Arconic Reports Fourth Quarter 2018 and Full Year 2018 Results; Announces Update to Strategy and Portfolio Review

February 8, 2019

Fourth Quarter 2018 Highlights

  • Revenue of $3.5 billion, up 6% year over year; organic revenue1 up 10% year over year
  • Net income of $218 million, or $0.44 per share, versus net loss of $727 million, or $1.51 per share, in 4Q 2017
  • Net income excluding special items of $162 million, or $0.33 per share, versus $152 million, or $0.31 per share, in 4Q 2017
  • In the fourth quarter, cash provided from operations of $426 million, cash used for financing activities of $40 million, and cash provided from investing activities of $354 million
  • Adjusted Free Cash Flow in the fourth quarter was $478 million

Full Year 2018 Highlights

  • Revenue of $14.0 billion, up 8% year over year; organic revenue1 up 7% year over year
  • Net income of $642 million, or $1.30 per share, versus net loss of $74 million, or $0.28 per share, in the full year 2017
  • Net income excluding special items of $676 million, or $1.36 per share, versus $618 million, or $1.22 per share, in the full year 2017
  • For the full year, cash provided from operations of $217 million, cash used for financing activities of $649 million, and cash provided from investing activities of $565 million
  • Adjusted Free Cash Flow for the full year was $465 million
  • Net pension and OPEB liability reduction of $476 million for the full year 2018

Full Year 2019 Guidance *

  • Issued Full Year 2019 Guidance: Revenue $14.3-$14.6 billion, Adjusted Earnings Per Share $1.55-$1.65, Adjusted Free Cash Flow $400-$500 million

Strategy and Portfolio Review Update

  • The Company has commenced plans to reduce operating costs by approximately $200 million on an annual run-rate basis. The program is designed to maximize the impact in 2019.
  • The portfolio will be separated into Engineered Products & Forgings and Global Rolled Products, with a spin-off of one of the businesses. The Company will also consider the sale of businesses that do not best fit into Engineered Products & Forgings or Global Rolled Products.
  • The Company intends to execute its previously authorized $500 million share repurchase program in the first half of 2019. The Arconic Board of Directors (the “Board”) has also authorized an additional $500 million of share repurchases, effective through the end of 2020.
  • Arconic expects to reduce its quarterly common stock dividend from $0.06 to $0.02 per share.

Key Announcements

  • As previously announced, the Board appointed John C. Plant, current Chairman of the Board, to serve as Chairman and Chief Executive Officer. The Board has also appointed Elmer L. Doty, a current Director, to serve as President and Chief Operating Officer. These appointments were effective immediately.
  • Arconic closed on the sale of the idled Texarkana, Texas, rolling mill for approximately $300 million in cash, plus additional contingent consideration of up to $50 million
  • Arconic closed on the sale of the Eger, Hungary, forgings business. The Company recorded a restructuring-related charge representing a pre-tax loss on the sale of $43 million.

___________________________________
* Reconciliations of the forward-looking non-GAAP measures to the most directly comparable GAAP measures are not available without unreasonable efforts due to the variability and complexity of the charges and other components excluded from the non-GAAP measures – for further detail, see “Full Year 2019 Guidance” below.

NEW YORK–(BUSINESS WIRE)–Arconic Inc. (NYSE: ARNC) today reported fourth quarter 2018 and full
year 2018 results. Arconic Chairman and Chief Executive Officer John
Plant said, “Having been a Director of Arconic since 2016 and Chairman
of the Board since 2017, I have a historical perspective of the Company
and understand what we can achieve. I am pleased to lead Arconic to
reach that potential.” Mr. Plant added, “In 2018, Arconic delivered
solid revenue growth and improved operational performance. With Elmer
Doty as President and Chief Operating Officer, I am focused on further
enhancing our operations and charting a new strategic direction to
deliver value for shareholders.”

Mr. Plant continued, “After a rigorous and comprehensive process, we did
not receive a proposal for a full-company transaction that we believe
was in the best interests of our shareholders. The Board sees more
shareholder value creation through a restructuring of the Company. As
part of the strategy and portfolio review, we have determined to
separate the portfolio into Engineered Products & Forgings and Global
Rolled Products. In addition, we will also explore the potential sale of
businesses that do not best fit into Engineered Products & Forgings and
Global Rolled Products.”

Revenues in the fourth quarter 2018 were $3.5 billion, up 6% year over
year. Fourth quarter 2018 organic revenue1 was up 10%
year over year, driven by higher volumes across all segments with double
digit growth in most major end markets. For full year 2018, revenue was
$14.0 billion, up 8% year over year. Full year 2018 organic revenue1
was up 7% year over year.

Net income in the fourth quarter was $218 million, or $0.44 per share.
These results include $56 million of income from special items,
primarily related to a gain on the sale of the Texarkana, Texas, rolling
mill and discrete tax items, partially offset by pension plan settlement
charges and a loss on the sale of the Eger, Hungary, forgings business.
Fourth quarter 2017 net loss was $727 million, or $1.51 per share, and
included the impairment of goodwill. For full year 2018, the Company
reported net income of $642 million, or $1.30 per share, versus a net
loss of $74 million, or $0.28 per share, in full year 2017.

Net income excluding special items was $162 million, or $0.33 per share,
in the fourth quarter of 2018, versus $152 million, or $0.31 per share,
in the fourth quarter of 2017. The increase was driven by higher volumes
and lower expenses for pension, interest, and taxes, largely offset by
higher aluminum prices and unfavorable product mix. Full year 2018 net
income excluding special items was $676 million, or $1.36 per share,
versus $618 million, or $1.22 per share, in the full year 2017.

Fourth quarter 2018 operating income was $323 million versus an
operating loss of $433 million in the fourth quarter of 2017. Operating
income excluding special items was $323 million versus $343 million in
the fourth quarter of 2017, down 6% year over year, as volume growth was
more than offset by aluminum price impacts and unfavorable product mix.
Full year 2018 operating income was $1.3 billion versus $480 million in
the full year 2017. Operating income excluding special items for full
year 2018 was $1.4 billion versus $1.5 billion in the full year 2017.

Mr. Plant added, “Our team improved quality and delivery to customers in
the face of increasing demand and record level shipment volumes in some
segments. Our continuous improvement efforts are gaining traction.
Furthermore, we have commenced plans to reduce operating costs by
approximately $200 million on an annual run-rate basis.”

Arconic ended the year with cash on hand of $2.3 billion. For the full
year 2018 and 2017: cash provided from operations was $217 million and
cash used for operations was $39 million, respectively; cash used for
financing activities was $649 million and $1.0 billion, respectively;
and cash provided from investing activities was $565 million and $1.3
billion, respectively. Adjusted Free Cash Flow for the full year 2018
was $465 million, nearly tripling year over year.

Fourth Quarter 2018 Segment Performance

2

Engineered Products and Solutions (EP&S)

EP&S reported revenue of $1.6 billion, an increase of 8% year over year.
Organic revenue1 was up 9%, driven by volume growth in
aerospace engines and defense. Segment operating profit was $220
million, down $8 million year over year, as unfavorable product mix and
manufacturing challenges in the Engineered Structures business,
including the now resolved forging press outage in the Cleveland
facility, were partially offset by volume growth across all business
units. Segment operating margin was 13.6%, down 170 basis points year
over year.

Global Rolled Products (GRP)

GRP reported revenue of $1.4 billion, an increase of 9% year over year.
Organic revenue1 was up 13%. Segment operating profit was $77
million, down $14 million year over year, driven by aluminum price
headwinds, higher transportation costs and scrap spreads, which were
partially offset by pricing actions and higher volume in automotive,
commercial transportation and aerospace. Segment operating margin was
5.7%, down 160 basis points year over year, including a 150 basis point
negative impact from aluminum prices.

Transportation and Construction Solutions (TCS)

TCS reported revenue of $497 million, a decrease of 6% year over year.
Organic revenue1 was up 4%. Segment operating profit was $63
million, down $14 million year over year, driven by aluminum price
headwinds, which were partially offset by growth in commercial
transportation and building and construction. Segment operating margin
was 12.7%, down 190 basis points year over year, including a 330 basis
point negative impact from aluminum prices.

Full Year 2018 Segment Performance

2

Segment performance in 2018 included the following:

  • EP&S revenue of $6.3 billion, up 6% year over year; segment operating
    profit was $891 million, down $73 million year over year; segment
    operating margin was 14.1%, down 210 basis points year over year.
  • GRP revenue of $5.6 billion, up 12% year over year; organic revenue1
    up 8% year over year; segment operating profit was $386 million, down
    $38 million year over year; segment operating margin was 6.9%, down
    160 basis points year over year, including a 100 basis point negative
    impact of higher aluminum prices.
  • TCS revenue of $2.1 billion, up 6% year over year; organic revenue1
    up 9% year over year; segment operating profit was $304 million, up
    $14 million year over year; segment operating margin was 14.3%, down
    10 basis points year over year, including a 270 basis point negative
    impact of higher aluminum prices.

Full Year 2019 Guidance*

Arconic is providing the following 2019 guidance:

Full Year 2019
Revenue $14.3-$14.6 billion
Adjusted Earnings Per Share $1.55-$1.65
Adjusted Free Cash Flow $400-$500 million

*
Arconic has not provided reconciliations of the
forward-looking non-GAAP financial measures to the most directly
comparable GAAP financial measures because Arconic is unable to quantify
certain amounts that would be required to be included in the GAAP
measures without unreasonable efforts, and Arconic believes such
reconciliations would imply a degree of precision that would be
confusing or misleading to investors. In particular, such
reconciliations are not available without unreasonable efforts due to
the variability and complexity with respect to the charges and other
components excluded from the non-GAAP measures, such as the effects of
foreign currency movements, equity income, gains or losses on sales of
assets, taxes, and any future restructuring or impairment charges. These
reconciling items are in addition to the inherent variability already
included in the GAAP measures, which includes, but is not limited to,
price/mix and volume.

Strategy and Portfolio Review

The Company commenced plans to reduce operating costs by approximately
$200 million on an annual run-rate basis. The program is designed to
maximize the impact in 2019.

Arconic also announced as part of its strategy and portfolio review that
it will separate into Engineered Products & Forgings and Global Rolled
Products, with a spin-off of one of the businesses. In addition, it will
also explore the potential sale of businesses that do not best fit into
Engineered Products & Forgings or Global Rolled Products.

The Company also intends to execute its previously authorized $500
million share repurchase program in the first half of 2019. The Board
has also authorized an additional $500 million of share repurchases,
effective through the end of 2020.

Arconic expects to reduce its quarterly common stock dividend from $0.06
to $0.02 per share.

John C. Plant Named Chairman and Chief Executive Officer, Elmer L.
Doty Named President and Chief Operating Officer

As previously announced on February 6, 2019, the Board appointed John C.
Plant, current Chairman of the Board, to serve as Chairman and Chief
Executive Officer. The Board also appointed Elmer L. Doty, a current
Director, to serve as President and Chief Operating Officer. These
appointments were effective immediately.

Closed on the Sale of Texarkana, TX, Rolling Mill

In the fourth quarter of 2018, Arconic closed on the sale of its idled
Texarkana, Texas, rolling mill to Ta Chen International, Inc., a U.S.
subsidiary of aluminum and stainless steel distributor Ta Chen Stainless
Pipe Co., Ltd. Under the terms of the transaction, the Company sold the
Texarkana facility for approximately $300 million in cash, plus
additional contingent consideration of up to $50 million.

Closed on the Sale of Eger, Hungary, Forgings Business

In the fourth quarter of 2018, Arconic closed on the sale of its Eger,
Hungary, forgings business to Angstrom Automotive Group LLC. The Company
recorded a restructuring-related charge representing a pre-tax loss on
the sale of $43 million. The charge primarily relates to the non-cash
impairment of the net book value of the business.

Arconic will hold its quarterly conference call at 10:00 AM Eastern
Time on February 8, 2019, to present fourth quarter 2018 and full year
2018 financial results. The call will be webcast via

www.arconic.com

.
Call information and related details are available at

www.arconic.com


under “Investors;” presentation materials will be available at
approximately 8:00 AM Eastern Time on February 8.

About Arconic

Arconic (NYSE: ARNC) creates breakthrough products that shape
industries. Working in close partnership with our customers, we solve
complex engineering challenges to transform the way we fly, drive, build
and power. Through the ingenuity of our people and cutting-edge advanced
manufacturing techniques, we deliver these products at a quality and
efficiency that ensure customer success and shareholder value. For more
information: www.arconic.com.
Follow @arconic: Twitter,
Instagram,
Facebook,
LinkedIn
and YouTube.

Dissemination of Company Information

Arconic intends to make future announcements regarding Company
developments and financial performance through its website at www.arconic.com.

Forward-Looking Statements

This release 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, defense, automotive, industrials, commercial transportation
and other end markets; statements and guidance regarding future
financial results or operating performance; statements regarding future
strategic actions, including share repurchases, which may be subject to
market conditions, legal requirements and other considerations; and
statements about Arconic’s strategies, outlook, business and financial
prospects. These statements reflect beliefs and assumptions that are
based on Arconic’s perception of historical trends, current conditions
and expected future developments, as well as other factors Arconic
believes are appropriate in the circumstances. Forward-looking
statements are not guarantees of future performance and are subject to
risks, uncertainties and changes in circumstances that are difficult to
predict, which could cause actual results to differ materially from
those indicated by these statements. Such risks and uncertainties
include, but are not limited to: (a) 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) competition
from new product offerings, disruptive technologies or 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; (h) the impact of cyber attacks and
potential information technology or data security breaches; (i) changes
in 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, 2017 and other reports filed with
the U.S. Securities and Exchange Commission (SEC). Market projections
are subject to the risks discussed above and other risks in the market.
The statements in this release are made as of the date of this release,
even if subsequently made available by Arconic on its website or
otherwise. 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.

Non-GAAP Financial Measures

Some of the information included in this release is derived from
Arconic’s consolidated financial information but is not presented in
Arconic’s financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
Certain of these data are considered “non-GAAP financial measures” under
SEC rules. These non-GAAP financial measures supplement our GAAP
disclosures and should not be considered an alternative to the GAAP
measure. Reconciliations to the most directly comparable GAAP financial
measures and management’s rationale for the use of the non-GAAP
financial measures can be found in the schedules to this release and on
our website at www.arconic.com under
the “Investors” section.

___________________________________


1


Organic revenue is U.S. GAAP revenue adjusted for Tennessee Packaging
(which completed its planned phase-down as of year-end 2018),
divestitures, and changes in aluminum prices and foreign currency
exchange rates relative to prior year period.


2


As of the first quarter of 2018, Arconic’s segment reporting measure has
changed from Adjusted EBITDA to Segment operating profit.

Arconic and subsidiaries
Statement of Consolidated Operations (unaudited)
(in millions, except per-share and share amounts)
Quarter ended
December 31, 2018 September 30, 2018 December 31, 2017
Sales $ 3,472 $ 3,524 $ 3,271
Cost of goods sold (exclusive of expenses below) 2,845 2,881 2,623
Selling, general administrative, and other expenses 140 134 146
Research and development expenses 26 25 28
Provision for depreciation and amortization 149 141 141
Impairment of goodwill — — 719
Restructuring and other charges(1) (11 ) (2 ) 47
Operating income (loss)(2) 323 345 (433 )
Interest expense 87 88 98
Other expense (income), net(2)(3) 10 8 (76 )
Income (loss) before income taxes 226 249 (455 )
Provision for income taxes 8 88 272
Net income (loss) $ 218 $ 161 $ (727 )
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO ARCONIC COMMON
SHAREHOLDERS:
Basic(4)(5):
Earnings (loss) per share $ 0.45 $ 0.33 $ (1.51 )
Average number of shares(5) 483,239,287 483,048,831

481,339,090
Diluted(4)(5):
Earnings (loss) per share $ 0.44 $ 0.32 $ (1.51 )
Average number of shares(5) 503,018,904 502,427,792 481,339,090
(1) Restructuring and other charges for the quarter ended December 31,
2018 primarily included a gain of $154 on the sale of the Texarkana
rolling mill, offset by pension plan settlement charges of $92
associated with significant lump sum payments made to participants
and a loss of $43 on the sale of the Eger, Hungary forgings business.
(2) In the first quarter of 2018, Arconic adopted changes issued by the
Financial Accounting Standards Board (“FASB”) to the presentation of
net periodic pension cost and net periodic postretirement benefit
cost. Based on the new guidance, Arconic has presented only the
service cost component of net periodic benefit cost within Operating
income (loss), while the non-service related components of net
periodic benefit cost have been presented in the Other expense
(income), net line item. Prior periods in 2017 have been recast to
conform to this presentation. As a result, $38 of non-service
related net periodic benefit cost was reclassified in the quarter
ended December 31, 2017 from various line items within Operating
income (loss) to the Other expense (income), net line item. There
was no impact to Net income (loss).
(3) Other expense (income), net for the quarter ended December 31, 2017
included an adjustment of $81 to the contingent earn-out liability
related to the 2014 acquisition of Firth Rixson (Firth Rixson
earn-out) and an adjustment of $25 to a separation-related guarantee
liability.
(4) In order to calculate both basic and diluted earnings per share,
preferred stock dividends declared of $1 for both quarters ended
December 31, 2018 and September 30, 2018 need to be subtracted from
Net income (loss).
(5) For the quarters ended December 31, 2018 and September 30, 2018, the
difference between the respective diluted average number of shares
and the respective basic average number of shares related to share
equivalents (20 million and 19 million, respectively) associated
with outstanding employee stock options and awards and shares
underlying outstanding convertible debt (acquired through the
acquisition of RTI International Metals, Inc (“RTI”)). For the
quarter ended December 31, 2017, the diluted average number of
shares does not include any share equivalents (21 million) related
to outstanding employee stock options and awards and shares
underlying outstanding convertible debt (acquired through the
acquisition of RTI) as their effect was anti-dilutive.
Arconic and subsidiaries
Statement of Consolidated Operations (unaudited)
(in millions, except per-share and share amounts)
Year ended
December 31, 2018 December 31, 2017
Sales $ 14,014 $ 12,960
Cost of goods sold (exclusive of expenses below) 11,397 10,221
Selling, general administrative, and other expenses 604 715
Research and development expenses 103 109
Provision for depreciation and amortization 576 551
Impairment of goodwill — 719
Restructuring and other charges(1) 9 165
Operating income(2) 1,325 480
Interest expense(3) 378 496
Other expense (income), net(2),(4) 79 (486 )
Income before income taxes 868 470
Provision for income taxes 226 544
Net income (loss) $ 642 $ (74 )
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO ARCONIC COMMON
SHAREHOLDERS:
Basic(5)(6):
Earnings (loss) per share $ 1.33 $ (0.28 )
Average number of shares(6) 482,879,501 450,875,943
Diluted(5)(6):
Earnings (loss) per share $ 1.30 $ (0.28 )
Average number of shares(6) 502,627,363 450,875,943
Common stock outstanding at the end of the period(5) 483,270,717 481,416,537
(1) Restructuring and other charges for the quarter ended December 31,
2018 primarily included a gain of $154 on the sale of the Texarkana
rolling mill, offset by pension plan settlement charges of $96
associated with significant lump sum payments made to participants
and a loss of $43 on the sale of the Eger, Hungary forgings business.
(2) In the first quarter of 2018, Arconic adopted changes issued by the
FASB to the presentation of net periodic pension cost and net
periodic postretirement benefit cost. Based on the new guidance,
Arconic has presented only the service cost component of net
periodic benefit cost within Operating income, while the non-service
related components of net periodic benefit cost have been presented
in the Other expense (income), net line item. Prior periods in 2017
have been recast to conform to this presentation. As a result, $154
of non-service related net periodic benefit cost was reclassified in
the year ended December 31, 2017 from various line items within
Operating income to the Other expense (income), net line item. There
was no impact to Net income (loss).
(3) Interest expense for the year ended December 31, 2018 included $19
related to the early redemption of the Company’s outstanding 5.720%
Senior Notes due 2019. Interest expense for the year ended December
31, 2017 included $76 related to the early redemption of the
Company’s outstanding 6.500% Senior Notes due 2018 and 6.750% Senior
Notes due 2018 (collectively, the “2018 Senior Notes”) and a portion
of the Company’s outstanding 5.720% Senior Notes due 2019.
(4) Other expense (income), net for the year ended December 31, 2017
included a $351 gain on the sale of a portion of Arconic’s
investment in Alcoa Corporation common stock, a $167 gain on the
exchange of Arconic’s remaining investment in Alcoa Corporation
common stock for a portion of the Company’s outstanding 2018 Senior
Notes, an adjustment of $81 to the Firth Rixson earn-out, and an
adjustment of $25 to a separation-related guarantee liability.
(5) In order to calculate both basic and diluted earnings per share,
preferred stock dividends declared of $2 and $53 for the year ended
December 31, 2018 and December 31, 2017, respectively, need to be
subtracted from Net income (loss).
(6) For the year ended December 31, 2018, the difference between the
respective diluted average number of shares and the respective basic
average number of shares related to share equivalents (20 million)
associated with outstanding employee stock options and awards and
shares underlying outstanding convertible debt (acquired through the
acquisition of RTI). For the year ended December 31, 2017, the
diluted average number of shares does not include any share
equivalents (20 million) related to outstanding employee stock
options and awards and shares underlying outstanding convertible
debt (acquired through the acquisition of RTI) as their effect was
anti-dilutive.
Arconic and subsidiaries
Consolidated Balance Sheet (unaudited)
(in millions)
December 31, 2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 2,277 $ 2,150
Receivables from customers, less allowances of $4 in 2018 and $8 in
2017		 1,047 1,035
Other receivables 451 339
Inventories 2,492 2,480
Prepaid expenses and other current assets 314 374
Total current assets 6,581 6,378
Properties, plants, and equipment, net 5,704 5,594
Goodwill 4,500 4,535
Deferred income taxes 573 743
Intangibles, net 919 987
Other noncurrent assets 416 481
Total assets $ 18,693 $ 18,718
Liabilities
Current liabilities:
Accounts payable, trade $ 2,129 $ 1,839
Accrued compensation and retirement costs 370 399
Taxes, including income taxes 118 75
Accrued interest payable 113 124
Other current liabilities 356 349
Short-term debt 434 38
Total current liabilities 3,520 2,824
Long-term debt, less amount due within one year 5,896 6,806
Accrued pension benefits 2,230 2,564
Accrued other postretirement benefits 723 841
Other noncurrent liabilities and deferred credits 739 759
Total liabilities 13,108 13,794
Equity
Arconic shareholders’ equity:
Preferred stock 55 55
Common stock 483 481
Additional capital 8,319 8,266
Accumulated deficit(1) (358 ) (1,248 )
Accumulated other comprehensive loss(1) (2,926 ) (2,644 )
Total Arconic shareholders’ equity 5,573 4,910
Noncontrolling interests 12 14
Total equity 5,585 4,924
Total liabilities and equity $ 18,693 $ 18,718
(1) In the fourth quarter of 2018, Arconic adopted guidance issued by
the FASB that allowed an optional reclassification from Accumulated
other comprehensive loss to Accumulated deficit for stranded tax
effects resulting from the Tax Cuts and Jobs Act enacted on December
22, 2017. The Company used the modified retrospective approach and
the cumulative effect of the adjustment to Accumulated deficit and
Accumulated other comprehensive loss was $367. There was no impact
to Total Arconic shareholders’ equity.
Arconic and subsidiaries
Statement of Consolidated Cash Flows (unaudited)
(in millions)
Year ended December 31,
2018 2017
Operating activities
Net income (loss) $ 642 $ (74 )
Adjustments to reconcile net income (loss) to cash provided from
(used for) operations:
Depreciation and amortization 576 551
Deferred income taxes 31 434
Impairment of goodwill — 719
Restructuring and other charges 9 165
Net loss (gain) from investing activities—asset sales 10 (513 )
Net periodic pension benefit cost 130 217
Stock-based compensation 50 67
Other 75 112
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures, and foreign currency translation
adjustments:
(Increase) in receivables(1) (1,142 ) (915 )
(Increase) in inventories (74 ) (192 )
(Increase) decrease in prepaid expenses and other current assets (1 ) 11
Increase in accounts payable, trade 339 62
(Decrease) in accrued expenses (190 ) (116 )
Increase (decrease) in taxes, including income taxes 104 (23 )
Pension contributions (298 ) (310 )
(Increase) in noncurrent assets (20 ) (41 )
(Decrease) in noncurrent liabilities (24 ) (193 )
Cash provided from (used for) operations 217 (39 )
Financing Activities
Net change in short-term borrowings (original maturities of three
months or less)		 (7 ) (2 )
Additions to debt (original maturities greater than three months) 600 816
Payments on debt (original maturities greater than three months) (1,103 ) (1,634 )
Premiums paid on early redemption of debt (17 ) (52 )
Proceeds from exercise of employee stock options 16 50
Dividends paid to shareholders (119 ) (162 )
Distributions to noncontrolling interests — (14 )
Other (19 ) (17 )
Cash used for financing activities (649 ) (1,015 )
Investing Activities
Capital expenditures (768 ) (596 )
Proceeds from the sale of assets and businesses(2) 309 (9 )
Sales of investments(3) 9 890
Cash receipts from sold receivables(1) 1,016 792
Other(4) (1 ) 243
Cash provided from investing activities 565 1,320
Effect of exchange rate changes on cash, cash equivalents and
restricted cash

(5)
 (4 ) 9
Net change in cash, cash equivalents and restricted cash(5) 129 275
Cash, cash equivalents and restricted cash at beginning of year(5) 2,153 1,878
Cash, cash equivalents and restricted cash at end of period

(5)
 $ 2,282 $ 2,153
(1) In the first quarter of 2018, Arconic adopted changes issued by the
FASB to the classification of certain cash receipts and cash
payments within the statement of cash flows. Based on the new
guidance, Arconic classified cash received related to net sales of
beneficial interest in previously transferred trade accounts
receivables within investing activities. This new accounting
standard does not reflect a change in our underlying business or
activities. The prior period in 2017 has been recast to conform to
this presentation, resulting in the reclassification of $792 from
operating activities to investing activities for the year ended
December 31, 2017. In addition, Arconic reclassified $52 of cash
paid for debt prepayments including extinguishment costs from
operating activities to financing activities for the year ended
December 31, 2017.
(2) In the fourth quarter of 2018, the Company sold its Texarkana, Texas
rolling mill and cast house which resulted in proceeds of $302.
(3) In the first quarter of 2017, Arconic sold 23,353,000 of its shares
of Alcoa Corporation common stock at $38.03 per share which resulted
in $888 in cash proceeds.
(4) In the first quarter of 2017, Other investing activities included
proceeds received from Alcoa Corporation’s sale of the Yadkin
Hydroelectric Project.
(5) In the first quarter of 2018, Arconic adopted changes issued by the
FASB to the classification of cash and cash equivalents within the
statement of cash flows. Based on the new guidance, Arconic
classified restricted cash and the change in restricted cash within
the cash and cash equivalents and net change in cash and cash
equivalents line items. The prior period in 2017 has been recast to
conform to this presentation, resulting in the reclassification of
$12 from investing activities for the year ended December 31, 2017.
Arconic and subsidiaries
Segment Information (unaudited)
(in millions)
4Q17 2017 1Q18 2Q18 3Q18 4Q18 2018


Engineered Products and Solutions:
Third-party sales $ 1,494 $ 5,943 $ 1,541 $ 1,596 $ 1,566 $ 1,613 $ 6,316
Segment operating profit(1) $ 228 $ 964 $ 221 $ 212 $ 238 $ 220 $ 891
Segment operating profit margin 15.3 % 16.2 % 14.3 % 13.3 % 15.2 % 13.6 % 14.1 %
Provision for depreciation and amortization $ 70 $ 268 $ 71 $ 70 $ 71 $ 70 $ 282
Impairment of goodwill $ 719 $ 719 $ — $ — $ — $ — $ —
Restructuring and other charges $ 6 $ 30 $ 1 $ 9 $ 15 $ 46 $ 71


Global Rolled Products:
Third-party sales $ 1,247 $ 5,000 $ 1,366 $ 1,451 $ 1,426 $ 1,361 $ 5,604
Intersegment sales $ 41 $ 148 $ 42 $ 46 $ 34 $ 38 $ 160
Segment operating profit $ 91 $ 424 $ 112 $ 123 $ 74 $ 77 $ 386
Segment operating profit margin 7.3 % 8.5 % 8.2 % 8.5 % 5.2 % 5.7 % 6.9 %
Provision for depreciation and amortization $ 52 $ 205 $ 51 $ 53 $ 50 $ 58 $ 212
Restructuring and other charges $ (4 ) $ 72 $ (1 ) $ 1 $ 2 $ (158 ) $ (156 )
Third-party aluminum shipments (kmt) 283 1,197 308 315 318 308 1,249


Transportation and Construction Solutions:
Third-party sales $ 528 $ 2,011 $ 537 $ 562 $ 530 $ 497 $ 2,126
Segment operating profit $ 77 $ 290 $ 67 $ 97 $ 77 $ 63 $ 304
Segment operating profit margin 14.6 % 14.4 % 12.5 % 17.3 % 14.5 % 12.7 % 14.3 %
Provision for depreciation and amortization $ 13 $ 50 $ 13 $ 12 $ 12 $ 13 $ 50
Restructuring and other charges $ 41 $ 52 $ — $ — $ — $ 1 $ 1
Reconciliation of Total segment operating profit to Consolidated
income (loss) before income taxes:
Total segment operating profit $ 396 $ 1,678 $ 400 $ 432 $ 389 $ 360 $ 1,581
Unallocated amounts:
Restructuring and other charges (47 ) (165 ) (7 ) (15 ) 2 11 (9 )
Impairment of goodwill (719 ) (719 ) — — — — —
Corporate expense(2) (63 ) (314 ) (60 ) (93 ) (46 ) (48 ) (247 )
Consolidated operating (loss) income (433 ) 480 333 324 345 323 1,325
Interest expense(3) (98 ) (496 ) (114 ) (89 ) (88 ) (87 ) (378 )
Other income (expense), net(4) 76 486 (20 ) (41 ) (8 ) (10 ) (79 )
Consolidated (loss) income before income taxes $ (455 ) $ 470 $ 199 $ 194 $ 249 $ 226 $ 868

In the first quarter of 2018, the Company changed its primary measure of
segment performance from Adjusted EBITDA to Segment operating profit.
Arconic’s definition of Segment operating profit is Operating (loss)
income excluding Special items. Special items include Restructuring and
other charges, and Impairment of goodwill. Segment operating profit may
not be comparable to similarly titled measures of other companies. Prior
period amounts have been recast to conform to current period
presentation.

Segment operating profit also includes certain items which under the
previous segment performance measure were recorded in Corporate, such as
the impact of LIFO inventory accounting, metal price lag, intersegment
profit eliminations, and derivative activities.

The difference between certain segment totals and consolidated amounts
is Corporate.

(1) For the quarter ended June 30, 2018, Segment operating profit for
the Engineered Products and Solutions segment included the impact of
a $23 charge related to a physical inventory adjustment at one plant.
(2) For the year ended December 31, 2017, Corporate expense included $58
of proxy, advisory and governance-related costs and $18 of costs
associated with the separation of Alcoa Inc. For the quarter ended
June 30, 2018, Corporate expense included $38 of costs related to
settlements of certain customer claims primarily related to product
introductions.
(3) For the year ended December 31, 2017, Interest expense included $76
related to the early redemption of the Company’s 2018 Senior Notes
and a portion of the Company’s outstanding 5.720% Senior Notes due
2019. For quarter ended March 31, 2018, Interest expense included
$19 related to the early redemption of the Company’s outstanding
5.720% Senior Notes due 2019.
(4)

For the quarter ended December 31, 2017, Other income (expense),
net included favorable adjustments of $81 to the Firth Rixson
earn-out and $25 to a separation-related guarantee liability. For
the year ended December 31, 2017, Other income (expense), net
included a $351 gain on the sale of a portion of Arconic’s
investment in Alcoa Corporation common stock, a $167 gain on the
exchange of Arconic’s remaining investment in Alcoa Corporation
common stock for a portion of the Company’s outstanding 2018
Senior Notes, and favorable adjustments of $81 to the Firth Rixson
earn-out and $25 to a separation-related guarantee liability.
Arconic and subsidiaries
Calculation of Financial Measures (unaudited)
(in millions, except per-share amounts)
Net income excluding Special items Quarter ended Year ended

December 31,

2018

September 30,

2018

December 31,

2017

December 31,

2018

December 31,

2017
Net income (loss) $ 218 $ 161 $ (727 ) $ 642 $ (74 )
Diluted earnings (loss) per share (EPS) $ 0.44 $ 0.32 $ (1.51 ) $ 1.30 $ (0.28 )
Special items:
Restructuring and other charges (11 ) (2 ) 47 9 165
Discrete tax items(1) (64 ) 26 220 (15 ) 223
Other special items(2) 16 (24 ) 612 59 264
Tax impact(3) 3 (1 ) — (19 ) 40
Net income excluding Special items $ 162 $ 160 $ 152 $ 676 $ 618
Diluted EPS excluding Special items $ 0.33 $ 0.32 $ 0.31 $ 1.36 $ 1.22
Average number of shares – diluted EPS excluding Special items(4) 503,018,904 502,427,792 502,109,950 502,627,363 471,472,729

Net income excluding Special items and Diluted EPS excluding Special
items are non-GAAP financial measures. Management believes that these
measures are meaningful to investors because management reviews the
operating results of Arconic excluding the impacts of Restructuring and
other charges, Discrete tax items, and Other special items
(collectively, “Special items”). There can be no assurances that
additional special items will not occur in future periods. To compensate
for this limitation, management believes that it is appropriate to
consider both Net income determined under GAAP as well as Net income
excluding Special items.

(1) Discrete tax items for each period included the following:

•

for the quarter ended December 31, 2018, a benefit related to
certain prior year foreign investment losses no longer
recapturable ($74), a benefit to record prior year adjustments in
various jurisdictions ($17), a benefit to release valuation
allowances and revalue deferred taxes due to current year tax law
and tax rate changes in various U.S. states ($12), a benefit to
recognize the tax impact of prior year foreign losses in
continuing operations that were supported by foreign income in
other comprehensive income ($6), partially offset by a charge from
the Company’s finalized analysis of the U.S. Tax Cuts and Jobs Act
of 2017 ($45);

•

for the quarter ended September 30, 2018, a charge to establish a
tax reserve in Spain ($59), a net charge related to prior year
adjustments in various jurisdictions ($13), a benefit to reverse a
foreign tax reserve that is effectively settled ($38), and
benefits resulting from the Company’s ongoing analysis of the U.S.
Tax Cuts and Jobs Act of 2017 related to the one-time transition
tax ($2) and U.S. rate change impacts ($6);

•

for the quarter ended December 31, 2017, a charge resulting from
the enactment of the U.S. Tax Cuts and Jobs Acts of 2017 that
principally relates to the revaluation of U.S. deferred tax assets
and liabilities from 35% to 21% ($272), charge for a reserve
against a foreign attribute resulting from the Company’s Delaware
reincorporation ($23), partially offset by a benefit for the
reversal of state valuation allowances ($69) and a number of small
items ($6);

•

for the year ended December 31, 2018, a benefit related to certain
prior year foreign investment losses no longer recapturable ($74);
a benefit to reverse a foreign tax reserve that is effectively
settled ($38), a benefit to release valuation allowances and
revalue deferred taxes due to current year tax law and tax rate
changes in various U.S. states ($12), a benefit to record prior
year adjustments in various jurisdictions ($7), a benefit to
recognize the tax impact of prior year foreign losses in
continuing operations that were supported by foreign income in
other comprehensive income ($6), partially offset by a charge to
establish a tax reserve in Spain ($60); a net charge resulting
from the Company’s finalized analysis of the U.S. Tax Cuts and
Jobs Acts of 2017 ($59); and a net charge for a number of small
items ($3); and

•

for the year ended December 31, 2017, a charge resulting from the
enactment of the U.S. Tax Cuts and Jobs Acts of 2017 that
principally relates to the revaluation of U.S. deferred tax assets
and liabilities from 35% to 21% ($272), charge for a reserve
against a foreign attribute resulting from the Company’s Delaware
reincorporation ($23), partially offset by a benefit for the
reversal of state valuation allowances ($69) and a number of small
items ($3).
(2) Other special items included the following:

•

for the quarter ended December 31, 2018, strategy and portfolio
review costs ($7), legal and other advisory costs related to
Grenfell Tower ($4), a charge for a number of small tax items
($4), and an other charge ($1);

•

for the quarter ended September 30, 2018, a benefit from
establishing a tax indemnification receivable ($29) reflecting
Alcoa Corporation’s 49% share of the Spanish tax reserve and legal
and other advisory costs related to Grenfell Tower ($5);

•

for the quarter ended December 31, 2017, an impairment of goodwill
related to the forgings and extrusions business ($719), a
favorable adjustment to the Firth Rixson earn-out ($81), a
favorable adjustment to a separation-related guarantee liability
($25), legal and other advisory costs related to Grenfell Tower
($7), costs associated with the Company’s Delaware reincorporation
($3), a favorable tax impact resulting from the difference between
Arconic’s consolidated estimated annual effective tax rate and the
statutory rate applicable to special items ($6), a favorable tax
impact related to the interim period treatment of operational
income in certain foreign jurisdictions for which no tax expense
was recognized ($5);

•

for the year ended December 31, 2018, costs related to settlements
of certain customer claims primarily related to product
introductions ($38), a benefit from establishing a tax
indemnification receivable ($29) reflecting Alcoa Corporation’s
49% share of the Spanish tax reserve, costs related to the early
redemption of the Company’s outstanding 5.720% Senior Notes due
2019 ($19), legal and other advisory costs related to Grenfell
Tower ($18), strategy and portfolio review costs ($7), a charge
for a number of small tax items ($5), and an other charge ($1); and

•

for the year ended December 31, 2017, an impairment of goodwill
related to the forgings and extrusions business ($719), a gain on
the sale of a portion of Arconic’s investment in Alcoa Corporation
common stock ($351), a gain on the exchange of the remaining
portion of Arconic’s investment in Alcoa Corporation common stock
($167), a favorable adjustment to the Firth Rixson earn-out ($81),
costs associated with the Company’s early redemption of $1,250 of
outstanding senior notes ($76), proxy, advisory, and
governance-related costs ($58), a favorable adjustment to a
separation-related guarantee liability ($25), costs associated
with the separation of Alcoa Inc. ($18), legal and other advisory
costs related to Grenfell Tower ($14), and costs associated with
the Company’s Delaware reincorporation ($3).
(3)

The tax impact on special items is based on the applicable
statutory rates whereby the difference between such rates and
Arconic’s consolidated estimated annual effective tax rate is
itself a Special item.
(4) The average number of shares applicable to diluted EPS excluding
Special items, includes certain share equivalents as their effect
was dilutive. For all periods presented, share equivalents
associated with outstanding employee stock options and awards and
shares underlying outstanding convertible debt (acquired through the
acquisition of RTI) were dilutive based on Net income excluding
Special items.

For the year ended December 31, 2017, share equivalents associated
with mandatory convertible preferred stock were anti-dilutive
based on Net income excluding Special items.
Operational Tax Rate Quarter ended December 31, 2018 Year ended December 31, 2018
As reported

Special

items

(1)

 As adjusted As reported

Special

items

(1)

 As adjusted
Income before income taxes $ 226 $ 1 $ 227 $ 868 $ 63 $ 931
Provision for income taxes 8 57 65 226 29 255
Operational tax rate 3.5 % 28.6 % 26.0 % 27.4 %

Operational tax rate is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because management
reviews the operating results of Arconic excluding the impacts of
Special items. There can be no assurances that additional Special items
will not occur in future periods. To compensate for this limitation,
management believes that it is appropriate to consider both the
Effective tax rate determined under GAAP as well as the Operational tax
rate.

(1) See Net income excluding Special items reconciliation above for a
description of Special items.
Arconic and subsidiaries
Calculation of Financial Measures (unaudited), continued
(dollars in millions)
Organic Revenue Quarter ended Quarter ended Year ended
December 31, September 30, December 31,
2018 2017 2018 2017 2018 2017

Arconic
Sales – Arconic $ 3,472 $ 3,271 3,524 3,236 $ 14,014 $ 12,960
Less:
Sales – Tennessee packaging 18 40 37 45 144 190
Sales – Fusina rolling mill — — — — — 54
Sales – Latin America extrusions — 29 — 30 25 115
Aluminum price impact (28 ) n/a 108 n/a 338 n/a
Foreign currency impact (26 ) n/a (15 ) n/a 63 n/a
Arconic Organic revenue $ 3,508 $ 3,202 $ 3,394 $ 3,161 $ 13,444 $ 12,601

Engineered Products and Solutions (EP&S)
Sales $ 1,613 $ 1,494 1,566 1,477 $ 6,316 $ 5,943
Less:
Aluminum price impact (4 ) n/a (1 ) n/a (2 ) n/a
Foreign currency impact (6 ) n/a (1 ) n/a 33 n/a
EP&S Organic revenue $ 1,623 $ 1,494 $ 1,568 $ 1,477 $ 6,285 $ 5,943

Global Rolled Products (GRP)
Sales $ 1,361 $ 1,247 1,426 1,234 $ 5,604 $ 5,000
Less:
Sales – Tennessee packaging 18 40 37 45 144 190
Sales – Fusina rolling mill — — — — — 54
Aluminum price impact (10 ) n/a 106 n/a 333 n/a
Foreign currency impact (13 ) n/a (10 ) n/a 1 n/a
GRP Organic revenue $ 1,366 $ 1,207 $ 1,293 $ 1,189 $ 5,126 $ 4,756

Transportation and Construction Solutions
(TCS)
Sales $ 497 $ 528 530 523 $ 2,126 $ 2,011
Less:
Sales – Latin America extrusions — 29 — 30 25 115
Aluminum price impact (14 ) n/a 3 n/a 7 n/a
Foreign currency impact (7 ) n/a (4 ) n/a 29 n/a
TCS Organic revenue $ 518 $ 499 $ 531 $ 493 $ 2,065 $ 1,896

Organic revenue is a non-GAAP financial measure. Management believes
this measure is meaningful to investors as it presents revenue on a
comparable basis for all periods presented due to the impact of the
ramp-down and Toll Processing and Services Agreement with Alcoa
Corporation at the North America packaging business at its Tennessee
operations, the sale of the Fusina, Italy rolling mill, the sale of
Latin America extrusions, and the impact of changes in aluminum prices
and foreign currency fluctuations relative to the prior year periods.

Arconic and subsidiaries
Calculation of Financial Measures (unaudited), continued
(dollars in millions)
Adjusted free cash flow Quarter ended Year ended

December 31,

2018

September 30,

2018

December 31,

2017

December 31,

2018

December 31,

2017
Cash provided from (used for) operations $ 426 $ 51 $ 334 $ 217 $ (39 )
Cash receipts from sold receivables(1) 323 273 278 1,016 792
Capital expenditures (271 ) (209 ) (236 ) (768 ) (596 )
Adjusted free cash flow $ 478 $ 115 $ 376 $ 465 $ 157
(1)

Accounting guidance effective in 2018 changed the classification
of Cash receipts from sold receivables in the cash flow statement,
reclassifying it from Operating activities to Investing
activities. Under the prior accounting guidance, Cash receipts
from sold receivables were included in the (Increase) in
receivables line in the Operating activities section of the
statement of cash flows.

There has been no change in the net cash funding in the sale of accounts
receivable program in the fourth quarter of 2018. It remains at $350.

Adjusted free cash flow is a non-GAAP financial measure. Management
believes that this measure is meaningful to investors because management
reviews cash flows generated from operations after taking into
consideration capital expenditures (due to the fact that these
expenditures are considered necessary to maintain and expand Arconic’s
asset base and are expected to generate future cash flows from
operations), as well as cash receipts from net sales of beneficial
interest in sold receivables. In conjunction with the implementation of
the new accounting guidance on changes to the classification of certain
cash receipts and cash payments within the statement of cash flows,
specifically as it relates to the requirement to reclassify cash
receipts from net sales of beneficial interest in sold receivables from
operating activities to investing activities, the Company has changed
the calculation of its measure of Adjusted free cash flow to include
cash receipts from net sales of beneficial interest in sold receivables.
This change to our measure of Adjusted free cash flow is being
implemented to ensure consistent presentation of this measure across all
historical periods. The adoption of this accounting guidance does not
reflect a change in our underlying business or activities. It is
important to note that Adjusted free cash flow does not represent the
residual cash flow available for discretionary expenditures since other
non-discretionary expenditures, such as mandatory debt service
requirements, are not deducted from the measure.

Net Debt December 31, September 30,

  June 30,  

 March 31, December 31,
2018 2018 2018 2018 2017
Short-term debt $ 434 $ 42 $ 45 $ 45 $ 38
Long-term debt, less amount due within one year 5,896 6,315 6,312 6,309 6,806
Total debt $ 6,330 $ 6,357 $ 6,357 $ 6,354 $ 6,844
Less: Cash and cash equivalents 2,277 1,535 1,455 1,205 2,150
Net debt $ 4,053 $ 4,822 $ 4,902 $ 5,149 $ 4,694

Net debt is a non-GAAP financial measure. Management believes that this
measure is meaningful to investors because management assesses Arconic’s
leverage position after factoring in available cash that could be used
to repay outstanding debt.

Arconic and subsidiaries
Calculation of Financial Measures (unaudited), continued
(dollars in millions)
Operating income excluding Special items Quarter ended Year ended

December 31,

2018

September 30,

2018

December 31,

2017

December 31,

2018

December 31,

2017
Operating income (loss) $ 323 $ 345 $ (433 ) $ 1,325 $ 480
Special items:
Restructuring and other charges (11 ) (2 ) 47 9 165
Impairment of goodwill — — 719 — 719
Separation costs — — — — 18
Proxy, advisory and governance-related costs — — — — 58
Delaware reincorporation costs — — 3 — 3
Legal and other advisory costs related to Grenfell Tower 4 5 7 18 14
Strategy and portfolio review costs 7 — — 7 —
Settlements of certain customer claims primarily related to product
introductions		 — — — 38 —
Operating income excluding Special items $ 323 $ 348 $ 343 $ 1,397 $ 1,457

Operating income excluding Special items is a non-GAAP financial
measure. Management believes that this measure is meaningful to
investors because management reviews the operating results of Arconic
excluding the impacts of Special items. There can be no assurances that
additional Special items will not occur in future periods. To compensate
for this limitation, management believes that it is appropriate to
consider both Operating income determined under GAAP as well as
Operating income excluding Special items.

Arconic and subsidiaries
Calculation of Financial Measures (unaudited), continued
(dollars in millions)
Return on Net Assets (RONA) Year ended
December 31, 2018 December 31, 2017
Net income (loss) $ 642 $ (74 )
Special items(1) 34 692
Net income excluding Special items 676 618
Net Assets: December 31, 2018 December 31, 2017
Add: Receivables from customers, less allowances $ 1,047 $ 1,035
Add: Deferred purchase program(2) 234 187
Add: Inventories 2,492 2,480
Less: Accounts payable, trade 2,129 1,839
Working capital 1,644 1,863
Properties, plants, and equipment, net (PP&E) 5,704 5,594
Net assets – total $ 7,348 $ 7,457
RONA 9.2 % 8.3 %

RONA is a non-GAAP financial measure. RONA is calculated as Net income
excluding Special items divided by working capital and net PP&E.
Management believes that this measure is meaningful to investors as RONA
helps management and investors determine the percentage of net income
the company is generating from its assets. This ratio tells how
effectively and efficiently the company is using its assets to generate
earnings.

(1) See Reconciliation of Net income excluding Special items for a
description of Special items.
(2) The Deferred purchase program relates to an arrangement to sell
certain customer receivables to several financial institutions on a
recurring basis. Arconic is adding back the receivable for the
purposes of the Working capital calculation.

Investors
Paul T. Luther
(212) 836-2758
Paul.Luther@arconic.com

Media
Justin Falce
(412) 553-2666
Justin.Falce@arconic.com