UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~

2018



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

Commission File Number 1-3610

ARCONIC INC.

(Exact name of registrant as specified in its charter)



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

390 Park Avenue, New York, New York		10022-4608
(Address of principal executive offices)		(Zip code)

Investor Relations 212-836-2758

Office of the Secretary 212-836-2732

(Registrant’s telephone number including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒✓ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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	☒	✓	Accelerated filer	☐

Non-accelerated filer	~~☐ (Do not check if a smaller reporting company)~~	__	Smaller reporting company	☐

			Emerging growth ~~Company~~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 ☒

✓

As of ~~October 20, 2017,~~July 25, 2018, there were ~~481,324,177~~482,954,718 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)

   Third quarter ended
September 30, Nine months ended
September 30,
   2017 2016 2017 2016
Sales (I)
   $ 3,236 $ 3,138 $ 9,689 $ 9,427
Cost of goods sold (exclusive of expenses below)
   2,626 2,503 7,701 7,436
Selling, general administrative, and other expenses
   155 229 580 673
Research and development expenses
   25 30 83 93
Provision for depreciation and amortization
   140 136 410 402
Restructuring and other charges (D & E)
   19 3 118 33


Operating income
   271 237 797 790
Interest expense (L)
   100 126 398 371
Other income, net (G)
   (1 ) (11 ) (526 ) (40 )


Income from continuing operations before income taxes
   172 122 925 459
Provision for income taxes
   53 56 272 230


Income from continuing operations after income taxes
   119 66 653 229
Income from discontinued operations after income taxes (G)
   —   120 —   146


Net income
   119 186 653 375
Less: Income from discontinued operations attributable to noncontrolling interests (G)
   —   20 —   58


Net income attributable to Arconic
   $ 119 $ 166 $ 653 $ 317


Amounts Attributable to Arconic Common Shareholders (J):

Net income
   $ 101 $ 148 $ 600 $ 265


Earnings per share - basic

Continuing operations
   $ 0.23 $ 0.11 $ 1.36 $ 0.40
Discontinued operations
   —   0.23 —   0.20


Net income per share - basic
   $ 0.23 $ 0.34 $ 1.36 $ 0.60


Earnings per share - diluted

Continuing operations
   $ 0.22 $ 0.11 $ 1.31 $ 0.40
Discontinued operations
   —   0.22 —   0.20


Net income per share - diluted
   $ 0.22 $ 0.33 $ 1.31 $ 0.60


Dividends paid per share
   $ 0.06 $ 0.09 $ 0.18 $ 0.27


Weighted Average Shares Outstanding (J):

Average shares outstanding - basic
   442 438 441 438


Average shares outstanding - diluted
   462 453 501 443



	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

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

Arconic and subsidiaries

Statement of Consolidated Comprehensive Income ~~(Loss)~~ (unaudited)

(in millions)

   Arconic Noncontrolling
Interests Total
   Third quarter ended
September 30, Third quarter ended
September 30, Third quarter ended
September 30,
   2017 2016 2017    2016 2017 2016
Net income
   $ 119 $ 166 $ —      $ 20 $ 119 $ 186
Other comprehensive income (loss), net of tax (C):

Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits
   31 (462 ) —      (1 ) 31 (463 )
Foreign currency translation adjustments
   85 157 —      45 85 202
Net change in unrealized gains/losses on available-for-sale securities
   1 —   —      —   1 —
Net change in unrecognized gains/losses on cash flow hedges
   10 (338 ) —      (10 ) 10 (348 )




Total Other comprehensive income (loss), net of tax
   127 (643 ) —      34 127 (609 )




Comprehensive income (loss)
   $ 246 $ (477 ) $ —      $ 54 $ 246 $ (423 )




   Arconic Noncontrolling
Interests Total
   Nine months ended
September 30, Nine months ended
September 30, Nine months ended
September 30,
   2017 2016 2017    2016 2017 2016
Net income
   $ 653 $ 317 $ —      $ 58 $ 653 $ 375
Other comprehensive income (loss), net of tax (C):

Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits
   110 (365 ) —      2 110 (363 )
Foreign currency translation adjustments
   251 505 —      184 251 689
Net change in unrealized gains/losses on available-for-sale securities
   (133 ) 4 —      —   (133 ) 4
Net change in unrecognized gains/losses on cash flow hedges
   13 (571 ) —      4 13 (567 )




Total Other comprehensive income (loss), net of tax
   241 (427 ) —      190 241 (237 )




Comprehensive income (loss)
   $ 894 $ (110 ) $ —      $ 248 $ 894 $ 138



	Arconic						Noncontrolling Interests				Total
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

	Arconic						Noncontrolling Interests				Total
Six months ended June 30,	2018			2017			2018		2017		2018			2017
Net income	$	263		$	534		$	—	$	—	$	263		$	534
Other comprehensive income, net of tax (J):
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits	172			79			—		—		172			79
Foreign currency translation adjustments	(79		)	166			—		—		(79		)	166
Net change in unrealized gains on available-for-sale securities	(2		)	(134		)	—		—		(2		)	(134		)
Net change in unrecognized gains/losses on cash flow hedges	(3		)	3			—		—		(3		)	3
Total Other comprehensive income, net of tax	88			114			—		—		88			114
Comprehensive income	$	351		$	648		$	—	$	—	$	351		$	648

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

Arconic and subsidiaries

Consolidated Balance Sheet (unaudited)

(in millions)

   September 30,
2017 December 31,
2016
Assets

Current Assets:

Cash and cash equivalents
   $ 1,815 $ 1,863
Receivables from customers, less allowances of $7 in 2017 and $13 in 2016 (K)
   1,150 974
Other receivables (G & K)
   373 477
Inventories (F)
   2,453 2,253
Prepaid expenses and other current assets
   357 325


Total current assets
   6,148 5,892
Properties, plants, and equipment
   11,791 11,572
Less: accumulated depreciation and amortization
   6,265 6,073


Properties, plants, and equipment, net
   5,526 5,499


Goodwill
   5,246 5,148
Deferred income taxes
   1,024 1,234
Investment in common stock of Alcoa Corporation (G & N)
   —   1,020
Other noncurrent assets
   1,293 1,245


Total Assets
   $ 19,237 $ 20,038


Liabilities

Current liabilities:

Short-term borrowings
   $ 54 $ 36
Accounts payable, trade
   1,656 1,744
Accrued compensation and retirement costs
   379 398
Taxes, including income taxes
   74 85
Accrued interest payable
   101 153
Other current liabilities
   412 329
Long-term debt due within one year
   1 4


Total current liabilities
   2,677 2,749
Long-term debt, less amount due within one year (L & N)
   6,802 8,044
Accrued pension benefits
   2,110 2,345
Accrued other postretirement benefits
   811 889
Other noncurrent liabilities and deferred credits
   876 870


Total liabilities
   13,276 14,897


Contingencies and commitments (H)

Equity

Arconic shareholders’ equity:

Preferred stock
   55 55
Mandatory convertible preferred stock
   3 3
Common stock
   442 438
Additional capital
   8,294 8,214
Accumulated deficit
   (519 ) (1,027 )
Accumulated other comprehensive loss (C)
   (2,327 ) (2,568 )


Total Arconic shareholders’ equity
   5,948 5,115


Noncontrolling interests
   13 26


Total equity
   5,961 5,141


Total Liabilities and Equity
   $ 19,237 $ 20,038



	June 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	1,455		$	2,150
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
Prepaid expenses and other current assets	324			374
Total current assets	6,075			6,378
Properties, plants, and equipment, net (M)	5,582			5,594
Goodwill (A & M)	4,518			4,535
Deferred income taxes	626			743
Intangibles, net	963			987
Other noncurrent assets	455			481
Total assets	$	18,219		$	18,718
Liabilities
Current liabilities:
Accounts payable, trade	$	2,024		$	1,839
Accrued compensation and retirement costs	364			399
Taxes, including income taxes	69			75
Accrued interest payable	113			124
Other current liabilities	362			349
Short-term debt	45			38
Total current liabilities	2,977			2,824
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
Total liabilities	13,001			13,794
Contingencies and commitments (Q)
Equity
Arconic shareholders’ equity:
Preferred stock	55			55
Common stock	483			481
Additional capital	8,295			8,266
Accumulated deficit	(1,073		)	(1,248		)
Accumulated other comprehensive loss (J)	(2,556		)	(2,644		)
Total Arconic shareholders’ equity	5,204			4,910
Noncontrolling interests	14			14
Total equity	5,218			4,924
Total liabilities and equity	$	18,219		$	18,718

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

Arconic and subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(in millions)

   Nine months ended
September 30,
   2017 2016
Cash from Operations

Net income
   $ 653 $ 375
Adjustments to reconcile net income to cash from operations:

Depreciation, depletion and amortization
   410 938
Deferred income taxes
   24 (67 )
Equity income, net of dividends
   —   32
Restructuring and other charges
   118 134
Net gain from investing activities - asset sales (G)
   (514 ) (152 )
Net periodic pension benefit cost (M)
   163 246
Stock-based compensation
   59 73
Other
   60 67
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:

(Increase) in receivables
   (278 ) (226 )
(Increase) decrease in inventories
   (168 ) 7
Decrease (increase) in prepaid expenses and other current assets
   6 (10 )
(Decrease) in accounts payable, trade
   (94 ) (196 )
(Decrease) in accrued expenses
   (138 ) (417 )
Increase in taxes, including income taxes
   144 63
Pension contributions
   (257 ) (227 )
(Increase) in noncurrent assets
   (37 ) (284 )
(Decrease) in noncurrent liabilities
   (62 ) (148 )


Cash provided from operations
   89 208


Financing Activities

Net change in short-term borrowings (original maturities of three months or less)
   15 (6 )
Additions to debt (original maturities greater than three months)
   664 1,313
Payments on debt (original maturities greater than three months) (L)
   (1,484 ) (1,324 )
Proceeds from exercise of employee stock options
   48 3
Dividends paid to shareholders
   (132 ) (171 )
Distributions to noncontrolling interests
   (14 ) (176 )
Other
   (15 ) 11


Cash used for financing activities
   (918 ) (350 )


Investing Activities

Capital expenditures
   (360 ) (814 )
Proceeds from the sale of assets and businesses (E)
   (9 ) 683
Additions to investments
   (2 ) (23 )
Sales of investments (G)
   890 280
Net change in restricted cash
   11 (72 )
Other (G)
   246 25


Cash provided from investing activities
   776 79


Effect of exchange rate changes on cash and cash equivalents
   5 7


Net change in cash and cash equivalents
   (48 ) (56 )
Cash and cash equivalents at beginning of year
   1,863 1,919


Cash and cash equivalents at end of period
   $ 1,815 $ 1,863



	Six months ended
	June 30,
	2018			2017
Operating activities
Net income	$	263		$	534
Adjustments to reconcile net income to cash used for operations:
Depreciation and amortization	286			270
Deferred income taxes	47			27
Restructuring and other charges	22			99
Net loss (gain) from investing activities - asset sales (F)	5			(515		)
Net periodic pension benefit cost (G)	71			108
Stock-based compensation	29			48
Other	50			115
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
(Increase) in receivables (B)	(709		)	(567		)
(Increase) in inventories	(220		)	(150		)
Decrease in prepaid expenses and other current assets	8			30
Increase (decrease) in accounts payable, trade	218			(69		)
(Decrease) in accrued expenses	(84		)	(105		)
Increase in taxes, including income taxes	37			121
Pension contributions	(237		)	(163		)
(Increase) in noncurrent assets	(4		)	(60		)
(Decrease) in noncurrent liabilities	(42		)	(39		)
Cash used for operations	(260		)	(316		)
Financing Activities
Net change in short-term borrowings (original maturities of three months or less)	5			9
Additions to debt (original maturities greater than three months)	300			512
Premiums paid on early redemption of debt (B & N)	(17		)	(52		)
Payments on debt (original maturities greater than three months) (N)	(801		)	(1,333		)
Proceeds from exercise of employee stock options	13			26
Dividends paid to shareholders	(60		)	(88		)
Distributions to noncontrolling interests	—			(14		)
Other	(17		)	(15		)
Cash used for financing activities	(577		)	(955		)
Investing Activities
Capital expenditures	(288		)	(229		)
Proceeds from the sale of assets and businesses (P)	5			(9		)
Sales of investments (F)	9			888
Cash receipts from sold receivables (B & K)	420			285
Other	—			244
Cash provided from investing activities	146			1,179
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2		)	4
Net change in cash, cash equivalents and restricted cash (B)	(693		)	(88		)
Cash, cash equivalents and restricted cash at beginning of year (B)	2,153			1,878
Cash, cash equivalents and restricted cash at end of period (B)	$	1,460		$	1,790

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    Mandatory
convertible
preferred
stock    Common
stock Additional
capital Retained
earnings Treasury
stock Accumulated
other
comprehensive
loss Noncontrolling
interests Total
Equity
Balance at June 30, 2016
   $ 55    $ 3    $ 1,391 $ 9,877 $ 8,871 $ (2,647 ) $ (5,215 ) $ 2,194 $ 14,529
Net income
   —      —      —   —   166 —   —   20 186
Other comprehensive (loss) income (C)
   —      —      —   —   —   —   (643 ) 34 (609 )
Cash dividends declared:

Preferred-Class A @ $1.875 per share
   —      —      —   —   (1 ) —   —   —   (1 )
Preferred-Class B @ $6.71875 per share
   —      —      —   —   (16 ) —   —   —   (16 )
Common @ $0.18 per share
   —      —      —   —   (80 ) —   —   —   (80 )
Stock-based compensation
   —      —      —   18 —   —   —   —   18
Common stock issued:

compensation plans
   —      —      —   (12 ) —   8 —   —   (4 )
Retirement of Treasury stock
   —      —      (76 ) (2,563 ) —   2,639 —   —   —
Reverse stock split
   —      —      (877 ) 877 —   —   —   —   —
Distributions
   —      —      —   —   —   —   —   (92 ) (92 )
Other
   —      —      —   —   —   —   —   14 14






Balance at September 30, 2016
   $ 55    $ 3    $ 438 $ 8,197 $ 8,940 $ —   $ (5,858 ) $ 2,170 $ 13,945

   Arconic Shareholders
   Preferred
stock    Mandatory
convertible
preferred
stock    Common
stock    Additional
capital    Accumulated
deficit Treasury
stock    Accumulated
other
comprehensive
loss Noncontrolling
interests    Total
Equity
Balance at June 30, 2017
   $ 55    $ 3    $ 441    $ 8,262    $ (567 ) $ —      $ (2,454 ) $ 13    $ 5,753
Net income
   —      —      —      —      119 —      —   —      119
Other comprehensive income (C)
   —      —      —      —      —   —      127 —      127
Cash dividends declared:

Preferred-Class A @ $1.875 per share
   —      —      —      —      (1 ) —      —   —      (1 )
Preferred-Class B @ $6.71875 per share
   —      —      —      —      (17 ) —      —   —      (17 )
Common at $0.12 per share
   —      —      —      —      (53 ) —      —   —      (53 )
Stock-based compensation
   —      —      —      11    —   —      —   —      11
Common stock issued:

compensation plans
   —      —      1    21    —   —      —   —      22
Other
   —      —      —      —      —   —      —   —      —














Balance at September 30, 2017
   $ 55    $ 3    $ 442    $ 8,294    $ (519 ) $ —      $ (2,327 ) $ 13    $ 5,961



	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

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    Mandatory
convertible
preferred
stock    Common
stock Additional
capital Retained
earnings Treasury
stock Accumulated
other
comprehensive
loss Noncontrolling
interests Total
Equity
Balance at December 31, 2015
   $ 55    $ 3    $ 1,391 $ 10,019 $ 8,834 $ (2,825 ) $ (5,431 ) $ 2,085 $ 14,131
Net income
   —      —      —   —   317 —   —   58 375
Other comprehensive (loss) income (C)
   —      —      —   —   —   —   (427 ) 190 (237 )
Cash dividends declared:

Preferred-Class A @ $3.75 per share
   —      —      —   —   (2 ) —   —   —   (2 )
Preferred-Class B @ $20.1563 per share
   —      —      —   —   (50 ) —   —   —   (50 )
Common @ $0.36 per share
   —      —      —   —   (159 ) —   —   —   (159 )
Stock-based compensation
   —      —      —   73 —   —   —   —   73
Common stock issued:

compensation plans
   —      —      —   (209 ) —�� 186 —   —   (23 )
Retirement of Treasury stock
   —      —      (76 ) (2,563 ) —   2,639 —   —   —
Reverse stock split
   —      —      (877 ) 877 —   —   —   —   —
Distributions
   —      —      —   —   —   —   —   (176 ) (176 )
Other
   —      —      —   —   —   —   —   13 13






Balance at September 30, 2016
   $ 55    $ 3    $ 438 $ 8,197 $ 8,940 $ —   $ (5,858 ) $ 2,170 $ 13,945

   Arconic Shareholders
   Preferred
stock    Mandatory
convertible
preferred
stock    Common
stock    Additional
capital    Accumulated
deficit Treasury
stock    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
   —      —      —      —      653 —      —   —   653
Other comprehensive income (C)
   —      —      —      —      —   —      241 —   241
Cash dividends declared:

Preferred-Class A @ $3.75 per share
   —      —      —      —      (2 ) —      —   —   (2 )
Preferred-Class B @ $20.1563 per share
   —      —      —      —      (51 ) —      —   —   (51 )
Common @ $0.24 per share
   —      —      —      —      (107 ) —      —   —   (107 )
Stock-based compensation
   —      —      —      59    —   —      —   —   59
Common stock issued:

compensation plans
   —      —      4    21    —   —      —   —   25
Distributions
   —      —      —      —      —   —      —   (14 ) (14 )
Other
   —      —      —      —      15 —      —   1 16












Balance at September 30, 2017
   $ 55    $ 3    $ 442    $ 8,294    $ (519 ) $ —      $ (2,327 ) $ 13 $ 5,961

~~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 ~~2016~~2017 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, ~~2016,~~2017, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period ~~presentation.~~

~~The separation of Alcoa Inc. into two standalone, publicly-traded companies,~~presentation (see below and Note D).

On January 1, 2018, Arconic ~~Inc. (the~~adopted new ~~name for Alcoa Inc.) and Alcoa Corporation, became effective on November 1, 2016 (the “Separation Transaction”). The financial results of Alcoa Corporation for all periods prior~~guidance issued by the Financial Accounting Standards Board (FASB) related to the ~~Separation Transaction have been retrospectively reflected in~~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 as discontinued operations~~Operations; presentation of certain cash receipts and ~~as such, have been excluded from continuing operations and segment results for~~cash payments within the ~~third quarter and nine months ended September 30, 2016. The cash flows, equity and comprehensive income related to Alcoa Corporation have not been segregated and are included in the accompanying~~ Statement of Consolidated Cash Flows ~~Statement~~that required a reclassification of ~~Changes~~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 ~~Consolidated Equity~~its Engineered Products and ~~Statement of Consolidated Comprehensive Income, respectively, for the third quarter~~Solutions (EP&S) segment, from four business units to three business units, with a focus on aligning its internal structure to core markets and ~~nine months ended September 30, 2016.~~

~~Pursuant to the authorization provided at a special meeting of Arconic common shareholders held on October 5, 2016, shareholders approved a 1-for-3 reverse stock split of Arconic’s outstanding~~customers and ~~authorized shares of common stock (the “Reverse Stock Split”).~~reducing cost. As a result of ~~the Reverse Stock Split, every three shares of issued and outstanding common stock were combined into one issued and outstanding share of common stock, without any~~this change in the ~~par~~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 ~~per share. The Reverse Stock Split reduced~~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 ~~number~~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 ~~shares~~an interim goodwill impairment evaluation that was performed for the Arconic Engines reporting unit during the second quarter of common stock outstanding from approximately 1.3 billion shares to approximately 0.4 billion shares. The Company’s common stock began trading on a reverse stock split-adjusted basis on the New York Stock Exchange on October 6, 2016.

2018.

B. Recently Adopted and Recently Issued Accounting Guidance

Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued changes to employee share-based payment accounting. Previously, an entity determined for each share-based payment award whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes resulted in either an excess tax benefit or a tax deficiency. Excess tax benefits were recognized in additional paid-in capital; tax deficiencies were recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. Excess tax benefits were not recognized until the deduction reduced taxes payable. The changes require all excess tax benefits and tax deficiencies related to share-based payment awards to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. In addition, the presentation of excess tax benefits related to share-based payment awards in the statement of cash flows changed. Previously, excess tax benefits were separated from other income tax cash flows and classified as a financing activity. The changes require excess tax benefits to be classified along with other income tax cash flows as an operating activity. Also, the changes require cash paid by an employer when directly withholding shares for tax-withholding purposes to be classified as a financing activity. Further, for a share-based award to qualify for equity classification it previously could not be partially settled in cash in-excess of the employer’s minimum statutory withholding requirements. The changes permit equity classification of share-based awards for withholdings up to the maximum statutory tax rates in applicable jurisdictions. These changes became effective for Arconic on January 1, 2017. The prospective transition method was utilized for excess tax benefits in the Statement of Consolidated Cash Flows. Management concluded that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued changes eliminating the requirement for an investor to adjust an equity method investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held as a result of an increase in the level of ownership interest or degree of influence. In addition, an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting must recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. These changes became effective for Arconic on January 1, 2017. Management determined that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued changes to derivative instruments designated as hedging instruments. These changes clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. These changes became effective for Arconic on January 1, 2017. Management determined that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

In October 2016, the FASB issued changes to the accounting for Intra-Entity transactions, other than inventory. Previously, no immediate tax impact was recognized in the consolidated financial statements as a result of intra-entity transfers of assets. The previous standard precluded an entity from reflecting a tax benefit or expense from an intra-entity transfer between entities that file separate tax returns, whether or not such entities were in different tax jurisdictions, until the asset was sold to a third party or otherwise recovered. The previous standard also prohibited recognition by the buyer of a deferred tax asset for the temporary difference arising from the excess of the buyer’s tax basis over the cost to the seller. The changes require the current and deferred income tax consequences of the intra-entity transfer to be recorded when the transaction occurs. The exception to defer the tax consequences of inventory transactions is maintained. These changes became effective for Arconic on January 1, 2017. Management determined that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

In January 2017, the FASB issued changes to the subsequent measurement of goodwill by eliminating step 2 from the goodwill impairment test, which previously required measurement of any goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. An entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value without exceeding the total amount of goodwill allocated to that reporting unit. Arconic has elected to early adopt this guidance as of January 1, 2017, and will apply it on a prospective basis. Management does not anticipate that the adoption of these changes will have a material impact on the Consolidated Financial Statements.

In January 2017, the FASB issued changes which narrow the definition of a business and require an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which would not constitute the acquisition of a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. Arconic has elected to early adopt this guidance as of January 1, 2017, and will apply it on a prospective basis. Management does not anticipate that the adoption of these changes will have a material impact on the Consolidated Financial Statements.

~~Issued~~

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. ~~In August 2015, the FASB deferred the effective date of the new guidance by one year, making these~~These changes became effective for Arconic on January 1, 2018.

Arconic ~~will adopt the~~adopted this new guidance using the modified retrospective transition approach ~~reflecting the~~applied to those contracts that were not completed as of January 1, 2018. There was no cumulative effect adjustment to the opening balance of ~~initially applying~~retained earnings in the ~~new standard to revenue recognition~~Consolidated Balance Sheet in the first quarter of ~~2018. The Company formed~~2018, as the adoption did not result in a ~~project assessment and adoption team and is currently reviewing contract terms and assessing the impact~~change to our timing of ~~adopting the new guidance on the Consolidated Financial Statements. While the Company generally recognizes~~ revenue recognition, which continues to be at a point in ~~time upon delivery and transfer of title and risk of loss~~time. See Note C for ~~most arrangements, based on the contract assessments to date, it~~

believes that revenue under certain of those contracts, primarily within the Engineered Products and Solutions segment, may be recognized over time due to the customized nature of certain of its products that have no alternative use combined with an enforceable right of payment from the customer in the event of termination of the contract. The Company is assessing the modification of certain contract terms that may impact point-in-time versus over-time revenue recognition. It is not anticipated that these modifications would result in significant changes to revenue, business practices or controls. The Company is continuing to assess the impact that over-time revenue recognition will have on its Consolidated Financial Statements; therefore an estimate of the impact of adopting this standard is not currently determinable. In addition, the Company is in the process of identifying appropriate changes to its business processes and controls, as well as preparing for revisions to accounting policies and expanded disclosures related to revenue recognition in the notes to the Consolidated Financial Statements.

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 atusing 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 ~~will require~~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~~.realized. These changes ~~which will be applied on a prospective basis, become~~became effective for Arconic on January 1, ~~2018. Management determined~~2018 and have been applied on a prospective basis. Arconic elected the measurement alternative for its equity investments that ~~the~~do not have

readily determinable fair values. The adoption of ~~these changes will~~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 issued changes to the accounting and presentation of leases. These changes require lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with a term of 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. ~~Additionally,~~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. These changes become effective for Arconic on January 1, 2019. Arconic’s current operating lease portfolio is primarily comprised 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 ~~currently~~ evaluating the ~~potential~~ impact of these changes on the Consolidated ~~Financial Statements,~~Balance Sheet, which will require right of use assets and lease liabilities be recorded ~~in the consolidated balance sheet~~ for operating ~~leases. An~~leases; therefore, an estimate of the impact ~~of this standard~~ is not currently determinable.

However, the adoption is not expected to have a material impact on the Statement of Consolidated Operations or Statement of Consolidated Cash Flows.

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 November 2016, the FASB issued changes to the classification of cash and cash equivalents within the cash flow statement. Restricted cash and restricted 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 restricted cash equivalents and cash and cash equivalents will no longer be presented as cash flow activities in the statement of cash flows and material balances of restricted cash and restricted cash equivalents must disclose information regarding the nature of the restrictions. These changes become effective for Arconic on January 1, 2018. Management determined that the adoption of these changes will not have a material impact on the Consolidated Financial Statements.

In March 2017, the FASB issued changes to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. These changes become effective for Arconic on January 1, 2019 and early adoption is permitted. Management determined that the adoption of these changes will not have a material impact on the Consolidated Financial Statements.

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 become effective for Arconic on January 1, 2018, including interim periods within those fiscal years. The new standard must be adopted retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement, and prospectively for the asset capitalization of the service cost component of net periodic benefit cost. The Company currently records non-service related net periodic pension cost and net periodic postretirement benefit cost within Cost of goods sold, Selling, general, administrative and other expenses and Research and development expenses and upon the adoption of this standard will be recorded separately from service cost in the Other income, net line item in the Statement of Consolidated Operations. The impact of the retrospective adoption of this standard update will be an increase to consolidated operating income of approximately $150 while there will be no impact to consolidated net income for the year ended December 31, 2017. Management is currently evaluating the potential impact of prospectively adopting the asset capitalization of only the service cost component on the Consolidated Financial Statements.

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 become effective for Arconic on January 1, 2018 and are to be applied prospectively to new awards granted after adoption. 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 ~~these changes~~this guidance on the Consolidated Financial Statements.

~~C. Accumulated Other Comprehensive Loss~~

~~The following table details~~

In February 2018, the ~~activity of the four components~~FASB issued guidance that ~~comprise~~allows an optional reclassification from Accumulated other comprehensive loss to Accumulated deficit for ~~both~~stranded tax effects resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017. These changes become effective for Arconic on January 1, 2019. Management is currently evaluating the potential impact of this guidance 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 ~~shareholders~~innovative, multi-material products, which include aluminum, titanium, and ~~noncontrolling interests:~~

   Arconic    Noncontrolling Interests
   Third quarter ended    Third quarter ended
   September 30,    September 30,
   2017    2016    2017    2016
Pension and other postretirement benefits (M)

Balance at beginning of period
   $ (1,931 )    $ (3,514 )    $ —      $ (53 )
Other comprehensive income (loss):

Unrecognized net actuarial loss and prior service cost
   (7 )    (819 )    —      (1 )
Tax benefit
   1    286    —      —








Total Other comprehensive loss before reclassifications, net of tax
   (6 )    (533 )    —      (1 )








Amortization of net actuarial loss and prior service cost⁽¹⁾
   56    109    —      1
Tax expense⁽²⁾
   (19 )    (38 )    —      (1 )








Total amount reclassified from Accumulated other comprehensive income, net of tax⁽⁵⁾
   37    71    —      —








Total Other comprehensive income (loss)
   31    (462 )    —      (1 )








Balance at end of period
   $ (1,900 )    $ (3,976 )    $ —      $ (54 )








Foreign currency translation

Balance at beginning of period
   $ (523 )    $ (2,064 )    $ (2 )    $ (641 )
Other comprehensive income⁽³⁾
   85    157    —      45








Balance at end of period
   $ (438 )    $ (1,907 )    $ (2 )    $ (596 )








Available-for-sale securities

Balance at beginning of period
   $ (2 )    $ (1 )    $ —      $ —
Other comprehensive income⁽⁴⁾
   1    —      —      —








Balance at end of period
   $ (1 )    $ (1 )    $ —      $ —








Cash flow hedges

Balance at beginning of period
   $ 2    $ 364    $ —      $ 11
Other comprehensive income (loss):

Net change from periodic revaluations
   15    (430 )    —      20
Tax (expense) benefit
   (5 )    126    —      (6 )








Total Other comprehensive income (loss) before reclassifications, net of tax
   10    (304 )    —      14








Net amount reclassified to earnings
   —      (46 )    —      (34 )
Tax benefit⁽²⁾
   —      12    —      10








Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾
   —      (34 )    —      (24 )








Total Other comprehensive income (loss)
   10    (338 )    —      (10 )








Balance at end of period
   $ 12    $ 26    $ —      $ 1

⁽¹⁾	~~These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note M).~~

⁽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 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. These amounts were reflected on the accompanying Statement of Consolidated Operations in the line items indicated in footnotes 2 through 4.

   Arconic    Noncontrolling Interests
   Nine months ended    Nine months ended
   September 30,    September 30,
   2017    2016    2017    2016
Pension and other postretirement benefits (M)

Balance at beginning of period
   $ (2,010 )    $ (3,611 )    $ —      $ (56 )
Other comprehensive income (loss):

Unrecognized net actuarial loss and prior service cost
   4    (883 )    —      —
Tax (expense) benefit
   (3 )    312    —      —








Total Other comprehensive income (loss) before reclassifications, net of tax
   1    (571 )    —      —








Amortization of net actuarial loss and prior service cost⁽¹⁾
   167    317    —      3
Tax expense⁽²⁾
   (58 )    (111 )    —      (1 )








Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾
   109    206    —      2








Total Other comprehensive income (loss)
   110    (365 )    —      2








Balance at end of period
   $ (1,900 )    $ (3,976 )    $ —      $ (54 )








Foreign currency translation

Balance at beginning of period
   $ (689 )    $ (2,412 )    $ (2 )    $ (780 )
Other comprehensive income⁽³⁾
   251    505    —      184








Balance at end of period
   $ (438 )    $ (1,907 )    $ (2 )    $ (596 )








Available-for-sale securities

Balance at beginning of period
   $ 132    $ (5 )    $ —      $ —
Other comprehensive (loss) income⁽⁴⁾
   (133 )    4    —      —








Balance at end of period
   $ (1 )    $ (1 )    $ —      $ —








Cash flow hedges

Balance at beginning of period
   $ (1 )    $ 597    $ —      $ (3 )
Other comprehensive income (loss):

Net change from periodic revaluations
   20    (772 )    —      35
Tax (expense) benefit
   (7 )    229    —      (10 )








Total Other comprehensive income (loss) before reclassifications, net of tax
   13    (543 )    —      25








Net amount reclassified to earnings
   —      (41 )    —      (29 )
Tax benefit²⁾
   —      13    —      8








Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾
   —      (28 )    —      (21 )








Total Other comprehensive income (loss)
   13    (571 )    —      4








Balance at end of period
   $ 12    $ 26    $ —      $ 1

⁽¹⁾	~~These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note M).~~

⁽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 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. These amounts were reflected on the accompanying Statement of Consolidated Operations in the line items indicated in footnotes 2 through 4.

D.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, the Company changed its primary measure of segment performance from Adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”) to Segment operating profit, which more closely aligns segment performance with Operating income as presented in the Statement of Consolidated Operations. 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. 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.

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, 2018
Sales:
Third-party sales	$	1,596	$	1,451	$	562	$	3,609
Intersegment sales	—		46		—		46
Total sales	$	1,596	$	1,497	$	562	$	3,655
Profit and loss:
Segment operating profit	$	212	$	123	$	97	$	432
Restructuring and other charges	9		1		—		10
Provision for depreciation and amortization	70		53		12		135

Second quarter ended June 30, 2017
Sales:
Third-party sales	$	1,485	$	1,271	$	504	$	3,260
Intersegment sales	—		37		—		37
Total sales	$	1,485	$	1,308	$	504	$	3,297
Profit and loss:
Segment operating profit	$	250	$	133	$	71	$	454
Restructuring and other charges	8		17		6		31
Provision for depreciation and amortization	66		51		12		129



	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 income before income taxes:



	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, 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

The following table reconciles Total segment assets to Consolidated assets:



	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

E. Restructuring and Other Charges

In the ~~third~~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; $4 ($3 after-tax) 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; $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 ~~$19~~$26 ($1317 after-tax), which included ~~$11~~$29 ($8 after-tax) for layoff costs related to cost reduction initiatives including the separation of 124 employees (111 in the Engineered Products and Solutions segment, 12 in Corporate and 1 in the Global Rolled Products segment); and a net charge of $8 ($5 after-tax) for other miscellaneous items.

~~In the first nine months of 2017, Arconic recorded Restructuring and other charges of $118 ($99 after-tax), which included $59 ($40~~19 after-tax) for layoff costs related to cost reduction initiatives including the separation of approximately ~~800~~352 employees ~~(350~~(129 in the Engineered Products and Solutions segment, ~~243~~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 7462 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 ~~charge~~benefit of $7$1 ($50 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.

In the third quarter of 2016, Arconic recorded Restructuring and other charges of $3 ($2 after-tax), which included $4 ($2 after-tax) for layoff costs related to cost reduction initiatives and the separation of Alcoa Inc. (see Note G), including the separation of approximately 70 employees (60 in the Engineered Products and Solutions segment and 10 in Corporate); a net charge of $7 ($5 after-tax) for other miscellaneous items; and a favorable benefit of $8 ($5 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

In the first nine months of 2016, Arconic recorded Restructuring and other charges of $33 ($22 after-tax), which included $34 ($21 after-tax) for layoff costs related to cost reduction initiatives and the separation of Alcoa Inc. (see Note G), including the separation of approximately 1,140 employees (860 in the Engineered Products and Solutions segment, 30 in the Global Rolled Products segment, 240 in the Transportation and Construction Solutions segment, and 10 in Corporate); a net charge of $14 ($9 after-tax) for other miscellaneous items; and a net favorable benefit of $15 ($8 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

~~Arconic does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of such charges to segment results would have been as follows:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Engineered Products and Solutions
   $ 10    $ (1 )    $ 24    $ 16
Global Rolled Products
   2    (1 )    76    1
Transportation and Construction Solutions
   2    (2 )    11    6








Segment Total
   14    (4 )    111    23
Corporate
   5    7    7    10








Total Restructuring and other charges
   $ 19    $ 3    $ 118    $ 33

As of ~~September~~June 30, ~~2017,~~2018, approximately ~~155~~20 of the ~~800~~40 employees associated with ~~2017~~2018 restructuring programs and approximately ~~1,200~~530 of the ~~1,750~~760 employees (previously ~~1,800)~~830) associated with ~~2016~~2017 restructuring programs (with planned departures in ~~2017), and approximately 1,120~~2018) were separated; all of the ~~1,220 employees (previously 1,240)~~separations associated with ~~the 2015~~2016 restructuring programs were ~~separated. The total number~~essentially complete. Most of ~~employees associated with both~~ the ~~2016 and 2015~~remaining separations for the 2018 restructuring programs ~~was updated to reflect employees who, initially identified for separation, accepted other positions within Arconic, as well as natural attrition. Most~~and all of the remaining separations for the 2017 restructuring programs, are expected to be completed ~~in 2017 and 2018. All of the remaining separations for the 2016 and 2015 restructuring programs are expected to be completed~~ by the end of ~~2017.~~

In2018.

For the ~~2017 third~~second quarter and ~~nine-month period,~~six months ended June 30, 2018, cash payments of ~~$11~~$2 and ~~$13,~~$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, ~~cash payments of $3 and $23, respectively, were made against layoff reserves related to 2016 restructuring programs,~~ and cash payments of $1$0 and ~~$5,~~$4, respectively, were made against the layoff reserves related to ~~2015~~2016 restructuring programs.

Activity and reserve balances for restructuring and other charges were as follows:

   Layoff
costs    Other exit
costs    Total
Reserve balances at December 31, 2015
   $ 84    $ 9    $ 93
2016:

Cash payments
   (73 )    (13 )    (86 )
Restructuring charges
   70    27    97
Other*
   (31 )    (14 )    (45 )






Reserve balances at December 31, 2016
   50    9    59






2017:

Cash payments
   (41 )    (5 )    (46 )
Restructuring charges
   54    —      54
Other*
   10    (1 )    9






Reserve balances at September 30, 2017
   $ 73    $ 3    $ 76



	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
Cash payments	(30		)	—			(30		)
Restructuring charges	23			5			28
Other⁽¹⁾	(23		)	—			(23		)
Reserve balances at June 30, 2018	$	26		$	7		$	33

⁽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 of $14 in pension costs, as this liability was reflected in Arconic’s separate liability for pension obligations. In 2017, Other for layoff costs ~~includes the~~also included a reclassification of a stock awards reversal of $13. In 2016, Other for other exit costs also included reclassifications of $8 in asset retirement, $2 in environmental obligations and $4 in legal obligations as these liabilities were included in Arconic’s separate reserves for asset retirement obligations, environmental remediation and legal costs.

The remaining reserves are expected to be paid in cash during 2018.

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 ~~remainder~~second quarter of 2017, ~~except~~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 ~~approximately $15~~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
	June 30,						June 30,
	2018			2017			2018			2017
Pension benefits
Service cost	$	8		$	21		$	28		$	44
Interest cost	55			58			110			116
Expected return on plan assets	(77		)	(82		)	(154		)	(165		)
Recognized net actuarial loss	42			55			84			110
Amortization of prior service cost (benefit)	1			2			2			3
Curtailments	9			—			14			—
Net periodic benefit cost⁽¹⁾	$	38		$	54		$	84		$	108

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


⁽¹⁾	Service cost was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development expenses; curtailments were included in Restructuring and other charges; and all other cost components were recorded in Other expense (income), net in the Statement of Consolidated Operations.

In the first quarter of 2018, the Company announced that, effective 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 ~~$20, which is~~the 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 ~~paid~~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. A provision within the ~~next year~~agreement includes a retirement benefit increase for ~~layoffs.~~

future retirees that participate in a defined benefit pension plan, which impacts approximately 300 of those employees. In addition, effective January 1, 2019, benefit accruals for future service will cease. As result of these changes, a curtailment charge of $9 was recorded in Restructuring and other charges in the second quarter of 2018.

H. 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, 2018, the estimated annual effective tax rate, before discrete items, applied to ordinary income was 27.0%. This rate was higher than the 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 Income (GILTI) pursuant to the 2017 Act, domestic taxable income in certain U.S. states no longer subject to valuation allowance, and foreign income tax in higher rate jurisdictions.

For the six months ended June 30, 2017, the estimated annual effective tax rate, before discrete items, applied to ordinary income was 28.4%. This rate was lower than the federal statutory 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 offset by a loss on the sale of a rolling mill in Fusina, Italy for which no net tax benefit was recognized and valuation allowances related to U.S. foreign tax credits.

For the second quarter ended June 30, 2018 and June 30, 2017, the tax rate including discrete items was 38.1% and 21.2%, respectively. Discrete items of $21 were recorded in the second quarter ended June 30, 2018, primarily related to revised estimates of the provisional impact of the enactment of the 2017 Act discussed further below. There were no individually material discrete items recorded in the second quarter ended June 30, 2017.

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



	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

On December 22, 2017, the 2017 Act was signed into law, making significant changes to the Internal Revenue Code. Also on December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118"), Income Tax Accounting Implications of the Tax Cuts and Jobs Act, was issued by the Securities and Exchange Commission to address the application 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.

The Company's analysis of U.S. tax reform legislation, updated through June 30, 2018, resulted in an additional charge of $21 to the 2017 year-end provisional charge of $272. A charge of $18 was recorded for an increase in the provisional estimate of the one-time transition tax. An additional charge of $3 was also recorded for the portion of Alternative Minimum Tax ("AMT") credits expected to be refunded upon filing the 2018 tax return that will result in no benefit under government sequestration. The Company's estimates of the impact of the 2017 Act remain provisional through June 30, 2018.

The impact of the rate reduction will be finalized as part of ~~its ongoing restructuring~~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 ~~Brazil,~~order to further update the ~~Company anticipates recognizing~~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 ~~restructuring-related charge~~result of ~~approximately $30 - $50 in~~the 2017 Act, the non-previously taxed post-1986 foreign earnings and profits (calculated based on U.S. tax principles) of certain U.S.-owned foreign corporations has been subject to U.S. tax under the one-time transition tax provisions. In the fourth quarter of 2017, Arconic had no plans to distribute such earnings in the foreseeable future and considered that conclusion to be incomplete under SAB 118. There is no change to this conclusion through June 30, 2018.

The 2017 Act creates a new requirement that certain income earned by foreign subsidiaries, GILTI, must be included in the gross income of the U.S. shareholder. The 2017 Act also established the Base Erosion and Anti-Abuse Tax (BEAT). Arconic

anticipates that it will be subject to GILTI and has included an estimate of GILTI in the calculation of the 2018 estimated annual effective tax rate. At this time, Arconic does not anticipate being subject to BEAT for 2018. In the first quarter ended March 31, 2018, Arconic made a final accounting policy election to treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current period expense when incurred.

In July 2018, the Company received notification from a foreign tax authority that their inquiry into the 2016 tax return was completed. The uncertain tax position taken on the tax return is effectively settled, and as a result, a previously unrecognized tax benefit of up to approximately $38 would be recognized in the third quarter of 2018 after evaluating the need for a valuation allowance.

Also in July 2018, Spain’s National Court upheld an assessment against the Company related to the 2006 through 2009 tax years. Arconic is preparing to petition the Supreme Court of Spain to review the National Court’s decision (see Note Q). As a result of the National Court’s decision, the Company will reassess its ~~extrusions business~~recognition and measurement of tax benefits related to the uncertain tax positions in the 2006 to 2009 tax years in the third quarter of 2018. The potential impact on the Provision for income taxes could be a charge of up to approximately $59 (€51) which would be recognized in the third quarter of 2018. As discussed in Note Q, under the Tax Matters Agreement, Alcoa Corporation is responsible for 49% of the net liability.

I. Earnings Per Share

Basic earnings per share (EPS) amounts are computed by dividing earnings, after the deduction of preferred stock dividends declared, by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive share equivalents outstanding.

The information used to compute basic and diluted EPS attributable to Arconic common shareholders was as follows (shares in millions):



	Second quarter ended						Six months ended
	June 30,						June 30,
	2018		2017				2018			2017
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
Add: Interest expense related to convertible notes	3		2				6			4
Add: Dividends related to mandatory convertible preferred stock	—		—				—			34
Net income available to Arconic common shareholders - diluted	$	123	$	196		—	$	268		$	537

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

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



	Second quarter ended		Six months ended
	June 30,		June 30,
	2018	2017	2018	2017
Mandatory convertible preferred stock	—	39	—	—
Stock options⁽¹⁾	9	7	9	7


⁽¹⁾	The average exercise price of options per share was $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.

J. Accumulated Other Comprehensive Loss

The following table details the activity of the four components that comprise Accumulated other comprehensive loss for both Arconic’s shareholders and noncontrolling interests:



	Arconic						Noncontrolling Interests
Second quarter ended June 30,	2018			2017			2018		2017
Pension and other postretirement benefits (G)
Balance at beginning of period	$	(2,087	)	$	(1,979	)	$	—	$	—
Other comprehensive income:
Unrecognized net actuarial loss and prior service cost/benefit	(15		)	17			—		—
Tax benefit (expense)	3			(5		)	—		—
Total Other comprehensive (loss) income before reclassifications, net of tax	(12		)	12			—		—
Amortization of net actuarial loss and prior service cost⁽¹⁾	52			56			—		—
Tax expense⁽²⁾	(11		)	(20		)	—		—
Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾	41			36			—		—
Total Other comprehensive income	29			48			—		—
Balance at end of period	$	(2,058	)	$	(1,931	)	$	—	$	—
Foreign currency translation
Balance at beginning of period	$	(315	)	$	(622	)	$	—	$	(2	)
Other comprehensive (loss) income⁽³⁾	(201		)	99			—		—
Balance at end of period	$	(516	)	$	(523	)	$	—	$	(2	)
Available-for-sale securities
Balance at beginning of period	$	(2	)	$	99		$	—	$	—
Other comprehensive loss⁽⁴⁾	(2		)	(101		)	—		—
Balance at end of period	$	(4	)	$	(2	)	$	—	$	—
Cash flow hedges
Balance at beginning of period	$	18		$	4		$	—	$	—
Other comprehensive income (loss):
Net change from periodic revaluations	9			(4		)	—		—
Tax (expense) benefit	(1		)	1			—		—
Total Other comprehensive income (loss) before reclassifications, net of tax	8			(3		)	—		—
Net amount reclassified to earnings	(4		)	1			—		—
Tax benefit⁽²⁾	—			—			—		—
Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾	(4		)	1			—		—
Total Other comprehensive income (loss)	4			(2		)	—		—
Balance at end of period	$	22		$	2		$	—	$	—

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


⁽¹⁾	These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note G).


⁽²⁾	These amounts were included in Provision for income taxes on the accompanying Statement of Consolidated Operations.


⁽³⁾	In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.


⁽⁴⁾	Realized gains and losses were included in Other expense (income), net on the accompanying Statement of Consolidated Operations.


⁽⁵⁾	A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings.



	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	)


⁽¹⁾	These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note G).


⁽²⁾	These amounts were included in Provision for income taxes on the accompanying Statement of Consolidated Operations.


⁽³⁾	In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.


⁽⁴⁾	Realized gains and losses were included in Other expense (income), net on the accompanying Statement of Consolidated Operations.


⁽⁵⁾	A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings.

K. Receivables

Arconic has an arrangement with three financial institutions to sell certain customer receivables without recourse on a revolving basis. The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is ~~part~~a consolidated subsidiary of Arconic. This arrangement provides for minimum funding of $200 up to a maximum 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 in draws and $2,358 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.

As of June 30, 2018 and December 31, 2017, the deferred purchase program receivable was $313 and $187, respectively, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable is reduced as collections of the ~~Transportation~~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 ~~Construction Solutions~~total cash collected under this program since its inception was $38,547 and $37,885, respectively. Arconic services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.

Cash receipts from customer payments on sold receivables (which are cash receipts on the underlying trade receivables that have been previously sold in this program) as well as cash receipts and cash disbursements from draws and repayments under the program are presented as cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash Flows.

L. Inventories



	June 30, 2018		December 31, 2017
Finished goods	$	682	$	669
Work-in-process	1,485		1,349
Purchased raw materials	401		381
Operating supplies	91		81
Total inventories	$	2,659	$	2,480

At June 30, 2018 and December 31, 2017, the portion of inventories valued on a last-in, first-out (LIFO) basis was $1,372 and $1,208, respectively. If valued on an average-cost basis, total inventories would have been $527 and $481 higher at June 30, 2018 and December 31, 2017, 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. ~~The~~While a portion of this charge relates to prior years, the ~~noncash~~majority relates to 2018. The out-of-period amounts are not material to any interim or annual periods.

M. Properties, Plants, and Equipment, Net



	June 30, 2018		December 31, 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, the Company updated its three-year strategic plan and determined that there was a decline in the forecasted financial performance for the disks operations, an asset group within the Arconic Engines business unit. As such, the Company evaluated the recoverability of the long-lived assets by comparing their carrying value of approximately $515 to the estimated undiscounted net cash flows of the disk operations, resulting in an estimated fair value in excess of their

carrying 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 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 ~~book~~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. The estimated fair value of the reporting unit was substantially in excess of the carrying value; thus, there was no impairment of goodwill.

N. Debt



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


⁽¹⁾	Includes various financing arrangements related to subsidiaries, unamortized debt discounts related to outstanding notes and bonds listed in the table above, an equity option related to the convertible notes due in 2019, and unamortized debt issuance costs.

Public Debt – During the first quarter of 2018, the Company completed the early redemption of its remaining outstanding 5.72% Notes due in 2019, with aggregate principal amount of $500, for $518 in cash including accrued and unpaid interest. As a result, the Company recorded a charge of $19 in Interest expense in the accompanying Statement of Consolidated Operations for the first quarter of 2018 primarily for the premium paid on the early redemption of these notes in excess of their carrying value.

Credit Facilities. On July 25, 2014, Arconic entered into a Five-Year Revolving Credit Agreement with a syndicate of lenders and issuers named therein, which 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.

E. 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 or December 31, 2017, and no amounts were borrowed during 2018 or 2017 under the Credit Facility.

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.

O. 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 fair values. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities which 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 fair value at June 30, 2018 and December 31, 2017:



	June 30, 2018				December 31, 2017
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	6,312	$	6,457	$	6,806	$	7,443

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.

P. Acquisitions and Divestitures

In April 2016, Arconic completed the sale of the Remmele Medical business to LISI MEDICAL for $102 in cash ($99 net of transaction costs). This business, which was part of the RTI International Metals acquisition, manufactures precision-machined metal products for customers in the minimally invasive surgical device and implantable device markets. While owned by Arconic, the operating results and assets and liabilities of this business were included in the Engineered Products and Solutions segment. Remmele Medical generated third-party sales of $23 from January 1, 2016 through the divestiture date, and, at the time of the divestiture, had approximately 330 employees. This transaction is no longer subject to post-closing adjustments.

In March 2017, Arconic completed the sale of its Fusina, Italy rolling mill to Slim Aluminium. While owned by Arconic, the operating results and assets and liabilities of the Fusina, Italy rolling mill were included in the Global Rolled Products segment. As part of the transaction, Arconic injected $10 of cash into the business and provided a third-party guarantee with a fair value of $5 related to Slim Aluminium’s environmental remediation. The Company recorded a loss on the sale of $60, which was recorded in Restructuring and other charges (see Note D)E) on the Statement of Consolidated Operations ~~for~~in the ~~nine months ended September 30,~~first quarter of 2017. The rolling mill generated third-party sales of approximately ~~$54 and $128 for~~$37 in the ~~nine-month periods ended September 30, 2017 and 2016, respectively.~~first quarter of 2017. At the time of the divestiture, the rolling mill had approximately 312 employees.

~~F. Inventories~~

   September 30,
2017    December 31,
2016
Finished goods
   $ 651    $ 625
Work-in-process
   1,332    1,144
Purchased raw materials
   386    408
Operating supplies
   84    76




Total inventories
   $ 2,453    $ 2,253

At September 30, 2017 and December 31, 2016, the portion of inventories valued on a last-in, first-out (LIFO) basis was $1,148 and $947, respectively. If valued on an average-cost basis, total inventories would have been $449 and $371 higher at September 30, 2017 and December 31, 2016, respectively.

~~G. Separation Transaction and Discontinued Operations~~

On ~~November 1, 2016,~~April 2, 2018, Arconic completed the ~~Separation Transaction. Alcoa Inc., which was re-named Arconic Inc., continued~~sale of its Latin America extrusions business to ~~own~~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 ~~Engineered Products and Solutions,~~carrying value of the ~~Global Rolled Products (except for~~net assets sold on the ~~Warrick, IN rolling operations and~~closing date, following the ~~equity interest~~charge of $41 recognized in the ~~rolling mill at~~fourth quarter of 2017 related to the ~~joint venture~~non-cash impairment of the net book value of the business. The operating results and assets and liabilities of the business were included in ~~Saudi Arabia), and~~ the Transportation and Construction Solutions ~~segments. Alcoa Corporation included the Alumina and Primary Metals segments and the Warrick, IN rolling operations and equity interest in the rolling mill at the joint venture in Saudi Arabia, both~~segment. This business generated sales of which were formerly part of Arconic’s Global Rolled Products segment. The results of operations of Alcoa Corporation for the third quarter and nine months ended September 30, 2016 are presented as discontinued operations in the accompanying Statement of Consolidated Operations.

Arconic completed the Separation Transaction by distribution on November 1, 2016 of 80.1% of the outstanding common stock of Alcoa Corporation to the Company’s shareholders of record as of the close of business on October 20, 2016. Arconic retained 19.9% of the Alcoa Corporation common stock (36,311,767 shares).

In February 2017, the Company sold 23,353,000 shares of Alcoa Corporation common stock at $38.03 per share, which resulted in cash proceeds of $888 which were recorded in Sale of investments within Investing Activities in the accompanying Statement of Consolidated Cash Flows and a gain of $351, which was recorded in Other income, net in the accompanying Statement of Consolidated Operations.

In April and May 2017, the Company acquired a portion of its outstanding notes held by two investment banks (the “Investment Banks”) in exchange for cash and the Company’s remaining 12,958,767 Alcoa Corporation shares (valued at $35.91 per share) (the “Debt-for-Equity Exchange”) (See Note L). A gain of $167 on the Debt-for-Equity Exchange was recorded in Other income, net in the accompanying Statement of Consolidated Operations. The share exchange had no impact on the accompanying Statement of Consolidated Cash Flows.

The Company had recorded the retained interest as a cost method investment in Investment in common stock of Alcoa Corporation in the accompanying Consolidated Balance Sheet. The fair value of Arconic’s retained interest in Alcoa Corporation was $0 and $1,020 at September 30, 2017 and December 31, 2016, respectively. The fair value was based on the closing stock price of Alcoa Corporation as of September 30, 2017, and December 31, 2016 multiplied by the number of shares of Alcoa Corporation common stock owned by the Company at those respective dates. As of May 4, 2017, the Company no longer maintained a retained interest in Alcoa Corporation common stock.

In connection with the Separation Transaction, on October 31, 2016, Arconic and Alcoa Corporation entered into a Toll Processing and Services Agreement (the “Toll Processing Agreement”) pursuant to which Arconic provides can body stock from its Tennessee operations to Alcoa Corporation’s Warrick, Indiana rolling mill. Aluminum for the can body stock is supplied by Alcoa Corporation. The Toll Processing Agreement expires on December 31, 2018, unless sooner terminated by the parties. Tolling revenues for the third quarter and nine months ended September 30, 2017, and accounts receivable at September 30, 2017, were not material to the consolidated results of operations and financial position, respectively.

As part of the Separation Transaction, Arconic had recorded a receivable in the accompanying Consolidated Balance Sheet as of December 31, 2016 for the net after-tax proceeds from Alcoa Corporation’s sale of the Yadkin Hydroelectric Project. The transaction closed in the first quarter of 2017 and the Company received proceeds of $238 in the first quarter of 2017 and the remaining $5approximately $30 in the second quarter of ~~2017. The $243 proceeds were included in Other within Investing Activities~~2017, and $25 and $56 in the ~~Statement of Consolidated Cash Flows.~~

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

   Third quarter ended
September 30,
2016    Nine months ended
September 30,
2016
Sales
   $ 2,075    $ 6,028
Cost of goods sold (exclusive of expenses below)
   1,714    5,038
Selling, general administrative, and other expenses
   46    148
Research and development expenses
   8    26
Provision for depreciation, depletion and amortization
   180    532
Restructuring and other charges
   15    101
Interest expense
   7    18
Other income, net
   (106 )    (80 )




Income from discontinued operations before income taxes
   211    245
Provision for income taxes
   91    99




Income from discontinued operations after income taxes
   120    146
Less: Net income from discontinued operations attributable to noncontrolling interests
   20    58




Net income from discontinued operations
   $ 100    $ 88

~~The cash flows related to Alcoa Corporation have not been segregated~~six months ended June 30, 2018 and are included in the Statement of Consolidated Cash Flows for all periods presented. The following table presents depreciation, depletion and amortization, restructuring and other charges, and purchases of property, plant and equipment of the discontinued operations related to Alcoa Corporation:

   Nine months ended
September 30,
   2016
Depreciation, depletion and amortization
   $ 532
Restructuring and other charges
   $ 101
Capital expenditures
   $ 258

H.2017, respectively.

Q. 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 ~~$292~~$287 at ~~September~~June 30, ~~2017~~2018 and ~~$308~~$294 at December 31, ~~2016~~2017 (of which ~~$39~~$51 and ~~$48,~~$41, respectively, was classified as a current liability), and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated.

Payments related to remediation expenses applied against the reserve were ~~$10~~$5 and ~~$17~~$8 in the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. This amount includes expenditures currently mandated, as well as those not required by any regulatory authority or third party.

Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be approximately 1% or less of cost of goods sold.

The following discussion provides details regarding the current status of the most significant ~~reserve~~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 ~~(USEPA)~~(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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the reserve balance associated with this matter was ~~$221~~$211 and ~~$228,~~$215, respectively. Arconic is in the planning and design phase of the project, which is expected to be completed in 2018. InFollowing the ~~third quarter~~submittal of ~~2017,~~ the New York State Department of Environmental Conservation (NYSDEC) sent a letter to USEPA requesting a revision to the draft design. The USEPA has not responded to the NYSDEC letter but the request has put on hold Arconic’s preparation of a final design and ~~extended the expected submittal into 2018. Following submittal and USEPA~~EPA approval, ~~of the final design,~~ the actual remediation fieldwork is expected to commence and take approximately four years. The majority of the project funding is expected to be incurred between 2018 and 2022.

Tax

Pursuant to the Tax Matters Agreement entered into between Arconic and Alcoa Corporation in connection with the ~~Separation Transaction,~~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 ~~September 2010,~~July 2013, following a Spanish corporate income tax audit covering the ~~2003~~2006 through ~~2005~~2009 tax years, an assessment was received ~~as a result of Spain’s tax authorities~~mainly disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by the Company. ~~An appeal of this~~The assessment ~~in Spain’s Central Tax Administrative Court by the Company~~ was ~~denied in October 2013.~~$151 (€131), including interest. In ~~December~~August 2013, the Company filed an appeal of the assessment in Spain’s National Court. On January 16, 2017, Spain’s National Court issued a decision in favor of the Company. The Spanish Tax Administration did not file an appeal within the applicable period. Based on this decision and recent confirming correspondence from the Spanish Tax Administration, the matter is now closed. The Company will not be responsible for any assessment related to the 2003 through 2005 tax years.

In addition, following a corporate income tax audit of the same Spanish consolidated tax group for the 2006 through 2009 tax years, Spain’s tax authorities issued an assessment in July 2013 similarly disallowing certain interest deductions. In August 2013, Arconic filed an appeal of this second assessment in Spain’s Central Tax Administrative Court, which was denied in January 2015. Arconic filed another appeal ~~of this second assessment~~ in Spain’s National Court in March ~~2015. Spain’s~~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 ~~has not yet rendered a decision related to~~will review the assessment ~~received in July 2013.~~on its merits and render a final decision. The National Court’s decision requires the assessment for the 2006 through 2009 tax years ~~is $152~~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 (€~~129)~~152), including interest.

~~Finally,~~ In the event the Company is unsuccessful in appealing the assessment to 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, ~~had been under audit (beginning~~which would be shared between the Company and Alcoa Corporation as provided for in ~~September 2015)~~the Tax Matters Agreement. The Company will reassess the 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 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 tax years. In August 2017, the Company reached a settlement of this audit. The settlement amount is not material to the Company’s Consolidated Financial Statements. While the 2010 through 2013 tax years are closed to audit, it is possible that the Company may receive ~~similar~~ assessments ~~from Spain’s~~for tax ~~authorities for~~ years subsequent to 2013. ~~The Company believes it has meritorious arguments~~Any potential assessment for an individual tax year is not expected to support its tax position for all years and intends to vigorously litigate assessments through Spain’s court system. However, in the event the Company is unsuccessful, a portion of the assessments may be ~~offset with existing net operating losses available~~material to the ~~Spanish~~Company’s consolidated ~~tax group, which would be shared between~~operations.

Reynobond PE

Howard v. Arconic ~~and Alcoa Corporation as provided for in the Tax Matters Agreement~~Inc. et al. As previously reported, a purported class action complaint related to the ~~Separation Transaction. At~~Grenfell Tower fire was filed on August 11, 2017 in the United States District Court for the Western District of Pennsylvania against Arconic Inc. and Klaus Kleinfeld. A related purported class action complaint was filed in the United States District Court for the Western District of Pennsylvania on August 25, 2017, under the caption Sullivan v. Arconic Inc. et al., against Arconic Inc., two former Arconic executives, several current and former Arconic directors, and banks that acted as underwriters for Arconic’s September 18, 2014 preferred stock offering (the “Preferred Offering”). The plaintiff in Sullivan had previously filed a purported class action against the same defendants on July 18, 2017 in the Southern District of New York and, on August 25, 2017, voluntarily dismissed that action without prejudice. On February 7, 2018, on motion from certain putative class members, the court consolidated Howard and Sullivan, closed Sullivan, and appointed lead plaintiffs in the consolidated case. On April 9, 2018, the lead plaintiffs in the consolidated purported class action filed a consolidated amended complaint. The consolidated amended complaint alleges that the registration statement for the Preferred Offering contained false and misleading statements and omitted to state material information, including by allegedly failing to disclose material uncertainties and trends resulting from sales of Reynobond PE for unsafe uses and by allegedly expressing a belief that appropriate risk management and compliance programs had been adopted while concealing the risks posed by Reynobond PE sales. The consolidated amended complaint also alleges that between November 4, 2013 and June 23, 2017 Arconic and Kleinfeld made false and misleading statements and failed to disclose material information about the Company’s commitment to safety, business and financial prospects, and the risks of the Reynobond PE product, including in Arconic’s Form 10-Ks for the fiscal years ended December 31, 2013, 2014, 2015 and 2016, its Form 10-Qs and quarterly financial press releases from the fourth quarter of 2013 through the first quarter of 2017, its 2013, 2014, 2015 and 2016 Annual Reports, and its 2016 Annual Highlights Report. The consolidated amended complaint seeks, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses. On June 8, 2018, all defendants moved to dismiss the consolidated amended complaint for failure to state a claim. Briefing on that motion remains ongoing.

Raul v. Albaugh, et al. 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 ~~time,~~case until the ~~Company is unable to reasonably predict an outcome for this matter.~~

~~Reynobond PE~~

~~As previously reported, on June 13, 2017,~~final resolution of the Howard case, the Grenfell Tower public inquiry 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~~Metropolitan Police ~~a Public Inquiry by~~Service and on June 23, 2018, the ~~British government and a consumer protection inquiry by a French public authority. AAP SAS has filed an application seeking core participant status in~~Court approved the ~~Public Inquiry.~~

In August and September 2017, two purported class action complaints were filed against Arconic and certain officers, directors and/or other parties, alleging that, in light of the Grenfell Tower fire, certain Company filings with the Securities and Exchange Commission contained false and misleading disclosures and omissions in violation of the federal securities laws.

stay.

appointed a Special Litigation Committee of the Board to review and ~~considering~~make recommendations to the Board regarding the appropriate course of ~~action.~~action with respect to these shareholder demand letters. The Special Litigation Committee and the Board are continuing to consider the appropriate responses to the shareholder demand letters in view of developments in proceedings concerning the Grenfell Tower fire. In addition, the Company has settled lawsuits ~~are~~with another shareholder that had been pending in state court in New York and federal court in Pennsylvania ~~initiated, respectively, by another purported shareholder and by the Company,~~ concerning the shareholder’s ~~claimed right, which the Company contests,~~demand to inspect certain of the Company’s books and records related to the Grenfell Tower fire and Reynobond PE.

Other

In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against Arconic, including those pertaining to environmental, product liability, safety and health, employment, and tax 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 ~~September~~June 30, ~~2017,~~2018, 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 ~~2017~~2018 and 2026, was ~~$25~~$33 at ~~September~~June 30, ~~2017.~~

2018.

Pursuant to the Separation and Distribution Agreement between Arconic and Alcoa Corporation, Arconic was required to provide ~~maximum potential future~~certain guarantees for Alcoa Corporation, which had a combined fair value of $7 and $8 at June 30, 2018 and December 31, 2017, 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, ~~of $270~~ and ~~$354~~amounts outstanding under these payment guarantees were $111 and $197 at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017, respectively. These guarantees expire at various times between ~~2017~~2018 and 2024, and relate to project financing for Alcoa Corporation’s aluminum complex in Saudi Arabia. Furthermore, Arconic was required to provide ~~guarantees~~a guarantee up to an estimated present value amount of approximately ~~$1,660~~$1,156 and $1,297 at June 30, 2018 and December 31, 2017, respectively, related to ~~two~~a long-term supply ~~agreements~~agreement for energy for an Alcoa Corporation ~~facilities. In accordance with the Separation and Distribution Agreement, Arconic is only liable for these guaranteed amounts~~facility in the event of an Alcoa Corporation payment default. ~~In December 2016,~~This guarantee expires in 2047. For each guarantee, subject to its respective provisions, Arconic ~~entered into~~is secondarily liable in the event of a one-year claims purchase agreement with a bank covering claims up to $245 related to the Saudi Arabian aluminum complex and two long-term energy supply agreements. Most of the premium related to this claims purchase agreement is being paidpayment default by Alcoa Corporation. ~~At September 30, 2017 and December 31, 2016,~~Arconic currently views the ~~combined fair value~~risk of the three required guarantees was $35 in both periods and was included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet. See Note O for further information on the guarantee related to one of the long-term supply agreements for energy for an Alcoa Corporation ~~facility.~~

~~Arconic was also required~~payment default on its obligations under the respective contracts to provide guarantees of $50 related to two Alcoa Corporation energy supply contracts. These guarantees expired in March 2017. Additionally, Arconic was required to provide guarantees of $53 related to certain Alcoa Corporation environmental liabilities. Notification of a change in guarantor to Alcoa Corporation was made to the appropriate environmental agencies and as such, Arconic no longer provides these guarantees.

be remote.

Letters of Credit

Arconic has outstanding letters of credit, primarily related to workers’ compensation, environmental obligations and ~~environmental~~leasing obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, ~~primarily~~mostly in ~~2017,~~2018, was ~~$127~~$128 at ~~September~~June 30, ~~2017.~~

2018.

Pursuant to the Separation and Distribution Agreement, Arconic was required to retain letters of credit of ~~$61~~$53 that had previously been provided related to both Arconic and Alcoa Corporation workers’ compensation claims which occurred prior to November 1, 2016. Alcoa ~~Corporation’s~~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. Additionally, Arconic was required to provide letters of credit totaling $103 for certain Alcoa Corporation equipment leases and energy contracts. The entire $103 of outstanding letters of credit were cancelled in 2017 when Alcoa Corporation issued its own letters of credit to cover these obligations.

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 ~~2017,~~2018, was ~~$128~~$49 at ~~September~~June 30, ~~2017.~~

2018.

Pursuant to the Separation and Distribution Agreement, Arconic was required to provide surety bonds related to Alcoa Corporation workers’ compensation claims which occurred prior to November 1, 2016 and, as a result, Arconic has $25 in outstanding surety bonds relating to these liabilities. Alcoa Corporation workers’ compensation claims and surety bond fees paid by Arconic are being proportionately billed to and are being fully reimbursed by Alcoa Corporation.

~~I. Segment Information~~

R. Subsequent Events

Management evaluated all activity of Arconic ~~is a producer of multi-material products including sheet, plate, precision castings, forgings, rolled rings, extrusions, wheels~~ and fasteners. Arconic’s products are used worldwide in transportation (including aerospace, automotive, truck, trailer, rail, and shipping), packaging, building and construction, oil and gas, defense, and industrial applications. Arconic’s segments are organized by product on a worldwide basis. In the first quarter of 2017, the Company changed its primary measure of segment performance from After-tax operating income (ATOI) to Adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”). Segment performance under Arconic’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Adjusted EBITDA. Arconic’s definition of Adjusted EBITDA is net margin plus an add-back for depreciation and amortization and special items. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

Items required to reconcile Combined segment adjusted EBITDA to Net income attributable to Arconic include: the Provision for depreciation and amortization; Restructuring and other charges; the impact of LIFO inventory accounting; metal price lag (the timing difference created when the average price of metal sold differs from the average cost of the metal when purchased by the respective segment — generally, when the price of metal increases, metal price lag is favorable, and when the price of metal decreases, metal price lag is unfavorable); corporate expense (general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities and corporate research and development expenses); other items, including intersegment profit eliminations; Other income, net; Interest expense; Income tax expense; and the results of discontinued operations. Prior period information has been recast to conform to current year presentation.

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

   Engineered       Transportation
   Products and    Global Rolled    and Construction    Combined
   Solutions    Products    Solutions    Segment
Third quarter ended

September 30, 2017

Sales:

Third-party sales
   $ 1,476    $ 1,234    $ 517    $ 3,227
Intersegment sales
   —      36    —      36








Total sales
   $ 1,476    $ 1,270    $ 517    $ 3,263








Profit and loss:

Depreciation and amortization
   68    52    13    133
Adjusted EBITDA
   312    140    83    535








Third quarter ended

September 30, 2016

Sales:

Third-party sales
   $ 1,406    $ 1,285    $ 450    $ 3,141
Intersegment sales
   —      30    —      30








Total sales
   $ 1,406    $ 1,315    $ 450    $ 3,171








Profit and loss:

Depreciation and amortization
   63    52    12    127
Adjusted EBITDA
   296    143    76    515

   Engineered       Transportation
   Products and    Global Rolled    and Construction    Combined
   Solutions    Products    Solutions    Segment
Nine months ended

September 30, 2017

Sales:

Third-party sales
   $ 4,445    $ 3,751    $ 1,467    $ 9,663
Intersegment sales
   —      107    —      107








Total sales
   $ 4,445    $ 3,858    $ 1,467    $ 9,770








Profit and loss:

Depreciation and amortization
   198    153    37    388
Adjusted EBITDA
   928    475    237    1,640








Nine months ended

September 30, 2016

Sales:

Third-party sales
   $ 4,320    $ 3,785    $ 1,346    $ 9,451
Intersegment sales
   —      88    —      88








Total sales
   $ 4,320    $ 3,873    $ 1,346    $ 9,539








Profit and loss:

Depreciation and amortization
   190    152    35    377
Adjusted EBITDA
   930    461    216    1,607

~~The following table reconciles Combined segment adjusted EBITDA to Net income attributable to Arconic:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Combined segment adjusted EBITDA
   $ 535    $ 515    $ 1,640    $ 1,607
Unallocated amounts:

Depreciation and amortization
   (140 )    (136 )    (410 )    (402 )
Restructuring and other charges
   (19 )    (3 )    (118 )    (33 )
Impact of LIFO
   (48 )    (1 )    (78 )    (26 )
Metal price lag
   2    4    43    10
Corporate expense
   (42 )    (113 )    (224 )    (304 )
Other
   (17 )    (29 )    (56 )    (62 )








Operating income
   $ 271    $ 237    $ 797    $ 790
Other income, net
   1    11    526    40
Interest expense
   (100 )    (126 )    (398 )    (371 )








Income from continuing operations before income taxes
   $ 172    $ 122    $ 925    $ 459
Provision for income taxes
   (53 )    (56 )    (272 )    (230 )
Discontinued operations
   —      100    —      88








Net income attributable to Arconic
   $ 119    $ 166    $ 653    $ 317

~~J. Earnings Per Share~~

~~The number of shares and per share amounts for all periods presented below~~concluded that no subsequent events have ~~been updated to reflect the Reverse Stock Split (see Note A).~~

~~The information used to compute basic and diluted EPS attributable to Arconic common shareholders was as follows (shares in millions):~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Income from continuing operations after income taxes
   $ 119    $ 66    $ 653    $ 229
Less: Preferred stock dividends declared
   (18 )    (18 )    (53 )    (52 )








Income from continuing operations available to Arconic common shareholders
   101    48    600    177
Income from discontinued operations after income taxes and noncontrolling interests
   —      100    —      88








Net income available to Arconic common shareholders - basic
   101    148    600    265
Add: Interest expense related to convertible notes
   2    2    7    —
Add: Dividends related to mandatory convertible preferred stock
   —      —      50    —








Net income available to Arconic common shareholders - diluted
   $ 103    $ 150    $ 657    $ 265








Weighted average shares outstanding - basic
   442    438    441    438
Effect of dilutive securities:

Stock options
   1    1    2    1
Stock and performance awards
   5    5    5    4
Mandatory convertible preferred stock
   —      —      39    —
Convertible notes
   14    9    14    —








Weighted average shares outstanding - diluted
   462    453    501    443

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

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Mandatory convertible preferred stock
   39    26    —      26
Convertible notes
   —      —      —      9

Also, options to purchase 3 million shares of common stock at a weighted average exercise price of $33.33 and options to purchase 8 million shares of common stock at a weighted average exercise price of $38.16 were outstanding as of September 30, 2017 and 2016, respectively, but were not includedoccurred that would require recognition in the ~~computation of diluted EPS because their effect was anti-dilutive as the exercise price of the options was greater than the average market price of Arconic’s common stock.~~

~~K. Receivables~~

Arconic has an arrangement with three financial institutions to sell certain customer receivables without recourse on a revolving basis. The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is a consolidated subsidiary of Arconic. This arrangement provides for minimum funding of $200 up to a maximum of $400 for receivables sold. On March 30, 2012, Arconic initially sold $304 of customer receivables in exchange for $50 cash and $254 of deferred purchase program under the arrangement. Arconic has received additional net cash funding of $300 ($2,208 in draws and $1,908 in repayments) since the program’s inception, including net cash draws totaling $0 ($450 in draws and $450 in repayments)Consolidated Financial Statements or disclosure in the ~~nine months ended September 30, 2017.~~

As of September 30, 2017, and December 31, 2016, the deferred purchase program receivable was $238 and $83, 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 net change in the deferred purchase program receivable was reflected in the (Increase) in receivables line item on the accompanying Statement of Consolidated Cash Flows. This activity is reflected as an operating cash flow because the related customer receivables are the result of an operating activity with an insignificant, short-term interest rate risk.

The gross amount of receivables sold and total cash collected under this program since its inception was $34,004 and $33,416, respectively. Arconic services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.

~~L. Debt~~

   September 30,
2017    December 31,
2016
6.50% Bonds, due 2018
   $ —      $ 250
6.75% Notes, due 2018
   —      750
5.72% Notes, due 2019
   500    750
1.63% Convertible Notes, due 2019*
   403    403
6.150% Notes, due 2020
   1,000    1,000
5.40% Notes due 2021
   1,250    1,250
5.87% Notes, due 2022
   627    627
5.125% Notes, due 2024
   1,250    1,250
5.90% Notes, due 2027
   625    625
6.75% Bonds, due 2028
   300    300
5.95% Notes, due 2037
   625    625
Iowa Finance Authority Loan, due 2042
   250    250
Other**
   (27 )    (32 )




Total debt
   6,803    8,048
Less: amount due within one year
   1    4




Total long-term debt
   $ 6,802    $ 8,044

*	~~Amount was assumed in conjunction with the July 2015 acquisition of RTI International Metals, Inc.~~

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, adjustments to the carrying value of long-term debt related to an interest rate swap contract accounted for as a fair value hedge, and unamortized debt issuance costs.

~~Public Debt~~ ~~– In April 2017, the Company announced three separate cash tender offers by the Investment Banks for the purchase of the Company’s 6.50% Bonds due 2018 (the “6.50% Bonds”), 6.75%~~ Notes ~~due 2018 (the “6.75% Notes”), and 5.72% Notes due 2019 (the “5.72% Notes”), up to a maximum purchase amount of $1,000 aggregate principal amount of notes, subject to certain conditions.~~

The Investment Banks purchased notes totaling $805 aggregate principal amount, including $150 aggregate principal amount of 6.50% Bonds, $405 aggregate principal amount of 6.75% Notes, and $250 aggregate principal amount of $5.72% Notes.

During the second quarter of 2017, the Company agreed to acquire the notes from the Investment Banks for $409 in cash plus its remaining investment in Alcoa Corporation common stock (12,958,767 shares valued at $35.91 per share) for total consideration of $874 including accrued and unpaid interest. The Company recorded a charge of $58 ($27 in cash) primarily for the premium for the early redemption of the notes, a benefit of $8 for the proceeds of a related interest rate swap agreement, and a charge of $2 for legal fees associated with the transaction in Interest expense, and recorded a gain of $167 in Other income, net in the accompanying Statement of Consolidated Operations for the nine months ended September 30, 2017 for the Debt-for-Equity Exchange.

On June 19, 2017, the Company completed the early redemption of its remaining outstanding 6.50% Bonds, with aggregate principal amount of $100, and its remaining outstanding 6.75% Notes, with aggregate principal amount of $345, for $479 in cash including accrued and unpaid interest. As a result of the early redemption of the 6.50% Bonds and 6.75% Notes, the Company recorded a charge of $24 in Interest expense in the accompanying Statement of Consolidated Operations for the nine months ended September 30, 2017 for the premium paid for the early redemption of these notes in excess of their carrying value.

~~M. Pension and Other Postretirement Benefits~~

~~The components of net periodic benefit cost were as follows:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
Pension benefits
   2017    2016    2017    2016
Service cost
   $ 22    $ 43    $ 67    $ 124
Interest cost
   59    114    175    358
Expected return on plan assets
   (82 )    (187 )    (248 )    (558 )
Recognized net actuarial loss
   55    104    165    308
Amortization of prior service cost (benefits)
   1    4    4    12
Settlements
   —      13    —      15
Special termination benefits
   —      —      —      1








Net periodic benefit cost*
   $ 55    $ 91    $ 163    $ 260
Discontinued operations
   —      41    —      114








Net amount recognized in Statement of Consolidated Operations
   $ 55    $ 50    $ 163    $ 146








Other postretirement benefits

Service cost
   $ 2    $ 3    $ 6    $ 10
Interest cost
   7    16    22    53
Recognized net actuarial loss
   2    8    4    19
Amortization of prior service cost (benefits)
   (2 )    (6 )    (6 )    (19 )
Special termination benefits
   —      —      —      —








Net periodic benefit cost*
   $ 9    $ 21    $ 26    $ 63
Discontinued operations
   —      12    —      37








Net amount recognized in Statement of Consolidated Operations
   $ 9    $ 9    $ 26    $ 26

Components of Net periodic benefit cost were included within Cost of goods sold, Selling, general administrative, and other expenses, Research and development expenses as well as Restructuring and other charges in the Statement of Consolidated Operations.

In conjunction with the Separation Transaction, 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 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 first payment of $50 was made on April 18, 2017.

~~N. Financial Instruments~~

~~Fair Value~~

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

~~Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.~~

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

~~Level 3 - Inputs that are both significant~~ to the ~~fair value measurement~~Consolidated Financial Statements, except as noted below:

See Notes H and ~~unobservable.~~

~~The carrying values and fair values~~Q for details of ~~Arconic’s financial instruments were as follows:~~

   September 30, 2017    December 31, 2016
   Carrying
value    Fair
value    Carrying
value    Fair
value
Cash and cash equivalents
   $ 1,815    1,815    $ 1,863    $ 1,863
Restricted cash
   5    5    15    15
Derivatives - current asset
   41    41    14    14
Noncurrent receivables
   18    18    21    21
Derivatives - noncurrent asset
   24    24    10    10
Available-for-sale securities
   106    106    102    102
Investment in common stock of Alcoa Corporation
   —      —      1,020    1,020
Short-term borrowings
   54    54    36    36
Derivatives - current liability
   31    31    5    5
Long-term debt due within one year
   1    1    4    4
Derivatives - noncurrent liability
   11    11    3    3
Contingent payment related to an acquisition
   81    81    78    78
Long-term debt, less amount due within one year
   6,802    7,440    8,044    8,519

~~The following methods were used to estimate the fair values of financial instruments:~~

~~Cash and cash equivalents, Restricted cash, and Short-term borrowings.~~The carrying amounts approximate fair value because of the short maturity of the instruments. The fair value amounts for Cash and cash equivalents and Restricted cash were classified in Level 1, and Short-term borrowings were classified in Level 2.

~~Derivatives.~~The fair value of derivative contracts classified as Level 1 was based on identical unrestricted assets and liabilities. The fair value of derivative contracts classified as Level 2 was based on inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates).

~~Noncurrent receivables.~~~~The fair value of noncurrent receivables was based on anticipated cash flows, which approximates carrying value, and was classified in Level 2 of the fair value hierarchy.~~

~~Available-for-sale securities.~~The fair value of such securities was based on quoted market prices. These financial instruments consist of exchange-traded fixed income and equity securities, which are carried at fair value and were classified in Level 1 of the fair value hierarchy.

~~Investment in common stock of Alcoa Corporation.~~The fair value was based on the closing stock price of Alcoa Corporation on the New York Stock Exchange at December 31, 2016 multiplied by the number of shares of Alcoa Corporation common stock owned by Arconic at that date. This investment was classified in Level 1 of the fair value hierarchy. The Company disposed of its remaining investment in Alcoa Corporation common stock in the second quarter of 2017.

~~Contingent payment~~subsequent events related to an ~~acquisition.~~ ~~The fair value~~uncertain tax position that was ~~based on~~effectively settled and an ongoing tax matter in Spain.

On July 31,2018, the ~~net present value of expected future cash flows and was classified in Level 3 of the fair value hierarchy.~~

~~Long-term debt due within one year and Long-term debt, less amount due within one year.~~ The fair value 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.

~~O. Subsequent Events~~

On October 2, 2017, all outstanding 24,975,978 depositary shares (each depositary share representing a 1/10th interest in a share of the mandatory convertible preferred stock) were converted at a rate of 1.56996 into 39,211,286 common shares; 24,022 depositary shares were previously tendered for early conversion into 31,428 shares of Arconic common stock. No gain or loss was recognized associated with this equity transaction.

~~On October 13, 2017, Alcoa Corporation~~Company announced that it had ~~terminated an electricity contract with Luminant Generation Company LLC, effective~~initiated a sale process of its Building and Construction Systems (BCS) business, as part of ~~October 1, 2017,~~the Company’s ongoing strategy and portfolio review that ~~was tied to its Rockdale Operations~~commenced in ~~Texas. Pursuant to~~January 2018. BCS is part of the ~~Separation~~Transportation and ~~Distribution Agreement between Arconic~~Construction Solutions segment and ~~Alcoa Corporation, Arconic was required to provide a guarantee up to an estimated present value amount~~generated third-party sales of approximately ~~$485 related to this electricity contract~~$1,070 for ~~Alcoa Corporation’s facility in~~ the event of an Alcoa Corporation payment default. As a result of the termination of the electricity contract by Alcoa Corporation, Arconic expects to record noncash non-operating income in the fourth quarter of 2017 of approximately $25 ($16 after-tax) associated with the reversal of the fair value of the guarantee which was included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet.

year ended December 31, 2017.

Report of Independent Registered Public Accounting Firm*

Firm

To theShareholders and Board of Directors of Arconic Inc.

Results of Review of Financial Statements

We have reviewed the accompanying consolidated balance sheet of Arconic Inc. and its subsidiaries ~~(Arconic)~~ as of ~~September~~June 30, ~~2017,~~2018, and the related statements of consolidated operations, and consolidated comprehensive income ~~(loss),~~for the three-month and six-month periods ended June 30, 2018 and 2017 and the statements of consolidated cash flows and changes in consolidated equity for the ~~three-month and nine-month~~six-month periods ended ~~September~~June 30, 2018 and 2017, ~~and 2016 and~~including the ~~statement~~related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of ~~consolidated cash flows for~~any material modifications that should be made to the ~~nine-month periods ended September 30, 2017 and 2016. These consolidated~~accompanying interim financial statements ~~are~~for them to be in conformity with accounting principles generally accepted in the ~~responsibility~~United States of ~~Arconic’s management.~~

America.

We ~~conducted our review~~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, and the related 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, 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, 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”) 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 ~~Public Company Accounting Oversight Board (United States),~~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.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2016, and the related statements of consolidated operations, consolidated comprehensive loss, changes in consolidated equity, and consolidated cash flows for the year then ended (not presented herein), and in our report dated February 28, 2017 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

~~November 6, 2017~~

*	This report should not be considered a “report” within the meanings of Sections 7 and 11 of the Securities Act of 1933, and the independent registered public accounting firm’s liability under Section 11 does not extend to it.

~~Item~~

~~2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

August 2, 2018

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in millions, except per share ~~amounts and aluminum prices; shipments in thousands of metric tons [kmt])~~

amounts)

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, ~~alloys,~~ are used worldwide in aerospace, automotive, commercial transportation, ~~packaging,~~ building and construction, ~~oil~~industrial applications, defense, and ~~gas, defense, consumer electronics, and industrial applications.~~

~~The separation~~packaging.

Results of Alcoa Inc. into two standalone, publicly-traded companies, Arconic Inc. (the new name for Alcoa Inc.) and Alcoa Corporation, became effective on November 1, 2016 (the “Separation Transaction”). The financial results of Alcoa Corporation for all periods prior to the Separation Transaction have been retrospectively reflectedOperations

Earnings Summary:

Sales. Sales were $3,573 in the ~~Statement~~second quarter of ~~Consolidated Operations as discontinued operations~~2018 compared to $3,261 in the second quarter of 2017 and ~~as such, have been excluded from continuing operations and segment results for~~$7,018 in the ~~third quarter and nine~~six months ended ~~September~~June 30, ~~2016. The cash flows, equity and comprehensive income related~~2018 compared to ~~Alcoa Corporation have not been segregated and are included~~$6,453 in the ~~accompanying Statement of Consolidated Cash Flows, Statement of Changes in Consolidated Equity and Statement of Consolidated Comprehensive Income, respectively, for the third quarter and nine~~six months ended ~~September~~June 30, ~~2016.~~

~~Results~~2017. The increase of ~~Operations~~

~~Earnings Summary:~~

~~Sales.~~~~Sales increased $98,~~$312, or ~~3%, and $262, or 3%~~10%, in the ~~third~~second quarter of 2018 and ~~nine~~$565, or 9%, in the six months ended ~~September~~June 30, ~~2017, respectively, compared to the corresponding periods in 2016. The increase in both periods~~2018, was the result of strong volume growth across all segments, primarily in ~~our Engineered Products~~the aerospace engines and ~~Solutions~~defense, automotive, commercial transportation, and ~~Transportation~~building and ~~Construction Solutions segments and~~construction end markets; higher aluminum ~~pricing,~~prices; and favorable foreign currency movements; partially offset by ~~the planned ramp down and Toll Processing and Services Agreement (the “Toll Processing Agreement”) relating~~costs of $38 related to ~~the Company’s North America packaging business in Tennessee in the Global Rolled Products segment, as well as unfavorable~~settlements of certain customer claims primarily related to product pricing in both the Engineered Products and Solutions and Global Rolled Products segments. Pursuant to the Toll Processing Agreement that Arconic entered into with Alcoa Corporation on October 31, 2016 in connection with the Separation Transaction. Arconic provides can body stock to Alcoa Corporation using aluminum supplied by Alcoa Corporation, resulting inintroductions; the absence of ~~metal~~ sales from the rolling mill in Fusina, Italy, which was divested in March 2017, and the Latin America extrusions business, which was divested in April 2018; unfavorable aerospace wide-body production mix; and a decline in the ~~2017 periods compared to the corresponding periods in 2016.~~

industrial gas turbine end market.

Cost of goods sold (COGS). COGS as a percentage of Sales was ~~81.1% and 79.5%~~81.2% in the ~~third~~second quarter of 2018 compared to 78.2% in the second quarter of 2017 and ~~nine~~80.8% in the six months ended ~~September~~June 30, ~~2017, respectively,~~2018 compared to ~~79.8% and 78.9%~~77.6% in the ~~third quarter and nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2017. The increase in ~~both periods~~the second quarter and six months ended June 30, 2018 was ~~primarily attributable to cost increases, including~~the result of higher aluminum prices, ~~and ramp-up~~unfavorable product mix, higher input costs, costs related to ~~new commercial aerospace engines,~~settlements of certain customer claims noted above, performance shortfalls in the rings and disks operations, and the impact of a ~~lower margin product mix, partially offset by net cost savings.~~

$23 charge related to a physical inventory adjustment at one plant in the Engineered Products and Solutions segment. While a portion of this charge for the physical inventory adjustment relates to prior years, the majority relates to 2018. The out-of-period amounts are not material to any interim or annual periods.

Selling, general administrative, and other expenses (SG&A). SG&A expenses ~~decreased $74~~were $158 in the ~~third~~second quarter of 2018 compared to $200 in the second quarter of 2017 and $330 in the six months ended June 30, 2018 compared to $417 in the ~~third~~six months ended June 30, 2017. The decrease of $42, or 21%, in the second quarter of ~~2016 as a~~2018 was the result of ~~expenses related to the Separation Transaction~~proxy, advisory and governance-related costs of ~~$54~~$42 in the ~~prior year period and ongoing~~second quarter of 2017 which did not recur in 2018. Also, lower expenses driven by overhead cost ~~reduction efforts (see Note D),~~reductions were partially offset by ~~external~~the impact of legal and other advisory costs related to Grenfell Tower of $7$4. The decrease of $87, or 21%, in the ~~current year period~~

~~SG&A expenses decreased $93 in the nine~~six months ended ~~September~~June 30, ~~2017 compared to~~2018 was the ~~nine months ended September 30, 2016 as a~~ result of ~~expenses~~costs related to the ~~Separation Transaction~~separation of ~~$117 in the prior year period compared to~~Alcoa Inc. of $18 ~~in the current year period, as well as ongoing overhead cost reduction efforts (see Note D), partially offset by~~and proxy, advisory and governance-related costs of $58 ~~and external~~in the six months ended June 30, 2017, neither of which recurred in 2018. Also, lower expenses driven by overhead cost reductions were partially offset by the impact of legal and other advisory costs related to Grenfell Tower of ~~$7 in the current year period.~~

$9.

Restructuring and other charges. Restructuring and other charges were ~~$19 ($13 after-tax)~~$15 in the ~~third~~second quarter of 2018 compared to $26 in the second quarter of 2017 and $22 in the six months ended June 30, 2018 compared to ~~$3 ($2 after-tax)~~$99 in the ~~third~~six months ended June 30, 2017. The decrease of $11, or 42%, in the second quarter of ~~2016. Restructuring and other charges were $118 ($99 after-tax)~~2018 was the result of lower restructuring activity.The decrease of $77, or 78%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to $33 ($22 after-tax) in~~2018, was primarily the ~~nine months ended September 30, 2016.~~

~~In the third quarter~~result of 2017, Arconic recorded Restructuring and other charges of $19 ($13 after-tax), which included $11 ($8 after-tax) for layoff costs related to cost reduction initiatives including the separation of 124 employees (111 in the Engineered Products and Solutions segment, 12 in Corporate and 1 in the Global Rolled Products segment); and a ~~net charge of $8 ($5 after-tax) for other miscellaneous items.~~

In the first nine months of 2017, Arconic recorded Restructuring and other charges of $118 ($99 after-tax), which included $59 ($40 after-tax) for layoff costs related to cost reduction initiatives including the separation of approximately 800 employees (350 in the Engineered Products and Solutions segment, 243 in the Global Rolled Products segment, 133 in the Transportation and Construction Solutions segment and 74 in Corporate); a chargeloss of $60 ~~($60 after-tax) related to~~on the sale of the Fusina, Italy rolling ~~mill; a net benefit of $6 ($4 after-tax), for~~mill in March 2017. See Note E to the ~~reversal of forfeited executive stock compensation of $13, partially offset by a charge of $7 for~~Consolidated Financial Statements.

Interest expense. Interest expense was $89 in the related severance; a net charge of $7 ($5 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.

~~In the third~~second quarter of ~~2016, Arconic recorded Restructuring and other charges of $3 ($2 after-tax), which included $4 ($2 after-tax) for layoff costs related~~2018 compared to ~~cost reduction initiatives and the separation of Alcoa Inc. (see Note G), including the separation of approximately 70 employees (60~~$183 in the ~~Engineered Products~~second quarter of 2017 and Solutions segment and 10 in Corporate); a net charge of $7 ($5 after-tax) for other miscellaneous items; and a favorable benefit of $8 ($5 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

In the first nine months of 2016, Arconic recorded Restructuring and other charges of $33 ($22 after-tax), which included $34 ($21 after-tax) for layoff costs related to cost reduction initiatives and the separation of Alcoa Inc. (see Note G), including the separation of approximately 1,140 employees (860$203 in the ~~Engineered Products and Solutions segment,~~six months ended June 30, 2018 compared to $298 in the ~~Global Rolled Products segment, 240~~six months ended June 30, 2017. The decrease of $94, or 51%, in the ~~Transportation and Construction Solutions segment, and 10 in Corporate); a net charge~~second quarter of ~~$14 ($9 after-tax) for other miscellaneous items; and a net favorable benefit~~2018 was the result of ~~$15 ($8 after-tax) for the reversal of a number of small layoff reserves related to prior periods.~~

~~Arconic does not include Restructuring and other charges~~costs incurred in the ~~results of its reportable segments. The pretax impact of such charges to segment results would have been as follows:~~

As of September 30, 2017, approximately 155 of the 800 employees associated with 2017 restructuring programs, approximately 1,200 of the 1,750 employees (previously 1,800) associated with 2016 restructuring programs (with planned departures in 2017), and approximately 1,120 of the 1,220 employees (previously 1,240) associated with the 2015 restructuring programs were separated. The total number of employees associated with both the 2016 and 2015 restructuring programs was updated to reflect employees who, initially identified for separation, accepted other positions within Arconic, as well as natural attrition. Most of the remaining separations for the 2017 restructuring programs are expected to be completed in 2017 and 2018. All of the remaining separations for the 2016 and 2015 restructuring programs are expected to be completed by the end of 2017.

In the 2017 third quarter and nine-month period, cash payments of $11 and $13, respectively, were made against layoff reserves related to 2017 restructuring programs, cash payments of $3 and $23, respectively, were made against layoff reserves related to 2016 restructuring programs, and cash payments of $1 and $5, respectively, were made against the layoff reserves related to 2015 restructuring programs.

~~As part of its ongoing restructuring in Brazil, the Company anticipates recognizing a restructuring-related charge of approximately $30 - $50 in the fourth~~second quarter of 2017 related to ~~its extrusions business which is part of the Transportation and Construction Solutions segment. The charge relates to the noncash impairment of the net book value of the business.~~

~~Interest expense.~~ Interest expense decreased $26, or 21%, in the third quarter of 2017 compared to the third quarter of 2016 due to lower outstanding debt. During the second quarter of 2017, Arconic redeemed all of the Company’s 6.50% Bonds due 2018 and 6.75% Notes due 2018, and a portion of the Company’s 5.72% Notes due 2019 (see Note L) in advance of the expiration date. Interest expense increased $27, or 7%, during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to $76 of premiums paid for the early redemption ~~noted above, partially offset by~~of the Company’s outstanding debt of $76 which 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.~~

debt than were incurred during 2018 and lower interest expense due to lower debt outstanding.

Other ~~income,~~expense (income), net. Other expense, net was $41 in the second quarter of 2018 compared to Other income, net ~~decreased $10~~of $132 in the ~~third~~second quarter of 2017 and Other expense, net was $61 in the six months ended June 30, 2018 compared to Other income, net of $448 in the ~~third~~six months ended June 30, 2017. The decrease of $173 in the second quarter of ~~2016,~~2018 was primarily due to the ~~favorable post-closing adjustment related~~$167 gain on the Debt-for-Equity Exchange (see Note F to the ~~November 2014 acquisition of Firth Rixson that was recorded~~Consolidated Financial Statements) in the ~~third~~second quarter of ~~2016.~~

~~Other income, net increased $486~~2017 that did not recur in 2018. The decrease of $509 in the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to the nine months ended September 30, 2016~~2018 was primarily due to gains recorded during the ~~gain on~~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 ~~gain~~Debt-for-Equity Exchange of $167, ~~on the debt-for-equity exchange with two investment banks (the “Investment Banks”)~~neither of ~~the remaining portion of Arconic’s retained interest~~which recurred in ~~Alcoa Corporation common stock for a portion of the Company’s outstanding notes held by the Investment Banks (the “Debt-for-Equity Exchange”) (See Note G).~~

2018.

Provision for income taxes. ~~For~~ The tax rate, including discrete items, was 38.1% and 21.2% for the ~~nine months ended September 30,~~second quarter of 2018 and 2017, ~~Arconic’s~~respectively. A discrete 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 ~~28.5%. This rate is lower than~~27.0% and 28.4% for the ~~federal statutory rate~~six months ended June 30, 2018 and 2017, respectively. See Note H to the Consolidated Financial Statements.

Net income. Net income was $120 in the second quarter of ~~35% due~~2018 or $0.24 per diluted share, compared to ~~foreign income taxed~~$212 in ~~lower rate jurisdictions, a tax basis~~the second quarter of 2017, or $0.43 per diluted share, and $263 in ~~excess~~the six months ended June 30, 2018, or $0.53 per diluted share, compared to $534 in the six months ended June 30, 2017, or $1.07 per diluted share. The decrease of ~~book basis~~$92, or 43%, in ~~Alcoa Corporation common stock sold (see Note G), and a nontaxable~~the second quarter of 2018 was primarily attributable to the gain on the Debt-for-Equity Exchange ~~(see Note L). These beneficial items were~~in the second quarter of 2017 that did not recur in 2018, higher aluminum prices, and costs related to settlements of certain customer claims and a physical inventory adjustment, partially offset by ~~a loss on~~volume growth and lower SG&A and interest expense. The decrease of $271, or 51%, in the ~~sale of a rolling mill in Fusina, Italy for which no net tax benefit was recognized (see Note E) and valuation allowances recorded against U.S. foreign tax credits.~~

~~For the nine~~six months ended ~~September~~June 30, 2016, Arconic’s estimated annual effective tax rate, before discrete items, was 56.0%. This rate is higher than the federal statutory rate of 35% primarily due to book basis in excess of tax basis of company-owned life insurance contracts that were sold during 2016, and separation expenses for which no tax benefit was recognized, partially offset by foreign income taxed in lower rate jurisdictions.

For the third quarter ended September 30, 2017 and September 30, 2016, the tax rate including discrete items was 30.8% and 45.9% respectively. Discrete items of $2 were recorded in the quarter ended September 30, 2017 and primarily relate to the tax effects of expired stock compensation partially offset by other insignificant adjustments. Discrete items of $7 were recorded in the quarter ended September 30, 2016 and primarily relate to Arconic’s share of a valuation allowance recorded by one of our joint ventures and as-filed adjustments related to the Company’s 2015 U.S. tax return, partially offset by other discrete benefits.

~~The tax provisions for the third quarter and nine months ended September 30, 2017 and September 30, 2016 were comprised of the following:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Pretax income at estimated annual effective income tax rate before discrete items
   $ 49    $ 69    $ 264    $ 257
Catch-up adjustment to revalue previous quarter pre-tax income at current estimated annual effective tax rate
   1    10    —
—

Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized
   1    (30 )    5    (37 )
Other discrete items
   2    7    3    10








Provision for income taxes
   $ 53    $ 56    $ 272    $ 230

~~Income from continuing operations after income taxes.~~ Income from continuing operations after income taxes was $119 for the third quarter of 2017, or $0.22 per diluted share, compared to income from continuing operations after income taxes of $66 for the third quarter of 2016, or $0.11 per diluted share. The increase of $532018 was primarily attributable to ~~higher volumes and net cost savings across~~gains recorded during the businesses and the absence of expenses associated with the Separation Transaction, partially offset by higher LIFO inventory expense associated with higher aluminum prices, unfavorable product pricing, primarily in aerospace, and lower-margin product mix.

~~Income from continuing operations after income taxes was $653 for the nine~~six months ended ~~September~~June 30, 2017 ~~or $1.31 per diluted share, compared~~related to income from continuing operations after income taxes of $229 for the nine months ended September 30, 2016, or $0.40 per diluted share. The increase of $424 was primarily attributable to a gain of $351 on the sale of a portion of Arconic’s investment in Alcoa Corporation common stock and ~~a gain of $167 on~~ the Debt-for-Equity ~~Exchange; net cost savings;~~Exchange, neither of which recurred in 2018, higher aluminum prices, and ~~higher volumes across all segments;~~costs related to settlements of certain customer claims and a physical inventory adjustment, partially offset by ~~higher LIFO inventory expense associated with higher aluminum prices; the loss on sale of the Fusina, Italy rolling mill of $60; unfavorable product pricing, primarily in aerospace;~~volume growth and ~~lower-margin product mix.~~

~~Discontinued operations.~~~~In the third quarter of 2016, net~~lower expenses for Restructuring and other charges, SG&A, interest and income attributable to Arconic included income of $120 from discontinued operations after income taxes and $20 from discontinued operations attributable to noncontrolling interests. In the nine months ended September 30, 2016, net income attributable to Arconic included income of $146 from discontinued operations after income taxes and $58 from discontinued operations attributable to noncontrolling interests.

taxes.

Segment Information

In the first quarter of ~~2017,~~2018, the Company changed its primary measure of segment performance from ~~After-tax operating income (ATOI) to~~ Adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”). to Segment operating profit, which more closely aligns segment performance with Operating income as presented in the Statement of Consolidated Operations. Segment performance under Arconic’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is ~~Adjusted EBITDA.~~Segment operating profit. Arconic’s definition of ~~Adjusted EBITDA~~Segment operating profit is ~~net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative,~~Operating income excluding Special items. Special items include Restructuring and other ~~expenses; Research~~charges and ~~development expenses;~~Impairment of goodwill. 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 ~~Provision for depreciation and amortization. The Adjusted EBITDA presented~~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.

Engineered Products and Solutions

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Third-party sales
   $ 1,476    $ 1,406    $ 4,445    $ 4,320
Adjusted EBITDA
   $ 312    $ 296    $ 928    $ 930



	Second quarter ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Third-party sales	$	1,596	$	1,485	$	3,137	$	2,972
Segment operating profit	212		250		433		497

Third-party sales for the Engineered Products and Solutions segment increased 5%$111, or 7%, in the ~~third~~second quarter of 2018 and $165, or 6%, in the six months ended June 30, 2018 compared with the corresponding periods in 2017, ~~compared to the third quarter of 2016. The increase was the~~primarily as a result of ~~volume growth~~higher volumes in the aerospace engines and defense end markets and favorable foreign currency movements, partially offset by ~~lower product pricing, primarily~~a decline in the aerospace end market. Third-party sales increased 3% in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase was the result of volume growth, partially offset by lowerindustrial gas turbine market and unfavorable product ~~pricing, primarily in the aerospace end market, the effects of foreign currency fluctuations, and the absence of sales of $23 related to the Remmele Medical business, which was sold in April 2016.~~

~~Adjusted EBITDA~~pricing.

Segment operating profit for the Engineered Products and Solutions segment ~~increased $16~~decreased $38, or 15%, in the ~~third~~second quarter of ~~2017~~2018 and $64, or 13%, in the six months ended June 30, 2018 compared to the ~~third quarter~~corresponding periods in 2017, due to performance shortfalls in the rings and disks operations, unfavorable product mix, and the negative impact of ~~2016. The increase was the result~~a physical inventory adjustment of ~~higher volumes and net cost savings~~$23, partially offset by ~~lower product pricing and ramp up costs associated with increasing production volumes of new~~the strength in aerospace engine ~~parts, such as higher scrap rates, production inefficiencies, new process development and employee training. Adjusted EBITDA decreased by $2~~volumes.

In 2018, demand in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was the result of unfavorable product pricing, ramp up costs associated with increasing production volumes of new aerospace engine parts, and a lower margin product mix, largely offset by net cost savings and higher volumes.

~~In the fourth quarter of 2017, growth in demand from~~ the commercial aerospace end market ~~relative~~is expected to remain strong, driven by the ramp-up of new aerospace engine platforms. Demand in the defense end market is expected to grow due to the ~~fourth quarter~~continuing ramp-up of ~~2016 is~~certain aerospace programs, while declines in the industrial gas turbine market are likely to continue. Net cost savings are anticipated despite higher input costs, and pricing pressures and challenges at the rings and disks operations are expected along with continued net cost savings. These benefits will be partially offset by continued ramp up costs associated with the introduction of new commercial aerospace engines and unfavorable product pricing.

to continue.

Global Rolled Products⁽¹⁾

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Third-party sales
   $ 1,234    $ 1,285    $ 3,751    $ 3,785
Intersegment sales
   36    30    107    88








Total sales
   $ 1,270    $ 1,315    $ 3,858    $ 3,873
Adjusted EBITDA
   $ 140    $ 143    $ 475    $ 461
Third-party aluminum shipments (kmt)
   297    356    914    1,063
Average realized price per metric ton of aluminum⁽²⁾⁽³⁾
   $ 4,155    $ 3,610    $ 4,104    $ 3,561

⁽¹⁾	Excludes the Warrick, IN rolling operations and the equity interest in the rolling mill at the joint venture in Saudi Arabia, both of which were previously part of the Global Rolled Products segment but became part of Alcoa Corporation effective November 1, 2016.

⁽²⁾

Generally, average realized price per metric ton of aluminum includes two elements: a) the price of metal (the underlying base metal component based on quoted prices from the London Metal Exchange (“LME”), plus a regional premium which represents the incremental price over the base LME component that is associated with physical delivery of metal to a particular region), and b) the conversion price, which represents the incremental price over the metal price component that is associated with converting primary aluminum into sheet and plate.

⁽³⁾	~~The metal price component is a pass-through to this segment’s customers with limited exceptions (e.g., fixed-priced contracts, certain regional premiums).~~



	Second quarter ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Third-party sales	$	1,451	$	1,271	$	2,817	$	2,519
Intersegment sales	46		37		88		71
Total sales	$	1,497	$	1,308	$	2,905	$	2,590
Segment operating profit	123		133		235		269
Third-party aluminum shipments (kmt)	315		307		623		617

Third-party sales for the Global Rolled Products segment ~~decreased 4%~~increased $180, or 14%, in the ~~third~~second quarter of ~~2017~~2018 and $298, or 12%, in the six months ended June 30, 2018 compared ~~to the third quarter of 2016. The decrease was primarily related to the impact of $131 associated~~ with the ~~ramp-down~~corresponding periods in 2017, primarily as a result of higher aluminum prices, higher volumes in the automotive and ~~Toll Processing Agreement with Alcoa Corporation at the Company’s North America packaging business in Tennessee,~~commercial transportation end markets, and favorable foreign currency movements, partially offset by the absence of sales ~~of $39~~ from the rolling mill in Fusina, Italy, which was ~~sold~~divested in March 2017, and unfavorable product pricing, partially offset by higher aluminum pricing. Third-party sales decreased 1% in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was primarily related to the impact of $365 associated with the ramp-down and Toll Processing Agreement with Alcoa Corporation at the Company’s North America packaging business in Tennessee, the absence of sales of $74 from the rolling mill in Fusina, Italy, and unfavorable product pricing, largely offset by volume growth in the automotive end market and higher aluminum pricing.

~~Adjusted EBITDA~~2017.

Segment operating profit for the Global Rolled Products segment decreased $3$10, or 8%, in the ~~third~~second quarter of 2018 and $34, or 13%, in the six months ended June 30, 2018 compared with the corresponding periods in 2017, ~~compared to the third quarter of 2016. The decrease is the result of the planned ramp-down of the Company’s North America packaging business in Tennessee, lower~~principally driven by unfavorable aerospace ~~volume from customer inventory destocking and reduced build rates as well as continued pricing pressure on regional specialty products,~~wide-body production mix and higher aluminum prices, ~~of $7,~~ partially offset by higher automotive and commercial transportation volumes and net cost savings. ~~The higher aluminum prices negatively impacted the Global Rolled Products Adjusted EBITDA margin by 170 basis points in the third quarter of 2017 compared to the third quarter of 2016.~~

Adjusted EBITDA increased $14 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase is the result of net cost savings and increased automotive volumes, partially offset by lower aerospace volume from customer destocking and reduced build rates as well as continued pricing pressure on regional specialty products.

In ~~the fourth quarter of 2017,~~2018, demand in the automotive end market is expected to continue to grow ~~relative to the fourth quarter of 2016~~ due to the ~~increasing~~growing demand for innovative products and aluminum-intensive vehicles. ~~While new programs continue to ramp-up, demand~~Demand from the commercial airframe end market is expected to ~~decline due to customer destocking and~~be flat as the ramp-up of new programs is offset by lower build rates for aluminum intensive wide-body programs. ~~Sales~~The ramp-down of Arconic's North American packaging operations is expected to ~~the packaging market~~continue. Higher aluminum prices are expected to ~~decline due~~continue to ~~continuing pricing pressure within~~negatively impact this ~~market and the impact of the ramp-down relating to the Company’s North America packaging business in Tennessee.~~segment on a year over year basis. Net cost savings are ~~expected~~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 quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Third-party sales
   $ 517    $ 450    $ 1,467    $ 1,346
Adjusted EBITDA
   $ 83    $ 76    $ 237    $ 216



	Second quarter ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Third-party sales	$	562	$	504	$	1,099	$	960
Segment operating profit	97		71		164		139

Third-party sales for the Transportation and Construction Solutions segment increased ~~15%~~$58, or 12%, in the ~~third~~second quarter of 2018 and $139, or 14%, in the six months ended June 30, 2018 compared with the corresponding periods in 2017, ~~compared to the third quarter~~primarily as a result of ~~2016 due to increased~~higher volumes in the commercial transportation and building and construction end markets, higher aluminum ~~pricing,~~prices and ~~the effects of~~favorable foreign currency movements, partially offset by ~~lower product pricing. Third-party~~the absence of sales resulting from the divestiture of the Latin America extrusions business in April 2018.

Segment operating profit for the Transportation and Construction Solutions segment increased 9%$26, or 37%, in the ~~nine~~second quarter of 2018 and $25, or 18%, in the six months ended ~~September~~June 30, 2018 compared with the corresponding periods in 2017, ~~compared to the nine months ended September 30, 2016 due to increased volumes~~principally as a result of higher volume in the commercial transportation and building and construction end markets, favorable foreign currency movements and ~~higher aluminum pricing,~~net cost savings, partially offset by ~~lower product pricing.~~

Adjusted EBITDA for the Transportation and Construction Solutions segment increased $7 and $21 in the third quarter and nine months ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The change was principally the result of net cost savings and higher volumes, partially offset by lower product pricing in the heavy-duty truck market, unfavorable product mix, and higher aluminum prices.

On April 2, 2018, Arconic completed the sale of its Latin America extrusions business to a subsidiary of Hydro Extruded Solutions AS. The ~~higher aluminum prices negatively impacted the Transportation~~sale is part of Arconic’s continued drive to streamline its business portfolio, reduce complexity and ~~Construction Solutions Adjusted EBITDA margin by $4 or 120 basis points in the third quarter of 2017 compared to the third quarter of 2016.~~

further focus on its higher-margin products and profitable growth.

In ~~the fourth quarter of 2017, increased volumes are expected to continue relative to the fourth quarter of 2016 due to~~2018, we expect continued growth in the ~~Commercial Transportation~~North American and ~~Building~~European commercial transportation and ~~Construction~~building and construction markets ~~as well as growth in~~and continued demand for innovative ~~and new~~ products. ~~Additionally, net~~Net cost savings ~~and pricing headwinds~~ are anticipated to ~~continue in the fourth quarter.~~

continue.

Reconciliation of ~~Combined~~Total segment ~~adjusted EBITDA~~operating profit to ~~Net~~Consolidated income ~~attributable to Arconic~~

~~Items required to reconcile Combined segment adjusted EBITDA to Net~~before income attributable to Arconic include: the Provision for depreciation and amortization; Restructuring and other charges; the impact of LIFO inventory accounting; metal price lag (the timing difference created when the average price of metal sold differs from the average cost of the metal when purchased by the respective segment — generally, when the price of metal increases, metal price lag is favorable, and when the price of metal decreases, metal price lag is unfavorable); corporate expense (general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities and corporate research and development expenses); other items, including intersegment profit eliminations; Other income, net; Interest expense; Income tax expense; and the results of discontinued operations. Prior period information has been recast to conform to current year presentation.

~~The following table reconciles Combined segment adjusted EBITDA to Net income attributable to Arconic:~~

taxes



	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 changes in the reconciling items between ~~Combined~~Total segment ~~adjusted EBITDA~~operating profit and ~~Net~~Consolidated income ~~attributable to Arconic for~~before income taxes in the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the corresponding periods in ~~2016~~2017 consisted of:

~~an increase~~a decrease in Restructuring and other charges in the six months months ended June 30, 2018, primarily due to ~~ongoing overhead cost reductions;~~a loss of $60 on the ~~nine month period was also impacted by the loss on~~ sale of the Fusina, Italy rolling mill in March 2017. See Note E to the ~~first quarter of 2017;~~Consolidated Financial Statements;

a change in the Impact of LIFO, mostly due to a greater increase in the price of aluminum, driven by higher base metal prices (LME) and regional premiums at September 30, 2017 indexed to December 31, 2016 for the 2017 third quarter and nine month period compared to higher base metal prices (LME) at September 30, 2016 indexed to December 31, 2015 for the 2016 third quarter and nine month period;

~~a change in Metal price lag in the nine months ended September 30, 2017 compared to nine months ended September 30, 2016 due to higher prices for aluminum;~~

a decrease in Corporate expense in the ~~third~~second quarter of 2018, primarily due to proxy, advisory and governance-related costs of $42 incurred in the second quarter of 2017 ~~compared to the third quarter of 2016 primarily attributable to~~which did not recur in 2018, as well as lower expenses driven by overhead cost reductions, partially offset by costs incurred in ~~2016~~the second quarter of 2018 of $38 related to settlements of certain customer claims primarily related to product introductions and $4 for legal and other advisory costs related to Grenfell Tower. The decrease in Corporate expense in the six months ended June 30, 2018 was primarily due to costs related to the separation of Alcoa Inc. and a decrease in Corporate expense in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily attributable to costs incurred in 2016 related to the separation of ~~Alcoa Inc., partially offset by~~$18 and proxy, advisory and governance-related costs of $58 incurred during the six months ended June 30, 2017, neither of which recurred in 2018, as well as lower expenses driven by overhead cost reductions, partially offset by costs incurred in ~~2017;~~the six months ended June 30, 2018 of $38 related to the settlements of certain customer claims primarily related to product introductions and $9 for legal and other advisory costs related to Grenfell Tower;

~~an increase~~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 ~~nine~~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 ~~September~~June 30, 2018 was primarily due to gains recorded during the six months ended June 30, 2017 ~~largely the result of the $351 gain on~~related to the sale of a portion of Arconic’s investment in Alcoa Corporation common stock ~~in the first quarter~~ of ~~2017~~$351 and ~~a $167 gain on~~ the Debt-for-Equity Exchange of $167, neither of which recurred in ~~the second quarter of 2017;~~2018.

a decrease in Interest expense in the third quarter of 2017 compared to the third quarter of 2016 due to lower outstanding debt and an increase in Interest expense in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to premiums paid for the early redemption of $1,250 of the Company’s long-term debt during the second quarter of 2017 partially offset by lower expense due to lower outstanding debt; and

an increase in Provision for income taxes in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 attributable to higher pretax income, exclusive of the previously noted gain on the Debt-for-Equity Exchange.

~~Reconciliation of Net income attributable to Arconic to Consolidated adjusted EBITDA~~

Items required to reconcile Net income attributable to Arconic to Consolidated adjusted EBITDA include: Depreciation and amortization; Restructuring and other charges; Other income, net; Interest expense; Income tax expense; and Discontinued operations.

~~The following table reconciles Net income attributable to Arconic to Consolidated adjusted EBITDA:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Net income attributable to Arconic
   $ 119    $ 166    $ 653    $ 317
Depreciation and amortization
   140    136    410    402
Restructuring and other charges
   19    3    118    33
Other income, net
   (1 )    (11 )    (526 )    (40 )
Interest expense
   100    126    398    371
Income taxes
   53    56    272    230
Discontinued operations
   —      (100 )    —      (88 )








Consolidated adjusted EBITDA⁽¹⁾
   $ 430    $ 376    $ 1,325    $ 1,225

⁽¹⁾

Consolidated adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Consolidated adjusted EBITDA provides additional information with respect to Arconic’s operating performance. Additionally, presenting Consolidated adjusted EBITDA pursuant to our debt agreements is appropriate to provide additional information to investors to demonstrate Arconic’s ability to comply with its financial debt covenants. The Consolidated adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

Environmental Matters

See the Environmental Matters section of Note HQ to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Subsequent Events

On October 13, 2017, Alcoa Corporation announced that it had terminated an electricity contract with Luminant Generation Company LLC, effective as of October 1, 2017, that was tied to its Rockdale Operations in Texas. Pursuant

See Note R to the ~~Separation and Distribution Agreement between Arconic and Alcoa Corporation, Arconic was required to provide a guarantee up to an estimated present value amount~~Consolidated Financial Statements in Part I Item 1 of ~~approximately $485 related to~~ this electricity contract for Alcoa Corporation’s facility in the event of an Alcoa Corporation payment default. As a result of the termination of the electricity contract by Alcoa Corporation, Arconic expects to record noncash non-operating income in the fourth quarter of 2017 of approximately $25 ($16 after-tax) associated with the reversal of the fair value of the guarantee which was included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet.

Form 10-Q.

Liquidity and Capital Resources

~~The cash flows related to Alcoa Corporation have not been segregated and are included~~

Operating activities

Cash used for operations was $260 in the ~~Statement of Consolidated Cash Flows for the nine~~six months ended ~~September~~June 30, ~~2016. As a result,~~2018 compared to $316 in the ~~cash flow amounts reported for the nine~~six months ended ~~September~~June 30, ~~2017 are not comparable to the amounts reported for the nine months ended September 30, 2016.~~

~~Cash from Operations~~

~~Cash provided from operations was $89 in the nine months ended September 30, 2017 compared to $208 in the nine months ended September 30, 2016.~~2017. The decrease in cash ~~provided from operations~~used of ~~$119,~~$56, or ~~57%~~18%, was primarily due to ~~lower~~higher operating results (net income plus net add-back for noncash transactions in earnings) of ~~$673,~~$87 and a favorable change in noncurrent assets of $56, partially offset by ~~lower cash used for~~higher pension contributions of $74 and higher working capital of ~~$251~~$10. The components of the change in working capital included unfavorable changes of $142 in receivables, $70 in inventories and $84 in taxes, including income taxes, partially offset by a ~~positive~~favorable change ~~associated with noncurrent assets~~ of ~~$247 due to the prepayment of $200 made~~$287 in ~~April 2016 related to a gas supply agreement for the Australia alumina refineries.~~

accounts payable.

Financing Activities

Cash used for financing activities was ~~$918~~$577 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$350~~$955 in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~increase~~decrease in cash used ~~for financing activities~~of $378 was primarily related to the early redemption during 2017 of the Company’s 6.50% Bonds due 2018, 6.75% Notes due 2018, and a portion of the 5.72% Notes due 2019, partially offset by the early redemption during 2018 of the remaining outstanding 5.72% Notes due in 2019 (see Note L)N to the Consolidated Financial Statements).

Arconic maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named ~~therein, which provides~~therein. See Note N to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q for a $3,000 senior unsecured revolving credit facility (the “Credit Facility”) which matures on July 25, 2020 unless extended or earlier terminated in accordance with the provisions of the Credit Agreement. The purpose of any borrowings under the Credit Facility is to provide for working capital requirements and for other general corporate purposes.

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 ~~September~~June 30, ~~2017,~~2018, of which ~~$175~~$350 is due to expire in ~~2017~~2018 and ~~$540~~$365 is due to expire in ~~2018.~~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 ~~third quarter and nine~~six months ended ~~September~~June 30, ~~2017,~~2018, Arconic borrowed and repaid ~~$150~~$300 and ~~$660,~~$300, respectively, under these other credit facilities. The weighted-average interest rate and weighted-average days outstanding during the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were ~~2.73%~~3.3% and 7370 days and ~~2.48%~~3.2% and 4365 days, respectively.

Arconic’s costs of borrowing and ability to access the capital markets are affected not only by market conditions but also by the short- and long-term debt ratings assigned to Arconic by the major credit rating agencies.

Arconic’s credit ratings from the three major credit rating agencies are as follows:



	Long-Term Debt	Short-Term Debt	Outlook	Date of Last Update
Standard and Poor’s	BBB-	A-3	Stable	May 1, 2017
Moody’s	Ba2	Speculative Grade Liquidity-2	Stable	November 2, 2017
Fitch	BB+	B	Stable	July 3, 2017

Investing Activities

Cash provided from investing activities was ~~$776~~$146 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$79~~$1,179 in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

~~Cash provided from investing activities for the nine months ended September 30, 2017 included proceeds~~2017. The decrease of ~~$888 from~~$1,033 was primarily due to the sale of ~~a portion of Arconic’s investment in~~ Alcoa Corporation common stock for proceeds of $888 and the receipt of proceeds from the sale of the Yadkin Hydroelectric Project of $243 ~~somewhat~~during the six months ended June 30, 2017, which were partly offset by an increase in cash ~~used for capital expenditures~~receipts from sold receivables of ~~$360 and the injection of $10 into the Fusina rolling business prior to its sale.~~

Cash provided from investing activities for the nine months ended September 30, 2016 included proceeds of $683 from the sale of assets and businesses, primarily related to $457 in proceeds from the redemption of Company-owned life insurance policies, proceeds of $120 related to the sale of the Intalco smelter wharf property, and proceeds of $102 from the sale of the Remmele Medical business, and $280 in proceeds received from the sale of investments, including $145 for the sale of an equity interest in a natural gas pipeline in Australia and $130 for fixed income and equity securities held by Arconic’s captive insurance company. These cash flows were partially offset by $814 in capital expenditures, including the aerospace expansion (thick plate stretcher) at the Davenport, Iowa plant.

~~Noncash Financing and Investing Activities~~

In the second quarter of 2017, the Company completed a Debt-for-Equity Exchange with 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 for $465 including accrued and unpaid interest.

$135.

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; and statements about Arconic’s strategies, outlook, business and financial ~~prospects; and statements regarding potential share gains.~~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 ~~management~~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. Although Arconic believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible thatpredict, which could cause actual results ~~may~~to differ materially from those indicated by these ~~forward-looking statements due to a variety of risks and uncertainties.~~statements. Such risks and uncertainties include, but are not limited to: (a) deterioration in global economic and financial market conditions generally; (b) unfavorable changes in the markets served by Arconic; (c) 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) ~~changes in discount rates~~competition from new product offerings, disruptive technologies or ~~investment returns on pension assets;~~other developments; (e) 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) manufacturing difficulties or other issues that impact product performance, quality or safety; (g) 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; ~~(f)~~(h) the impact of cyber attacks and potential information technology or data security breaches; (g) any manufacturing difficulties or other issues that impact product performance, quality or safety; (h) political, economic, and regulatory risks in the countries in which Arconic operates or sells products; (i) ~~material adverse~~ changes in ~~aluminum industry conditions, including fluctuations in London Metal Exchange-based aluminum prices;~~discount rates or investment returns on pension assets; (j) the impact of changes in aluminum prices and foreign currency exchange rates on costs and results; (k) 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) the other risk factors summarized in Arconic’s Form 10-K for the year ended December 31, ~~2016, including under Part I, Item 1A thereof, in Arconic’s Form 10-Q for the quarter ended June 30,~~ 2017 and inother reports filed with the ~~following sections of this report: Note H to the financial statements,~~U.S. Securities and ~~the discussion included above under Segment Information.~~Exchange Commission (the “SEC”). Arconic disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law. Market projections are subject to the risks discussed above and other risks in the market.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not material.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Arconic’s ~~Interim~~ 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 ~~third~~second quarter of ~~2017,~~2018 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.

~~Environmental Matters~~

As previously reported, by an amended complaint filed April 21, 2005, Alcoa Global Fasteners, Inc. (now known as Arconic Global Fasteners & Rings, Inc.) was added as a defendant in Orange County Water District (OCWD) v. Northrop Corporation, et al., civil action 04cc00715 (Superior Court of California, County of Orange). OCWD alleges contamination or threatened contamination of a drinking water aquifer by Arconic, certain of the entities that preceded Arconic at the same locations as property owners and/or operators, and other current and former industrial and manufacturing businesses that operated in Orange County in past decades. OCWD seeks to recover the cost of aquifer remediation and attorney’s fees. Trial on statutory, non-jury claims commenced on February 10, 2012. On October 29, 2013, the court issued its final Statement of Decision in favor of Arconic and the other Phase I trial defendants dismissing the statutory law liability claims. On June 20, 2014, following the full briefing by the parties, the trial court entered final judgment in favor of Arconic and the other trial defendants on the remaining tort claims. On August 18, 2014, the OCWD appealed the dismissal of the statutory law claims and common law claims (except for negligence). On March 29, 2017, oral argument on the appeal took place before a panel of three California Court of Appeal justices. On June 1, 2017, the Court of Appeal upheld the trial court’s decision in favor of Arconic on all claims. The OCWD did not file a petition for review to the California Supreme Court. On July 12, 2017, Northrop filed a petition for review by the Supreme Court of the State of California. On September 13, 2017, the California Supreme Court denied Northrop’s petition for review. The remaining claims against Northrop have been remanded to the trial court. No claims against Arconic are pending in the remanded case. No further reports will be made on this matter unless there is a material development.

As previously reported, on June 21, 2017, the UK Environment Agency (the “Agency”) confirmed that it will prosecute Firth Rixson Metals Limited in Chesterfield (UK) Magistrates Court in relation to an environmental incident that took place on April 22, 2015 at the Company’s Glossop UK site. It is alleged that an acid scrubber unit at the site caused a leak into the local river resulting in environmental damage, including the death of approximately 200 fish. Arconic was not successful in persuading the Agency to drop the prosecution in lieu of an enforcement undertaking (a civil remedy) despite the fact that cyanide, a compound not used on the site, had been identified in the samples of water taken at the time. A hearing before the Court was held on September 13, 2017 at which Firth Rixson pled guilty to the underlying offense of allowing a release to occur to the nearby stream. The Agency was not ready to proceed to a full hearing on the culpability and harm elements of the allegations, and requested more time. The Court granted the Agency’s request and set a follow-up hearing for December 6, 2017. The Company expects that to be the final dispositive hearing, at or after which it expects the Court to render final decisions on culpability and harm, and impose a fine on the Company. The Company has recorded an amount to cover the estimated fine and this amount is not material to the Company’s Consolidated Financial Statements.

~~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 filed an application seeking core participant status in the Public Inquiry.

~~Brave v. Arconic Inc., Kenneth J. Giacobbe and Klaus Kleinfeld~~. A purported class action complaint was filed on July 13, 2017 in the United States District Court for the Southern District of New York against Arconic Inc., Kenneth J. Giacobbe and Klaus Kleinfeld. The complaint alleged that the statements in Arconic’s 2016 10-K about management’s recognition of its responsibility to conduct the Company’s affairs according to the highest standards of personal and corporate conduct and within the laws of the host countries in which it operates, and its failure to disclose that Arconic knowingly supplied highly flammable Reynobond PE cladding panels for use in construction that significantly increased the risk of property damage, injury and death, were false and misleading in violation of the federal securities laws and artificially inflated the prices of Arconic’s securities. The plaintiffs sought, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses. On August 14, 2017, this case was dismissed by the plaintiff without prejudice.

~~Tripson v. Arconic Inc. and Klaus Kleinfeld~~. A purported class action complaint was filed on July 14, 2017 in the United States District Court for the Southern District of New York against Arconic Inc. and Klaus Kleinfeld. The complaint alleged that statements in Arconic’s 2012-2016 10-Ks, 2012-15 Annual Reports and the 2016 Annual Highlights Report about management’s recognition of its responsibility to conduct the Company’s affairs according to the highest standards of personal and corporate conduct and within the laws of the host countries in which it operates, and its failure to disclose that Arconic knowingly supplied highly flammable Reynobond PE cladding panels for use in construction that significantly increased the risk of property damage, injury and death, were false and misleading in violation of the federal securities laws and artificially inflated the prices of Arconic’s securities. The complaint also alleged that Arconic was motivated to conceal its potential liability to improve its credit ratings and enhance its ability to raise capital. The plaintiffs sought, among other things, unspecified compensatory damages and equitable relief and an award of attorney and expert fees and expenses. On August 25, 2017, this case was dismissed by the plaintiff without prejudice.

~~Sullivan v. Arconic Inc. et al.~~ A purported class action complaint was filed on July 18, 2017 in the United States District Court for the Southern District of New York against Arconic Inc., as well as two former Arconic executives and several current and former Arconic directors, and banks that acted as underwriters for Arconic’s September 18, 2014 preferred stock offering. The complaint alleges that statements in the registration statement for Arconic’s September 18, 2014 preferred stock offering were false and misleading in light of the subsequent Grenfell Tower fire. The complaint also alleges that Arconic’s failure to disclose at the time of the offering that it was obtaining significant profits through sales that exposed it to substantial liability violated the federal securities laws. The plaintiffs seek, among other things, unspecified compensatory and recissory damages and an award of attorney and expert fees and expenses. On August 25, 2017, this case was dismissed by the plaintiff without prejudice and re-filed on September 15, 2017 in the United States District Court for the Western District of Pennsylvania.

~~Howard v. Arconic Inc. et al.~~ A purported class action complaint was filed on August 11, 2017 in the United States District Court for Western District of Pennsylvania against Arconic Inc., and Klaus Kleinfeld. The complaint alleges that Arconic and Mr. Kleinfeld made various false and misleading statements, and omitted to disclose material information, about the company’s business and financial prospects and, specifically, the risks of

See the Reynobond PE ~~product. The complaint alleges that the statements in Arconic’s Form 10-K for the fiscal years ended December 31, 2012, 2013, 2014, 2015~~ and ~~2016, its 2012, 2013, 2014, 2015 and 2016 Annual Reports, and its 2016 Annual Highlights Report about management’s recognition~~Tax sections of ~~its responsibility to conduct the Company’s affairs according~~Note Q to the ~~highest standards~~Consolidated Financial Statements in Part I Item 1 of personal and corporate conduct and within the laws of the host countries in which it operates, and its failure to disclose that Arconic knowingly supplied highly flammable Reynobond PE cladding panels for use in construction that significantly increased the risk of property damage, injury and death, were false and misleading in violation of the federal securities laws and artificially inflated the prices of Arconic’s securities. The plaintiffs seek, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses.

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 is reviewing these shareholder demand letters and considering the appropriate course of action. In addition, lawsuits are pending in state court in New York and federal court in Pennsylvania, initiated, respectively, by another purported shareholder and by the Company, concerning the shareholder’s claimed right, which the Company contests, to inspect the Company’s books and records related to the Grenfell Tower fire and Reynobond PE.

Form 10-Q.

Item 6. Exhibits.



10(a).		~~Letter Agreement, by~~ 2013 Arconic Stock Incentive Plan, as amended and ~~between Arconic Inc. and Charles P. Blankenship, dated as of October 19, 2017,~~restated, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated ~~October 23, 2017~~May 22, 2018
10(b).	Amendment No. 2, dated as of June 29, 2018, to the Company’s Five-Year Revolving Credit Agreement dated as of July 25, 2014, by and among the Company, a syndicate of lenders and issuers named therein, Citibank, N.A., as administrative agent for the lenders and issuers, and JPMorgan Chase Bank, N.A., as syndication agent, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 2, 2018
~~12.~~ 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.
~~15.~~		Letter regarding unaudited interim financial information
31.
~~31.~~		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.
~~32.~~		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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.

~~November 6, 2017~~ August 2, 2018		/s/ Ken Giacobbe
Date		Ken Giacobbe
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

~~November 6, 2017~~ August 2, 2018		/s/ Paul Myron
Date		Paul Myron
		Vice President and Controller
		(Principal Accounting Officer)


	Third quarter ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Sales (I)	$	3,236		$	3,138		$	9,689		$	9,427
Cost of goods sold (exclusive of expenses below)		2,626			2,503			7,701			7,436
Selling, general administrative, and other expenses		155			229			580			673
Research and development expenses		25			30			83			93
Provision for depreciation and amortization		140			136			410			402
Restructuring and other charges (D & E)		19			3			118			33

Operating income		271			237			797			790
Interest expense (L)		100			126			398			371
Other income, net (G)		(1	)		(11	)		(526	)		(40	)

Income from continuing operations before income taxes		172			122			925			459
Provision for income taxes		53			56			272			230

Income from continuing operations after income taxes		119			66			653			229
Income from discontinued operations after income taxes (G)		—			120			—			146

Net income		119			186			653			375
Less: Income from discontinued operations attributable to noncontrolling interests (G)		—			20			—			58

Net income attributable to Arconic	$	119		$	166		$	653		$	317

Amounts Attributable to Arconic Common Shareholders (J):
Net income	$	101		$	148		$	600		$	265

Earnings per share - basic
Continuing operations	$	0.23		$	0.11		$	1.36		$	0.40
Discontinued operations		—			0.23			—			0.20

Net income per share - basic	$	0.23		$	0.34		$	1.36		$	0.60

Earnings per share - diluted
Continuing operations	$	0.22		$	0.11		$	1.31		$	0.40
Discontinued operations		—			0.22			—			0.20

Net income per share - diluted	$	0.22		$	0.33		$	1.31		$	0.60

Dividends paid per share	$	0.06		$	0.09		$	0.18		$	0.27

Weighted Average Shares Outstanding (J):
Average shares outstanding - basic		442			438			441			438

Average shares outstanding - diluted		462			453			501			443


	September 30, 2017			December 31, 2016
Assets
Current Assets:
Cash and cash equivalents	$	1,815		$	1,863
Receivables from customers, less allowances of $7 in 2017 and $13 in 2016 (K)		1,150			974
Other receivables (G & K)		373			477
Inventories (F)		2,453			2,253
Prepaid expenses and other current assets		357			325

Total current assets		6,148			5,892
Properties, plants, and equipment		11,791			11,572
Less: accumulated depreciation and amortization		6,265			6,073

Properties, plants, and equipment, net		5,526			5,499

Goodwill		5,246			5,148
Deferred income taxes		1,024			1,234
Investment in common stock of Alcoa Corporation (G & N)		—			1,020
Other noncurrent assets		1,293			1,245

Total Assets	$	19,237		$	20,038

Liabilities
Current liabilities:
Short-term borrowings	$	54		$	36
Accounts payable, trade		1,656			1,744
Accrued compensation and retirement costs		379			398
Taxes, including income taxes		74			85
Accrued interest payable		101			153
Other current liabilities		412			329
Long-term debt due within one year		1			4

Total current liabilities		2,677			2,749
Long-term debt, less amount due within one year (L & N)		6,802			8,044
Accrued pension benefits		2,110			2,345
Accrued other postretirement benefits		811			889
Other noncurrent liabilities and deferred credits		876			870

Total liabilities		13,276			14,897

Contingencies and commitments (H)
Equity
Arconic shareholders’ equity:
Preferred stock		55			55
Mandatory convertible preferred stock		3			3
Common stock		442			438
Additional capital		8,294			8,214
Accumulated deficit		(519	)		(1,027	)
Accumulated other comprehensive loss (C)		(2,327	)		(2,568	)

Total Arconic shareholders’ equity		5,948			5,115

Noncontrolling interests		13			26

Total equity		5,961			5,141

Total Liabilities and Equity	$	19,237		$	20,038


	Arconic						Noncontrolling Interests
	Third quarter ended						Third quarter ended
	September 30,						September 30,
	2017			2016			2017			2016
Pension and other postretirement benefits (M)
Balance at beginning of period	$	(1,931	)	$	(3,514	)	$	—		$	(53	)
Other comprehensive income (loss):
Unrecognized net actuarial loss and prior service cost		(7	)		(819	)		—			(1	)
Tax benefit		1			286			—			—

Total Other comprehensive loss before reclassifications, net of tax		(6	)		(533	)		—			(1	)

Amortization of net actuarial loss and prior service cost⁽¹⁾		56			109			—			1
Tax expense⁽²⁾		(19	)		(38	)		—			(1	)

Total amount reclassified from Accumulated other comprehensive income, net of tax⁽⁵⁾		37			71			—			—

Total Other comprehensive income (loss)		31			(462	)		—			(1	)

Balance at end of period	$	(1,900	)	$	(3,976	)	$	—		$	(54	)

Foreign currency translation
Balance at beginning of period	$	(523	)	$	(2,064	)	$	(2	)	$	(641	)
Other comprehensive income⁽³⁾		85			157			—			45

Balance at end of period	$	(438	)	$	(1,907	)	$	(2	)	$	(596	)

Available-for-sale securities
Balance at beginning of period	$	(2	)	$	(1	)	$	—		$	—
Other comprehensive income⁽⁴⁾		1			—			—			—

Balance at end of period	$	(1	)	$	(1	)	$	—		$	—

Cash flow hedges
Balance at beginning of period	$	2		$	364		$	—		$	11
Other comprehensive income (loss):
Net change from periodic revaluations		15			(430	)		—			20
Tax (expense) benefit		(5	)		126			—			(6	)

Total Other comprehensive income (loss) before reclassifications, net of tax		10			(304	)		—			14

Net amount reclassified to earnings		—			(46	)		—			(34	)
Tax benefit⁽²⁾		—			12			—			10

Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾		—			(34	)		—			(24	)

Total Other comprehensive income (loss)		10			(338	)		—			(10	)

Balance at end of period	$	12		$	26		$	—		$	1


	Arconic						Noncontrolling Interests
	Nine months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Pension and other postretirement benefits (M)
Balance at beginning of period	$	(2,010	)	$	(3,611	)	$	—		$	(56	)
Other comprehensive income (loss):
Unrecognized net actuarial loss and prior service cost		4			(883	)		—			—
Tax (expense) benefit		(3	)		312			—			—

Total Other comprehensive income (loss) before reclassifications, net of tax		1			(571	)		—			—

Amortization of net actuarial loss and prior service cost⁽¹⁾		167			317			—			3
Tax expense⁽²⁾		(58	)		(111	)		—			(1	)

Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾		109			206			—			2

Total Other comprehensive income (loss)		110			(365	)		—			2

Balance at end of period	$	(1,900	)	$	(3,976	)	$	—		$	(54	)

Foreign currency translation
Balance at beginning of period	$	(689	)	$	(2,412	)	$	(2	)	$	(780	)
Other comprehensive income⁽³⁾		251			505			—			184

Balance at end of period	$	(438	)	$	(1,907	)	$	(2	)	$	(596	)

Available-for-sale securities
Balance at beginning of period	$	132		$	(5	)	$	—		$	—
Other comprehensive (loss) income⁽⁴⁾		(133	)		4			—			—

Balance at end of period	$	(1	)	$	(1	)	$	—		$	—

Cash flow hedges
Balance at beginning of period	$	(1	)	$	597		$	—		$	(3	)
Other comprehensive income (loss):
Net change from periodic revaluations		20			(772	)		—			35
Tax (expense) benefit		(7	)		229			—			(10	)

Total Other comprehensive income (loss) before reclassifications, net of tax		13			(543	)		—			25

Net amount reclassified to earnings		—			(41	)		—			(29	)
Tax benefit²⁾		—			13			—			8

Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾		—			(28	)		—			(21	)

Total Other comprehensive income (loss)		13			(571	)		—			4

Balance at end of period	$	12		$	26		$	—		$	1


	Third quarter ended September 30,					Nine months ended September 30,
	2017		2016			2017		2016
Engineered Products and Solutions	$	10	$	(1	)	$	24	$	16
Global Rolled Products		2		(1	)		76		1
Transportation and Construction Solutions		2		(2	)		11		6

Segment Total		14		(4	)		111		23
Corporate		5		7			7		10

Total Restructuring and other charges	$	19	$	3		$	118	$	33


	Third quarter ended September 30, 2016			Nine months ended September 30, 2016
Sales	$	2,075		$	6,028
Cost of goods sold (exclusive of expenses below)		1,714			5,038
Selling, general administrative, and other expenses		46			148
Research and development expenses		8			26
Provision for depreciation, depletion and amortization		180			532
Restructuring and other charges		15			101
Interest expense		7			18
Other income, net		(106	)		(80	)

Income from discontinued operations before income taxes		211			245
Provision for income taxes		91			99

Income from discontinued operations after income taxes		120			146
Less: Net income from discontinued operations attributable to noncontrolling interests		20			58

Net income from discontinued operations	$	100		$	88


	Nine months ended September 30,
	2016
Depreciation, depletion and amortization	$	532
Restructuring and other charges	$	101
Capital expenditures	$	258


	Engineered				Transportation
	Products and		Global Rolled		and Construction		Combined
	Solutions		Products		Solutions		Segment
Third quarter ended
September 30, 2017
Sales:
Third-party sales	$	1,476	$	1,234	$	517	$	3,227
Intersegment sales		—		36		—		36

Total sales	$	1,476	$	1,270	$	517	$	3,263

Profit and loss:
Depreciation and amortization		68		52		13		133
Adjusted EBITDA		312		140		83		535

Third quarter ended
September 30, 2016
Sales:
Third-party sales	$	1,406	$	1,285	$	450	$	3,141
Intersegment sales		—		30		—		30

Total sales	$	1,406	$	1,315	$	450	$	3,171

Profit and loss:
Depreciation and amortization		63		52		12		127
Adjusted EBITDA		296		143		76		515


	September 30, 2017			December 31, 2016
6.50% Bonds, due 2018	$	—		$	250
6.75% Notes, due 2018		—			750
5.72% Notes, due 2019		500			750
1.63% Convertible Notes, due 2019*		403			403
6.150% Notes, due 2020		1,000			1,000
5.40% Notes due 2021		1,250			1,250
5.87% Notes, due 2022		627			627
5.125% Notes, due 2024		1,250			1,250
5.90% Notes, due 2027		625			625
6.75% Bonds, due 2028		300			300
5.95% Notes, due 2037		625			625
Iowa Finance Authority Loan, due 2042		250			250
Other**		(27	)		(32	)

Total debt		6,803			8,048
Less: amount due within one year		1			4

Total long-term debt	$	6,802		$	8,044


	September 30, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Cash and cash equivalents	$	1,815		1,815	$	1,863	$	1,863
Restricted cash		5		5		15		15
Derivatives - current asset		41		41		14		14
Noncurrent receivables		18		18		21		21
Derivatives - noncurrent asset		24		24		10		10
Available-for-sale securities		106		106		102		102
Investment in common stock of Alcoa Corporation		—		—		1,020		1,020
Short-term borrowings		54		54		36		36
Derivatives - current liability		31		31		5		5
Long-term debt due within one year		1		1		4		4
Derivatives - noncurrent liability		11		11		3		3
Contingent payment related to an acquisition		81		81		78		78
Long-term debt, less amount due within one year		6,802		7,440		8,044		8,519