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				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