I. Segment Information

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 Products and Solutions		Global Rolled Products		Transportation and Construction Solutions		Combined Segment
Second quarter ended June 30, 2017
Sales:
Third-party sales	$	1,484	$	1,268	$	501	$	3,253
Intersegment sales		—		37		—		37

Total sales	$	1,484	$	1,305	$	501	$	3,290

Profit and loss:
Depreciation and amortization		66		51		12		129
Adjusted EBITDA		310		164		82		556

Second quarter ended June 30, 2016
Sales:
Third-party sales	$	1,465	$	1,316	$	467	$	3,248
Intersegment sales		—		29		—		29

Total sales	$	1,465	$	1,345	$	467	$	3,277

Profit and loss:
Depreciation and amortization		62		50		12		124
Adjusted EBITDA		329		163		76		568


	Engineered Products and Solutions		Global Rolled Products		Transportation and Construction Solutions		Combined Segment
Six months ended June 30, 2017
Sales:
Third-party sales	$	2,969	$	2,517	$	950	$	6,436
Intersegment sales		—		71		—		71

Total sales	$	2,969	$	2,588	$	950	$	6,507

Profit and loss:
Depreciation and amortization		130		101		24		255
Adjusted EBITDA		616		335		154		1,105

Six months ended June 30, 2016
Sales:
Third-party sales	$	2,914	$	2,500	$	896	$	6,310
Intersegment sales		—		58		—		58

Total sales	$	2,914	$	2,558	$	896	$	6,368

Profit and loss:
Depreciation and amortization		127		100		23		250
Adjusted EBITDA		634		318		140		1,092

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


	Second quarter ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Combined segment adjusted EBITDA	$	556		$	568		$	1,105		$	1,092
Unallocated amounts:
Depreciation and amortization		(137	)		(133	)		(270	)		(266	)
Restructuring and other charges		(26	)		(14	)		(99	)		(30	)
Impact of LIFO		(11	)		(13	)		(30	)		(25	)
Metal price lag		19			6			41			6
Corporate expense		(91	)		(115	)		(182	)		(191	)
Other		(29	)		(16	)		(39	)		(33	)

Operating income	$	281		$	283		$	526		$	553
Other income, net		171			17			525			29
Interest expense		(183	)		(124	)		(298	)		(245	)

Income from continuing operations before income taxes	$	269		$	176		$	753		$	337
Income taxes		(57	)		(123	)		(219	)		(174	)
Discontinued operations		—			82			—			(12	)

Net income attributable to Arconic	$	212		$	135		$	534		$	151