstanding. The decrease in Interest expense in the six months ended June 30, 2018 was primarily due to higher costs incurred in the six months ended June 30, 2017 related to the early redemption of the Company’s outstanding debt than were incurred during 2018, and lower interest expense due to lower debt outstanding; and
a decrease in Other (expense) income, net in the second quarter of 2018, was primarily due to the $167 gain on the Debt-for-Equity Exchange in the second quarter of 2017 that did not recur in 2018. The decrease in Other (expense) income, net in the six months ended June 30, 2018 was primarily due to gains recorded during the six months ended June 30, 2017 related to the sale of a portion of Arconic’s investment in Alcoa Corporation common stock of $351 and the Debt-for-Equity Exchange of $167, neither of which recurred in 2018.
Environmental Matters
See the Environmental Matters section of Note QR to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.


Subsequent Events
See Note RT to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.


Liquidity and Capital Resources
Operating activitiesActivities
Cash used for operations was $260$258 in the six months ended June 30, 2018first quarter of 2019 compared to $316$436 in the six months ended June 30, 2017.first quarter of 2018. The decrease in cash used of $56,$178, or 18%41%, was primarily due to higher operating results (net income plus net add-back for noncash transactions in earnings) of $87 and a favorable change in noncurrent assets of $56, partially offset by higherlower pension contributions of $74$122 and higherlower working capital of $10.$74. The components of the change in working capital included unfavorablefavorable changes of $142$51 in receivables, $70accounts payable, $49 in inventories and $84accrued expenses, $39 in taxes, including income taxes, and $23 in inventories, partially offset by a favorablean unfavorable change of $287$86 in accounts payable.receivables.
Financing Activities
Cash used for financing activities was $577$741 in the six months ended June 30, 2018first quarter of 2019 compared to $955$542 in the six months ended June 30, 2017.first quarter of 2018. The decreaseincrease in cash used of $378$199 was primarily related to the early redemption during 2017repurchase of $700 of common stock (see Note H to the Company’s 6.50% Bonds due 2018, 6.75% Notes due 2018, and a portion of the 5.72% Notes due 2019,Consolidated Financial Statements), partially offset by a decrease in payments on debt of $500 due to the early redemption duringin the first quarter of 2018 of the remainingthen outstanding 5.72% Notes due in 2019 (see Note N to the Consolidated Financial Statements).with aggregate principal amount of $500 and premiums on early redemption of $17.
Arconic maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein. In addition to the Credit Agreement, Arconic has a number of other credit agreements. See Note NO to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q for reference.
In addition to the Credit Agreement above, Arconic has a number of other credit agreements that provide a combined borrowing capacity of $715 as of June 30, 2018, of which $350 is due to expire in 2018 and $365 is due to expire in 2019. The purpose of any borrowings under these credit arrangements is to provide for working capital requirements and for other general corporate purposes. The covenants contained in all these arrangements are the same as the Credit Agreement. During the six months ended June 30, 2018, Arconic borrowed and repaid $300 and $300, respectively, under these other credit facilities. The weighted-average interest rate and weighted-average days outstanding during the second quarter and six months ended June 30, 2018 were 3.3% and 70 days and 3.2% and 65 days, respectively.
Arconic’s costs of borrowing and ability to access the capital markets are affected not only by market conditions but also by the short- and long-term debt ratings assigned to Arconic by the major credit rating agencies.
Arconic’s credit ratings from the three major credit rating agencies are as follows: 
 Long-Term DebtShort-Term DebtOutlookDate of Last Update
Standard and Poor’sBBB-A-3StableNegativeMay 1, 2017April 26, 2019
Moody’sBa2Speculative Grade Liquidity-2StableNovember 2, 2017October 8, 2018
FitchBB+BStablePositiveJuly 3, 2017September 27, 2018
Investing Activities
Cash provided from investing activities was $146$42 in the six months ended June 30, 2018first quarter of 2019 compared to $1,179$29 in the six months ended June 30, 2017.first quarter of 2018. The decreaseincrease in cash provided of $1,033$13 was primarily due to the sale of Alcoa Corporation common stock for proceedsfixed-income securities of $888$47 and the receipt of proceeds from the sale of the Yadkin Hydroelectric Project of $243 during the six months ended June 30, 2017, which were partly offset by an increase in cash receipts from sold receivables of $135.$24, partially offset by higher capital expenditures of $51.
Recently Adopted and Recently Issued Accounting Guidance
See Note B to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.
Forward-Looking Statements
This report contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect Arconic’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts and expectations relating to the growth of the aerospace, automotive, commercial transportation and other end markets; statements and guidance regarding future financial results or operating performance; statements regarding future strategic actions, including share repurchases, which may be subject to market conditions, legal requirements and other considerations; and statements about Arconic’s strategies, outlook, business and financial prospects. These statements reflect beliefs and assumptions that are based on Arconic’s perception of historical trends, current conditions


and expected future developments, as well as other factors Arconic believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict, which could cause actual results to differ materially from those indicated by these statements. Such risks and uncertainties include, but are not limited to: (a) uncertainties regarding the planned separation, including whether it will be completed pursuant to the targeted timing, asset


perimeters, and other anticipated terms, if at all; (b) the impact of the separation on the businesses of Arconic; (c) the risk that the businesses will not be separated successfully or such separation may be more difficult, time-consuming or costly than expected, which could result in additional demands on Arconic’s resources, systems, procedures and controls, disruption of its ongoing business, and diversion of management’s attention from other business concerns; (d) deterioration in global economic and financial market conditions generally; (b)(e) unfavorable changes in the markets served by Arconic; (c)(f) the inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations anticipated or targeted; (d)(g) competition from new product offerings, disruptive technologies or other developments; (e)(h) political, economic, and regulatory risks relating to Arconic’s global operations, including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (f)(i) manufacturing difficulties or other issues that impact product performance, quality or safety; (g)(j) Arconic’s inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, expansions, or joint ventures; (h)(k) the impact of potential cyber attacks and potential information technology or data security breaches; (i)(l) the loss of significant customers or adverse changes in customers’ business or financial conditions; (m) adverse changes in discount rates or investment returns on pension assets; (j)(n) the impact of changes in aluminum prices and foreign currency exchange rates on costs and results; (k)(o) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Arconic to substantial costs and liabilities; and (l)(p) the other risk factors summarized in Arconic’s Form 10-K for the year ended December 31, 20172018 and other reports filed with the U.S. Securities and Exchange Commission (the “SEC”).Commission. Market projections are subject to the risks discussed above and other risks in the market. Arconic disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law. Market projections are subject to the risks discussed above and other risks in the market.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not material.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures

Arconic’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the secondfirst quarter of 20182019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
See the Reynobond PE and Tax sectionssection of Note QR to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table presents information with respect to Arconic common stock purchases made by the Company during the quarter ended March 31, 2019.
Period Total Number of Shares Purchased Average Price Paid Per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
 Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31, 2019 
 
 
 $1,000,000,000
February 1 - February 28, 2019(2)
 31,908,831
 $17.55
 31,908,831
 $300,000,000
March 1 - March 31, 2019 
 
 
 $300,000,000
Total for quarter ended March 31, 2019 31,908,831
 
 31,908,831
  
(1)
On February 5, 2018, the Company announced that its Board of Directors had authorized the repurchase of up to $500


million of the Company's outstanding common stock. There was no stated expiration for the share repurchase program, and no shares were repurchased during 2018. On February 8, 2019, the Company announced that its Board of Directors had authorized the repurchase of an additional $500 million of the Company's outstanding common stock, effective through the end of 2020.
(2)
On February 19, 2019, the Company entered into an accelerated share repurchase (ASR) agreement with JPMorgan Chase Bank (“JPM”) to repurchase $700 million of its common stock, and received an initial delivery of 31,908,831 shares. The term of the ASR concluded on April 25, 2019, with JPM delivering 4,525,592 additional shares to Arconic on April 29, 2019. A total of 36,434,423 shares, at an average price of $19.21 per share, were repurchased under the agreement.
Item 6. Exhibits. 
2013Letter Agreement, by and between Arconic Stock Incentive Plan,Inc. and John C. Plant, dated as amended and restated, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 22, 2018

of February 6, 2019.
Amendment No. 2,Letter Agreement, by and between Arconic Inc. and Elmer L. Doty, dated as of June 29, 2018, to the Company’s Five-Year Revolving Credit Agreement dated as of July 25, 2014, by and among the Company, a syndicate of lenders and issuers named therein, Citibank, N.A., as administrative agent for the lenders and issuers, and JPMorgan Chase Bank, N.A., as syndication agent, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 2, 2018February 6, 2019.
Letter Agreement, fromby and between Arconic Inc. to Katherine H. Ramundo,and Neil E. Marchuk, dated as of May 31, 2018February 13, 2019.
Special Retention Award Agreement - Katherine H. Ramundo,Paul Myron, effective May 16, 2018February 28, 2019.
Special Retention AwardSeparation Agreement - Paul Myron, effective May 16, 2018between Arconic Inc. and Charles P. Blankenship, dated as of March 14, 2019, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 18, 2019.
Form of Stock OptionRestricted Share Unit Award Agreement - Executive Vice President, Human Resources (Neil E. Marchuk) Annual Equity Award, effective March 15, 2019.
Form of
Restricted Share Unit Award Agreement
- Executive Vice President, Human Resources (Neil E. Marchuk) Sign-on Equity Award, effective March 15, 2019.Computations of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Letter regarding unaudited interim financial informationinformation.
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002.
101.INSXBRL Instance DocumentDocument.
101.SCHXBRL Taxonomy Extension Schema DocumentDocument.
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentDocument.
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentDocument.
101.LABXBRL Taxonomy Extension Label Linkbase DocumentDocument.
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentDocument.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
 Arconic Inc.
  
August 2, 2018May 1, 2019/s/ Ken Giacobbe
DateKen Giacobbe
 Executive Vice President and
 Chief Financial Officer
 (Principal Financial Officer)
  
August 2, 2018May 1, 2019/s/ Paul Myron
DatePaul Myron
 Vice President and Controller
 (Principal Accounting Officer)


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