SECURITIES AND EXCHANGE COMMISSION



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Investor Relations 212-836-2758

(Registrant’s telephone number including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	ARNC	New York Stock Exchange
$3.75 Cumulative Preferred Stock, par value $100 per share	ARNC PR	NYSE American

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 filer	✓x	Accelerated filer	☐
Non-accelerated filer	__ ☐	Smaller reporting company	☐
		Emerging growth company	☐

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 ✓x

As of July ~~25, 2018,~~30, 2019, there were ~~482,954,718~~440,188,364 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 ended
June 30, June 30,
2018 2017 2018 2017
Sales (C & D) $ 3,573
$ 3,261
$ 7,018
$ 6,453
Cost of goods sold (exclusive of expenses below) 2,903
2,549
5,671
5,007
Selling, general administrative, and other expenses 158
200
330
417
Research and development expenses 29
29
52
57
Provision for depreciation and amortization 144
137
286
270
Restructuring and other charges (E) 15
26
22
99
Operating income 324
320
657
603
Interest expense (N) 89
183
203
298
Other expense (income), net (F) 41
(132 ) 61
(448 )
Income before income taxes 194
269
393
753
Provision for income taxes (H) 74
57
130
219
Net income $ 120
$ 212
$ 263
$ 534

Amounts Attributable to Arconic Common Shareholders (I):
Net income $ 120
$ 194
$ 262
$ 499
Earnings per share - basic $ 0.25
$ 0.44
$ 0.54
$ 1.13
Earnings per share - diluted $ 0.24
$ 0.43
$ 0.53
$ 1.07
Dividends paid per share $ 0.06
$ 0.06
$ 0.12
$ 0.12
Average Shares Outstanding (I):
Average shares outstanding - basic 483
441
483
440
Average shares outstanding - diluted 502
462
502
500



	Second quarter ended					Six months ended
	June 30,					June 30,
	2019			2018		2019			2018
Sales (C)	$	3,691		$	3,573	$	7,232		$	7,018
Cost of goods sold (exclusive of expenses below)	2,939			2,903		5,757			5,671
Selling, general administrative, and other expenses	178			158		356			330
Research and development expenses	17			29		39			52
Provision for depreciation and amortization	139			144		276			286
Restructuring and other charges (D)	499			15		511			22
Operating (loss) income	(81		)	324		293			657
Interest expense	85			89		170			203
Other expense, net (E)	29			41		61			61
(Loss) income before income taxes	(195		)	194		62			393
(Benefit) provision for income taxes (G)	(74		)	74		(4		)	130
Net (loss) income	$	(121	)	$	120	$	66		$	263

Amounts Attributable to Arconic Common Shareholders (I):
Net (loss) income	$	(121	)	$	120	$	65		$	262
(Loss) earnings per share - basic	$	(0.27	)	$	0.25	$	0.14		$	0.54
(Loss) earnings per share - diluted	$	(0.27	)	$	0.24	$	0.14		$	0.53
Average Shares Outstanding (I):
Average shares outstanding - basic	445			483		458			483
Average shares outstanding - diluted	445			502		462			502

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

Arconic and subsidiaries

Statement of Consolidated Comprehensive (Loss) Income (unaudited)

(in millions)


	Arconic						Noncontrolling Interests				Total						Second quarter ended						Six months ended
Second quarter ended June 30,	2018			2017			2018		2017		2018			2017
Net income	$	120		$	212		$	—	$	—	$	120		$	212
Other comprehensive (loss) 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
Foreign currency translation adjustments	(201		)	99			—		—		(201		)	99
Net change in unrealized gains on available-for-sale securities	(2		)	(101		)	—		—		(2		)	(101		)
Net change in unrecognized losses/gains on cash flow hedges	4			(2		)	—		—		4			(2		)
Total Other comprehensive (loss) income, net of tax	(170		)	44			—		—		(170		)	44
Comprehensive (loss) income	$	(50	)	$	256		$	—	$	—	$	(50	)	$	256
																	June 30,						June 30,
	Arconic						Noncontrolling Interests				Total						2019			2018			2019			2018
Six months ended June 30,	2018			2017			2018		2017		2018			2017
Net income	$	263		$	534		$	—	$	—	$	263		$	534
Other comprehensive income, net of tax (J):
Net (loss) income																	$	(121	)	$	120		$	66		$	263
Other comprehensive (loss) 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			23			29			63			172
Foreign currency translation adjustments	(79		)	166			—		—		(79		)	166			(30		)	(201		)	(4		)	(79		)
Net change in unrealized gains on available-for-sale securities	(2		)	(134		)	—		—		(2		)	(134		)	—			(2		)	3			(2		)
Net change in unrecognized gains/losses on cash flow hedges	(3		)	3			—		—		(3		)	3			(10		)	4			(3		)	(3		)
Total Other comprehensive income, net of tax	88			114			—		—		88			114
Comprehensive income	$	351		$	648		$	—	$	—	$	351		$	648
Total Other comprehensive (loss) income, net of tax																	(17		)	(170		)	59			88
Comprehensive (loss) income																	$	(138	)	$	(50	)	$	125		$	351

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, 2017			June 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	1,455		$	2,150		$	1,357		$	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)							1,155			1,047
Other receivables (K)							640			451
Inventories (L)							2,606			2,492
Prepaid expenses and other current assets	324			374			260			314
Total current assets	6,075			6,378			6,018			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)							5,517			5,704
Goodwill (C)							4,500			4,500
Deferred income taxes	626			743			568			573
Intangibles, net	963			987
Other noncurrent assets	455			481
Intangibles, net (D and M)							686			919
Other noncurrent assets (N)							624			416
Total assets	$	18,219		$	18,718		$	17,913		$	18,693
Liabilities
Current liabilities:
Accounts payable, trade	$	2,024		$	1,839		$	2,095		$	2,129
Accrued compensation and retirement costs	364			399			384			370
Taxes, including income taxes	69			75			116			118
Accrued interest payable	113			124			113			113
Other current liabilities	362			349
Short-term debt	45			38
Other current liabilities (N)							479			356
Short-term debt (O)							434			434
Total current liabilities	2,977			2,824			3,621			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 benefits	815			841
Other noncurrent liabilities and deferred credits	713			759
Long-term debt, less amount due within one year (O and P)							5,901			5,896
Accrued pension benefits (F)							2,079			2,230
Accrued other postretirement benefits (F)							641			723
Other noncurrent liabilities and deferred credits (B and N)							805			739
Total liabilities	13,001			13,794			13,047			13,108
Contingencies and commitments (Q)
Contingencies and commitments (R)
Equity
Arconic shareholders’ equity:
Preferred stock	55			55			55			55
Common stock	483			481
Additional capital	8,295			8,266
Common stock (H)							440			483
Additional capital (H)							7,484			8,319
Accumulated deficit	(1,073		)	(1,248		)	(256		)	(358		)
Accumulated other comprehensive loss (J)	(2,556		)	(2,644		)
Accumulated other comprehensive loss (J)							(2,869		)	(2,926		)
Total Arconic shareholders’ equity	5,204			4,910			4,854			5,573
Noncontrolling interests	14			14			12			12
Total equity	5,218			4,924			4,866			5,585
Total liabilities and equity	$	18,219		$	18,718		$	17,913		$	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 ended						Six months ended
	June 30,						June 30,
	2018			2017			2019			2018
Operating activities
Net income	$	263		$	534		$	66		$	263
Adjustments to reconcile net income to cash used for operations:
Depreciation and amortization	286			270			276			286
Deferred income taxes	47			27			(78		)	47
Restructuring and other charges	22			99			511			22
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 sales							4			5
Net periodic pension benefit cost (F)							58			71
Stock-based compensation	29			48			27			29
Other	50			115			14			50
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
(Increase) in receivables ~~(B)~~	(709		)	(567		)	(743		)	(709		)
(Increase) in inventories	(220		)	(150		)	(117		)	(220		)
Decrease in prepaid expenses and other current assets	8			30			18			8
Increase (decrease) in accounts payable, trade	218			(69		)
(Decrease) increase in accounts payable, trade							(29		)	218
(Decrease) in accrued expenses	(84		)	(105		)	(46		)	(84		)
Increase in taxes, including income taxes	37			121			41			37
Pension contributions	(237		)	(163		)	(140		)	(237		)
(Increase) in noncurrent assets	(4		)	(60		)	(5		)	(4		)
(Decrease) in noncurrent liabilities	(42		)	(39		)	(9		)	(42		)
Cash used for operations	(260		)	(316		)	(152		)	(260		)
Financing Activities
Net change in short-term borrowings (original maturities of three months or less)	5			9			—			5
Additions to debt (original maturities greater than three months)	300			512			226			300
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)							(226		)	(801		)
Premiums paid on early redemption of debt							—			(17		)
Proceeds from exercise of employee stock options	13			26			11			13
Dividends paid to shareholders	(60		)	(88		)	(39		)	(60		)
Distributions to noncontrolling interests	—			(14		)
Repurchase of common stock (H)							(900		)	—
Other	(17		)	(15		)	(14		)	(17		)
Cash used for financing activities	(577		)	(955		)	(942		)	(577		)
Investing Activities
Capital expenditures	(288		)	(229		)	(304		)	(288		)
Proceeds from the sale of assets and businesses ~~(P)~~	5			(9		)	12			5
Sales of investments (F)	9			888
Cash receipts from sold receivables (B & K)	420			285
Sales of investments							47			9
Cash receipts from sold receivables (K)							417			420
Other	—			244			(1		)	—
Cash provided from investing activities	146			1,179			171			146
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2		)	4			1			(2		)
Net change in cash, cash equivalents and restricted cash ~~(B)~~	(693		)	(88		)	(922		)	(693		)
Cash, cash equivalents and restricted cash at beginning of year (B)	2,153			1,878
Cash, cash equivalents and restricted cash at beginning of period							2,282			2,153
Cash, cash equivalents and restricted cash at end of period ~~(B)~~	$	1,460		$	1,790		$	1,360		$	1,460

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 March 31, 2018	$	55	$	483	$	8,280	$	(1,164	)	$	(2,386	)	$	14	$	5,282
Net income	—		—		—		120			—			—		120
Other comprehensive loss (J)	—		—		—		—			(170		)	—		(170		)
Cash dividends declared:
Common @ $0.06 per share	—		—		—		(29		)	—			—		(29		)
Stock-based compensation	—		—		14		—			—			—		14
Common stock issued: compensation plans	—		—		1		—			—			—		1
Balance at June 30, 2018	$	55	$	483	$	8,295	$	(1,073	)	$	(2,556	)	$	14	$	5,218

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

Preferred
stock

Mandatory
convertible
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 —
—
—
—
263
—
—
263
Other comprehensive income (J) —
—
—
—
—
88
—
88
Cash dividends declared:
Preferred-Class A @ $1.875 per share —
—
—
—
(1 ) —
—
(1 )
Common @ $0.18 per share —
—
—
—
(87 ) —
—
(87 )
Stock-based compensation —
—
—
29
—
—
—
29
Common stock issued: compensation plans —
—
2
—
—
—
—
2
Balance at June 30, 2018 $ 55
$ —
$ 483
$ 8,295
$ (1,073 ) $ (2,556 ) $ 14
$ 5,218



	Arconic Shareholders
	Preferred stock		Common stock			Additional capital			Accumulated deficit			Accumulated other comprehensive loss			Noncontrolling interests		Total Equity
Balance at March 31, 2019	$	55	$	453		$	7,644		$	(134	)	$	(2,852	)	$	12	$	5,178
Net loss	—		—			—			(121		)	—			—		(121		)
Other comprehensive loss (J)	—		—			—			—			(17		)	—		(17		)
Repurchase and retirement of common stock (H)	—		(13		)	(187		)	—			—			—		(200		)
Stock-based compensation	—		—			17			—			—			—		17
Common stock issued: compensation plans	—		—			10			—			—			—		10
Other	—		—			—			(1		)	—			—		(1		)
Balance at June 30, 2019	$	55	$	440		$	7,484		$	(256	)	$	(2,869	)	$	12	$	4,866

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



	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	—				—		—		263			—			—		263
Other comprehensive income (J)	—				—		—		—			88			—		88
Cash dividends declared:
Preferred-Class A @ $1.875 per share	—				—		—		(1		)	—			—		(1		)
Common @ $0.18 per share	—				—		—		(87		)	—			—		(87		)
Stock-based compensation	—				—		29		—			—			—		29
Common stock issued: compensation plans	—				2		—		—			—			—		2
Balance at June 30, 2018	$	55	$	—	$	483	$	8,295	$	(1,073	)	$	(2,556	)	$	14	$	5,218



	Arconic Shareholders
	Preferred stock		Common stock			Additional capital			Accumulated deficit			Accumulated other comprehensive loss			Noncontrolling interests		Total Equity
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	—		—			—			66			—			—		66
Other comprehensive income (J)	—		—			—			—			59			—		59
Cash dividends declared:
Preferred-Class A @ $1.875 per share	—		—			—			(1		)	—			—		(1		)
Common @ $0.08 per share	—		—			—			(38		)	—			—		(38		)
Repurchase and retirement of common stock (H)	—		(45		)	(855		)	—			—			—		(900		)
Stock-based compensation	—		—			25			—			—			—		25
Common stock issued: compensation plans	—		2			(5		)	—			—			—		(3		)
Balance at June 30, 2019	$	55	$	440		$	7,484		$	(256	)	$	(2,869	)	$	12	$	4,866

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 ~~2017~~2018 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 ~~FASB~~Financial Accounting Standards Board (FASB) issued changes to the accounting and presentation of leases. These changes require lessees to recognize a ~~right of use~~right-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. For~~operating 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 ~~become~~became effective for Arconic on January 1, ~~2019. Arconic’s current~~2019 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 comprised~~right-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 changes~~approximately $320 on the Consolidated Balance Sheet ~~which will require right~~as of ~~use~~January 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 ~~estimate~~accounting 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 material~~standard 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 is able to more broadly use cash flow hedge accounting for its variable priced inventory purchases and customer sales.

In March 2019, the Securities and Exchange Commission (SEC) issued guidance to modernize and simplify certain disclosure requirements in a manner that reduces the costs and burdens on preparers while continuing to provide all material information to investors. This guidance became effective on May 2, 2019 and has been applied to filings thereafter. The adoption of this guidance did not have a material impact on the Notes to Consolidated Financial Statements.

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~~August 2018, the FASB issued guidance that ~~allows an optional reclassification from Accumulated~~impacts 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 evaluating~~has determined that the ~~potential impact~~adoption 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
Transportation 119
612
253
984
Building and construction —
60
297
357
Industrial and other 236

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
Transportation 97
475
200
772
Building and construction —
51
283
334
Industrial and other 247
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
Transportation 216
1,210
496
1,922
Building and construction —
108
582
690
Industrial and other 490
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
Transportation 190
968
373
1,531
Building and construction —
100
545
645
Industrial and other 486
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 of~~Arconic Engineered Structures (AES) business unit within the Engineered Products and Solutions (EP&S) segment ~~performance from Adjusted earnings before interest, tax, depreciation~~to 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 Aluminum Extrusions noted above, management assessed and concluded that the remaining AES business unit and the Aluminum Extrusions business unit represent reporting units for purposes of evaluating goodwill for impairment. Goodwill of $110 was reallocated from the AES reporting unit to the Aluminum Extrusions reporting unit and these reporting units were evaluated for impairment during the first quarter of 2019. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was no goodwill impairment. In the second quarter of 2019, management transferred its castings operations from the AES business unit to the Arconic Engines (AEN) business unit within the EP&S segment based on process expertise for investment castings that existed within AEN. As a result, goodwill of $105 was reallocated from the AES reporting unit to the AEN reporting unit and these reporting units were evaluated for impairment during the second quarter of 2019. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was no impairment. Also in the second quarter of 2019, as a result of the decline in the forecasted financial performance and related impairment of long-lived assets of the Disks asset group within the AEN business unit (see Note M), an additional evaluation of the AEN reporting unit goodwill was performed. The estimated fair value of the reporting unit was substantially in excess of its carrying value; thus, there was no impairment of goodwill.

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

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



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

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


	Engineered Products and Solutions		Global Rolled Products		Transportation and Construction Solutions		Total Segment		Engineered Products and Solutions		Global Rolled Products		Transportation and Construction Solutions		Total Segment
Second quarter ended June 30, 2018
Six months ended June 30, 2019
Sales:
Third-party sales	$	1,596	$	1,451	$	562	$	3,609	$	3,067	$	3,080	$	1,083	$	7,230
Intersegment sales	—		46		—		46		—		110		—		110
Total sales	$	1,596	$	1,497	$	562	$	3,655	$	3,067	$	3,190	$	1,083	$	7,340
Profit and loss:
Segment operating profit	$	212	$	123	$	97	$	432	$	539	$	252	$	194	$	985
Restructuring and other charges	9		1		—		10		456		8		34		498
Provision for depreciation and amortization	70		53		12		135		126		108		26		260

Second quarter ended June 30, 2017
Six months ended June 30, 2018
Sales:
Third-party sales	$	1,485	$	1,271	$	504	$	3,260	$	2,900	$	3,054	$	1,099	$	7,053
Intersegment sales	—		37		—		37		—		118		—		118
Total sales	$	1,485	$	1,308	$	504	$	3,297	$	2,900	$	3,172	$	1,099	$	7,171
Profit and loss:
Segment operating profit	$	250	$	133	$	71	$	454	$	433	$	235	$	164	$	832
Restructuring and other charges	8		17		6		31		9		1		—		10
Provision for depreciation and amortization	66		51		12		129		130		115		25		270

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 charges 10
—
—
10
Provision for depreciation and amortization 141
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 charges 14
74
9
97
Provision for depreciation and amortization 130
101
24
255

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



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

Second quarter ended Six months ended
June 30, June 30,
2018 2017 2018 2017
Total segment operating profit $ 432
$ 454
$ 832
$ 905
Unallocated amounts:
Restructuring and other charges (15 ) (26 ) (22 ) (99 )
Corporate expense (93 ) (108 ) (153 ) (203 )
Consolidated operating income $ 324
$ 320
$ 657
$ 603
Interest expense (89 ) (183 ) (203 ) (298 )
Other (expense) income, net (41 ) 132
(61 ) 448
Consolidated income before income taxes $ 194
$ 269
$ 393
$ 753

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



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

June 30, 2018 December 31, 2017
Engineered Products and Solutions $ 10,447
$ 10,325
Global Rolled Products 4,153
3,955
Transportation and Construction Solutions 1,087
1,041
Total segment assets $ 15,687
$ 15,321
Segment assets at June 30, 2019 included operating lease right-of-use assets (see Notes B and N). Segment assets for the Engineered Products and Solutions segment at June 30, 2019 were impacted by a long-lived asset impairment charge of $428 (see Note M).

The following table reconciles Total segment assets to Consolidated assets:



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

June 30, 2018 December 31, 2017
Total segment assets $ 15,687
$ 15,321
Unallocated amounts:
Cash and cash equivalents 1,455
2,150
Deferred income taxes 626
743
Corporate fixed assets, net 304
310
Fair value of derivative contracts 57
91
Other 90
103
Consolidated assets $ 18,219
$ 18,718

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



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

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

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

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

E.D. Restructuring and Other Charges

In the second quarter of 2019, Arconic recorded Restructuring and other charges of $499 ($397 after-tax), which included a $428 ($345 after-tax) charge for impairment of the Disks long-lived asset group (see Note M); a $30 ($22 after-tax) charge for layoff costs, including the separation of approximately 350 employees (131 in the Transportation and Construction Solutions segment, 125 in the Engineered Products and Solutions segment, 69 in Corporate, and 25 in the Global Rolled Products segment); a $16 ($12 after-tax) charge for impairment of a trade name intangible asset and properties, plant, and equipment; a $12 ($9 after-tax) charge for other exit costs from lease terminations, primarily related to the exit of the corporate aircraft; a $12 ($9 after-tax) loss on sale primarily related to a small additive business; accelerated depreciation of $2 ($2 after-tax); a $2 ($1 after-tax) charge for pension plan settlement accounting; and a benefit of $3 ($3 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

In the six months ended June 30, 2019, Arconic recorded Restructuring and other charges of $511 ($407 after-tax), which included a $428 ($345 after-tax) charge for impairment of the Disks long-lived asset group; a $95 ($73 after-tax) charge for layoff costs, including the separation of approximately 1,127 employees (463 in Corporate, 301 in Engineered Products and Solutions segment, 252 in Transportation and Construction Solutions segment, and 111 in Global Rolled Products segment); a $16 ($12 after-tax) charge for impairment of a trade name intangible asset and properties, plant, and equipment; a $12 ($9 after-tax) charge for other exit costs from lease terminations, primarily related to the exit of the corporate aircraft; a $12 ($9 after-tax) loss on sale of assets primarily related to a small additive business; a $4 ($3 after-tax) charge for pension plan settlement

accounting; accelerated depreciation of $2 ($2 after-tax); a $2 ($1 after-tax) net charge for executive severance net of the benefit of forfeited executive stock compensation; and a $1 ($1 after-tax) charge for other miscellaneous items; partially offset by a benefit of $58 ($45 after-tax) related to the elimination of the life insurance benefit for the U.S. salaried and non-bargaining hourly retirees of the Company and its subsidiaries, and a benefit of $3 ($3 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

In the second quarter of 2018, Arconic recorded Restructuring and other charges of $15 ($12 after-tax), which included $9 ($7 after-tax) for pension curtailment charges; a $4 ($3 after-tax) charge for layoff costs, including the separation of approximately 24 employees (all in the Engineered Products and Solutions segment); a charge of $5 ($4 after-tax) for exit costs primarily related to the New York office; a charge of $2 ($2 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; a charge of $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,~~2019, approximately 20583 of the 401,127 employees (previously 1,150) associated with ~~2018~~the 2019 restructuring programs were separated. The 2018 and ~~approximately 530 of the 760 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~~are essentially ~~complete.~~completed. Most of the remaining separations for the ~~2018~~2019 restructuring ~~programs and all of the remaining separations for the 2017 restructuring programs,~~program are expected to be completed by the end of ~~2018.~~

2019. For the second quarter and six months ended June 30, ~~2018,~~2019, Arconic made cash payments of $2$26 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 2016 restructuring programs.$40, 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 charges	64			1			65
Other⁽¹⁾	1			(2		)	(1		)
Reserve balances at December 31, 2017	56			2			58			$	56		$	2		$	58
Cash payments	(30		)	—			(30		)	(47		)	(2		)	(49		)
Restructuring charges	23			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, 2018										10			15			25
Cash payments										(40		)	(3		)	(43		)
Restructuring charges										39			472			511
Other⁽²⁾										56			(479		)	(423		)
Reserve balances at June 30, 2019										$	65		$	5		$	70

Other includes adjustments of previously recorded restructuring charges and credits, and the effects of foreign currency translation.

⁽¹⁾

~~Other includes reversals of previously recorded restructuring charges and the effects of foreign currency translation.~~ In 2018, Other for layoff costs ~~also~~ included ~~a reclassification~~reclassifications of ~~$14~~$119 in pension costs and a $28 credit in postretirement benefits, as ~~this liability was~~the impacts were reflected in ~~Arconic’s~~Arconic's separate ~~liability~~liabilities for Accrued pension ~~obligations.~~ benefits and Accrued postretirement benefits, and the reversal of previously recorded restructuring charges of $19.

⁽²⁾

In ~~2017,~~2019, Other for layoff costs ~~also~~ included ~~a reclassification~~reclassifications of a ~~stock awards reversal~~$58 credit for elimination of ~~$13.~~life insurance benefits for U.S. salaried and non-bargaining hourly retirees and a $4 pension settlement charge, as the impacts were reflected in Arconic's separate liabilities for Accrued pension benefits and Accrued postretirement benefits, and other credits of $2.

In 2019, Other for other exit costs included a $428 charge for impairment of the Disks long-lived asset group; an impairment of a trade name intangible asset and properties, plant, and equipment of $16; reclassifications for loss on sale of assets of $12 primarily related to a small additive business; a charge for lease terminations of $12; and accelerated depreciation of $2 as the impacts were primarily reflected in various noncurrent asset accounts. Additionally, Other included the reclassification of $9 in lease exit costs to right-of-use assets within Other noncurrent assets in accordance with the new lease accounting standard.

The remaining reserves are expected to be paid in cash during ~~2018.~~2019, with the exception of approximately $15, which is expected to be paid in 2020 related to severance payments.

E. Other Expense, Net



	Second quarter ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Non-service related net periodic benefit cost	$	29		$	28		$	58		$	56
Interest income	(6		)	(4		)	(16		)	(10		)
Foreign currency (gains) losses, net	(4		)	17			(4		)	14
Net loss from asset sales	2			2			4			5
Other, net	8			(2		)	19			(4		)
	$	29		$	41		$	61		$	61

F. ~~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), net 17
2
14
(3 )
Net loss (gain) from asset sales 2
(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.

G. Pension and Other Postretirement Benefits

The components of net periodic benefit cost were as follows:


	Second quarter ended						Six months ended						Second quarter ended						Six months ended
	June 30,						June 30,						June 30,						June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Pension benefits
Service cost	$	8		$	21		$	28		$	44		$	6		$	8		$	13		$	28
Interest cost	55			58			110			116			59			55			118			110
Expected return on plan assets	(77		)	(82		)	(154		)	(165		)	(71		)	(77		)	(143		)	(154		)
Recognized net actuarial loss	42			55			84			110			34			42			69			84
Amortization of prior service cost (benefit)	1			2			2			3			1			1			1			2
Settlements													2			—			4			—
Curtailments	9			—			14			—			—			9			—			14
Net periodic benefit cost⁽¹⁾	$	38		$	54		$	84		$	108		$	31		$	38		$	62		$	84

Other postretirement benefits
Service cost	$	2		$	2		$	4		$	4		$	2		$	2		$	4		$	4
Interest cost	7			7			14			15			7			7			14			14
Recognized net actuarial loss	2			1			4			2			1			2			2			4
Amortization of prior service cost (benefit)	(2		)	(2		)	(4		)	(4		)	(2		)	(2		)	(3		)	(4		)
Curtailments													—			—			(58		)	—
Net periodic benefit cost⁽¹⁾	$	9		$	8		$	18		$	17		$	8		$	9		$	(41	)	$	18


⁽¹⁾	Service cost was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development expenses; settlements and 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 ~~announced~~communicated 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 six months ended June 30, 2019, the Company applied settlement accounting to a U.S. pension plan due to lump sum payments to participants which resulted in settlement charges of $4 that were recorded in Restructuring and other charges.

In June of 2019, the Company and the United Steelworkers (USW) reached a tentative three-year labor agreement covering approximately 3,400 employees at four U.S. locations; the previous labor agreement expired on May 15, 2019. The tentative agreement was ratified on July 11, 2019. In the second quarter of 2019, Arconic recognized $9 in Cost of goods sold on the accompanying Statement of Consolidated Operations primarily for a one-time signing bonus for employees.

On July 25, 2019, the USW ratified a new four-year labor agreement covering approximately 560 employees at the Company’s Niles, Ohio facility. The prior labor agreement expired on June 30, 2018.

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 ~~accrued~~Accrued 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 with the separation 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 stipulates that Arconic will make cash contributions 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 made payments of $50 in March 2018 and $50 in April 2017. Upon finalization of 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.

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.~~Arconic, which expires on March 31, 2023. 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.~~ceased. As result of these changes, a curtailment charge of $9 was recorded in Restructuring and other charges in the second quarter of 2018.

During the third quarter of 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 stipulated that Arconic make cash contributions of $150 over a period of 30 months (from November 1, 2016) to its two largest pension plans. The Company satisfied the requirements of the plan by making payments of $34, $66, and $50 in April 2019, March 2018, and April 2017, respectively.

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, 2019 and 2018, the estimated annual effective tax rate, before discrete items, applied to ordinary income was 35.3% and 27.0%~~. This~~, 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-~~

~~Taxed~~Low-Taxed Income, ~~(GILTI) pursuant to~~ the ~~2017 Act,~~state tax impact of domestic taxable income, ~~in certain U.S. states no longer subject to valuation allowance,~~ and foreign income ~~tax~~taxed in higher rate jurisdictions.

~~For~~ The rate for the six months ended June 30, ~~2017, the estimated annual effective tax rate, before discrete items, applied to ordinary income~~2019 was 28.4%. This rate was lower than the federal statutory rate 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, and a nontaxable gain on the Debt-for-Equity Exchange. These beneficial items were partially offsetalso increased by ~~a loss on the sale of a rolling mill in Fusina, Italy for which no net tax benefit was recognized and valuation allowances~~certain nondeductible costs related to ~~U.S.~~the proposed separation transaction and the impairment of certain domestic and foreign ~~tax credits.~~long-lived assets.

For the second quarter ~~ended June 30,~~of 2019 and 2018, ~~and June 30, 2017,~~ the tax rate including discrete items was ~~38.1%~~37.9% and ~~21.2%~~38.1%, respectively. ~~Discrete items of $21 were recorded in~~For the second quarter ~~ended June 30,~~of 2019, the Company recorded a discrete benefit of $36 related to a $25 benefit to deduct prior year foreign taxes rather than claim a U.S. foreign tax credit, a $12 benefit to remeasure certain deferred tax assets as a result of a foreign tax rate change, and a net charge for a number of small items of $1. For the second quarter of 2018, the Company recorded a discrete charge of $21 primarily related to revised estimates of the then provisional impact offor the ~~enactment~~Tax Cuts and Jobs Act of ~~the 2017 Act discussed further below. There were no individually material discrete items recorded in the second quarter ended June 30,~~ 2017.

The tax provisions for the second quarter and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 were comprised of the following:



	Second quarter ended					Six months ended
	June 30,					June 30,
	2019			2018		2019			2018
Pre-tax income at estimated annual effective income tax rate before discrete items	$	(69	)	$	52	$	22		$	106
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	24			1		—			—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	7			—		9			1
Other discrete items	(36		)	21		(35		)	23
Provision for income taxes	$	(74	)	$	74	$	(4	)	$	130

Second quarter ended Six months ended
June 30, June 30,
2018 2017 2018 2017
Pre-tax income at estimated annual effective income tax rate before discrete items $ 52
$ 60
$ 106
$ 214
Catch-up adjustment to revalue previous quarter pre-tax income at current estimated annual effective tax rate 1
—
—
—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized —
(3 ) 1
4
Other discrete items 21
—
23
1
Provision for income taxes $ 74
$ 57
$ 130
$ 219

H. Common Stock

On ~~December 22, 2017,~~February 19, 2019, the ~~2017 Act was signed~~Company entered into ~~law, making significant changes~~an accelerated share repurchase (ASR) agreement with JPMorgan Chase Bank to repurchase $700 of its common stock (the “February 2019 ASR”), pursuant to the ~~Internal Revenue Code. Also~~share repurchase programs previously authorized by its Board of Directors (the Board). Under the February 2019 ASR, Arconic received an initial delivery of shares on ~~December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118"~~February 21, 2019 and additional shares on April 29, 2019. On May 2, 2019, the Company entered into an ASR agreement with JPMorgan Chase Bank to repurchase $200 of its common stock (the “May 2019 ASR”), ~~Income Tax Accounting Implications~~pursuant to the share repurchase programs previously authorized by its Board. Under the May 2019 ASR, Arconic received an initial delivery of shares on May 6, 2019 and additional shares on June 12, 2019. All of the ~~Tax Cuts~~shares repurchased during 2019 were immediately retired. After giving effect to the February 2019 ASR and ~~Jobs Act, was issued~~May 2019 ASR, $100 remains available under the prior authorizations by the ~~Securities and Exchange Commission to address~~Board for share repurchases through the ~~application~~end 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 “Prior Remaining Authorization”).

The ~~Company's analysis of U.S. tax reform legislation, updated through June 30, 2018, resulted in~~following table provides details for the share repurchases during 2019.



Share delivery date	Number of shares	Average price	Total
February 21, 2019	31,908,831
April 29, 2019	4,525,592
February 2019 ASR total	36,434,423	$19.21	$700

May 6, 2019	7,455,732
June 12, 2019	1,561,249
May 2019 ASR total	9,016,981	$22.18	$200

2019 ASR total	45,451,404	$19.80	$900

On May 14, 2019, the Board authorized 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 benefitshare repurchase program of up to ~~approximately $38 would be recognized in the third quarter~~$500 of ~~2018 after evaluating the need for~~its outstanding common stock (the “May 2019 Share Repurchase Program”). The Company has a ~~valuation allowance.~~

~~Also in July 2018, Spain’s National Court upheld an assessment against the Company related~~total of $600 repurchase authorization remaining pursuant to the ~~2006 through 2009 tax years. Arconic is preparing to petition~~May 2019 Share Repurchase Program and 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.Prior Remaining Authorization.

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 ended						Second quarter ended					Six months ended
	June 30,						June 30,						June 30,					June 30,
	2018		2017				2018			2017			2019			2018		2019			2018
Net income	$	120	$	212			$	263		$	534
Less: Preferred stock dividends declared	—		(18		)		(1		)	(35		)
Net income available to Arconic common shareholders - basic	120		194				262			499
Net (loss) income													$	(121	)	$	120	$	66		$	263
Less: preferred stock dividends declared													—			—		(1		)	(1		)
Net (loss) income available to Arconic common shareholders - basic													(121		)	120		65			262
Add: Interest expense related to convertible notes	3		2				6			4			—			3		—			6
Add: Dividends related to mandatory convertible preferred stock	—		—				—			34
Net income available to Arconic common shareholders - diluted	$	123	$	196		—	$	268		$	537
Net (loss) income available to Arconic common shareholders - diluted													$	(121	)	$	123	$	65		$	268

Average shares outstanding - basic	483		441				483			440			445			483		458			483
Effect of dilutive securities:
Stock options	—		2				—			2			—			—		—			—
Stock and performance awards	5		5				5			5			—			5		4			5
Mandatory convertible preferred stock	—		—				—			39
Convertible notes	14		14				14			14			—			14		—			14
Average shares outstanding - diluted	502		462				502			500			445			502		462			502

Common stock outstanding at June 30, 2019 and 2018 was 440 and 483, respectively. The decrease in common stock outstanding at June 30, 2019 was primarily due to the impact of share repurchases of approximately 45 in the six months ended June 30, 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 EPS in the second quarter and six months ended June 30, 2019 as the share repurchases occurred at varying points during 2019.

The following shares were excluded from the calculation of average shares outstanding – diluted as their effect was anti-dilutive (shares in millions).

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:~~loss:


	Arconic						Noncontrolling Interests					Second quarter ended						Six months ended
Second quarter ended June 30,	2018			2017			2018		2017
Pension and other postretirement benefits (G)
												June 30,						June 30,
												2019			2018			2019			2018
Pension and other postretirement benefits (F)
Balance at beginning of period	$	(2,087	)	$	(1,979	)	$	—	$	—		$	(2,304	)	$	(2,087	)	$	(2,344	)	$	(2,230	)
Other comprehensive income:
Unrecognized net actuarial loss and prior service cost/benefit	(15		)	17			—		—			(6		)	(15		)	66			122
Tax benefit (expense)	3			(5		)	—		—			1			3			(15		)	(28		)
Total Other comprehensive (loss) income before reclassifications, net of tax	(12		)	12			—		—
Total Other comprehensive loss before reclassifications, net of tax												(5		)	(12		)	51			94
Amortization of net actuarial loss and prior service cost⁽¹⁾	52			56			—		—			36			52			15			100
Tax expense⁽²⁾	(11		)	(20		)	—		—			(8		)	(11		)	(3		)	(22		)
Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾	41			36			—		—			28			41			12			78
Total Other comprehensive income	29			48			—		—			23			29			63			172
Balance at end of period	$	(2,058	)	$	(1,931	)	$	—	$	—		$	(2,281	)	$	(2,058	)	$	(2,281	)	$	(2,058	)
Foreign currency translation
Balance at beginning of period	$	(315	)	$	(622	)	$	—	$	(2	)	$	(557	)	$	(315	)	$	(583	)	$	(437	)
Other comprehensive (loss) income⁽³⁾	(201		)	99			—		—
Other comprehensive loss⁽³⁾												(30		)	(201		)	(4		)	(79		)
Balance at end of period	$	(516	)	$	(523	)	$	—	$	(2	)	$	(587	)	$	(516	)	$	(587	)	$	(516	)
Available-for-sale securities
Balance at beginning of period	$	(2	)	$	99		$	—	$	—		$	—		$	(2	)	$	(3	)	$	(2	)
Other comprehensive loss⁽⁴⁾	(2		)	(101		)	—		—
Other comprehensive (loss) income⁽⁴⁾												—			(2		)	3			(2		)
Balance at end of period	$	(4	)	$	(2	)	$	—	$	—		$	—		$	(4	)	$	—		$	(4	)
Cash flow hedges
Balance at beginning of period	$	18		$	4		$	—	$	—		$	9		$	18		$	4		$	25
Other comprehensive income (loss):
Adoption of accounting standards (B)												—			—			(2		)	—
Other comprehensive (loss) income:
Net change from periodic revaluations	9			(4		)	—		—			(13		)	9			(5		)	3
Tax (expense) benefit	(1		)	1			—		—
Total Other comprehensive income (loss) before reclassifications, net of tax	8			(3		)	—		—
Tax benefit (expense)												3			(1		)	2			—
Total Other comprehensive (loss) income before reclassifications, net of tax												(10		)	8			(3		)	3
Net amount reclassified to earnings	(4		)	1			—		—			(1		)	(4		)	(1		)	(7		)
Tax benefit⁽²⁾	—			—			—		—			1			—			1			1
Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾	(4		)	1			—		—			—			(4		)	—			(6		)
Total Other comprehensive income (loss)	4			(2		)	—		—
Total Other comprehensive (loss) income												(10		)	4			(3		)	(3		)
Balance at end of period	$	22		$	2		$	—	$	—		$	(1	)	$	22		$	(1	)	$	22

Total balance at end of period	$	(2,556	)	$	(2,454	)	$	—	$	(2	)	$	(2,869	)	$	(2,556	)	$	(2,869	)	$	(2,556	)

These amounts were ~~included~~recorded in ~~the computation of~~Other expense, net ~~periodic benefit cost for pension and other postretirement benefits~~ (see Note G)E).

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/benefit 122
11
—
—
Tax expense (28 ) (4 ) —
—
Total Other comprehensive income before reclassifications, net of tax 94
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 income 172
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 revaluations 3
4
—
—
Tax expense —
(2 ) —
—
Total Other comprehensive income before reclassifications, net of tax 3
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 )

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 $300 ($~~2,658~~3,258 in draws and ~~$2,358~~$2,958 in repayments) since the program’s inception, including net cash draws totaling $0 ($300 in draws and $300 in repayments) for the six months ended June 30, ~~2018.~~2019.

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the deferred purchase program receivable was ~~$313~~$426 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~~$45,626 and ~~$37,885,~~$44,921, 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.



	June 30, 2019		December 31, 2018
Finished goods	$	701	$	668
Work-in-process	1,447		1,371
Purchased raw materials	361		366
Operating supplies	97		87
Total inventories	$	2,606	$	2,492

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the portion of inventories valued on a last-in, first-out (LIFO) basis was ~~$1,372~~$1,343 and ~~$1,208,~~$1,292, respectively. If valued on an average-cost basis, total inventories would have been ~~$527~~$506 and ~~$481~~$530 higher at June 30, ~~2018~~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~~Long-Lived Assets



	June 30, 2019		December 31, 2018
Land and land rights	$	136	$	136
Structures	2,378		2,364
Machinery and equipment	9,249		9,234
	11,763		11,734
Less: accumulated depreciation and amortization	7,013		6,769
	4,750		4,965
Construction work-in-progress	767		739
	$	5,517	$	5,704

June 30, 2018 December 31, 2017
Land and land rights $ 139
$ 140
Structures 2,376
2,395
Machinery and equipment 9,148
8,830
11,663
11,365
Less: accumulated depreciation and amortization 6,674
6,392
4,989
4,973
Construction work-in-progress 593
621
$ 5,582
$ 5,594

During the second quarter of ~~2018,~~2019, the Company updated its ~~three-year~~five-year strategic plan and determined that there was a decline in the forecasted financial performance for the ~~disks operations, an~~Disks asset group within the ~~Arconic Engines business unit.~~Engineered Products and Solutions segment. As such, the Company evaluated the recoverability of the Disks long-lived assets by comparing ~~their~~the carrying value ~~of approximately $515~~ to the ~~estimated~~ undiscounted ~~net~~ cash flows of the ~~disk operations, resulting in an estimated fair~~Disks asset group. The carrying value exceeded the undiscounted cash flows and therefore the Disks long-lived assets were deemed to be impaired. The impairment charge was measured as the amount of carrying value in excess of ~~their~~

~~carrying~~fair value of ~~approximately 13%; thus, there was no impairment. If~~ 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~~with fair value determined using a discounted cash flow model and a combination of sales comparison and cost approach valuation methods including an estimate for economic obsolescence. The impairment charge of $428 recorded in future periods. These significant assumptions include sales growth, cost of raw materials, ramp up of additional production capacity, and working capital. A 1% decrease in the forecasted net cash flows would reduce the undiscounted cash flows by approximately $6. The Company also performed an interim impairment evaluation of goodwill for the Arconic Engines reporting unit as a result of the decline in the forecasted performance of the disks operations during the second quarter of ~~2018.~~2019 impacted properties, plant and equipment; intangible assets; and certain other

noncurrent assets by $198, $197 and $33, respectively. The ~~estimated fair value~~impairment charge was recorded in Restructuring and other charges in the Statement of ~~the reporting unit was substantially in excess of the carrying value; thus, there was no impairment of goodwill.~~Consolidated Operations.

N. Leases

The Company determines whether 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 lease renewal options is at the Company’s discretion. The Company includes renewal option periods in the lease term when it is determined that the 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 rents 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 initial term greater than 12 months are recorded on the balance sheet at the present value of the future 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 determining 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 adoption date.

Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $37 and $36 in the second quarter of 2019 and 2018, respectively, and $74 in both the six months ended June 30, 2019 and 2018.

Operating lease right-of-use assets and lease liabilities in the Consolidated Balance Sheet were as follows:



	June 30, 2019
Right-of-use assets classified in Other noncurrent assets	$	277

Current portion of lease liabilitiesclassified in Other current liabilities	77
Long-term portion of lease liabilities classified in Other noncurrent liabilities and deferred credits	211
Total lease liabilities	$	288

Future minimum contractual operating lease obligations were as follows:



	June 30, 2019			December 31, 2018
2019	$	48		$	94
2020	78			74
2021	57			54
2022	43			40
2023	32			30
Thereafter	90			87
Total lease payments	$	348		$	379
Less: Imputed interest	(60		)
Present value of lease liabilities	$	288

Right-of-use assets obtained in exchange for operating lease obligations in the second quarter and six months ended June 30, 2019 were $12 and $18, respectively. The weighted-average remaining lease term and weighted-average discount rate at June 30, 2019 was 6 years and 6.1%, respectively.

O. Debt


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
5.72% Notes, due 2019	$	—		$	500
1.63% Convertible Notes, due 2019	403			403			403			403
6.150% Notes, due 2020	1,000			1,000			1,000			1,000
5.40% Notes due 2021	1,250			1,250			1,250			1,250
5.87% Notes, due 2022	627			627			627			627
5.125% Notes, due 2024	1,250			1,250			1,250			1,250
5.90% Notes, due 2027	625			625			625			625
6.75% Bonds, due 2028	300			300			300			300
5.95% Notes, due 2037	625			625			625			625
Iowa Finance Authority Loan, due 2042	250			250			250			250
Other⁽¹⁾	(15		)	(23		)	(24		)	(29		)
Total debt	6,315			6,807
							6,306			6,301
Less: amount due within one year	3			1			405			405
Total long-term debt	$	6,312		$	6,806		$	5,901		$	5,896

~~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 into~~maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein ~~which~~that 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, ~~2018~~2019 or December 31, ~~2017,~~2018, and no amounts were borrowed during ~~2018~~2019 or ~~2017~~2018 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,~~2019, of which ~~$350~~$315 is due to expire in ~~2018~~2019 and ~~$365~~$400 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 six months ended June 30, ~~2018,~~2019, Arconic borrowed and repaid ~~$300~~$225 and ~~$300,~~$225, 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~~2019 were ~~3.3%~~3.9% and 7084 days and ~~3.2%~~3.9% and 6537 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.~~value. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities ~~which~~that are carried at fair value which is based on quoted market ~~prices.~~

~~The following table summarizes Arconic’s financial liabilities that were not carried at~~prices which are classified in Level 1 of the fair value ~~at June 30, 2018 and December 31, 2017:~~

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.



	June 30, 2019				December 31, 2018
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	5,901	$	6,240	$	5,896	$	5,873

Restricted cash was $3 and $6 at June 30, 2019 and December 31, 2018, respectively.

P.Q. Acquisitions and Divestitures

~~In March 2017,~~2019 Divestitures. On May 31, 2019, Arconic ~~completed~~sold a small additive manufacturing facility within the ~~sale of its Fusina, Italy rolling mill to Slim Aluminium. While owned by Arconic, the operating results~~Engineered Products and ~~assets and liabilities of the Fusina, Italy rolling mill were included~~Solutions segment for $1 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~~which resulted in a loss on ~~the~~ sale of ~~$60, which was~~$13 related to the non-cash impairment of the net book value of the business recorded in Restructuring and other charges ~~(see Note E) on~~in the Statement of Consolidated Operations. The sale is subject to certain post-closing adjustments.

On July 15, 2019, Arconic reached an agreement to sell inventories and properties, plant and equipment related to a small energy business within the Engineered Products and Solutions segment for $13 in cash, subject to certain post-closing adjustments. The sale is expected to close in the third quarter of 2019. As the sale agreement was substantially complete as of June 30, 2019 and the sale price was estimated to be less than the carrying value, the Company recorded an inventory impairment of $9 in the second quarter of 2019 in Cost of goods sold in the Statement of Consolidated Operations inassociated with the ~~first quarter of 2017.~~sale. The ~~rolling mill generated third-party sales of approximately $37 in the first quarter of 2017. At the time~~remaining net book value of the ~~divestiture,~~assets sold is expected to approximate the ~~rolling mill had approximately 312 employees.~~proceeds to be received.

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 ~~second~~first quarter of ~~2017,~~2018 and ~~$25~~had 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 ~~$56~~Construction 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 had 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 continues to 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 had 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~~$275 at June 30, ~~2018~~2019 and ~~$294~~$266 at December 31, ~~2017~~2018 (of which ~~$51~~$95 and ~~$41,~~$81, respectively, ~~was~~were 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$13 and $8$16 in the second quarter and six months ended June 30, ~~2018, respectively. This amount~~2019, respectively, which 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~~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, ~~2018~~2019 and December 31, ~~2017,~~2018, the reserve balance associated with this matter was ~~$211~~$210 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 planning~~now under construction and ~~design phase of the project, which~~ is expected to be completed in ~~2018. Following~~2022. During the ~~submittal~~second quarter of 2019, Arconic increased the ~~final~~reserve balance by $25 due to changes required in the remedial design and ~~EPA approval, the actual remediation fieldwork is expected to commence and take approximately four years. The majority of~~post-construction monitoring. As the project ~~funding is expected~~proceeds, the liability may be updated due to ~~be incurred between 2018~~factors 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~~$173 (€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 is in the process of 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 to~~receives 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 $60 (€52) and an indemnification receivable of $29 (€25), representing Alcoa Corporation’s 49% share of the liability. The ~~Company will reassess the recognition~~reserve and ~~measurement of tax benefits related to the uncertain tax positions in the 2006 to 2009 tax years~~indemnification 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.

Behrens et al. v. Arconic Inc. et al. On June 6, 2019, 247 plaintiffs comprised of survivors and estates of decedents of the Grenfell Tower fire filed a complaint against “Arconic Inc., Alcoa Inc. and Arconic Architectural Products, LLC,” (collectively “Arconic”), as well as Saint-Gobain Corporation, d/b/a Celotex and Whirlpool Corporation, in the Court of Common Pleas of Philadelphia County. The complaint alleges claims under Pennsylvania state law for products liability and wrongful death related to the fire. In particular, the plaintiffs allege that Arconic knowingly supplied a dangerous product (Reynobond PE) for installation on the Grenfell Tower despite knowing that Reynobond PE was unfit for use above a certain height. Arconic removed the case to the United States District Court for the Eastern District of Pennsylvania on June 19, 2019. The Court’s current scheduling order provides defendants until August 29, 2019 to file motions to dismiss the complaint.

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~~alleged 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~~alleged 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.~~Report, and on its official website. The consolidated amended complaint ~~seeks,~~sought, 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~~On June 21, 2019, the Court granted the defendants’ motion to dismiss in full, dismissing the consolidated amended complaint in its entirety without prejudice. On July 23, 2019, the lead plaintiffs filed a second amended complaint. The second amended complaint alleges generally the same claims as the consolidated amended complaint with certain additional allegations, as well as claims that ~~motion remains ongoing.~~the risk factors set forth in the registration statement for the Preferred Offering were inadequate and that certain additional statements in the sources identified above were misleading. The second amended complaint seeks, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses.

Raul v. Albaugh, et al. On As 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, investigate, and make recommendations to the Board regarding the appropriate course of action with respect to these shareholder demand letters. ~~The~~On May 22, 2019, the Special Litigation Committee, ~~and~~following completion of its investigation into the claims demanded in the demand letters, recommended to the Board ~~are continuing~~that it reject the demands to ~~consider~~authorize commencement of litigation. On May 28, 2019, the ~~appropriate responses~~Board adopted the Special Litigation Committee’s findings and recommendations and rejected the demands that it authorize commencement of actions to assert the ~~shareholder~~claims set forth in the 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.letters.

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 ~~tax~~antitrust 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,~~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 ~~2018~~2019 and 2026, was ~~$33~~$31 at June 30, ~~2018.~~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$8 and $8$6 at June 30, ~~2018~~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~~$1,215 and ~~$1,297~~$1,087 at June 30, ~~2018~~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 ~~each~~this 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 contracts~~contract 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~~$137 at June 30, ~~2018.~~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.~~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~~$24 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

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 be named Howmet Aerospace Inc. and comprises the Engineered Products and Forgings businesses and the other company will be named Arconic Corporation and comprises 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 Arconic Corporation and the Arconic Wheel and Transportation Products business to become part of Howmet Aerospace. The Company 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 second quarter and six months ended June 30, 2019, Arconic recognized $16 and $19, respectively, 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 Q~~Note F for details of ~~subsequent events related to an uncertain tax position that was effectively settled and an ongoing tax matter in Spain.~~a three-year labor agreement with the USW at four locations.

See Note F for details of a four-year labor agreement with the USW at the Company's Niles, Ohio facility.

See Note Q for details of the anticipated divestiture of a small manufacturing facility.

On ~~July 31,2018,~~August 2, 2019, the Company announced that it had ~~initiated~~entered into a ~~sale process~~letter agreement with John C. Plant providing for an extension of Mr. Plant’s term of employment as Chief Executive Officer through the earlier of August 6, 2020 and the date on which the expected separation occurs; the agreement provides that if the separation occurs prior to August 6, 2020, Mr. Plant will serve as an Advisor to the Company and its ~~Building~~Board of Directors through August 6, 2020. Additionally, on August 2, 2019, the Company announced that Elmer Doty, President and ~~Construction Systems (BCS) business,~~Chief Operating Officer, will separate from employment with the Company, effective August 16, 2019. Mr. Doty will continue to serve as ~~part~~a non-employee director of the Company’s ongoing strategy and portfolio review that commenced in January 2018. BCS is part of the Transportation and Construction Solutions segment and generated third-party sales of approximately $1,070 for the year ended December 31, 2017.Company.

Report of Independent Registered Public Accounting ~~Firm~~Firm*

To theShareholders 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,~~2019, and the related statements of consolidated operations, ~~and~~of consolidated comprehensive income (loss), and of changes in consolidated equity for the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018 and the statements of consolidated cash flows ~~and changes in consolidated equity~~ for the six-month periods ended June 30, ~~2018~~2019 and ~~2017,~~2018, 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 consolidated statements of ~~consolidated~~ operations, ~~consolidated~~ comprehensive (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, ~~2018~~2019

* The Company notes that PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for its report on the unaudited interim financial statements because that report is not a "report" or a "part" of a registration statement within the meaning of Sections 7 and 11 of the Act.

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 $3,691 in the second quarter of 2019 compared to $3,573 in the second quarter of 2018 ~~compared to $3,261~~and $7,232 in the ~~second quarter of 2017 and~~six months ended June 30, 2019 compared to $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,~~$118, or ~~10%~~3%, in the second quarter of ~~2018~~2019 and ~~$565,~~$214, or 9%3%, in the six months ended June 30, ~~2018,~~2019, was ~~the result of strong~~primarily due to volume growth across all segments, primarily in the aerospace, ~~engines and defense, automotive,~~ commercial transportation, ~~and~~packaging, building and construction, industrial and automotive end markets; ~~higher aluminum prices;~~favorable product pricing and mix in the Global Rolled Products (GRP) segment; favorable ~~foreign currency movements; partially offset by~~aerospace product pricing in the Engineered Products and Solutions (EP&S) segment when fulfilling volume above contractual share, renewing contracts, and selling non-contractual spot business; and costs incurred in the second quarter of 2018 of $38 related to settlements of certain customer claims primarily related to product ~~introductions; the absence~~introductions that did not recur in 2019; partially offset by lower sales of ~~sales from the rolling mill in Fusina, Italy, which was divested in March 2017,~~$55 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.~~

~~Cost of goods sold (COGS).~~ COGS as a percentage of Sales was 81.2% in the second quarter of 2018 compared to 78.2% in the second quarter of 2017 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$133 in the second quarter and six months ended June, 30, 2019, respectively, 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 unfavorable foreign currency movements.

Cost of goods sold (COGS). COGS as a percentage of Sales was 79.6% in the second quarter of 2019 compared to 81.2% in the second quarter of 2018 and 79.6% in the six months ended June 30, 2019 compared to 80.8% in the six months ended June 30, 2018. The decrease in the second quarter and six months ended June 30, 2019 was ~~the result~~primarily due to lower aluminum prices; favorable product pricing; net cost savings; costs of ~~higher aluminum prices, unfavorable product mix, higher input costs, costs~~$38 incurred in 2018 related to settlements of certain customer claims noted ~~above, performance shortfalls in the rings~~above; and ~~disks operations, and the impact~~a charge of a $23 ~~charge~~ related to a physical inventory adjustment at one plant in the ~~Engineered Products and Solutions segment. While~~GRP segment (this plant was previously included in the EP&S segment prior to the transfer of the aluminum extrusions operations from EP&S to GRP in the first quarter of 2019) incurred in 2018 that did not recur in 2019; partially offset by unfavorable product mix; a ~~portion of this~~ charge for environmental remediation at Grasse River of $25; the ~~physical~~impairment of energy business assets of $9; and a charge of $9 primarily for a one-time signing bonus for employees associated with the collective bargaining agreement negotiation. In June of 2019 the Company and the United Steelworkers reached a tentative three-year labor agreement covering approximately 3,400 employees at four U.S. locations; the previous labor agreement expired on May 15, 2019. The tentative agreement was ratified on July 11, 2019. Additionally, in the second quarter of 2019, the Company recorded a charge of $4 for equipment and inventory ~~adjustment relates~~damage, as well as higher operating costs related to ~~prior years,~~a fire at a fasteners plant in France. The Company anticipates a charge of approximately $5 to $10 in the ~~majority relates~~third quarter of 2019, with additional impacts in subsequent quarters as the business continues to ~~2018.~~recover from the fire. The ~~out-of-period amounts are not material to any interim or annual periods.~~Company has insurance with a deductible of $10.

Selling, general administrative, and other expenses (SG&A). SG&A expenses were $178 in the second quarter of 2019 compared to $158 in the second quarter of 2018 ~~compared to $200~~and $356 in the ~~second quarter of 2017 and~~six months ended June 30, 2019 compared to $330 in the six months ended June 30, ~~2018 compared to $417 in the six months ended June 30, 2017.~~2018. The ~~decrease~~increase of ~~$42,~~$20, or ~~21%~~13%, in the second quarter of ~~2018 was the result of proxy, advisory~~2019 and governance-related costs of $42 in the second quarter of 2017 which did not recur 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 $4. The decrease of $87,$26, or ~~21%~~8%, in the six months ended June 30, ~~2018~~2019, was primarily due to costs associated with the ~~result of costs related to the~~planned separation of ~~Alcoa Inc.~~Arconic and higher annual incentive compensation accruals and executive compensation costs, partially offset by lower costs driven by overhead cost reductions. The six months ended June 30, 2019 was also impacted by $6 in strategy and portfolio review costs.

Research and development expenses (R&D).R&D expenses were $17 in the second quarter of ~~$18~~2019 compared to $29 in the second quarter of 2018 and ~~proxy, advisory and governance-related costs of $58~~$39 in the six months ended June 30, ~~2017, neither~~2019 compared to $52 in the six months ended June 30, 2018. The decrease of ~~which recurred~~$12, or 41%, in ~~2018. Also, lower expenses driven by overhead~~the second quarter of 2019 and $13, or 25%, in the six months ended June 30, 2019, was primarily due to the consolidation of the Company's primary R&D facility in conjunction with ongoing cost ~~reductions were partially offset by the impact of legal and other advisory costs related to Grenfell Tower of $9.~~reduction efforts.

Restructuring and other charges. Restructuring and other charges ~~were~~was $499 in the second quarter of 2019 compared to $15 in the second quarter of 2018 ~~compared to $26~~and $511 in the ~~second quarter of 2017 and~~six months ended June 30, 2019 compared to $22 in the six months ended June 30, ~~2018 compared to $99~~2018. The increase of $484 in the second quarter of 2019 and $489 in the six months ended June 30, ~~2017.~~2019, was primarily due to a charge for impairment of a long-lived asset group of $428 in the second quarter and six months ended June, 30, 2019 (see Note M to the Consolidated Financial Statements), increases in layoff charges of $26 and $87 in the second quarter and six months ended June, 30, 2019, respectively, a charge for impairment of a trade name intangible asset and properties, plant, and equipment of $16 in the second quarter and six months ended June, 30, 2019, a charge for other exit costs from lease

termination of $12 in the second quarter and six months ended June, 30, 2019, and a loss on sale primarily related to a small additive business of $12 in the second quarter and six months ended June, 30, 2019. The six months ended June 30, 2019 was also impacted by a credit of $58 related to the elimination of life insurance benefits for U.S. salaried and non-bargaining hourly retirees of the Company and its subsidiaries. See Note D to the Consolidated Financial Statements.

Interest expense. Interest expense was $85 in the second quarter of 2019 compared to $89 in the second quarter of 2018 and $170 in the six months ended June 30, 2019 compared to $203 in the six months ended June 30, 2018. The decrease of ~~$11,~~$4, or ~~42%~~4%, in the second quarter of ~~2018 was the result of lower restructuring activity.The decrease of $77,~~2019 and $33, or ~~78%~~16%, in the six months ended June 30, ~~2018,~~2019, was primarily ~~the result of a loss of $60 on the sale of the Fusina, Italy rolling mill in March 2017. See Note E~~due to ~~the Consolidated Financial Statements.~~

~~Interest expense.~~ ~~Interest expense was $89 in the second quarter of 2018 compared to $183 in the second quarter of 2017 and $203 in the~~lower debt outstanding. The six months ended June 30, 2018 ~~compared to $298 in the six months ended June 30, 2017. The decrease~~was also impacted by a charge of ~~$94, or 51%, in the second quarter of 2018 was the result of costs incurred in the second quarter of 2017~~$19 related to ~~premiums~~the premium paid ~~for~~on the early redemption of the Company’s outstanding ~~debt of $76 which~~5.72% Senior Notes due 2019 incurred in 2018 that did not recur in 2018, 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.2019.

Other expense, ~~(income),~~ net. Other expense, net was $29 in the second quarter of 2019 compared to $41 in the second quarter of 2018 ~~compared to Other income, net of $132~~and $61 in ~~the second quarter of 2017 and Other expense, net was $61 in~~both the six months ended June 30, ~~2018 compared~~2019 and 2018. The decrease of $12, or 29%, in the second quarter of 2019 was primarily due to ~~Other income, net of $448~~favorable foreign currency movements partially offset by an increase in ~~the~~deferred compensation arrangements related to investment performance. The six months ended June 30, ~~2017. The decrease of $173~~2019 was consistent with the prior period but was also impacted by favorable foreign currency movements offset by an increase in the second quarter of 2018 was primarily due to the $167 gain on the Debt-for-Equity Exchange (see Note F to the Consolidated Financial Statements) 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~~(Benefit) provision for income taxes.The tax rate including discrete items was ~~38.1% and 21.2% for~~37.9% in the second quarter of ~~2018 and 2017, respectively.~~2019 compared to 38.1% in the second quarter of 2018. A discrete tax benefit of $36 was recorded in the second quarter of 2019 compared to a discrete tax charge of $21 ~~was recorded~~ in the second quarter of 2018. The estimated annual effective tax rate before discrete items applied to ordinary income, was 35.3% in the second quarter of 2019 compared to 27.0% ~~and 28.4% for~~in the ~~six months ended June 30, 2018 and 2017, respectively.~~second quarter of 2018. See Note HG to the Consolidated Financial Statements.

Net ~~income.~~(loss) income. Net loss was $121 in the second quarter of 2019 or $0.27 per diluted share, compared to Net income ~~was~~of $120 in the second quarter of 2018, or $0.24 per diluted share, ~~compared to $212~~and Net income of $66 in the ~~second quarter of 2017,~~six months ended June 30, 2019, or ~~$0.43~~$0.14 per diluted share, ~~and~~compared to Net income of $263 in the six months ended June 30, 2018, or $0.53 per diluted ~~share, compared to $534~~share. The decrease of $241 in the second quarter of 2019 and $197 in the six months ended June 30, ~~2017, or $1.07 per diluted share. The decrease of $92, or 43%, in the second quarter of 2018~~2019, was primarily ~~attributable~~due to ~~the gain on the Debt-for-Equity Exchange in the second quarter of 2017 that did not recur in 2018,~~ higher ~~aluminum prices,~~Restructuring and ~~costs related to settlements of certain customer claims~~other charges, and ~~a physical inventory adjustment,~~higher SG&A expenses, partially offset by volume growth, favorable product pricing, net cost savings, lower Income taxes, lower Interest expense, 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.R&D expenses.

Segment Information

In the first quarter of ~~2018,~~2019, the Company ~~changed~~transferred its ~~primary measure of~~aluminum 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, depreciation~~to 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 recast to conform to current year presentation.~~Differences 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 temporary reduction in the production rate of the 737 MAX airplanes that was announced by Boeing in April 2019 did not have a significant impact on the Company's revenues or segment operating profit in the second quarter. A significant 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 ended				Second quarter ended				Six months ended
	June 30,				June 30,				June 30,				June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Third-party sales	$	1,596	$	1,485	$	3,137	$	2,972	$	1,565	$	1,474	$	3,067	$	2,900
Segment operating profit	212		250		433		497		286		224		539		433

Third-party sales for the Engineered Products and Solutions segment increased ~~$111,~~$91, or 7%6%, in the second quarter of 2019 compared to the second quarter of 2018 and ~~$165,~~$167, or 6%, in the six months ended June 30, ~~2018~~2019 compared ~~with~~to the ~~corresponding periods in 2017,~~six months ended June 30, 2018, primarily as a result of higher volumes and favorable product pricing in the aerospace ~~engines and defense~~ end ~~markets and favorable~~market, partially offset by unfavorable foreign currency movements ~~partially offset by a decline~~and the absence of sales of $9 and $19 in the ~~industrial gas turbine market~~second quarter and ~~unfavorable product pricing.~~six months ended June 30, 2019, respectively, from the forgings business in Eger, Hungary (divested in December 2018).

Segment operating profit for the Engineered Products and Solutions segment ~~decreased $38,~~increased $62, or ~~15%~~28%, in the second quarter of 2019 compared to the second quarter of 2018 and ~~$64,~~$106, or ~~13%~~24%, in the six months ended June 30, ~~2018~~2019 compared to the ~~corresponding periods in 2017,~~six months ended June 30, 2018, due to ~~performance shortfalls in the rings~~higher 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 ~~strength~~unfavorable impact of new product introductions in aerospace ~~engine volumes.~~engines and unfavorable product mix.

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 the second half of 2019 compared to the second half of 2018, 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 continue to grow due to the ~~continuing~~ ramp-up of certain aerospace ~~programs, while declines in the industrial gas turbine market are likely to continue.~~programs. Net cost savings ~~are anticipated despite higher input costs,~~ and favorable pricing ~~pressures and challenges at the rings and disks operations~~ are expected to continue.

Global Rolled Products

Third-party sales for the Global Rolled Products segment increased ~~$180, or 14%,~~$4 in the second quarter of 2019 compared to the second quarter of 2018 and ~~$298,~~$26, or ~~12%~~1%, in the six months ended June 30, ~~2018~~2019 compared ~~with~~to the ~~corresponding periods in 2017,~~six months ended June 30, 2018 primarily as a result of higher ~~aluminum prices, higher~~ volumes in the aerospace, packaging, automotive, and ~~commercial transportation~~industrial end markets and favorable ~~foreign currency movements,~~product mix, partially offset by lower aluminum prices, the absence of sales of $46 and $89 in the second quarter and six months ended June 30, 2019, respectively, from the ~~rolling mill~~completed 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,~~increased $34, or 8%31%, in the second quarter of 2019 compared to the second quarter of 2018 and ~~$34,~~$17, or ~~13%~~7%, in the six months ended June 30, 2019 compared to the six months ended June 30, 2018, ~~compared with the corresponding periods~~due to favorable pricing adjustments on industrial and commercial transportation products, higher volumes as noted previously, favorable aluminum price impacts, and a charge related to a physical inventory adjustment at one plant incurred in ~~2017, principally driven by unfavorable aerospace wide-body production mix and higher aluminum prices,~~2018 that did not recur in 2019, partially offset by ~~higher automotive~~operational headwinds in the Aluminum Extrusions business and ~~commercial transportation volumes and net cost savings.~~the Tennessee plant transition to industrial production.

In the second half of 2019 compared to the second half of 2018, demand in the ~~automotive~~North America commercial transportation and industrial end ~~market~~markets is expected to ~~continue to~~ grow ~~due to~~as a result of the ~~growing demand for innovative products and aluminum-intensive vehicles.~~International Trade Commission initiated common alloy trade case. Demand from the commercial airframe end market is expected to be ~~flat~~up 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~~Demand in the automotive end market is expected to be flat and strong demand from the packaging ~~operations~~end market is expected to continue. ~~Higher aluminum prices~~Favorable pricing and net productivity improvements are ~~expected to continue to negatively impact this segment on a year over year basis. Net cost savings are~~also 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

Third-party sales for the Transportation and Construction Solutions segment ~~increased $58,~~decreased $14, or ~~12%~~2%, in the second quarter of 2019 compared to the second quarter of 2018 and ~~$139,~~$16, or ~~14%~~1%, in the six months ended June 30, 2019 compared to 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~~were more than offset by lower aluminum prices and ~~favorable~~unfavorable foreign currency ~~movements, partially offset~~movements. The six months ended June 30, 2019 was also impacted by the absence of sales ~~resulting~~of $25 from the ~~divestiture of the Latin America~~ extrusions business in Latin America (divested in April ~~2018.~~2018).

Segment operating profit for the Transportation and Construction Solutions segment increased ~~$26,~~$10, or ~~37%~~10%, in the second quarter of 2019 compared to the second quarter of 2018 and ~~$25,~~$30, or 18%, in the six months ended June 30, ~~2018~~2019 compared ~~with~~to the ~~corresponding periods in 2017,~~six months ended June 30, 2018, principally as a result of ~~higher volume in the commercial transportation and building and construction end markets, favorable foreign currency movements and~~ net cost savings ~~partially offset by~~and higher ~~aluminum prices.~~

volumes as noted previously.

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 drive~~the Company’s ongoing strategy and portfolio review. In the first quarter of 2019, the Company decided to ~~streamline its~~no longer pursue the sale of BCS and the business ~~portfolio, reduce complexity~~continues to be reported in the Transportation and ~~further focus on its higher-margin products and profitable growth.~~Construction Solutions segment.

In the second half of 2019 compared to the second half of 2018, ~~we expect~~ continued growth in the North American and European commercial transportation and building and construction markets ~~and continued demand~~is anticipated but at a slower pace than experienced in the first half of 2019 due to the expected slowdown in the North American heavy-duty truck market. Demand for innovative ~~products. Net~~products and net cost savings are anticipated to continue.

Reconciliation of Total segment operating profit to Consolidated (loss) income before income taxes

~~The changes in the reconciling items between Total segment operating profit~~See Restructuring and ~~Consolidated income before income taxes~~other charges, Interest expense, and Other expense, net discussions above under Results of Operations for reference.

Corporate expense increased $27, or 29%, in the second quarter of 2019 compared to the second quarter of 2018 and $28, or 18%, in the six months ended June 30, ~~2018~~2019 compared to the ~~corresponding periods in 2017 consisted of:~~

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.

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

Liquidity and Capital Resources

Operating ~~activities~~Activities

Cash used for operations was $152 in the six months ended June 30, 2019 compared to $260 in the six months ended June 30, ~~2018 compared to $316 in the six months ended June 30, 2017.~~2018. The decrease in cash used of ~~$56,~~$108, or ~~18%~~42%, was primarily due to higher operating results ~~(net income plus net add-back for noncash transactions in earnings)~~and lower pension contributions of ~~$87 and a favorable change in noncurrent assets of $56,~~$97, partially offset by higher ~~pension contributions of $74 and higher~~ working capital of ~~$10.~~$126. The components of the change in working capital included unfavorable changes of ~~$142~~$247 in accounts payable and $34 in receivables, ~~$70~~partially offset by favorable changes of $103 in inventories and ~~$84~~$38 in ~~taxes, including income taxes, partially offset by a favorable change of $287 in accounts payable.~~accrued expenses.

Financing Activities

Cash used for financing activities was $942 in the six months ended June 30, 2019 compared to $577 in the six months ended June 30, ~~2018 compared to $955 in the six months ended June 30, 2017.~~2018. The ~~decrease~~increase in cash used of ~~$378~~$365, or 63%, was primarily related to the ~~early redemption during 2017~~repurchase of $900 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 due to the ~~early~~ redemption ~~during~~in the first quarter of 2018 of the ~~remaining~~then outstanding 5.72% Notes due in 2019 ~~(see Note N~~with aggregate principal amount of $500; a decrease in dividends paid to ~~the Consolidated Financial Statements).~~shareholders of $21; and premiums paid on early redemption of debt 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:

Investing Activities

Cash provided from investing activities was $171 in the six months ended June 30, 2019 compared to $146 in the six months ended June 30, ~~2018 compared to $1,179~~2018. The increase in ~~the six months ended June 30, 2017. The decrease~~cash provided of ~~$1,033~~$25, or 17%, was primarily due to the sale of ~~Alcoa Corporation common stock for proceeds~~fixed-income securities of ~~$888 and~~$47 in the ~~receipt~~first quarter of ~~proceeds from the sale of the Yadkin Hydroelectric Project of $243 during the six months ended June 30, 2017, which were partly~~2019, partially offset by ~~an increase in cash receipts from sold receivables~~higher capital expenditures of ~~$135.~~$16.

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, ~~2017~~2018 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.

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 second quarter of ~~2018~~2019 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~~Massena, NY sections 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 June 30, 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
April 1 - April 30, 2019⁽²⁾	4,525,592	$	19.21	4,525,592	$	300,000,000
May 1 - May 31, 2019⁽³⁾	7,455,732	$	22.18	7,455,732	$	600,000,000
June 1 - June 30, 2019⁽³⁾	1,561,249	$	22.18	1,561,249	$	600,000,000
Total for quarter ended June 30, 2019	13,542,573			13,542,573

⁽¹⁾

On February 5, 2018, the Company announced that its Board of Directors (the Board) had authorized the repurchase of up to $500 million of the Company's outstanding common stock (the "February 2018 Share Repurchase Program"). There was no stated expiration for the February 2018 Share Repurchase Program, and no shares were repurchased during 2018. On February 8, 2019, the Company announced that the Board had authorized the repurchase of an additional $500 million of the Company's outstanding common stock, effective through the end of 2020. On May 20, 2019, the Company announced that the Board had authorized the repurchase of a further $500 million of the Company's outstanding common stock (the "May 2019 Share Repurchase Program"). There was no stated expiration for the May 2019 Share Repurchase Program.

⁽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.

⁽³⁾

On May 2, 2019, the Company entered into an ASR agreement with JPM to repurchase $200 million of its common stock, and received an initial delivery of 7,455,732 shares. The term of the ASR concluded on June 10, 2019, with JPM delivering 1,561,249 additional shares to Arconic on June 12, 2019. A total of 9,016,981 shares, at an average price of $22.18 per share, were repurchased under the agreement.

Item 6. Exhibits.



10(a).	2013 Arconic Stock Incentive Plan, as ~~amended~~Amended and ~~restated,~~Restated, incorporated by reference to Exhibit 10.1 to the ~~Company’s~~Company's Current Report on Form 8-K dated May ~~22, 2018~~ 17, 2019.
10(b).	~~Amendment No. 2,~~Change in Control Severance Plan, as amended and restated, effective May 14, 2019, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated May 17, 2019.
10(c).	Executive Severance Plan, as amended and restated, effective May 14, 2019, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K dated May 17, 2019.
10(d).	Special Retention Award Agreement - Neil E. Marchuk, effective May 14, 2019.
10(e).	Letter Agreement, by and between Arconic Inc. and John C. Plant, 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,August 1, 2019, incorporated by reference to Exhibit 10.1 to the ~~Company’s~~Company's Current Report on Form 8-K dated ~~July~~August 2, ~~2018~~2019.
~~10(c).~~	~~Letter Agreement, from Arconic Inc. to Katherine H. Ramundo, dated as of May 31, 2018~~
~~10(d).~~	~~Special Retention Award Agreement - Katherine H. Ramundo, effective May 16, 2018~~
~~10(e).~~	~~Special Retention Award Agreement - Paul Myron, effective May 16, 2018~~
~~10(f).~~	~~Form of Stock Option Award Agreement~~
~~10(g).~~	~~Form of Restricted Share Unit Award Agreement~~
~~12.~~	~~Computations of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends~~
15.	Letter regarding unaudited interim financial ~~information~~information.
31.	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.
32.	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema ~~Document~~Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.



101.DEF	XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document.
104.	Cover Page Interactive Data File - the cover page from this Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments).

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, ~~2018~~2019	/s/ Ken Giacobbe
Date	Ken Giacobbe
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

August 2, ~~2018~~2019	/s/ Paul Myron
Date	Paul Myron
	Vice President and Controller
	(Principal Accounting Officer)

3435



Delaware				25-0317820
(State of incorporation)				(I.R.S. Employer Identification No.)

~~390 Park Avenue, New York, New York~~		~~10022-4608~~
201 Isabella Street,	Suite 200,	Pittsburgh,	Pennsylvania	15212-5872
(Address of principal executive offices)				(Zip code)



	Long-Term Debt	Short-Term Debt	Outlook	Date of Last Update
Standard and Poor’s	BBB-	A-3	~~Stable~~Negative	~~May 1, 2017~~April 26, 2019
Moody’s	Ba2	Speculative Grade Liquidity-2	Stable	~~November 2, 2017~~June 7, 2019
Fitch	BB+	B	~~Stable~~Positive	~~July 3, 2017~~February 12, 2019



	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


⁽¹⁾	The average exercise price per share of options ~~per share~~ was $25.03 and $32.66 for the second quarter and six months ended June 30, 2019 and $26.80 for the second quarter and six months ended June 30, ~~2018 and $28.85 for the second quarter and six months ended June 30, 2017.~~2018.


⁽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.


⁽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.~~


⁽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.