Copyright© 2017
Title of each class Name of each exchange on which registered [] Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Item Discussion of Recent Business Developments: Management’s Discussion and Analysis of Financial Condition and Results of Operations: Notes to Consolidated Financial Statements: Business Descriptions, Principal Products, Principal Markets, Methods of Distribution, Seasonality and Dependence Upon Customers: Financial Information about Segments and Financial Information about Geographic Areas: Flat-rolled aluminum Fastening systems Investment castings Other extruded and forged products single group organization structure. In improve portfolio mix. Brazil China Hungary Russia United Kingdom United States Leased property or partially leased property. Properties are satellite locations of the Davenport, The Texarkana rolling mill facility had been idle since September 2009 due to a continued weak outlook in common alloy markets. In January 2016, the Company restarted its Texarkana cast house to meet demand for aluminum slab for the automotive industry. The aluminum slab that is cast at Texarkana is turned into aluminum sheets at Arconic’s expanded automotive facility in Davenport, Iowa and its rolling mill in Lancaster, Pennsylvania.UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For The Fiscal Year Ended December 31, 20162017OR[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934Commission File Number 1-3610ARCONIC INC.(Exact name of registrant as specified in its charter)PennsylvaniaDelaware 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)Registrant’s telephone numbers:InvestorRelations------------— (212) 836-2758Office of theSecretary-------—(212) 836-2732Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $1.00 per share New York Stock Exchange Depositary Shares, each representing a 1/10th ownership interest in a share of 5.375% Class B Mandatory Convertible$3.75 Cumulative Preferred Stock, Series 1, par value $1.00$100.00 per share New York Stock ExchangeNYSE AmericanSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes✓ No .Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No ✓ .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, 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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [✓]Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “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 []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 ExchangeAct). Yes No ✓.The aggregate market value of the outstanding common stock, other than shares held by persons who may be deemed affiliates of the registrant, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $12$10 billion. As of February 23, 2017,16, 2018, there were 440,535,657482,772,252 shares of common stock, par value $1.00 per share, of the registrant outstanding.Documents incorporated by reference.Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 20172018 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A (Proxy Statement).TABLE OF CONTENTS Page(s) Part I Page(s) Part IItem 1.Business Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 1A.Risk FactorsPart II 18 Item 1B.Unresolved Staff Comments31Item 2.Properties31Item 3.Legal Proceedings31Item 4.Mine Safety Disclosures33Part II3436376465Item 9A. Item 9B. 125Part III Item 9A.Controls and Procedures 125Item 9B.Other Information125Part III127127127128 128Part IV Part IV 129Item 16. Item 16.Form 10-K Summary137138Note on Incorporation by ReferenceIn this Form 10-K, selected items of information and data are incorporated by reference to portions of the Proxy Statement. Unless otherwise provided herein, any reference in this report to disclosures in the Proxy Statement shall constitute incorporation by reference of only that specific disclosure into this Form 10-K.PART IItem 1. Business.GeneralFormed in 1888, Arconic Inc. (formerly known as Alcoa Inc.) is a PennsylvaniaDelaware corporation with its principal office in New York, New York.York and the successor to Arconic Pennsylvania (as defined below) which was formed in 1888 and formerly known as Alcoa Inc. In this report, unless the context otherwise requires, “Arconic” or the “Company” means Arconic Inc., a Delaware corporation, and all subsidiaries consolidated for the purposes of its financial statements.The Company’s Internet address ishttp://www.arconic.com. Arconic makes available free of charge on or through its website its annual report on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (SEC). The information on the Company’s Internet site is not a part of, or incorporated by reference in, this annual report on Form10-K. The SEC maintains an Internet site that contains these reports athttp://www.sec.gov.Forward-Looking StatementsThis report contains (and oral communications made by Arconic may contain) 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��sArconic’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts relating to the growth of the aerospace, automotive, commercial transportation and other end markets; statements and guidance regarding future financial results or operating performance; statements about Arconic’s strategies, outlook, business and financial prospects; and statements regarding potential share gains. 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 that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.For a discussion of some of the specific factors that may cause Arconic’s actual results to differ materially from those projected in any forward-looking statements, see the following sections of this report: Part I, Item 1A. (Risk Factors), Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations), including the disclosures under Segment Information and Critical Accounting Policies and Estimates, and Note LK and the Derivatives Section of Note VU to the Consolidated Financial Statements in Part II, Item 8. (Financial Statements and Supplementary Data). Market projections are subject to the risks discussed in this report and other risks in the market. Arconic disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law.OverviewArconic is a global leader in lightweight metals engineering and manufacturing. Arconic’s innovative, multi-material products, which include aluminum, titanium, and nickel, are used worldwide in aerospace, automotive, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications.Arconic is a global company operating in 1918 countries. Based upon the country where the point of sale occurred, the United States and Europe generated 63% and 26%, respectively, of Arconic’s sales in 2016.2017. In addition, Arconic has operating activities in Brazil, Canada, China, Japan, and Russia, among others. Governmental policies, laws and regulations, and other economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations in these countries.Arconic’s operations consist of three worldwide reportable segments: Global Rolled Products, Engineered Products and Solutions, Global Rolled Products and Transportation and Construction Solutions.BackgroundArconic Inc. ReincorporationOn December 31, 2017 (the “Effective Date”), Arconic Inc., a Pennsylvania corporation (“Arconic Pennsylvania” or, prior to the Reincorporation (as defined below), the “Company”), effected the change of the Company’s jurisdiction of incorporation from Pennsylvania to Delaware (the “Reincorporation”) by merging (the “Reincorporation Merger”) with a direct wholly owned Delaware subsidiary, Arconic (in this section, “Arconic Delaware” or, following the Reincorporation, the “Company”), pursuant to an Agreement and Plan of Merger (the “Reincorporation Merger Agreement”), dated as of October 12, 2017, by and between Arconic Pennsylvania and Arconic Delaware. Arconic Pennsylvania shareholders approved the Reincorporation Merger to effect the Reincorporation at a Special Meeting of Shareholders held on November 30, 2017. As a result of the Reincorporation, (i) Arconic Pennsylvania has ceased to exist, (ii) Arconic Delaware automatically inherited the reporting obligations of Arconic Pennsylvania under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (iii) Arconic Delaware is deemed to be the successor issuer to Arconic Pennsylvania.The common stock, par value $1.00 per share, of Arconic Pennsylvania (the “Arconic Pennsylvania Common Stock”) was listed for trading on the New York Stock Exchange and traded under the symbol “ARNC.” As of the Effective Date, this symbol, without interruption, represents shares of common stock, par value $1.00 per share, of Arconic Delaware (the “Arconic Delaware Common Stock”). There was no change in the Exchange Act File Number assigned by the SEC as a result of the Reincorporation.As of the Effective Date, the rights of the Company’s stockholders began to be governed by the General Corporation Law of the State of Delaware, the Certificate of Incorporation of Arconic Delaware (the “Delaware Certificate”) and the Bylaws of Arconic Delaware (the “Delaware Bylaws”).Other than the change in corporate domicile, the Reincorporation did not result in any change in the business, physical location, management, financial condition or number of authorized shares of the Company, nor did it result in any change in location of its current employees, including management. On the Effective Date, (i) the directors and officers of Arconic Pennsylvania prior to the Reincorporation continued as the directors and officers of Arconic Delaware after the Reincorporation, (ii) each outstanding share of Arconic Pennsylvania Common Stock was automatically converted into one share of Arconic Delaware Common Stock, (iii) each outstanding share of Serial Preferred Stock, par value $100 per share, of Arconic Pennsylvania (the “Arconic Pennsylvania Preferred Stock”) was automatically converted into one share of Serial Preferred Stock, par value $100 per share, of Arconic Delaware (the “Arconic Delaware Preferred Stock”) and (iv) all of Arconic Pennsylvania’s employee benefit and compensation plans immediately prior to the Reincorporation were continued by Arconic Delaware, and each outstanding equity award and notional share unit relating to shares of Arconic Pennsylvania Common Stock was converted into an equity award or notional share unit, as applicable, relating to an equivalent number of shares of Arconic Delaware Common Stock on the same terms and subject to the same conditions. Beginning at the effective time of the Reincorporation, each certificate representing Arconic Pennsylvania Common Stock or Arconic Pennsylvania Preferred Stock was deemed for all corporate purposes to evidence ownership of Arconic Delaware Common Stock or Arconic Delaware Preferred Stock, as applicable. The Company’s stockholders may, but are not required to, exchange their stock certificates as a result of the Reincorporation.The foregoing descriptions of the Arconic Delaware Common Stock, the Arconic Delaware Preferred Stock, the Delaware Certificate and the Delaware Bylaws are qualified in their entirety by the full text of the Delaware Certificate and the Delaware Bylaws, which are filed as Exhibits 3(a) and 3(b), respectively, to this report.Alcoa Corporation Separation TransactionOn November 1, 2016, Alcoa Inc. completed the separation of its business into two independent, publicly traded companies (the “Separation”) – Alcoa Corporation and Arconic Inc. (the new name for Alcoa Inc.). Following the Separation, Alcoa Corporation holds the Alumina and Primary Metals segments, the rolling mill at the Warrick, Indiana operations and the 25.1% stake in the Ma’aden Rolling Company in Saudi Arabia previously held by the Company. The Company retained the Global Rolled Products (other than the rolling mill at the Warrick, Indiana operations and the 25.1% ownership stake in the Ma’aden Rolling Company), Engineered Products and Solutions and Transportation and Construction Solutions segments.The Separation was effected by a pro rata distribution of 80.1% of the outstanding shares of Alcoa Corporation common stock to the Company’s shareholders (the “Distribution”). The Company’s shareholders of record as of the close of business on October 20, 2016 (the “Record Date”) received one share of Alcoa Corporation common stock for every three shares of the Company’s common stock held as of the Record Date. The Company did not issue fractional shares of Alcoa Corporation common stock in the Distribution. Instead, each shareholder otherwise entitled to receive a fractional share of Alcoa Corporation common stock received cash in lieu of fractional shares.The Company distributed 146,159,428 shares of common stock of Alcoa Corporation in the Distribution and retained 36,311,767 shares, or approximately 19.9%, of the common stock of Alcoa Corporation immediately following the Distribution. As a result of the Distribution, Alcoa Corporation is nowbecame an independent public company trading under the symbol “AA” on the New York Stock Exchange, and the Company trades under the symbol “ARNC” on the New York Stock Exchange.During 2017, the Company disposed of its retained interest in Alcoa Corporation. In February 2017, the Company sold 23,353,000 shares of Alcoa Corporation stock at $38.03 per share, which resulted in cash proceeds of $888 million and a gain of $351 million. 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 shares (valued at $35.91 per share) in Alcoa Corporation stock (the “Debt-for-Equity Exchange”) and recorded a gain of $167 million. The gains of $351 million and $167 million associated with the disposition of the Alcoa Corporation shares were recorded in Other Income, Net in the accompanying Statement of Consolidated Operations in Part II, Item 8 (Financial Statements and Supplementary Data).On October 31, 2016, in connection with the Separation and the Distribution, Arconic entered into several agreements with Alcoa Corporation or its subsidiaries that govern the relationship of the parties following the Distribution, including the following: Separation and Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, certain Patent,Know-How, Trade Secret License and Trademark License Agreements, Toll Processing and Services Agreement, Master Agreement for the Supply of Primary Aluminum, Massena Lease and Operations Agreement, Fusina Lease and Operations Agreement, and Stockholder and Registration Rights Agreement.Description of the BusinessInformation describing Arconic’s businesses can be found on the indicated pages of this report:Page(s) 37 828589Segment Information: 96Segment Information:44 4647 100Major Product RevenuesProducts that contributed 10% or more to consolidated revenues for the years ended December 31, 2017, 2016 and 2015, and 2014, were: For the Years Ended December 31, 2016 2015 2014 39 % 42 % 51 % 17 % 18 % 13 % 15 % 15 % 14 % 12 % 11 % 8 % For the Years EndedDecember 31, 2017 2016 2015 Flat-rolled aluminum 39 % 39 % 42 % Fastening systems and rings 16 % 17 % 18 % Investment castings 15 % 15 % 15 % Other extruded and forged products 12 % 12 % 11 % See Note O Nto the Consolidated Financial Statements in Part II, Item 8. (Financial Statements and Supplementary Data) for operating results of the Company’s reportable segments. Arconic has no customers that account for more than 10% of its consolidated revenues. However, certain of the Company’s businesses are dependent upon a few significant customers. The loss of any such significant customer could have a material adverse effect on such businesses.Engineered Products and SolutionsArconic’s Engineered Products and Solutions segment (“EP&S”) develops and manufactures high performance products mainly for the aerospace (commercial and defense), commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys); seamless rolled rings (mostly nickel superalloys); investment castings (nickel superalloys, titanium, and aluminum), including airfoils and structural components; forged airframe and jet engine components (nickel superalloys, titanium, aluminum), including bulkheads, disks and shafts; extruded airframe components (aluminum); and various other forged and extruded metallic components for the oil and gas, industrial products, automotive, and land and sea defense end markets.Throughout 2017, EP&S was comprised of four business units: Arconic Power and Propulsion; Arconic Fastening Systems and Rings; Arconic Forgings and Extrusions; and Arconic Titanium and Engineered Products.Arconic Power and Propulsion (APP). APP produced investment cast airfoils for aero engine and industrial gas turbines and structural aero engine and airframe components. APP also provided additive manufacturing technologies, superalloy and titanium ingots, machining, performance coatings, and hot isostatic pressing for high performance parts.Arconic Fastening Systems and Rings (AFSR). AFSR produced aerospace fastening systems and seamless rolled rings, as well as commercial transportation fasteners. The business’s high-tech, multi-material fastening systems are found nose to tail on aircraft and aero engines. The business’s products are also critical components of industrial gas turbines, automobiles, commercial transportation vehicles, and construction and industrial equipment.Arconic Forgings and Extrusions (AFE). AFE produced defense airframe forgings and extrusions, such as forged bulkheads, wing and landing gear components, closed-die aero engine forgings, such as disks, and lightweight drive shafts for commercial transportation industries.Arconic Titanium and Engineered Products (ATEP). ATEP produced titanium aero ingots and mill products, and provided multi-material airframe subassemblies and solutions related to advanced technologies and materials, such as 3D printing and titanium aluminides.In January 2018, EP&S announced a change in the organizational structure of the segment, from four business units to three business units, with a focus on aligning its internal structure to core markets and customers and reducing costs. The three new business units are Arconic Engines; Arconic Fastening Systems; and Arconic Engineered Structures.Arconic Engines (AE). AE will produce investment cast airfoils, seamless rolled rings and closed-die (including isothermal) forged turbine disks for aero engine and industrial gas turbines, as well as other structural aero engine components. AE also will provide additive manufacturing technologies, superalloy ingots, open-die forging, machining, performance coatings, and hot isostatic pressing for high performance parts.Arconic Fastening Systems (AFS). AFS will produce aerospace fastening systems, as well as commercial transportation fasteners. The business’s high-tech, multi-material fastening systems are found nose to tail on aircraft and aero engines. Thebusiness’s products are also critical components of industrial gas turbines, automobiles, commercial transportation vehicles, and construction and industrial equipment.Arconic Engineered Structures (AES). AES will produce titanium and aluminum ingots and mill products for aerospace and defense applications and is vertically integrated to produce structural investment castings, forgings and extrusions, for airframe, wing, aero-engine, and landing gear components, as well as lightweight drive shafts for the commercial transportation industries. AES will also provide multi-material airframe subassemblies and solutions related to advanced technologies and materials, such as 3D printing and titanium aluminides.For additional discussion of the EP&S's business, see “Results of Operations—Segment Information” in Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note N to the Consolidated Financial Statements—Segment and Geographic Area Information in Part II, Item 8. (Financial Statements and Supplementary Data).In November 2017, Arconic announced a multi-year cooperative research agreement with Airbus to advance metal 3D printing for aircraft manufacturing. Together, the companies will develop customized processes and parameters to produce and qualify large, structural 3D printed components, such as pylon spars and rib structures, up to approximately 1 meter (3 feet) in length. The arrangement combines Arconic’s expertise in metal additive manufacturing and metallurgy with Airbus’s design and qualification capabilities. In September 2017, the Company announced that Airbus and Arconic achieved a 3D printing first - the installation of a 3D printed titanium bracket on a series production Airbus commercial aircraft, the A350 XWB. Arconic is 3D printing these parts using laser power bed technologies at its additive manufacturing facility in Austin, Texas.This 3D printed titanium bracket is part of an ongoing arrangement between the Company and Airbus. In 2016, Arconic announced three agreements with Airbus to produce titanium and nickel 3D printed parts for commercial aircraft, including the A320 platform and A350 XWB. These agreements draw on Arconic’s cutting-edge 3D printing technology capabilities, including laser powder bed and electron beam processes.Engineered Products and Solutions Principal Facilities1Country Facility Products Australia Oakleigh Fasteners Canada Georgetown, Ontario2Aerospace Castings Laval, Québec Aerospace Castings and Machining China Suzhou2Fasteners and Rings France Dives-sur-Mer Aerospace and Industrial Gas Turbine Castings Evron Aerospace and Specialty Castings Gennevilliers Aerospace and Industrial Gas Turbine Castings Montbrison Fasteners St. Cosme-en-Vairais2Fasteners Toulouse Fasteners Us-par-Vigny Fasteners Germany Bestwig Aerospace Castings Erwitte Aerospace Castings Hannover2Extrusions Hildesheim-Bavenstedt2Fasteners Kelkheim2Fasteners Hungary Eger Forgings Nemesvámos Fasteners Székesfehérvár Aerospace and Industrial Gas Turbine Castings and Forgings Japan Nomi Aerospace and Industrial Gas Turbine Castings Mexico Ciudad Acuña2Aerospace Castings/Fasteners and Rings Morocco Casablanca2Fasteners South Korea Kyoungnam Extrusions United Kingdom Darley Dale Forgings Ecclesfield Ingot Castings Exeter2Aerospace and Industrial Gas Turbine Castings and Alloy Glossop Ingot Castings Ickles Ingot Castings Leicester2Fasteners Low Moor Extrusions Meadowhall Forgings Provincial Park Forgings Redditch2Fasteners River Don Forgings Telford Fasteners Welwyn Garden City Aerospace Formed Parts Country Facility Products United States Chandler, AZ Extrusions Tucson, AZ2Fasteners Carson, CA2Fasteners City of Industry, CA2Fasteners Fontana, CA Rings Fullerton, CA2Fasteners Newbury Park, CA Fasteners Rancho Cucamonga, CA Rings Sylmar, CA Fasteners Torrance, CA Fasteners Branford, CT Aerospace Coatings Winsted, CT Aerospace Machining Savannah, GA Forgings Lafayette, IN Extrusions La Porte, IN Aerospace and Industrial Gas Turbine Castings Burlington, MA2Powdered Metal Parts Baltimore, MD2Extrusions Whitehall, MI Aerospace and Industrial Gas Turbine Castings and Coatings, Titanium Alloy and Specialty Products Sullivan, MO Titanium Mill Products Washington, MO Aerospace Formed Parts Big Lake, MN Aerospace Machining New Brighton, MN Aerospace Machining Dover, NJ Aerospace and Industrial Gas Turbine Castings and Alloy Verdi, NV Rings Kingston, NY2Fasteners Massena, NY Extrusions Rochester, NY Rings Canton, OH2Ferro-Titanium Alloys and Titanium Mill Products Cleveland, OH Investment Casting Equipment, Aerospace Components, Castings, Forgings and Oil & Gas Drilling Products Niles, OH Titanium Mill Products Morristown, TN2Aerospace and Industrial Gas Turbine Ceramic Products Austin, TX2Additively Manufactured Parts Houston, TX2Extrusions Spring, TX Deep Water Drilling Machining Waco, TX2Fasteners Wichita Falls, TX Aerospace and Industrial Gas Turbine Castings Hampton, VA2Aerospace and Industrial Gas Turbine Castings Martinsville, VA Titanium Mill Products 1Principal facilities are listed, and do not include 13 locations that serve as sales and administrative offices, distribution centers or warehouses. 2Leased property or partially leased property. Global Rolled ProductsArconic’s Global Rolled Products segment (“GRP”) produces a range of aluminum sheet and plate products for the aerospace, automotive, commercial transportation, brazing and industrial markets. This segment comprises following markets:Aerospace and Automotive Products; Brazing, Commercial Transportation and Industrial Solutions; and Micromill™ Products and Services. As part of the Separation of Alcoa Corporation from the Company, the Global Rolled Products segment integrated its Bohai (China), Itapissuma (Brazil), and Samara (Russia) facilities into Brazing, Commercial Transportation and Industrial Solutions and its Tennessee (U.S.) facility into Aerospace and Automotive Products.Aerospace and Automotive Products (AAP). AAP - GRP provides a wide range of products, including many highly-differentiated sheet and plate products, for the worldwide aerospace and North Americanregional automotive markets.Brazing, Commercial Transportation and Industrial Solutions (BCI). BCI- GRP provides specialty aluminum brazing sheet brazing sheet product innovations, and proprietary multi-layer sheet solutionsplate products for multiple applications, including forautomotive, commercial transportation and industrial customers.applications including proprietary heat exchanger products like multilayer brazing sheet.Arconic Micromill™ ProductsPackaging - GRP serves the packaging market in Russia, Asia and Services (MPS). MPS includes the Company’s Micromill™ technology that produces an aluminum alloy that is 40 percent more formableLatin America through regional facilities.In July 2017, GRP announced a new organization, streamlining and 30 percent stronger than incumbent automotive aluminum and twice as formable and at least 30 percent lighter than high-strength steel. Micromill also reducesconsolidating its businesses into a20-day production process to 20 minutes, and allows the Company’s customers to create lighter, more fuel-efficient vehicles.For additional discussion of the Global Rolled Products segment’s business, see “Results of Operations—Segment Information” in Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note ON to the Consolidated Financial Statements—Segment and Geographic Area Information in Part II, Item 8. (Financial Statements and Supplementary Data).In November 2016,2017, the Company announced plans to install a new horizontal heat treat furnace at its Davenport, Iowa facility. This new furnace will enable Arconic entered into a multi-year contract with Airbus valued at approximately $1 billion. The agreement puts Arconic sheetto heat treat longer and thicker plate on every Airbus platform and isthan ever before, including material for its new state of the first to include material from Arconic’s newstate-of-theart “very"very thick plate stretcher” at its facilitystretcher."This stretcher, the world’s largest, improves the performance of thick aluminum and aluminum-lithium plate in Davenport, Iowa. Arconic expects the Davenport very thick plate stretcher to be commissioned by the second quarter of 2017aerospace and to enableindustrial applications, and enables the Company to produce the largest high-strength monolithic wing ribs in the industry.June 2016, Arconic entered into a $470 million multi-year contract with Embraer under which Arconic will supply sheet and plate using proprietary alloys for Embraer’s new E2s,April 2017, the second generationCompany announced the completion of theE-Jets family installation of commercial aircraft.In 2016, Arconic entered into multi-year contracts with Nissan North Americathe stretcher.Also in April 2017, the Company announced the divestiture of its Fusina, Italy rolling mill to be the sole supplierSlim Aluminum. The transaction was part of aluminum sheet for seven programs, including Altima, Murano, Maxima and Titan; and with Fiat Chrysler Automobiles, for the 2017 Chrysler Pacifica. Arconic’s newly expanded facilities in Alcoa, Tennessee and Davenport, Iowa, and its Micromill facility in San Antonio, Texas, continueGRP’s drive to support Ford Motor Company to supply its FordF-150 andF-250 models.Additionally, in 2016, Arconic’s Micromill technology was recognized with a 2016 R&D 100 Award. The annual R&D 100 Awards is an international competition that recognizes the 100 most technologically significant products introduced in the marketplace over the past year, as selected by the editors of R&D Magazine.Global Rolled Products Principal FacilitiesCountry Location Owners1(% Of Ownership)Products Itapissuma Arconic (100%) Specialty Foil Kunshan Arconic (100%) Sheet and Plate Qinhuangdao21Arconic (100%) Sheet and Plate Székesfehérvár Arconic (100%) Sheet and Plate/Slabs and Billets ItalyFusina2Arconic (100%)Sheet and Plate Samara Arconic (100%)Sheet and PlatePlate/Extrusions and Forgings Birmingham Arconic (100%)Plate Davenport, IA Arconic (100%) Sheet and Plate Danville, IL32Arconic (100%) Sheet and Plate Hutchinson, KS32Arconic (100%) Sheet and Plate Lancaster, PA Arconic (100%)Sheet and Plate Alcoa, TN Arconic (100%)Sheet Texarkana, TX43Arconic (100%) Slabs San Antonio, TX4 Arconic (100%)MicromillMicromill™1 Facilities with ownership described as “Arconic (100%)” are either leased or owned directly or indirectly by the Company.232 IAIowa facility.43 Engineered Products and SolutionsArconic’s Engineered Products and Solutions segment develops and manufactures high performance products for the aerospace (commercial and defense), commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys); seamless rolled rings (mostly nickel superalloys); investment castings (nickel superalloys, titanium, and aluminum), including airfoils and forged jet engine components (e.g., jet engine disks); and various forging and extrusion metal products for the oil and gas, industrial products, automotive, and land and sea defense end markets.The Engineered Products and Solutions segment is comprised of four business units: Arconic Power and Propulsion; Arconic Fastening Systems and Rings; Arconic Forgings and Extrusions; and Arconic Titanium and Engineered Products.Arconic Power and Propulsion (APP). APP produces investment cast airfoils for aero engine and industrial gas turbines and structural aero engine and airframe components. APP also provides additive manufacturing technologies, superalloy and titanium ingots, machining, performance coatings, and hot isostatic pressing for high performance parts.Arconic Fastening Systems and Rings (AFSR).AFSR produces aerospace fastening systems and rings, as well as commercial transportation fasteners. The business’s rings and high-tech, multi-material fastening systems are found nose to tail on aircraft and aero engines. The business’s products are also critical components of industrial gas turbines, automobiles, commercial transportation vehicles, and construction and industrial equipment.
Arconic Forgings and Extrusions (AFE). AFE produces defense airframe forgings and extrusions, such as forged bulkheads, wing and landing gear components, and lightweight drive shafts for the aerospace and commercial transportation industries.
Arconic Titanium and Engineered Products (ATEP). ATEP produces titanium aero ingots and mill products, and provides multi-material airframe subassemblies and solutions related to advanced technologies and materials, such as 3D printing and titanium aluminides.
For additional discussion of the Engineered Products and Solutions segment’s business, see “Results of Operations—Segment Information” in Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note O to the Consolidated Financial Statements—Segment and Geographic Area Information in Part II, Item 8. (Financial Statements and Supplementary Data).
In April 2016, Arconic completed the sale of its Remmele Medical business to Lisi Medical for $102 million in cash ($99 million net of transaction costs). This business, which was acquired by the Company in July 2015 in conjunction with its acquisition of RTI International Metals, Inc., manufactures precision-machined metal products for customers in the minimally invasive surgical device and implantable device markets.
In June 2015, Arconic announced its investment of $22 million in Hot Isotopic Pressing (HIP) technology at its facility in Whitehall, Michigan. The investment is expected to enable Arconic to capture growing demand for advanced titanium, nickel and additive manufactured parts for the world’s bestselling engines. Arconic completed installation of the HIP technology investment at its Whitehall facility in 2016 and expects that the new technology will be ready for product qualification by the end of the first quarter of 2017.
Arconic and VSMPO-AVISMA Corporation signed a cooperation agreement in October 2013 to form a new joint venture that will focus on manufacturinghigh-end titanium and aluminum aerospace products, such as landing gear and forged wing components, at Arconic’s plant in Samara, Russia. The definitive Shareholders’ Agreement was executed by the parties on July 16, 2014, and the deal closed in the third quarter of 2016. The facility is now operational.
Engineered Products and Solutions Principal Facilities1
| ||||||
| ||||||
| ||||||
|
|
|
4 |
|
Transportation and Construction Solutions Principal Facilities1 Products Canada Principal facilities are listed, and do not include Leased property or partially leased property. Engineered Products and Solutions Electricity Stainless steel Transportation and Construction Solutions &S’s business units - AFS (Arconic Fastening Systems), AE (Arconic Engines) and AES (Arconic Engineered Structures) -are subject to substantial and intense competition in the markets they serve. Although Arconic believes its advanced technology, manufacturing processes and experience provide advantages to Arconic’s customers, such as high quality and superior mechanical properties that meet the Company’s customers’ most stringent requirements, many of the products Arconic makes can be produced by competitors using similar types of manufacturing processes as well as alternative forms of manufacturing. Despite intense competition, Arconic continues as a market leader in most of its principal markets. Several factors, including Arconic’s legacy of technical innovation, state-of-the-art capabilities, engaged employees and long-standing customer relationships, enable the Company to maintain its competitive position. Constellium (The Netherlands) Novelis Kaiser Aluminum Aleris Hydro (Norway) Nanshan (China) Granges (Sweden) Kobe (Japan)Transportation and Construction SolutionsArconic’s Transportation and Construction Solutions segment ("TCS") produces products that are used mostly in the commercial transportation and nonresidential building and construction and commercial transportation end markets. Such products include integrated aluminum structural systems, architectural extrusions, forged aluminum commercial vehicle wheels, and aluminum products for the industrial products end market.The Transportation and Construction Solutions segment is comprised of three business units: Arconic Wheel and Transportation Products; Building and Construction Systems; and Latin AmericanAmerica Extrusions.Arconic Wheel and Transportation Products (AWTP). AWTP provides forged aluminum wheels and related products for heavy-duty trucks and the commercial transportation markets.Building and Construction Systems (BCS). BCS provides building and construction architectural framing products and aluminum curtain wall and front entry systems.Latin AmericanAmerica Extrusions (LAE).LAE serves both the building and construction and the industrial markets in Latin America, with products including aluminum architectural systems for doors, windows and curtain walls, and a wide range of extruded solutions for the automotive, defense and other industrial industries. In December 2017, Arconic announced an agreement to divest its LAE business. Customary regulatory and antitrust reviews are complete, and the ownership of LAE will be transferred to a subsidiary of Hydro Extruded Solutions AS. The deal is expected to close in the first half of 2018.For additional discussion of the Transportation and Construction Solutions segment’s business, see “Results of Operations—Segment Information” in Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note ON to the Consolidated Financial Statements—Segment and Geographic Area Information in Part II, Item 8. (Financial Statements and Supplementary Data).In September 2016, Arconic announced the expansion of its wheels manufacturing plant in Hungary, increasing polishing capacity to produce the Company’s patented LvL ONE® and Dura-Bright® EVO products and building a machining line to expand capacity for a variety of Alcoa® Wheel products.1 Production is expected to begin in early 2017.In 2016, Arconic signed more than $450 million in long term agreements with customers in North America, South America, Europe and Asia for its forged aluminum wheels. The largest is a long-term agreement with PACCAR, a global leader in the design, manufacture and customer support of high-quality light-, medium- and heavy-duty trucks. Arconic will supply forged aluminum Alcoa Wheels for PACCAR trucks under the Kenworth and Peterbilt nameplates.1 The “Alcoa” trademark is owned by Alcoa USA Corp. and used by Arconic under license from Alcoa USA Corp.Country Facility Brazil OwnersItapissuma2(% Of Ownership) ProductsForgingsBrazil Itapissuma Tubarão3Arconic (100%) Extrusions TubarãoArconic (100%)Utinga3 Extrusions UtingaArconic (100%)Extrusions Lethbridge, Alberta Arconic (100%)Architectural ProductsChina Suzhou2Forgings France Merxheim2Architectural Products Hungary Székesfehérvár Forgings Japan Jôetsu City2Forgings Mexico Monterrey Forgings United Kingdom Runcorn Architectural Products United States Springdale, AR Architectural Products Pointe Claire, QuebecArconic (100%)Architectural ProductsVaughan, OntarioArconic (100%)Architectural ProductsChinaSuzhou4Arconic (100%)ForgingsFranceGuerandeArconic (100%)Architectural ProductsLézat-sur-Lèze4Arconic (100%)Architectural ProductsMerxheim4Arconic (100%)Architectural ProductsVendarquesArconic (100%)Architectural ProductsGermanyIserlohnArconic (100%)Architectural ProductsHungarySzékesfehérvárArconic (100%)ForgingsJapanJōetsu City4Arconic (100%)ForgingsMexicoMonterreyArconic (100%)ForgingsMoroccoCasablanca4Arconic (67%)Ahmed Hattabi (33%)Architectural ProductsNetherlandsHarderwijkArconic (100%)Architectural ProductsSpainIrutzunArconic (100%)Architectural ProductsUnited KingdomRuncornArconic (100%)Architectural ProductsUnited StatesSpringdale, ARArconic (100%)Architectural ProductsCountryFacilityOwners2(% Of Ownership)ProductsVisalia, CA Arconic (100%) Architectural Products Eastman, GA Arconic (100%)Architectural Products Barberton, OH Arconic (100%)ForgingsChillicothe, OHArconic (100%) Forgings Cleveland, OH Arconic (100%)Forgings Bloomsburg, PA Arconic (100%) Architectural Products Cranberry, PA Arconic (100%)Architectural Products Denton, TX4Arconic (100%)Forgings1 additional9 locations that serve as sales and administrative offices, distribution centers or warehouses.2 Facilities with ownership described as “Arconic (100%)” are owned by the Company.3This facility was permanently closed in December 2016 due to changes in production demand in the Brazilian market.4In addition to the facilities listed above, BCS has 10 U.S. service centers. These centers perform light manufacturing, such as assembly and fabrication of certain products.3Location is part of the planned divestiture of LAE, the sale of which is expected to be completed in the first half of 2018. Sources and Availability of Raw MaterialsThe major raw materials purchased in 20162017 for each of the Company’s reportable segments are listed below.Global Rolled ProductsAlloying materials Alloying materialsAluminum scrap ElectricityCoatings Natural gasElectricity Nickel alloysLube oil Primary aluminum (ingot, billet, P1020, high purity) Natural gas ResinPackaging materials Stainless steelPackaging materials Steel Primary aluminum (ingot, slab, billet, P1020, high purity) Titanium alloys SteelSteam Titanium alloys Titanium sponge Aluminum coil Aluminum scrap Electricity Natural gas Paint/Coating Polyethylene Primary aluminum Resin Generally, other materials are purchased from third-party suppliers under competitively priced supply contracts or bidding arrangements. The Company believes that the raw materials necessary to its business are and will continue to be available.Patents, Trade Secrets and TrademarksThe Company believes that its domestic and international patent, trade secret and trademark assets provide it with a significant competitive advantage. The Company’s rights under its patents, as well as the products made and sold under them, are important to the Company as a whole and, to varying degrees, important to each business segment. The patents owned by Arconic generally concern particular products or manufacturing equipment or techniques. Arconic’s business as a whole is not, however, materially dependent on any single patent, trade secret or trademark. As a result of product development and technological advancement, the Company continues to pursue patent protection in jurisdictions throughout the world. As of the end of 2016,2017, the Company’s worldwide patent portfolio consists of approximately 1,4581,669 granted patents and 697807 pending patent applications.The Company also has a significant number of trade secrets, mostly regarding manufacturing processes and material compositions that give many of its businesses important advantages in their markets. The Company continues to strive to improve those processes and generate new material compositions that provide additional benefits.With respect to domestic and international registered trademarks, the Company has many that have significant recognition within the markets that are served. Examples include the name “Arconic” and the Arconic symbol for aluminum, nickel, and titanium products, Howmet® metal castings, Huck® fasteners, Kawneer® building panels and Dura-Bright® wheels with easy-cleaneasy-clean surface treatments. A significant trademark filing campaign for the name “Arconic” was completed in 2016, in support of the corporate launch of Arconic Inc. As of the end of 2016,2017, the Company’s worldwide trademark portfolio consists of approximately 1,3941,793 registered trademarks and 913625 pending trademark applications. The Company’s rights under its trademarks are important to the Company as a whole and, to varying degrees, important to each business segment.Competitive ConditionsEngineered Products and Solutions (EP&S)EPPrincipal competitors in the EP&S segment include Berkshire Hathaway Inc., through its acquisition of Precision Castparts Corporation and subsidiaries, for titanium and titanium-based alloys, precision forgings, seamless rolled rings, investment castings and aerospace fasteners; VSMPO (Russia) for titanium and titanium-based alloys and precision forgings; the High-Performance Materials & Components segment of Allegheny Technologies, Inc. (ATI) for titanium and titanium-based alloys, precision forgings, and investment castings; Lisi Aerospace (France) for aerospace fasteners; and Aubert & Duval (part of Eramet Group in France) for precision forgings.Other competitors include:•Kaiser Aluminum - for extruded products•Universal Alloy Corp., part of Montana Tech Components - for extruded products•Doncasters Group Ltd. (UK) - for investment castings•Consolidated Precision Products Corp., part of Warburg Pincus - for investment castings•Weber Metals, part of Otto Fuchs - for precision forgings•Forgital - for seamless ringsSeveral of Arconic’s largest customers have captive superalloy furnaces for producing airfoil investment castings for their own use. Many other companies around the world also produce superalloy investment castings, and some of these companies currently compete with Arconic in the aerospace and other markets, while others are capable of competing with the Company should they choose to do so.International competition in the investment casting, fastener, ring and forging markets may also increase in the future as a result of strategic alliances among engine original equipment manufacturers (OEMs), aero-structure prime contractors, and overseas companies, especially in developing markets, particularly where “offset” or “local content” requirements create purchase obligations with respect to products manufactured in or directed to a particular country.Global Rolled Products (GRP)GRP is one of the leaders in many of the aluminum flat rolled products markets in which it participates, including aerospace, automotive, brazing sheet, commercial transportation, industrial markets and regional specialties.packaging. However, much like other Arconic businesses, GRP is subject to substantial and intense competition in all of its markets.While GRP participates in markets where Arconic believes the Company has a significant competitive advantage due to customer intimacy, advanced manufacturing capability, unique technology and/or differentiated products, in certain cases, the Company’s competitors are capable of making products similar to Arconic’s. The Company continuously works to maintain and enhance its competitive advantage through innovation: new alloys such as Arconic’s new aerospace alloys, new products such as the Company’s 5 layer5-layer brazing products and break-through processes such as Arconic Micromill™Micromill® technology.GRP comprises AAP, BCI and MPS, each serving defined segments. Some of theGRP’s markets are worldwide and some are more regionally focused. Participation in these segments by GRP’s competitors varies. For example, Novelis is the largest flat rolled products producer competing in automotive, but it does not participate in the aerospace market. On the other hand, Constellium participates in all major market segments including aerospace, brazing, industrial, commercial transportation and packaging. Granges participates only in the brazing sheet market. Other GRP competitors include Aleris, AMAG, Kaiser, Kobe, Nanshan, and UACJ.Additionally, there are a number of new competitors emerging, particularly in China and other developing economies. For example, in the brazing business, the number of viable competitors has doubled over a five-year period. Arconic expects that this competitive pressure will continue and increase in the future as customers seek to globalize their supply bases in order to reduce costs. The Company continually monitors and plans for these new emerging players.Summary of Major Competitors for GRP (both AAP and BCI)GRP:UACJ (Japan)Engineered Products and Solutions (EPS)EPS’s business units—APP, AFSR, AFE and ATEP —are subject to substantial and intense competition in the markets they serve. Although Arconic believes its advanced technology, manufacturing processes and experience provide advantages to Arconic’s customers, such as high quality and superior mechanical properties that meet the Company’s customers’ most stringent requirements, many of the products Arconic makes can be produced by competitors using similar types of manufacturing processes (e.g., closed die forgings) as well as alternative forms of manufacturing (e.g., machining out of plate). Despite intense competition, Arconic continues as a market leader in most of its principal markets. Several factors, including Arconic’s legacy of technical innovation,state-of-the-art capabilities, engaged employees and long-standing customer relationships, enable the Company to maintain its competitive position.In the investment castings business served by APP (Nickel, Titanium and Aluminum Investment Castings), Arconic’s principal competitor is Precision Cast Parts Corp. (PCC). PCC produces superalloy, titanium and aluminum investment castings principally for the aerospace and industrial gas turbine markets. In addition, Doncasters Group Ltd. (UK) produces superalloy investment castings for engine applications, and Pacific Cast Technologies (a subsidiary of Allegheny Technologies, Inc. (ATI)) and Selmet both manufacture titanium investment castings for jet engine and airframe applications and Consolidated Precision Products (CPP) produces superalloy and aluminum investment castings principally for the aerospace and industrial gas turbine (IGT) markets. Several of Arconic’s largest customers have captive superalloy furnaces for producing airfoil investment castings for their own use. Many other companies around the world also produce superalloy, titanium, and aluminum investment castings, and some of these companies currently compete with Arconic in the aerospace and other markets, while others are capable of competing with the Company should they choose to do so.In the fasteners markets served by AFSR, the two principal competitors in the aerospace fastener business are PCC and Lisi Aerospace (France), with additional competition from Consolidated Aerospace Manufacturing-“CAM”, and TriMas. These companies together offer a comprehensive array of products in a broad range of materials (including superalloys) that directly compete in AFSR’s key segments including airframe, aero-engine, aerospace, and IGT. As aerospace original equipment manufacturers (OEMs) seek to balance product supply across large and small suppliers, they view smaller and emerging competition as essential in their efforts to manage sourcing costs.In the rings products market served by AFSR, Arconic’s principal competitor is PCC, especially through their Carlton facility. PCC produces superalloy, titanium and aluminum rings principally for the aerospace market. In addition, Forgital (France and Italy) produces rings in multiple materials, and Frisa (Mexico) manufactures rings in superalloys and titanium. Several smaller competitors around the world compete with Arconic in specific markets, depending on the equipment capability and metallurgical expertise.In the forged products market served by AFE, Arconic’s largest competitors are PCC, Weber Metals (a division of Otto Fuchs KG in Germany), Aubert & Duval (a group member of Eramet in France), VSMPO-AVISMA (Russia) and Ladish Co. (a subsidiary of ATI). In the extruded products market served by AFE, the Company faces increased competition from emerging international companies, such as Nanshan (China), as customers seek lower cost sources of production.International competition in the investment casting, fastener, ring and forging markets may also increase in the future as a result of strategic alliances among engine OEMs, aero-structure prime contractors, and overseas companies, especially in developing markets, particularly where “offset” or “local content” requirements create purchase obligations with respect to products manufactured in or directed to a particular country.In the titanium milled and engineered products market served by ATEP, Arconic’s largest competitors are PCC (through its TiMet division), ATI, and VSMPO-AVISMA (Russia). ATEP also competes in the highly fragmented machining market with numerous small players throughout North America and Europe. In the highly competitive milled products space, cost and service are the differentiators, and there is continual effort to reduce prices for input raw material. For engineered products, such as the ATEP-supplied 787 seat tracks for Boeing, advanced capabilities as well as an efficient supply chain are the key differentiators.Summary of Major Competitors:APP: Superalloy, Titanium and Aluminum Investment CastingsPCCDoncasters Group Ltd. (UK)Pacific Cast Technologies (a subsidiary of ATI)CPPSelmetAFSR:FastenersLisi Aerospace (France)PCCConsolidated Aerospace Manufacturing-“CAM”TriMasRingsPCCForgital (Italy, France)Frisa (Mexico)AFE:Nickel, Titanium, Steel and Aluminum Forged ProductsPCCWeber Metals (a subsidiary of Otto Fuchs KG in Germany).
Aubert & Duval (a group member of Eramet in France)
VSMPO-AVISMA (Russia)
Ladish Co. (a subsidiary of ATI)
Aluminum Extruded Products
Universal Alloys Corporation
Kaiser Aluminum
Constellium (The Netherlands)
Nanshan (China)
ATEP:
TiMet (a division of PCC)
ATI
VSMPO-AVISMA (Russia)
Transportation and Construction Solutions (TCS)
soft alloy extruded profiles and solutions, mainly for the automotive, consumer goods, machinery and equipment segments. Overall, LAE holdshas held a strong presence in Brazil, where competition is very fragmented, composed mainly of small local extruders and a few multinationals such as CBA (Votorantim Group) and SAPA.
Accuride Corporation
Nippon Steel & Sumitomo Metal Corporation (Japan)
Zhejiang Dicastal Hongxin Technology Co. Ltd (China)
Wheels India Limited (India)
North America Systems – Apogee, Oldcastle YKK and EFCO
North America Products – Alpolic, Alucobond and Alucoil
Europe Systems - Schüco (Germany), Hydro/SAPA (Norway), Reynaers (Belgium) and Corialis (Belgium)
Europe Products – Alucobond, Alucoil, Euramax and Novelis
Belmetal (Brazil)
CBA (Brazil)
SAPA (Norway)
Aluk (Brazil)
structural body-in-white applications. 2019. Total worldwide employment at the end of Asia. adversely affected. suppliers, alternatives to mitigate manufacturing disruptions may not be readily available to the Company or its customers. Accordingly, manufacturing problems, product defects or other risks associated with our products, including their use or application, could result in significant costs to and liability for Arconic that could have a material adverse effect on its business, financial condition or results of operations, including the payment of potentially substantial monetary damages, fines or penalties, as well as negative publicity and damage to the Company’s reputation, which could adversely impact product demand and customer relationships. operations. economic and commercial instability risks, including those caused by sovereign and private debt default, corruption, and changes in local government laws, regulations and policies, such as those related to tariffs, sanctions and trade barriers, taxation, exchange controls, employment regulations and repatriation of earnings; geopolitical risks such as political instability, civil unrest, expropriation, nationalization of properties by a government, imposition of sanctions, and renegotiation or nullification of existing agreements; war or terrorist activities; major public health issues such as an outbreak of a pandemic or epidemic (such as Sudden Acute Respiratory Syndrome, Avian Influenza, H7N9 virus, or the Ebola virus), which could cause disruptions in Arconic’s operations or workforce; difficulties enforcing intellectual property and contractual rights in certain jurisdictions; rising labor costs; strategic alliances. Additionally, adverse factors may prevent Arconic from realizing the benefits of its growth projects, including unfavorable global economic conditions, currency fluctuations, or unexpected delays in target timelines. Arconic, whether due to the above-described risks, unfavorable global economic conditions, increases in construction costs, currency fluctuations, political risks, or other factors. of historical trends, then current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. As such, targets and goals are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events, including the risks discussed in this report. The actual outcome may be materially different. There can be no assurance that any targets or goals established by the Company will be accomplished at the levels or by the dates targeted, if at all. Failure to achieve the targets or goals by the Company may have a material adverse effect on its business, financial condition, results of operations or the market price of its securities.Research and DevelopmentArconic, at its light metals research center, engages in research and development (R&D) programs that include process and product development, and basic and applied research. R&D expenditures were $111 million, $132 million and $169 million in 2017, 2016 and $123 million in 2016, 2015, and 2014, respectively.Throughout 2016,2017, the Company continued working on new developments in all business segments and leveraging new technologies. The Company has continued investing in additive manufacturing, with a focus on producing metal powder materials tailored for a range of additive process technologies, and furthering its development of advanced 3D printing design and manufacturing techniques—suchtechniques-such as Arconic’s AmpliforgeTM™ process—toprocess-to improve production speeds, reduce costs, and achieve geometriesmaterial properties not possible through traditional methods.other additive flowpaths. The Company’s new powder production facility was completed at the Arconic Technology Center in 2016. This facility will continue its focus on material development in aluminum, nickel and titanium alloys.Arconic’sThe Company is also producing and qualifying additively manufactured aerospace components via laser powder bed printing technology. It also is developing more formable titanium plate based wrought products for customers.The Arconic Micromill® technology located in San Antonio continues to transition to commercial production, as the Company has invested in further developing Micromill™ technology, was awarded an R&D 100 Award, as oneincluding installation of a pilot line at the top innovationsArconic Technology Center.The Company continues to develop differentiated pretreatment technology, continuing to improve on its patented A951 technology, joining methods/fasteners (like RSR™) and highly formable and high strength automotive sheet products for automotive original equipment manufacturer applications in 2016; the Company’s second such award in three years. Notably, there are 13 OEMs that have signed Micromill nondisclosure agreementsboth cosmetic hang on parts and 12 potential licensees engaged, including potential joint ventures.The Company continued its differentiation in the commercial transportation market with Dura-Bright® EVO, UltraOne™ and European UltraOne™ wheel products.The Company also continues to develop and deploy proprietary processing technologies in the manufacture of aerospace components, as well as a continued commitment and commercialization of a portfolio of proprietary aerospace fasteners. One such example is Ergo-Tech® blind fasteners.fasteners which enable automated assembly operations.Environmental MattersInformation relating to environmental matters is included in Note LK to the Consolidated Financial Statements under the caption “Environmental Matters” on pages 96-97.page 84. Approved capital expenditures for new or expanded facilities for environmental control are approximately $11$19 million for 2017 2018and estimated expenditures for such purposes are $12.5 $2million for 2018.EmployeesEmployees20162017 was approximately 41,500employees in 25 countries. About 24,60020,900 of these employees are represented by labor unions. The Company believes that relations with its employees and any applicable union representatives generally are good.In the United States, approximately 7,5007,600 employees are represented by various labor unions. The largest collective bargaining agreement is the master collective bargaining agreement between Arconic and the United Steelworkers (USW). The USW master agreement covers approximately 3,4003,300 employees at fourU.S. locations; the current labor agreement expires on May 15, 2019. There are 17 other collective bargaining agreements in the United States with varying expiration dates.On a regional basis, collective bargaining agreements with varying expiration dates cover approximately 9,300 employees in Europe and Russia, 13,10010,000 employees in North America, 1,200600 employees in Central and South America, and 1,000 employees in China.Executive Officers of the RegistrantThe names, ages, positions and areas of responsibility of the executive officers of the Company as of February 28, 201723, 2018 are listed below.Charles P. “Chip” Blankenship, 51, Chief Executive Officer. Mr. Blankenship was elected Chief Executive Officer of Arconic and a member of the Arconic Board of Directors effective January 15, 2018. Mr. Blankenship was Senior Vice President of Haier Group, and President and Chief Executive Officer of its GE Appliances business from June 2016 to June 2017. GE Appliances was a division of General Electric Company until June 2016, when it was acquired by Qingdao Haier Co., Ltd., and Mr. Blankenship served as its President and Chief Executive Officer from December 2011 until June 2016. Prior to GE Appliances, Mr. Blankenship served as Vice President and General Manager of the Commercial Engines Operation for GE Aviation from July 2008 until December 2011. From April 2006 to July 2008, Mr. Blankenship was the General Manager of Aero Energy, a division of GE Energy.Ken Giacobbe, 50,52, Executive Vice President and Chief Financial Officer. Mr. Giacobbe was elected Executive Vice President and Chief Financial Officer of Arconic effective November 1, 2016. Mr. Giacobbe joined Arconic in 2004 as Vice President of Finance for Global Extruded Products, part of Alcoa Forgings and Extrusions. He then served as Vice President of Finance for the Company’s Building and Construction Systems business from 2008 until 2011. In 2011, he assumed the role of Group Controller for the Engineered Products and Solutions business.segment. From January 2013 until October 2016, Mr. Giacobbe served as Chief Financial Officer of the Engineered Products and Solutions business.segment. Before joining Arconic, Mr. Giacobbe held senior finance roles at Avaya and Lucent Technologies.Klaus KleinfeldMark J. Krakowiak, 59, Director, Chairman of the Board57, Executive Vice President, Strategy and Chief Executive Officer.Development. Mr. KleinfeldKrakowiak was elected to Arconic’s Boardhis current position effective January 29, 2018. Prior to joining Arconic, Mr. Krakowiak had a 33-year career at General Electric Company, where he held a range of Directorsfinancial and strategy roles, including positions in November 2003financial planning, business development and became Chairman on April 23, 2010. He has beenM&A, treasury and commercial. Most recently, Mr. Krakowiak was Chief ExecutiveFinancial Officer of theGE Appliances, a Haier Company, since May 8, 2008. He wasfrom June 2016 to January 2017. Previously, Mr. Krakowiak served as Vice President and Chief Executive Officer from May 8, 2008 to April 23, 2010. He was President and Chief OperatingFinancial Officer of ArconicGeneral Electric’s Appliances and Lighting business from October 1, 2007September 2011 to May 8, 2008.June 2016. From July 2009 to September 2011, Mr. KleinfeldKrakowiak was President and Chief ExecutiveRisk Officer of Siemens AG, theGE’s global electronicsenterprise risk function, and industrial conglomerate, from January 20052003 to June 2007. He served as Deputy Chairman of the Managing Board and ExecutiveJuly 2009, he was Vice President of Siemens AG from 2004 to January 2005. He was PresidentGE’s Industrial Treasury and Chief Executive Officer of Siemens Corporation, the U.S. arm of Siemens AG, from 2002 to 2004.Insurance Operations.Christoph Kollatz, 56, Executive Vice President, Corporate Development, Strategy and New Ventures. Mr. Kollatz joined Arconic in May 2015 and was elected an Executive Vice President in September 2015. Before joining the Company, Mr. Kollatz was Chief Information and Process Officer at Lufthansa from 2012 to 2015, overseeing the information technology infrastructure, as well as IT applications, supporting financial and customer operations. Prior toTimothy D. MyersLufthansa, from 2011 to 2012, Mr. Kollatz created and led astart-up business within SAP, introducing a new database technology to the market. Mr. Kollatz held a series of leadership, strategy and technology positions at Siemens from 1989 to 2011, including as CEO of Siemens IT Solutions and Services.Kay H. Meggers, 52, Executive Vice President and Group President, Global Rolled Products. Mr. Meggers was elected an Executive Vice President in December 2011. He was named Group President, Global Rolled Products effective November 14, 2011. Before his most recent appointment, he led Arconic’s Business Excellence and Corporate Strategy resource unit and was also responsible for overseeing Arconic’s Asia-Pacific region. He joined Arconic in February 2010 as Vice President, Corporate Initiatives, a position responsible for planning and coordinating major strategic initiatives from enhancing technology and innovation as part of the Alcoa Technology Advantage program to spearheading growth strategies for China and Brazil. He was elected a Vice President of Arconic in June 2011. Before joining Arconic, Mr. Meggers was Senior Vice President at Siemens U.S. Building Technologies Division and served for three years as Business Unit Head of Building Automation. In 2006, he served for nine months as Division Head of Fire Safety, also part of Siemens U.S. Building Technologies Division. Between 2002 and 2005, he served as Vice President of Strategic Planning at Siemens U.S.Timothy D. Myers, 51, Executive Vice President and Group President, Transportation and Construction Solutions. Mr. Myers was appointed Executive Vice President and Group President, Global Rolled Products and Transportation and Construction Solutions in May 2016.October 2017. Prior to being appointed to his current role, he was Executive Vice President and Group President, Transportation and Construction Solutions from May 2016 to October 2017. Prior to that assignment, he was President of Alcoa Wheel and Transportation Products, from June 2009 to May 2016. Prior to that assignment, Mr. Myers was Vice President and General Manager, Commercial Vehicle Wheels for the Alcoa Wheel Products business from January 2006.2006 to June 2009. Mr. Myers joined Arconic in 1991 as an automotive applications engineer in the Commercial Rolled Products Division, and held a series of engineering, marketing, sales and management positions with the Company since that time.Paul Myron, 50,51, Vice President and Controller. Mr. Myron was elected Vice President and Controller of Arconic effective November 1, 2016. Mr. Myron joined Arconic as a systems analyst in Pittsburgh and in 1992 relocated to the Company’s Davenport, Iowa facility as a product accountant. He served in numerous financial management positions from 1995 until 2000 when he was named Commercial Manager and Controller for the Atlantic division of the Alcoa World Alumina and Chemicals business. In 2002, Mr. Myron was appointed Vice President of Finance, Alcoa Primary Metals and later became Vice President of Finance, Alcoa World Alumina and Chemicals. In 2005 Mr. Myron was electednamed Director of Financial Planning and Analysis, accountable for Arconic’s financial planning, analysis, and reporting worldwide. In February 2012, he became Director of Finance Initiatives for the Engineered Products and Solutions business,segment, overseeing specific financial initiatives and projects within the group. From July 2012 until his most recent appointment, Mr. Myron served as Vice President, Finance and Business Excellence for the Arconic Power and Propulsion business.Vas Nair,51, 52, Executive Vice President, Human Resources and Environment, Health, Safety and Sustainability.Resources. Ms. Nair was appointed Executive Vice President, Human Resources and Environment, Health, Safety and Sustainability in November 2015. Prior to being appointed to her current role, Ms. Nair was Arconic’s Chief Talent and Diversity Officer, with global responsibility for diversity and inclusion from February 2015 to October 2015. Prior to joining Arconic, Ms. Nair was VP of Global Learning and Talent Development at Estee Lauder from November 2010 to January 2015. Ms. Nair was Vice President and Chief Learning Officer at Schering-Plough from November 2003 to October 2009.Katherine H. Ramundo, 49,50, Executive Vice President, Chief Legal Officer and Secretary. Ms. Ramundo was elected to her current position effective November 1, 2016. Prior to joining Arconic, from January 2013 through August 2015, she was Executive Vice President, General Counsel and Secretary of ANN INC., the parent company of ANN TAYLOR and LOFT brands, based in New York. Prior to ANN INC., she served as Vice President, Deputy General Counsel and Assistant Secretary at Colgate-Palmolive, where she held various legal roles from November 1997 to January 2013. She began her career as a litigator in New York, practicing at major law firms, including Cravath, Swaine & Moore and Sidley & Austin.Karl Tragl, 54, isEric V. Roegner, 48, Executive Vice President and Group President, Engineered Products and Solutions.Solutions, and President, Arconic Defense. Mr. TraglRoegner was appointed to his current positionelected Executive Vice President and Group President, Engineered Products and Solutions effective May 1, 2016. Prior to his current role,October 2017, and President, Arconic Defense effective June 2012. Previously, Mr. TraglRoegner served as Executive Vice President and Group President, Transportation and Construction Solutions (TCS)Global Rolled Products from February 2016 through April 2016. Previously, Mr. Tragl was theMay 2017 until October 2017; Chief ExecutiveOperating Officer of Bosch Rexroth AG, Bosch’s $6 billion automation solutions company, basedArconic Investment Castings, Titanium and Engineered Products from July 2015 until May 2017; and Chief Operating Officer of Alcoa Investment Castings, Forgings and Extrusions from January 2013 until July 2015. Mr. Roegner joined the Company in Germany, from 2010 to 2016. Mr. Tragl served in a progression2006 as Chief Operating Officer of roles at Bosch Rexroth, joining the company in 2000 as head of the Automations Services business, and then advancing through the Electric Drives and Controls Business to assume responsibility for Factory Automation andArconic’s Global Sales for the entire company. Earlier in his career, he was managing director of the Siemens Standard Drives business and a partner in the Siemensin-houseEngineered Products business. Management Consulting Group.The Company’s executive officers are elected or appointed to serve until the next annual meeting of the Board of Directors (held in conjunction with the annual meeting of shareholders) except in the case of earlier death, retirement, resignation or removal.Item 1A.Risk Factors.Item 1A. Risk Factors.Arconic’s business, financial condition and results of operations may be impacted by a number of factors. In addition to the factors discussed elsewhere in this report, the following risks and uncertainties could materially harm its business, financial condition or results of operations, including causing Arconic’s actual results to differ materially from those projected in any forward-looking statements. The following list of significant risk factors is notall-inclusive or necessarily in order of importance. Additional risks and uncertainties not presently known to Arconic or that Arconic currently deems immaterial also may materially adversely affect the Company in future periods.The markets for Arconic’s products are highly cyclical and are influenced by a number of factors, including global economic conditions.Arconic is subject to cyclical fluctuations in global economic conditions and lightweight metalsend-use markets. Arconic sells many products to industries that are cyclical, such as the aerospace, automotive, and commercial constructiontransportation and transportationconstruction industries, and the demand for its products is sensitive to, and quickly impacted by, demand for the finished goods manufactured by its customers in these industries, which may change as a result of changes in regional or worldwide economies, currency exchange rates, energy prices or other factors beyond its control.In particular, Arconic derives a significant portion of its revenue from products sold to the aerospace industry, which can be highly cyclical and reflective of changes in the general economy. The commercial aerospace industry is historically driven by the demand from commercial airlines for new aircraft. The U.S. and international commercial aviation industries may face challenges arising from competitive pressures and fuel costs. Demand for commercial aircraft is influenced by airline industry profitability, trends in airline passenger traffic, the state of U.S., regional and world economies, the ability of aircraft purchasers to obtain required financing and numerous other factors including the effects of terrorism, health and safety concerns, environmental constraints imposed upon aircraft operators, the retirement of older aircraft, andtechnological improvements to new engines. The military aerospace cycle is highly dependent on U.S. and foreign government funding; however, it is also driven by the effects of terrorism, a changing global political environment, U.S. foreign policy, the retirement of older aircraft, and technological improvements to new engines.Further, the demand for Arconic’s automotive and ground transportation products is driven by the number of vehicles produced by automotive manufacturers and Arconic content per vehicle. The automotive industry is sensitive to general economic conditions, including credit markets and interest rates, and consumer spending and preferences regarding vehicle ownership and usage, vehicle size, configuration and features. Automotive sales and production can also be affected by other factors including the age of the vehicle fleet and related scrappage rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements and levels of competition.While Arconic believes that the long-term prospects for its products are positive, the Company is unable to predict the future course of industry variables, the strength of the U.S., regional or global economies, or the effects of government intervention. Negative economic conditions, such as a major economic downturn, a prolonged recovery period, or disruptions in the financial markets, could have a material adverse effect on Arconic’s business, financial condition or results of operations.Arconic faces significant competition, which may have an adverse effect on profitability.As discussed in Part I, Item 1. (Business-Competitive Conditions) of this report, the markets for Arconic’s products are highly competitive. Arconic’s competitors include a variety of both U.S. and non-U.S. companies in all major markets. New product offerings or new technologies in the marketplace may compete with or replace Arconic products. The willingness of customers to accept substitutes for the products sold by Arconic, the ability of large customers to exert leverage in the marketplace to affect the pricing for Arconic’s products, and technological advancements or other developments by or affecting Arconic’s competitors or customers could adversely affect Arconic’s business, couldfinancial condition or results of operations.Arconic may be adversely affected by increasesunable to develop innovative new products or implement technology initiatives successfully.Arconic’s competitive position and future performance depends, in part, on the cost of aluminum.Arconic derivesCompany’s ability to:identify and evolve with emerging technological and broader industry trends in Arconic’s target end-markets;identify and successfully execute on a significant portionstrategy to remain an essential and sustainable element of its revenue from aluminum-based products. The pricecustomer’s supply chain;fund, develop, manufacture and bring innovative new products and services to market quickly and cost-effectively;monitor disruptive technologies and understand customers’ and competitors’ abilities to deploy those disruptive technologies; andachieve sufficient return on investment for new products based on capital expenditures and research and development spending.Arconic is working on new developments for a number of primary aluminum has historically been subjectstrategic projects in all business segments, including additive manufacturing, alloy development, engineered finishes and product design, high speed continuous casting and rolling technology, and other advanced manufacturing technologies. For more information on Arconic’s research and development programs, see “Research and Development” in Part I, Item 1. (Business) of this report.While Arconic intends to significant cyclical price fluctuationscontinue committing substantial financial resources and the timing of changes in the market price of aluminum is largely unpredictable. Although the Company’s pricing of products is generally intended to pass the risk of metal price fluctuations oneffort to the Company’s customers,development of innovative new products and services, it may not be able to successfully differentiate its products or services from those of its competitors or match the level of research and development spending of its competitors, including those developing technology to displace Arconic’s current products. In addition, Arconic may not be able to pass on the entire cost of increasesadapt to its customersevolving markets and theretechnologies or achieve and maintain technological advantages. There can be a potential time lag on certain products between increases in costs for aluminum and the point when the Company can implement a corresponding increase in price to its customers. As a result, Arconic may be exposed to such price fluctuations during the time lag. If this occurs, it could have a material adverse effect on Arconic’s financial position, results of operations and cash flows.Arconic’s customers may reduce their demand for aluminum products in favor of alternative materials.Certain applicationsno assurance that any of Arconic’s aluminum-basednew products compete with products made from other materials, such as steel, titanium and composites. The willingness of customersor services, development programs or technologies will be commercially feasible or beneficial to pursue materials other than aluminum depends upon the desire to achieve specific attributes. For example, the commercial aerospace industry has used and continues to evaluate the further use of alternative materials to aluminum, such as titanium and composites, in order to reduce the weight and increase the fuel efficiency of aircraft. Additionally, the automotive industry, while motivated to reduce vehicle weight through the use of aluminum, may revert to steel or other materials for certain applications. Further, the decision to use aluminum may be impacted by aluminum prices. The willingness of customers to accept other materials in lieu of aluminum could adversely affect the demand for certain of Arconic’s products, and thus adversely affect Arconic’s financial position, results of operations and cash flows.Arconic’s profitabilityArconic.Arconic could be adversely affected by volatility in the availability or cost of raw materials.Arconic’s results of operations may be affected by changes in the availabilitybusiness or costfinancial condition or the loss of raw materials, as well as freight costs associateda significant customer or customers.A significant downturn or deterioration in the business or financial condition or loss of a key customer or customers supplied by Arconic could affect Arconic’s financial results in a particular period. Arconic’s customers may experience delays in the launch of new products, labor strikes, diminished liquidity or credit unavailability, weak demand for their products, or otherdifficulties in their businesses. Arconic’s customers may also change their business strategies or modify their business relationships with transportation of raw materials. The availability and costs of certain raw materials necessary forArconic, including to reduce the productionamount of Arconic’s products they purchase or to switch to alternative suppliers. If Arconic is unsuccessful in replacing business lost from such customers, profitability may be influenced by private or government cartels, changes in world politics or regulatory requirements, labor relations between the producers and their work forces, unstable governments in exporting nations, export quotas, new or increased import duties, market forces of supply and demand, and inflation. In addition, from time to time, commodity prices may fall rapidly. When this happens, suppliers may withdraw capacity from the market until prices improve, which may cause periodic supply interruptions. Arconic may not be able to fully offset the effects of raw material shortages or higher costs through price increases, productivity improvements or cost reduction programs. Shortages or price fluctuations in raw materials could have a material adverse effect on Arconic’s operating results.Arconic could encounter manufacturing difficulties or other issues that impact product performance, quality or safety, which could affect Arconic’s reputation, business and financial statements.The manufacture of many of Arconic’s products is a highly exacting and complex process. Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols, specifications and procedures, including those related to quality or safety, problems with raw materials, supply chain interruptions, natural disasters, labor unrest and environmental factors. Such problems could have an adverse impact on the Company’s ability to fulfill orders or on product quality or performance. Product manufacturing or performance issues could result in recalls, customer penalties, contract cancellation and product liability exposure.exposure, including if any of our products are defective or are used in a manner that results in injuries or other damages. Because of approval and license requirements applicable to manufacturers and/or theirdemand.Arconic’s business depends, in part, on its ability to successfully meet increased program demand successfully and to mitigate the impact of program cancellations, reductions and delays.The success of Arconic’s aerospace business will depend, in part, on the success of commercial and military aircraft programs. Arconic is currently under contract to supply components for a number of new and existing commercial, general aviation and military aircraft programs and is the sole supplier of aluminum sheet for a number of aluminum-intensive automotive vehicle programs. Many of these programs are scheduled for production increases over the next several years. Arconic’s failureIf Arconic fails to successfully meet production levels or encounters difficulty or unexpected costs in meeting such levels, it could have a material adverse effect on the Company’s business.business, financial condition or results of operations. Similarly, program cancellations, reductions or delays could also have a material adverse effect on Arconic’s business.Arconic could be adversely affected by reductions in defense spending.Arconic’s products are used in a variety of military applications, including military aircraft and armored vehicles. Although many of the programs in which Arconic participates extend several years, they are subject to annual funding through congressional appropriations. Changes in military strategy and priorities, or reductions in defense spending, may affect current and future funding of these programs and could reduce the demand for Arconic’s products, which could adversely affect Arconic’s business, financial position,condition or results of operations and cash flows.Arconic’s global operations expose the Company to risks that could adversely affect Arconic’s business, financial condition, operating results of operations or cash flows.Arconic has operations or activities in numerous countries and regions outside the United States, including Europe, Brazil, Canada, China, Japan, and Russia. TheAs a result, the Company’s global operations are subject to a number of risks,affected by economic, political and other conditions in the foreign countries in which Arconic does business as well as U.S. laws regulating international trade, including:changes in trade and tax laws that may result in our customers being subjected to increased taxes, duties and tariffs and reduce their willingness to use our services in countries in which we are currently manufacturing their products;labor unrest, including strikes;compliance with antitrust and competition regulations;compliance with foreign labor laws, which generally provide for increased notice, severance and consultation requirements compared to U.S. laws;aggressive, selective or lax enforcement of laws and regulations by national governmental authorities;compliance with the Foreign Corrupt Practices Act (“FCPA”) and other anti-bribery and corruption laws;compliance with U.S. laws concerning trade, including the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”), and the sanctions, regulations and embargoes administered by the U.S. Department of Treasury’s Office of Foreign Asset Controls (“OFAC”);imposition of currency controls;adverse tax audit rulings; andunexpected events, including fires or explosions at facilities, and natural disasters.WhileAlthough the impacteffect of any of the foregoing factors is difficult to predict, any one or more of them could adversely affect Arconic’s business, financial condition, operatingor results or cash flows. Existingof operations. While Arconic believes it has adopted appropriate risk management, compliance programs and insurance arrangements to address and reduce the risks associated with these factors, such measures may not provide inadequate protection for theagainst costs or liabilities that may arise from such events.Arconic may face challenges to its intellectual property rights which could adversely affect the Company’s reputation, business and financialcompetitive position.Arconic owns important intellectual property, including patents, trademarks, copyrights and trade secrets. The Company’s intellectual property plays an important role in maintaining Arconic’s competitive position in a number of the markets that the Company serves. Arconic’s competitors may develop technologies that are similar or superior to Arconic’s proprietary technologies or design around the patents Arconic owns or licenses. The pursuit of remedies for any misappropriation of such intellectual property is expensive and the ultimate remedies may be deemed insufficient. Further, as the Company expands its operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk ofothers duplicating Arconic’s proprietary technologies misappropriation of Arconic intellectual property increases, despite efforts the Company undertakes to protect them. Developments or assertions by or against Arconic relating to intellectual property rights, and any inability to protect or enforce these rights sufficiently, could adversely affect Arconic’s business and competitive position.Arconic is exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation, and other economic factors in the countries in which it operates.Economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, competitive factors in the countries in which Arconic operates, and continued volatility or deterioration in the global economic and financial environment could affect Arconic’s revenues, expenses and results of operations. Changes in the valuation of the U.S. dollar against other currencies, including the British pound, Chinese yuan (renminbi), Euro and Russian ruble, may affect Arconic’s profitability as some important inputs are purchased in other currencies, while the Company’s products are generally sold in U.S. dollars.Arconic may not be ableunable to realize the expected benefits from its strategy of growing its precision engineeringacquisitions, divestitures, joint ventures and advanced manufacturing businesses.Arconic is continuing to execute on its strategy of growing its precision engineering and advanced manufacturing business to capture profitable growth as a lightweight metals innovation leader. It is investing in its manufacturing and engineering businesses to capture growth opportunities in strong end markets like automotive and aerospace. Arconic is building out its businesses, including by introducing innovative new products and technology solutions, and investing in expansions of capacity. Arconic’s recent organic growth projects include the automotive expansions in Davenport, Iowa and Alcoa, Tennessee; the aluminum lithium capacity expansion in Lafayette, Indiana, at the Arconic Technology Center in Pennsylvania and at the Kitts Green plant in the United Kingdom; and the expansion in aerospace capabilities in La Porte, Indiana, Hampton, Virginia and Davenport, Iowa. From time to time, Arconic also pursues growth opportunities that are strategically aligned with its objectives, such as the acquisition of the Firth Rixson business (completed in November 2014), the acquisition of TITAL (completed in March 2015) and the acquisition of RTI International Metals (completed in July 2015). In addition, Arconic is optimizing its rolling mill portfolio as part of its strategy for profitable growth.Arconic has made, and may continue to plan and execute, acquisitions and divestitures and take other actions to grow its business or streamline its portfolio. Although management believes that its strategic actions are beneficial to Arconic, there is no assurance that anticipated benefits will be realized. Adverse factors may prevent Arconic from realizing the benefits of its growth projects, including unfavorable global economic conditions, currency fluctuations, or unexpected delays in target timelines. Acquisitions present significant challenges and risks, including the effective integration of the business into the Company, unanticipated costs and liabilities, and the ability to realize anticipated benefits, such as growth in market share, revenue or margins, at the levels or in the timeframe expected. The Company may be unable to manage acquisitions successfully.With respect to portfolio optimization actions such as divestitures, curtailments and closures, Arconic may face barriers to exit from unprofitable businesses or operations, including high exit costs or objections from various stakeholders. In addition, Arconic may retain unforeseen liabilities for divested entities if a buyer fails to honor all commitments. Arconic’s business operations are capital intensive, and curtailment or closure of operations or facilities may include significant charges, including employee separation costs, asset impairment charges and other measures.In addition, Arconic has participated in, and may continue to participate in, joint ventures, strategic alliances and other similar arrangements from time to time. Although the Company has, in connection with past and existing joint ventures, sought to protect its interests, joint ventures and strategic alliances inherently involve special risks. Whether or not Arconic holds majority interests or maintains operational control in such arrangements, its partners may:have economic or business interests or goals that are inconsistent with or opposed to those of the Company;exercise veto rights to block actions that Arconic believes to be in its or the joint venture’s or strategic alliance’s best interests;take action contrary to Arconic’s policies or objectives with respect to investments; oras a result of financial or other difficulties, be unable or unwilling to fulfill their obligations under the joint venture, strategic alliance or other agreements, such as contributing capital to expansion or maintenance projects.There can be no assurance that acquisitions, growth investments, divestitures, closures, joint ventures, strategic alliances or closuressimilar arrangements will be undertaken or completed in their entirety as planned or that they will be beneficial to Arconic.Arconic may not be ableunable to successfully realize future targets or goals established for its business segments, at the levels or by the dates targeted.From time to time, Arconic may announce future targets or goals for its business, which are based on the Company’s then current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which Arconic operates. Future targets and goals reflect the Company’s beliefs and assumptions and its perceptionArconic faces significant competition, which may have an adverse effect on profitability.As discussed in Part I, Item 1. (Business—Competitive Conditions) of this report, the markets for Arconic’s products are highly competitive. Arconic’s competitors include a variety of both U.S. andnon-U.S. companies in all major markets. New product offerings or new technologies in the marketplace may compete with or replace Arconic products. The willingness of customers to accept substitutes for the products sold by Arconic, the ability of large customers to exert leverage in the marketplace to affect the pricing for Arconic’s products, and technological advancements or other developments by or affecting Arconic’s competitors or customers could affect Arconic’s results of operations. In addition, Arconic’s competitive position depends, in part, on the Company’s ability to leverage its innovation expertise across its businesses and key end markets.A downgrade of Arconic’s credit ratings could limit Arconic’s ability to obtain future financing, increase its borrowing costs, increase the pricing of its credit facilities, adversely affect the market price of its securities, trigger letter of credit or other collateral postings, or otherwise impair its business, financial condition, and results of operations.Arconic’s credit ratings are important to the Company’s cost of capital. The major rating agencies routinely evaluate Arconic’s credit profile and assign debt ratings to the Company. This evaluation is based on a number of factors, which include financial strength, business and financial risk, as well as transparency with rating agencies and timeliness of financial reporting. Standard and Poor’s Ratings Services (S&P) currently rates Arconic’s long-term debt atBBB-, the lowest level of investment grade rating, with a stable ratings outlook, and its short-term debt atA-3 (ratings and outlook were affirmed on April 29, 2016 and September 19, 2016). On November 1, 2016, Moody’s Investor Service (Moody’s) downgraded Arconic’s long-term debt rating from Ba1, which is below investment grade, to Ba2 and its short-term debt rating from Speculative Grade LiquidityRating-1 to Speculative GradeLiquidity-2, based upon the completion of the Separation. Additionally, Moody’s changed the outlook from negative to stable. On April 21, 2016, Fitch affirmed Arconic’s long-term debt rating at BB+, which is below investment grade, and short-term debt at B. Additionally, Fitch changed the current outlook from positive to evolving. On July 7, 2016, Fitch changed the current outlook from evolving to stable based on the filing of a Form 10 registration statement related to the planned separation of Alcoa Corporation from Arconic.There can be no assurance that one or more of these or other rating agencies will not take negative actions with respect to Arconic’s ratings. Increased debt levels, macroeconomic conditions, a deterioration in the Company’s debt protection metrics, a contraction in the Company’s liquidity, or other factors could potentially trigger such actions. A rating agency may lower, suspend or withdraw entirely a rating or place it on negative outlook or watch if, in that rating agency’s judgment, circumstances so warrant.A downgrade of Arconic’s credit ratings by one or more rating agencies could adversely impact the market price of Arconic’s securities; adversely affect existing financing (for example, a downgrade by Standard and Poor’s or a further downgrade by Moody’s would subject Arconic to higher costs under Arconic’s Five-Year Revolving Credit Agreement and certain of its other revolving credit facilities); limit access to the capital (including commercial paper) or credit markets or otherwise adversely affect the availability of other new financing on favorable terms, if at all; result in more restrictive covenants in agreements governing the terms of any future indebtedness that the Company incurs; increase the cost of borrowing or fees on undrawn credit facilities; result in vendors or counterparties seeking collateral or letters of credit from Arconic; or otherwise impair Arconic’s business, financial condition and results of operations.Joint ventures and other strategic alliances may not be successful.Arconic may participate in joint ventures, strategic alliance and other similar arrangements from time to time. Although the Company has, in connection with its existing joint venture, sought to protect its interests, joint ventures and strategic alliances inherently involve special risks. Whether or not Arconic holds majority interests or maintains operational control in such arrangements, its partners may:have economic or business interests or goals that are inconsistent with or opposed to those of the Company;exercise veto rights so as to block actions that Arconic believes to be in its or the joint venture’s or strategic alliance’s best interests;take action contrary to Arconic’s policies or objectives with respect to its investments; oras a result of financial or other difficulties, be unable or unwilling to fulfill their obligations under the joint venture, strategic alliance or other agreements, such as contributing capital to expansion or maintenance projects.There can be no assurance that any Arconic joint venture or strategic alliance will be beneficial to the Company, whether due to the above-described risks, unfavorable global economic conditions, increases in construction costs, currency fluctuations, political risks, or other factors.Arconic’s business and growth prospects may be negatively impacted by limits in its capital expenditures.Arconic requires substantial capital to invest in growth opportunities and to maintain and prolong the life and capacity of its existing facilities. Insufficient cash generation or capital project overruns may negatively impact Arconic’s ability to fund as planned its sustaining and return-seeking capital projects. Over the long term, Arconic’s ability to take advantage of improved market conditions or growth opportunities in its businesses may be constrained by earlier capital expenditure restrictions, which could adversely affect the long-term value of its business and the Company’s position in relation to its competitors.An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and other factors could affect Arconic’s results of operations or amount of pension funding contributions in future periods.Arconic’s results of operations may be negatively affected by the amount of expense Arconic records for its pension and other postretirement benefit plans, reductions in the fair value of plan assets and other factors. Arconic calculates income or expense for its plans using actuarial valuations in accordance with accounting principles generally accepted in the United States of America (GAAP).These valuations reflect assumptions about financial market and other economic conditions, which may change based on changes in key economic indicators. The most significantyear-end assumptions used by Arconic to estimate pension or other postretirement benefit income or expense for the following year are the discount rate applied to plan liabilities and the expected long-term rate of return on plan assets. In addition, Arconic is required to make an annual measurement of plan assets and liabilities, which may result in a significant charge to shareholders’ equity. For a discussion regarding how Arconic’s financial statements can be affected by pension and other postretirement benefits accounting policies, see “Critical Accounting Policies and Estimates—Pension and Other Postretirement Benefits” in Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note U to the Consolidated Financial Statements—Pension and Other Postretirement Benefits in Part II, Item 8. (Financial Statements and Supplementary Data). Although GAAP expense and pension funding contributions are impacted by different regulations and requirements, the key economic factors that affect GAAP expense would also likely affect the amount of cash or securities Arconic would contribute to the pension plans.Potential pension contributions include both mandatory amounts required under federal law and discretionary contributions to improve the plans’ funded status. The Moving Ahead for Progress in the 21st Century Act(“MAP- 21”), enacted in 2012, provided temporary relief for employers like Arconic who sponsor defined benefit pension plans
related to funding contributions under the Employee Retirement Income Security Act of 1974 by allowing the use of a25-year average discount rate within an upper and lower range for purposes of determining minimum funding obligations. In 2014, the Highway and Transportation Funding Act (HATFA) was signed into law. HATFA extended the relief provided byMAP-21 and modified the interest rates that had been set byMAP-21. In 2015, the Bipartisan Budget Act of 2015 (BBA 2015) was signed into law. BBA 2015 extends the relief period provided by HAFTA. Arconic believes that the relief provided by BBA 2015 will moderately reduce the cash flow sensitivity of the Company’s U.S. pension plans’ funded status to potential declines in discount rates over the next several years. However, higher than expected pension contributions due to a decline in the plans’ funded status as a result of declines in the discount rate or lower-than-expected investment returns on plan assets could have a material negative effect on the Company’s cash flows. Adverse capital market conditions could result in reductions in the fair value of plan assets and increase the Company’s liabilities related to such plans, which could adversely affect Arconic’s liquidity and results of operations.
Unanticipated changes in Arconic’s tax provisions or exposure to additional tax liabilities could affect Arconic’s future profitability.
Arconic is subject to income taxes in both the United States and variousnon-U.S. jurisdictions. Its domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. Changes in applicable domestic or foreign tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect the Company’s tax expense and profitability. Arconic’s tax expense includes estimates of additional tax that may be incurred for tax exposures and reflects various estimates and assumptions. The assumptions include assessments of future earnings of the Company that could impact the valuation of its deferred tax assets. The Company’s future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation and rates, changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, the results of tax audits and examinations of previously filed tax returns or related litigation and continuing assessments of its tax exposures. Corporate tax reform and tax law changes continue to be analyzed in the United States and in many other jurisdictions. Significant changes to the U.S. corporate tax system in particular could have a substantial impact, positive or negative, on Arconic’s effective tax rate, cash tax expenditures, and deferred tax assets and liabilities.
Union disputes and other employee relations issues could adversely affect Arconic’s financial results.
A significant portion of Arconic’s employees are represented by labor unions in a number of countries under various collective bargaining agreements with varying durations and expiration dates. For more information, see “Employees” in Part I, Item 1. (Business) of this report. While Arconic was previously successful in renegotiating its collective bargaining agreements with various unions, Arconic may not be able to satisfactorily renegotiate collective bargaining agreements in the United States and other countries when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at Arconic’s facilities in the future. Arconic may also be subject to general country strikes or work stoppages unrelated to its business or collective bargaining agreements. Any such work stoppages (or potential work stoppages) could have a material adverse effect on Arconic’s financial results.
Arconic could be adversely affected by changes in the business or financial condition or the loss of a significant customer or customers.
A significant downturn or deterioration in the business or financial condition or loss of a key customer or customers supplied by Arconic could affect Arconic’s results of operations in a particular period. Arconic’s customers may experience delays in the launch of new products, labor strikes, diminished liquidity or credit unavailability, weak demand for their products, or other difficulties in their businesses. Arconic’s customers may also change their business strategies or modify their business relationships with Arconic, including to reduce the amount of Arconic’s products they purchase or to switch to alternative suppliers. If Arconic is not successful in replacing business lost from such customers, profitability may be adversely affected.
Arconic may not be able to successfully develop and implement technology initiatives.
Arconic is working on new developments for a number of strategic projects in all business segments, including additive manufacturing, alloy development, engineered finishes and product design, high speed continuous casting and rolling technology, and other advanced manufacturing technologies. For more information on Arconic’s research and development programs, see “Research and Development” in Part I, Item 1. (Business) of this report. There can be no assurance that such developments or technologies will be commercially feasible or beneficial to Arconic.
Arconic’s human resource talent pool may not be adequate to support the Company’s growth.
Arconic’s existing operations and development projects require highly skilled executives and staff with relevant industry and technical experience. The inability of the Company or the industry to attract and retain such people may adversely impact Arconic’s ability to adequately meet project demands and fill roles in existing operations. Skills shortages in engineering, technical service, construction and maintenance contractors and other labor market inadequacies may also impact activities. These shortages may adversely impact the cost and schedule of development projects and the cost and efficiency of existing operations.
Arconic may not realize expected benefits from its productivity and cost-reduction initiatives.
Arconic has undertaken, and may continue to undertake, productivity and cost-reduction initiatives to improve performance and conserve cash, including deployment of company-wide business process models, such as Arconic’s degrees of implementation process in which ideas are executed in a disciplined manner to generate savings, and overhead cost reductions. There is no assurance that these initiatives will be successful or beneficial to Arconic or that estimated cost savings from such activities will be realized.
Arconic may be exposed to significant legal proceedings, investigations or changes in U.S. federal, state or foreign law, regulation or policy.
Arconic’s results of operations or liquidity in a particular period could be affected by new or increasingly stringent laws, regulatory requirements or interpretations, or outcomes of significant legal proceedings or investigations adverse to Arconic. The Company may experience a change in effective tax rates or become subject to unexpected or rising costs associated with business operations or provision of health or welfare benefits to employees due to changes in laws, regulations or policies. The Company is also subject to a variety of legal compliance risks. These risks include, among other things, potential claims relating to product liability, health and safety, environmental matters, intellectual property rights, government contracts, taxes, and compliance with U.S. and foreign export laws, anti-bribery laws, competition laws and sales and trading practices. Arconic could be subject to fines, penalties, damages (in certain cases, treble damages), or suspension or debarment from government contracts.
While Arconic believes it has adopted appropriate risk management and compliance programs to address and reduce these risks, the global and diverse nature of its operations means that these risks will continue to exist, and additional legal proceedings and contingencies may arise from time to time. In addition, various factors or developments can lead the Company to change current estimates of liabilities or make such estimates for matters previously not susceptible of reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments or changes in applicable law. A future adverse ruling or settlement or unfavorable changes in laws, regulations or policies, or other contingencies that the Company cannot predict with certainty could have a material adverse effect on the Company’s results of operations or cash flows in a particular period. For additional information regarding the legal proceedings involving the Company, see the discussion in Part I, Item 3. (Legal Proceedings) of this report and in Note L to the Consolidated Financial Statements in Part II, Item 8. (Financial Statements and Supplementary Data).
Arconic is subject to a broad range of health, safety and environmental laws and regulations in the jurisdictions in which it operates and may be exposed to substantial costs and liabilities associated with such laws and regulations.
Arconic’s operations worldwide are subject to numerous complex and increasingly stringent health, safety and environmental laws and regulations. The costs of complying with such laws and regulations, including participation in assessments and cleanups of sites, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future. Environmental laws may impose cleanup liability on owners and occupiers of contaminated property, including past or divested properties, regardless of whether the owners and occupiers caused the contamination or whether the activity that caused the contamination was lawful at the time it was conducted. Environmental matters for which Arconic may be liable may arise in the future at its present sites, where no problem is currently known, at previously owned sites, sites previously operated by the Company, sites owned by its predecessors or sites that it may acquire in the future. Compliance with environmental, health and safety legislation and regulatory requirements may prove to be more limiting and costly than the Company anticipates. Arconic’s results of operations or liquidity in a particular period could be affected by certain health, safety or environmental matters, including remediation costs and damages related to certain sites. Additionally, evolving regulatory standards and expectations can result in increased litigation and/or increased costs, all of which can have a material and adverse effect on earnings and cash flows.
Arconic may be affected by global climate change or by legal, regulatory, or market responses to such change.
Increased concern over climate change has led to new and proposed legislative and regulatory initiatives, such ascap-and-trade systems and additional limits on emissions of greenhouse gases. New laws enacted could directly and indirectly affect Arconic’s customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) or business (through an impact on Arconic’s inventory availability, cost of sales, operations or demand for Arconic products), which could result in an adverse effect on our financial condition, results of operations and cash flows. Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by the Company or its customers or suppliers. Also, Arconic relies on natural gas, electricity, fuel oil and transport fuel to operate its facilities. Any increased costs of these energy sources because of new laws could be passed along to the Company and its customers and suppliers, which could also have a negative impact on Arconic’s profitability.
Cyber attacks and security breaches may threaten the integrity of Arconic’s intellectual property and other sensitive information, disrupt its business operations, and result in reputational harm and other negative consequences that could have a material adverse effect on its financial condition and results of operations.
remediation costs, any of which could have a material adverse effect on its financial condition and results of operations. In addition, such attacks or breaches could require significant management attention and resources, and result in the diminution of the value of the Company’s investment in research and development.
Arconic may not achieve some or all of the expected benefits of the Separation, and failure to realize such benefits in a timely manner may materially adversely affect Arconic’s business.
Arconic may not be able to achieve the full strategic and financial benefits expected to result from the Separation, or such benefits may be delayed or not occur at all. The Separation is expected to provide the following benefits, among others: (i) enabling the management of each company to more effectively pursue its own distinct operating priorities and strategies, to focus on strengthening its core business and its unique needs, and to pursue distinct and targeted opportunities for long-term growth and profitability; (ii) permitting each company to allocate its financial resources to meet the unique needs of its own business, allowing each company to intensify its focus on its distinct strategic priorities and to more effectively pursue its own distinct capital structures and capital allocation strategies; (iii) allowing each company to more effectively articulate a clear investment thesis to attract a long-term investor base suited to its business and providing investors with two distinct and targeted investment opportunities; (iv) creating an independent equity currency tracking each company’s underlying business, affording Arconic and Alcoa Corporation direct access to the capital markets and facilitating each company’s ability to consummate future acquisitions or other restructuring transactions utilizing its common stock; (v) allowing each company more consistent application of incentive structures and targets, due to the common nature of the underlying businesses; and (vi) separating and simplifying the structures required to manage two distinct and differing underlying businesses.
Arconic may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (i) Arconic may be more susceptible to market fluctuations and other adverse events than if Alcoa Corporation were still a part of the Company because Arconic’s business is less diversified than it was prior to the completion of the Separation; and (ii) as a smaller, independent company, Arconic may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those it obtained prior to completion of the Separation. If Arconic
fails to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, it could have a material adverse effect on Arconic’s competitive position, business, financial condition, results of operations and cash flows.
Alcoa Corporation may fail to perform under various transaction agreements that were executed as part of the Separation.
In connection with the Separation, Arconic and Alcoa Corporation entered into a Separation and Distribution Agreement and also entered into various other agreements, including a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement, a Stockholder and Registration Rights Agreement with respect to Arconic’s continuing ownership of Alcoa Corporation common stock, intellectual property license agreements, a metal supply agreement, real estate and office leases, a spare parts loan agreement and an agreement relating to the North American packaging business. The Separation and Distribution Agreement, the Tax Matters Agreement and the Employee Matters Agreement, together with the documents and agreements by which the internal reorganization of the Company prior to the Separation was effected, determined the allocation of assets and liabilities between the companies following the Separation for those respective areas and included any necessary indemnifications related to liabilities and obligations. The Separation and Distribution Agreement also provides that Alcoa Corporation will pay over to Arconic the proceeds in respect of the sale of Alcoa Corporation’s Yadkin hydroelectric project. The Transition Services Agreement provides for the performance of certain services by each company for the benefit of the other for a period of time after the Separation. Arconic will rely on Alcoa Corporation to satisfy its performance and payment obligations under these agreements. If Alcoa Corporation is unable or unwilling to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties and/or losses.
In connection with the Separation, Alcoa Corporation has agreed to indemnify Arconic for certain liabilities and Arconic has agreed to indemnify Alcoa Corporation for certain liabilities. If Arconic is required to pay under these indemnities to Alcoa Corporation, Arconic’s financial results could be negatively impacted. The Alcoa Corporation indemnity may not be sufficient to hold Arconic harmless from the full amount of liabilities for which Alcoa Corporation will be allocated responsibility, and Alcoa Corporation may not be able to satisfy its indemnification obligations in the future.
Pursuant to the Separation and Distribution Agreement and certain other agreements with Alcoa Corporation, Alcoa Corporation has agreed to indemnify Arconic for certain liabilities, and Arconic has agreed to indemnify Alcoa Corporation for certain liabilities, in each case for uncapped amounts. Indemnities that Arconic may be required to provide Alcoa Corporation are not subject to any cap, may be significant and could negatively impact Arconic’s business. Third parties could also seek to hold Arconic responsible for any of the liabilities that Alcoa Corporation has agreed to retain. Any amounts Arconic is required to pay pursuant to these indemnification obligations and other liabilities could require Arconic to divert cash that would otherwise have been used in furtherance of the Company’s operating business. Further, the indemnity from Alcoa Corporation may not be sufficient to protect Arconic against the full amount of such liabilities, and Alcoa Corporation may not be able to fully satisfy its indemnification obligations. Moreover, even if Arconic ultimately succeeds in recovering from Alcoa Corporation any amounts for which Arconic is held liable, Arconic may be temporarily required to bear such losses. Each of these risks could negatively affect Arconic’s business, results of operations and financial condition.
The Separation could result in substantial tax liability.
It was a condition to the Distribution that (i) the private letter ruling from the Internal Revenue Service (the “IRS”) regarding certain U.S. federal income tax matters relating to the Separation and the Distribution received by Arconic remain valid and be satisfactory to Arconic’s Board of Directors and (ii) Arconic receive an opinion of its outside counsel, satisfactory to the Board of Directors, regarding the qualification of the Distribution, together with certain related transactions, as a transaction that is generallytax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”). Both of these conditions were
satisfied prior to the Distribution. However, the IRS private letter ruling and the opinion of counsel were based upon and relied on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of Arconic and Alcoa Corporation, including those relating to the past and future conduct of Arconic and Alcoa Corporation. If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if Arconic or Alcoa Corporation breaches any of its representations or covenants contained in any of the Separation–related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion of counsel, the IRS private letter ruling and/or the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding Arconic’s receipt of the IRS private letter ruling and the opinion of counsel, the IRS could determine that the Distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the IRS private letter ruling or the opinion of counsel was based are false or have been violated. In addition, the IRS private letter ruling does not address all of the issues that are relevant to determining whether the Distribution, together with certain related transactions, qualifies as a transaction that is generallytax-free for U.S. federal income tax purposes, and the opinion of counsel represents the judgment of such counsel and is not binding on the IRS or any court and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt by Arconic of the IRS private letter ruling and the opinion of counsel, there can be no assurance that the IRS will not assert that the Distribution and/or certain related transactions do not qualify fortax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, Arconic, Alcoa Corporation and Arconic shareholders could be subject to significant U.S. federal income tax liability.
If the Distribution, together with certain related transactions, fails to qualify as a transaction that is generallytax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, Arconic would recognize taxable gain as if it had sold the Alcoa Corporation common stock in a taxable sale for its fair market value and Arconic shareholders who received Alcoa Corporation shares in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
Under current U.S. federal income tax law, even if the Distribution, together with certain related transactions, otherwise qualifies fortax-free treatment under Sections 355 and 368(a)(1)(D) of the Code, the Distribution may nevertheless be rendered taxable to Arconic and its shareholders as a result of certain post-Distribution transactions, including certain acquisitions of shares or assets of Arconic or Alcoa Corporation. The possibility of rendering the Distribution taxable as a result of such transactions may limit Arconic’s ability to pursue certain equity issuances, strategic transactions or other transactions that would otherwise maximize the value of Arconic’s business. Under the Tax Matters Agreement that Arconic entered into with Alcoa Corporation, Alcoa Corporation may be required to indemnify Arconic against any additional taxes and related amounts resulting from (i) an acquisition of all or a portion of the equity securities or assets of Alcoa Corporation, whether by merger or otherwise (and regardless of whether Alcoa Corporation participated in or otherwise facilitated the acquisition), (ii) issuing equity securities beyond certain thresholds, (iii) repurchasing shares of Alcoa Corporation stock other than in certain open-market transactions, (iv) ceasing to actively conduct certain of its businesses, (v) other actions or failures to act by Alcoa Corporation or (vi) any of Alcoa Corporation’s representations, covenants or undertakings contained in any of the Separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion of counsel being incorrect or violated. However, the indemnity from Alcoa Corporation may not be sufficient to protect Arconic against the full amount of such additional taxes or related liabilities, and Alcoa Corporation may not be able to fully satisfy its indemnification obligations. Moreover, even if Arconic ultimately succeeds in recovering from Alcoa Corporation any amounts for which Arconic is held liable, Arconic may be temporarily required to bear such losses. In addition, Arconic and Arconic’s subsidiaries may incur certain tax costs in connection with the Separation, including tax costs resulting from separations innon-U.S. jurisdictions, which may be material. Each of these risks could negatively affect Arconic’s business, results of operations and financial condition.
The value of Arconic’s retained interest in Alcoa Corporation is subject to certain risks and uncertainties which could make it difficult to liquidate some or all of Arconic’s retained interest at favorable market prices.
In the Separation, Arconic retained a passive ownership interest in approximately 19.9 percent of Alcoa Corporation common stock then outstanding. As of the date of this report, Arconic owned approximately 7.0 percent of Alcoa Corporation common stock then outstanding after giving effect to a retained shares transaction.
As with any investment in a publicly traded company, Arconic’s investment in Alcoa Corporation shares is subject to risks and uncertainties relating to Alcoa Corporation’s business and ownership of Alcoa Corporation stock, some of which are disclosed in Alcoa Corporation’s filings with the SEC, as well as risks and uncertainties relating to fluctuations in the global economy and public equity markets generally.
Any such risk or uncertainty may cause the share price of Alcoa Corporation common stock to fall, which could impair Arconic’s ability to sell its shares of Alcoa Corporation common stock in the future at a favorable market price or reduce the value of Arconic’s retained interest in Alcoa Corporation.
circumstances.
| Item 1B. | Unresolved Staff Comments. |
AND SOLUTIONS
page 84.
2013,motion from certain putative class members, the court issued its final Statementconsolidated Sullivan and Howard v. Arconic Inc. et al., another case pending in the Western District of Decision (“SOD”)Pennsylvania (described below), and appointed lead plaintiffs in favorthe consolidated case.
August 18, 2014, the OCWD appealed the dismissal of the statutory law claimsGrenfell Tower fire and common law claims (except for negligence). The appellate argument has not been scheduled, but is likely to occur by the first half of 2017 and could produce a decision during the second half of 2017.
Reynobond PE.
The combined assessments (remeasured for a tax rate change enacted in November 2014) total $258 million (€ 246 million). On January 16, 2017, Spain’s National Court issued a decision in favor of the Company related to the assessment received in September 2010. It is not yet known if Spain’s tax authorities will appeal this decision. Spain’s National Court has not yet rendered a decision related to the assessment received in July 2013.
The assessment for the 2006 through 2009 tax years is $155 million (€130 million), including interest.
Squaw Creek Mine Proceedings
As previously reported, in October 2006, in Barnett, et al. v. Alcoa and Alcoa Fuels, Inc., Warrick Circuit Court, County of Warrick, Indiana;87-C01-0601-PL-499, 41 plaintiffs sued Arconic Inc. and a subsidiary, asserting claims similar to those asserted in Musgrave v. Alcoa, et al., Warrick Circuit Court, County of Warrick, Indiana;87-
C01-0601-CT-006. In Musgrave, in January 2006, Arconic Inc. and a subsidiary were sued by an individual, on behalf of himself and all persons similarly situated, claiming harm from alleged exposure to waste that had been disposed in designated pits at the Squaw Creek Mine in the 1970s. In November 2007, Arconic and its subsidiary filed a motion to dismiss the Barnett cases. In October 2008, the Warrick County Circuit Court granted Arconic’s motions to dismiss, dismissing all claims arising out of alleged occupational exposure to wastes at the Squaw Creek Mine, but in November 2008, the trial court clarified its ruling, indicating that the order does not dispose of plaintiffs’ personal injury claims based upon alleged “recreational” ornon-occupational exposure. Plaintiffs also filed a “second amended complaint” in response to the court’s orders granting Arconic’s motion to dismiss. On July 7, 2010, the court granted the parties’ joint motions for a general continuance of trial settings. Discovery in this matter remains stayed. The Company is unable to reasonably predict an outcome or to estimate a range of reasonably possible loss because plaintiffs have merely alleged that their medical condition is attributable to exposure to materials at the Squaw Creek Mine but no further information is available due to the discovery stay.
Red Dust Claims docket (Master Case No.: SX-15-CV-620)). These complaints include claims of about 1,260 individual plaintiffs. As a result of the devastation caused by two hurricanes, court operations were suspended until very recently. On December 11, 2017, the court issued a new scheduling order and further set a scheduling conference for January 18, 2018. At that conference, the court set the next status conference for late July 2018.
See disposition of retained shares in Note C to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
| 2016 | 2015 | |||||||||||||||||||||||
| Quarter | High | Low | Dividend | High | Low | Dividend | ||||||||||||||||||
First | $ | 30.66 | $ | 18.42 | $ | 0.09 | $ | 51.30 | $ | 37.95 | $ | 0.09 | ||||||||||||
Second | 34.50 | 26.34 | 0.09 | 42.87 | 33.45 | 0.09 | ||||||||||||||||||
Third | 32.91 | 27.09 | 0.09 | 33.69 | 23.91 | 0.09 | ||||||||||||||||||
Fourth (Separation occurred on November 1, 2016) | 32.10 | 16.75 | 0.09 | 33.54 | 23.43 | 0.09 | ||||||||||||||||||
Year | $ | 34.50 | $ | 16.75 | $ | 0.36 | $ | 51.30 | $ | 23.43 | $ | 0.36 | ||||||||||||
the Company’s post-Separation prices.
| 2017 | 2016 | |||||||||||||||||
| Quarter | High | Low | Dividend | High | Low | Dividend | ||||||||||||
| First | $ | 30.69 | $ | 18.64 | $ | 0.06 | $ | 30.66 | $ | 18.42 | $ | 0.09 | ||||||
| Second | 28.65 | 21.76 | 0.06 | 34.50 | 26.34 | 0.09 | ||||||||||||
| Third | 26.84 | 22.67 | 0.06 | 32.91 | 27.09 | 0.09 | ||||||||||||
| Fourth (Separation occurred on November 1, 2016) | 27.85 | 22.74 | 0.06 | 32.10 | 16.75 | 0.09 | ||||||||||||
| Year | $ | 30.69 | $ | 18.64 | $ | 0.24 | $ | 34.50 | $ | 16.75 | $ | 0.36 | ||||||
16, 2018.
Copyright© 2017
| As of December 31, | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||||
Arconic Inc. | $ | 100 | $ | 102 | $ | 126 | $ | 189 | $ | 119 | $ | 101 | ||||||||||||
S&P 500® Index | 100 | $ | 116 | $ | 154 | $ | 175 | $ | 177 | $ | 198 | |||||||||||||
S&P 500® Materials Index | 100 | $ | 115 | $ | 144 | $ | 154 | $ | 141 | $ | 165 | |||||||||||||
Copyright© 2017 Standard & Poor’s, a division of The McGraw-Hill Companies Inc. All rights reserved. Source: Research Data Group, Inc. (www.researchdatagroup.com/S&P.htm)
| As of December 31, | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||
| Arconic Inc. | $ | 100 | $ | 124.15 | $ | 186.02 | $ | 117.48 | $ | 99.40 | $ | 147.47 | ||||||
S&P 500® Index | 100 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 | ||||||||||||
S&P 500® Materials Index | 100 | 125.60 | 134.28 | 123.03 | 143.56 | 177.79 | ||||||||||||
| For the year ended December 31, | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||
Sales | $ | 12,394 | $ | 12,413 | $ | 12,542 | $ | 11,997 | $ | 10,640 | ||||||||||
Amounts attributable to Arconic: | ||||||||||||||||||||
(Loss) income from continuing operations(1) | $ | (1,062 | ) | $ | (157 | ) | $ | (61 | ) | $ | (63 | ) | $ | 410 | ||||||
Income (loss) from discontinued operations(2) | 121 | (165 | ) | 329 | (2,222 | ) | (219 | ) | ||||||||||||
Net (loss) income | $ | (941 | ) | $ | (322 | ) | $ | 268 | $ | (2,285 | ) | $ | 191 | |||||||
Earnings per share attributable to Arconic common shareholders:(3) | ||||||||||||||||||||
Basic: | ||||||||||||||||||||
(Loss) income from continuing operations | $ | (2.58 | ) | $ | (0.54 | ) | $ | (0.21 | ) | $ | (0.18 | ) | $ | 1.15 | ||||||
Income (loss) from discontinued operations | 0.27 | (0.39 | ) | 0.85 | (6.23 | ) | (0.62 | ) | ||||||||||||
Net (loss) income | $ | (2.31 | ) | $ | (0.93 | ) | $ | 0.64 | $ | (6.41 | ) | $ | 0.53 | |||||||
Diluted: | ||||||||||||||||||||
(Loss) income from continuing operations | $ | (2.58 | ) | $ | (0.54 | ) | $ | (0.21 | ) | $ | (0.18 | ) | $ | 1.13 | ||||||
Income (loss) from discontinued operations | 0.27 | (0.39 | ) | 0.84 | (6.23 | ) | (0.60 | ) | ||||||||||||
Net (loss) income | $ | (2.31 | ) | $ | (0.93 | ) | $ | 0.63 | $ | (6.41 | ) | $ | 0.53 | |||||||
Cash dividends declared per common share(3) | $ | 0.36 | $ | 0.36 | $ | 0.36 | $ | 0.36 | $ | 0.36 | ||||||||||
Total assets(4) | 20,038 | 36,477 | 37,298 | 35,623 | 40,044 | |||||||||||||||
Total debt(4) | 8,084 | 8,827 | 8,445 | 7,826 | 8,237 | |||||||||||||||
Cash provided from operations(5) | 870 | 1,582 | 1,674 | 1,578 | 1,497 | |||||||||||||||
Capital expenditures: | ||||||||||||||||||||
Capital expenditures—continuing operations | 827 | 789 | 775 | 626 | (6 | ) | ||||||||||||||
Capital expenditures—discontinued operations | 298 | 391 | 444 | 567 | (6 | ) | ||||||||||||||
Total capital expenditures | $ | 1,125 | $ | 1,180 | $ | 1,219 | $ | 1,193 | $ | 1,261 | ||||||||||
| For the year ended December 31, | 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||
| Sales | $ | 12,960 | $ | 12,394 | $ | 12,413 | $ | 12,542 | $ | 11,997 | |||||
| Amounts attributable to Arconic: | |||||||||||||||
Loss from continuing operations(1) | $ | (74 | ) | $ | (1,062 | ) | $ | (157 | ) | $ | (61 | ) | $ | (63 | ) |
Income (loss) from discontinued operations(2) | — | 121 | (165 | ) | 329 | (2,222 | ) | ||||||||
| Net (loss) income | $ | (74 | ) | $ | (941 | ) | $ | (322 | ) | $ | 268 | $ | (2,285 | ) | |
(Loss) earnings per share attributable to Arconic common shareholders:(3) | |||||||||||||||
| Basic: | |||||||||||||||
| Loss from continuing operations | $ | (0.28 | ) | $ | (2.58 | ) | $ | (0.54 | ) | $ | (0.21 | ) | $ | (0.18 | ) |
| Income (loss) from discontinued operations | — | 0.27 | (0.39 | ) | 0.85 | (6.23 | ) | ||||||||
| Net (loss) income | $ | (0.28 | ) | $ | (2.31 | ) | $ | (0.93 | ) | $ | 0.64 | $ | (6.41 | ) | |
| Diluted: | |||||||||||||||
| Loss from continuing operations | $ | (0.28 | ) | $ | (2.58 | ) | $ | (0.54 | ) | $ | (0.21 | ) | $ | (0.18 | ) |
| Income (loss) from discontinued operations | — | 0.27 | (0.39 | ) | 0.84 | (6.23 | ) | ||||||||
| Net (loss) income | $ | (0.28 | ) | $ | (2.31 | ) | $ | (0.93 | ) | $ | 0.63 | $ | (6.41 | ) | |
Cash dividends declared per common share(3) | $ | 0.24 | $ | 0.36 | $ | 0.36 | $ | 0.36 | $ | 0.36 | |||||
| Total assets | 18,718 | 20,038 | 36,477 | 37,298 | 35,623 | ||||||||||
| Total debt | 6,844 | 8,084 | 8,827 | 8,445 | 7,826 | ||||||||||
Cash provided from operations(4) | 701 | 870 | 1,582 | 1,674 | 1,578 | ||||||||||
| Capital expenditures: | |||||||||||||||
| Capital expenditures—continuing operations | 596 | 827 | 789 | 775 | 626 | ||||||||||
| Capital expenditures—discontinued operations | — | 298 | 391 | 444 | 567 | ||||||||||
| Total capital expenditures | $ | 596 | $ | 1,125 | $ | 1,180 | $ | 1,219 | $ | 1,193 | |||||
(1) | Calculated from the accompanying Statement of Consolidated Operations as |
(2) | Calculated from the accompanying Statement of Consolidated Operations as Income (loss) from discontinued operations after income taxes less Net income |
(3) | Per share data for all periods presented has been retroactively restated to reflect the 1-for-3 reverse stock split which became effective on October 6, 2016 (see Note O to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K). |
(4) | Cash provided from operations has not been restated for discontinued operations presentation for 2016 and all prior periods presented (see Basis of Presentation section of Note A to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K). |
|
|
|
| • | Consolidated adjusted EBITDA of $1,761, an increase of 17% from 20161; |
For the reconciliation of Net loss attributable to Arconic to Consolidated adjusted EBITDA and related information, see page 45.
Review
Arconic’s 2016 results were negatively impacted by costs associated with the Separation Transaction as well as significant tax valuation allowance charges related to an assessment of the realizability of certain deferred tax assets including Alcoa Corporation’s net deferred tax assets and Arconic’s foreign tax credits in the U.S. Additionally, significant restructuring charges (see Restructuring and Other Charges under Results of Operations below) caused unfavorable impacts in the 2016 results.
Management continued its focus on liquidity and cash flows as well as improving its operating performance through cost reductions, margin enhancement, and profitable revenue generation. Management has also intensified its focus on capital efficiency, with an owner’s mindset. This focus and the related results enabled Arconic to end 2016 with a solid financial position.
The following financial information reflects certain key measures of Arconic’s 2016 results:
Sales of $12,394 and Loss from continuing operations of $1,062, or $2.58 per diluted share;
Total segment after-tax operating income of $1,087, an increase of 10% from 2015;
Cash from operations of $870 (includes Alcoa Corporation results of operations for the ten months ended October 31, 2016);
Capital expenditures of $1,125 (includes Alcoa Corporation capital expenditures for the ten months ended October 31, 2016);
Cash on hand at the end of the year of $1,863;
Total Debt of $8,084, a decrease in total debt of $743 from 2015; and
Depreciation and amortization of $535, an increase of 5% from 2015.
In 2017, management is projecting that sales will be stable to down 5% as the unfavorable impact from the North American packaging ramp-down (approximately $400 reduction in sales from $552 in 2016 to approximately $150 in 2017) will continue (see Restructuring and Other Charges under Results of Operations below). Each segment is anticipated to grow sales in 2017 excluding the impact of ramping down North American packagingTennessee in the Global Rolled Products segment. In aerospace, it is anticipated that the favorable impact of share gains on new platforms and engines will be somewhat offset by airframe destocking, supply chain risks, and engine ramp-up challenges that are expected to continue throughout 2017. Management also expects strong growth in automotive sheetsegment, as well as growthunfavorable product pricing in both the building and construction market. Finally, it is anticipated that the decline of North American heavy duty truck build rates will continue, although not quite at the same level as 2016; that the mining and oil and gas markets will not recover in 2017; and that pressures from market mix and competitive pricing will continue.
Looking ahead over the next year, management will continue to focus on improving operating performance through cost reductions, margin enhancement, and profitable revenue generation. Each of the segments are projected to achieve stable to improved operating margins through net productivity savings in 2017, including from procurement and overhead programs.
On a company-wide basis, management has established and is committed to achieving the following specific goals in 2017:
|
|
Spending no more than $650 on capital expenditures;
Reducing debt by $1,000; and
Generating cash from operations that will exceed capital expenditures by a minimum of $350.
|
|
Results of Operations
Earnings Summary
Loss from continuing operations after income taxes and noncontrolling interests was $1,062 for 2016, or $2.58 per diluted share, compared with a loss from continuing operations after income taxes and noncontrolling interests of $157 for 2015, or $0.54 per share. The decrease in results of $905 was primarily due to charges for tax valuation allowances and costs related to the Separation Transaction primarily offset by a full-year effect of 2015 acquisitions (see 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 Segment Information below) and productivity improvements across all segments.
Loss from continuing operations after income taxes and noncontrolling interests was $157 for 2015, or $0.54 per diluted share,connection with the Separation Transaction, Arconic provides can body stock to Alcoa Corporation using aluminum supplied by Alcoa Corporation, resulting in the absence of metal sales in 2017 compared with a loss from continuing operations after income taxes and noncontrolling interests of $61 for 2014, or $0.21 per share. The decrease in results of $96 was mostly due to unfavorable price and product mix across all segments, net unfavorable foreign currency movements, and higher costs. These negative impacts were partially offset by net productivity improvements, higher volume across all segments, and lower charges and expenses related to a number of portfolio actions (e.g., divestitures and acquisitions).
Sales—2016.
Sales for 2015 were $12,413 compared with sales of $12,542 in 2014, a decline of $129, or 1%. The decrease was primarily due to the absence of sales related to capacity that was closed or sold in the Global Rolled Products segment (see Global Rolled Products in Segment Information below), a lower average realized price for aluminum in the Global Rolled Products segment and unfavorable foreign currency movements across all segments. These negative impacts were partially offset by the addition of sales from three acquired businesses (see Engineered Products and Solutions in Segment Information below), higher volume across all segments, and favorable product mix in the Global Rolled Products segment.
COGS as a percentage of Sales was 81.4% in 2015 compared with 82.5% in 2014. The percentage was favorably impacted by net productivity improvements and higher volume across all segments and a favorable LIFO (last in, first out) adjustment due to lower prices for aluminum in the Global Rolled Products segment. These positive impacts were partially offset by unfavorable price and product mix across all segments and higher costs.
SG&A expenses were $765, or 6.2% of Sales, in 2015 compared with $770, or 6.1% of Sales, in 2014. The relatively flat expense was principally the result of favorable foreign currency movements due to a stronger U.S. dollar, the absence of SG&A related to closed and sold locations, and lower acquisition costs ($15), primarily offset by expenses for professional and consulting services related to the Separation Transaction ($24) and SG&A related to inorganic growth in the Engineered Products and Solutions segment.
The provision for D&A was $508 in 2015 compared with $436 in 2014. The increase of $72, or 16.5%, related primarily to new D&A ($93) associated with three acquisitions that occurred from November 2014 through July 2015 (see Engineered Products and Solutions in Segment Information below). This increase was partially offset by the absence of D&A related to the divestiture and/or permanent closure of six rolling mills (see Global Rolled Products in Segment Information below).
| 2016 | 2015 | 2014 | ||||||||||
Asset impairments | $ | 80 | $ | - | $ | 65 | ||||||
Layoff costs | 70 | 97 | 105 | |||||||||
Net loss on divestitures of businesses | 3 | 136 | 111 | |||||||||
Other | 27 | (11 | ) | 43 | ||||||||
Reversals of previously recorded layoff costs | (25 | ) | (8 | ) | (10 | ) | ||||||
Restructuring and other charges | $ | 155 | $ | 214 | $ | 314 | ||||||
| 2017 | 2016 | 2015 | |||||||
| Asset impairments | $ | 58 | $ | 80 | $ | — | |||
| Layoff costs | 64 | 70 | 97 | ||||||
| Net loss on divestitures of businesses | 57 | 3 | 136 | ||||||
| Other | (3 | ) | 27 | (11 | ) | ||||
| Reversals of previously recorded layoff costs | (11 | ) | (25 | ) | (8 | ) | |||
| Restructuring and other charges | $ | 165 | $ | 155 | $ | 214 | |||
Solutions segment, 45 in the Global Rolled Products segment, and 110 in Corporate); a net charge of $10 ($7 after-tax) for other miscellaneous items; and $10 ($5 after-tax) for the reversal of a number of layoff reserves related to prior periods.
In early 2014, management approved the permanent shutdown of Arconic’s two rolling mills in Australia, Point Henry and Yennora. This decision was made due to the significant impact of excess can sheet capacity in both Australia and Asia. The two rolling mills had a combined can sheet capacity of 200,000 metric-tons-per-year and were closed by the end of 2014. Costs related to the shutdown of the two rolling mills included $56 for the separation of approximately 470 employees; accelerated depreciation of $58 as the rolling mills continued to operate during 2014; asset impairments of $7 representing the write-off of the remaining book value of all related properties, plants, and equipment; and $33 in other exit costs. Additionally, in 2014, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $13 ($9 after-tax), which was recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. The other exit costs of $33 represent $18 in environmental remediation and $8 in asset retirement obligations, both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in Australia, and $7 in other related costs, including supplier and customer contract-related costs. Demolition and remediation activities related to the two rolling mills began in mid-2015 and are expected to be completed by the end of 2018.
As of December 31, 2016, the separations associated with 2014 restructuring programs were essentially complete. In 2016, 2015, and 2014, cash payments of $3, $27, and $54, respectively, were made against layoff reserves related to 2014 restructuring programs.
Arconic does not include Restructuring and other charges in the results of its reportable segments. The pretaxpre-tax impact of allocating such charges to segment results would have been as follows:
| 2016 | 2015 | 2014 | ||||||||||
Global Rolled Products | $ | 40 | $ | 121 | $ | 267 | ||||||
Engineered Products and Solutions | 78 | 46 | 13 | |||||||||
Transportation and Construction Solutions | 14 | 8 | 10 | |||||||||
Segment total | 132 | 175 | 290 | |||||||||
Corporate | 23 | 39 | 24 | |||||||||
Total restructuring and other charges | $ | 155 | $ | 214 | $ | 314 | ||||||
| 2017 | 2016 | 2015 | |||||||
| Engineered Products and Solutions | $ | 30 | $ | 78 | $ | 46 | |||
| Global Rolled Products | 72 | 40 | 121 | ||||||
| Transportation and Construction Solutions | 52 | 14 | 8 | ||||||
| Segment total | 154 | 132 | 175 | ||||||
| Corporate | 11 | 23 | 39 | ||||||
| Total restructuring and other charges | $ | 165 | $ | 155 | $ | 214 | |||
Interest expenseOther income, net was $473$640 in 20152017 compared with $442$94 in 2014.2016. The increase of $31, or 7%,$546 wasprimarily due to an 8% higher average debt level, somewhat offsetthe gain on the sale of a portion of Arconic’s investment in Alcoa Corporation common stock of $351 (in February 2017, the Company sold 23,353,000 shares of Alcoa Corporation stock at $38.03 per share, which resulted in cash proceeds of $888 and a gain of $351) and the gain of $167 on the Debt-for-Equity Exchange (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 absenceCompany’s remaining 12,958,767 shares (valued at $35.91 per share) in Alcoa Corporation stock and recorded a gain of fees paid$167), income of $25 associated with the execution and terminationa higher reversal of a 364-day senior unsecured bridge term loan facilitycontingent earn-out liability related to the then-planned acquisition of Firth Rixson ($13—see Engineered Productsacquisition (see Note F to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information), and Solutions in Segment Information below). The higher average debt level was mostly attributable to higher outstanding long-term debtincome of $25 due to the September 2014 issuancereversal of $1,250a liability associated with a separation-related guarantee. The Company was required to provide a guarantee for an Alcoa Corporation electricity contract in 5.125% Notes, the proceedsevent of which were used to payan Alcoa Corporation payment default. In the fourth quarter of 2017, Alcoa Corporation announced that it had terminated the electricity contract at its Rockdale Operations and, as a portion of the purchase price of the Firth Rixson acquisition.
Other Income, Net—result, Arconic reversed its associated guarantee liability.
Other income, net was $28 in 2015 compared with $5 in 2014. The increase of $23 was mainly the result of a gain on the sale of land around Arconic’s former Sherwin, TX refinery site ($19) and the remaining equity investment in a
China rolling mill ($19) and a favorable change in deferred compensation. These items were somewhat offset by the absence of a gain on a portion of an equity investment in a China rolling mill ($14) and an unfavorable changeof $38 in 2015.
Income Taxes—a rolling mill in Italy that are nondeductible for income tax purposes, a $272 tax charge as a provisional impact of the 2017 Act, and a $23 tax charge for an increase in an uncertain tax position in Germany, partially offset by a $73 tax benefit related to the sale and Debt-for-Equity Exchange of the Alcoa Corporation stock, a $69 tax benefit for the release of U.S. state valuation allowances net of the federal tax benefit, a $27 favorable tax impact associated with a non-taxable earn-out liability adjustment in connection with the Firth Rixson acquisition, and by foreign income taxed in lower rate jurisdictions.
Arconic’s effective tax rate was 154.0% (provision on income) in 2014 compared with the U.S. federal statutory rate of 35%. The effective tax rate differs from the U.S. federal statutory rate mainly due to restructuring charges related to operations in Australia (benefit at a lower tax rate) (see Restructuring and Other Charges above), a $52 ($31 after noncontrolling interests) discrete income tax charge related to a tax rate change in Brazil (see below), a loss on the sale of three rolling mills in Europe (no tax benefit) (see Global Rolled Products in Segment Information below), and a $27 ($16 after noncontrolling interests) discrete income tax charge for the remeasurement of certain deferred tax assets of a subsidiary in Spain due to a November 2014 enacted tax rate change (from 30% in 2014 to 28% in 2015 to 25% in 2016). These items were somewhat offset by foreign income taxed in lower rate jurisdictions and a $9 discrete income tax benefit for the release of a valuation allowance related to operations in Germany due to the initiation of a tax planning strategy.
In December 2011, one of Arconic’s former subsidiaries in Brazil applied for a tax holiday related to its expanded mining and refining operations. During 2013, the application was amended and re-filed and, separately, a similar application was filed for another one of Arconic’s former subsidiaries in Brazil. The deadline for the Brazilian government to deny the application was July 11, 2014. Since Arconic did not receive notice that its applications were denied, the tax holiday took effect automatically on July 12, 2014. As a result, the tax rate applicable to qualified holiday income for these subsidiaries decreased significantly (from 34% to 15.25%), resulting in future cash tax savings over the 10-year holiday period (retroactively effective as of January 1, 2013). Additionally, a portion of one of the subsidiaries net deferred tax asset that reverses within the holiday period was remeasured at the new tax rate (the net deferred tax asset of the other subsidiary was not remeasured since it could still be utilized against the subsidiary’s future earnings not subject to the tax holiday). This remeasurement resulted in a decrease to that subsidiary’s net deferred tax assets and a noncash charge to earnings of $52 ($31 after noncontrolling interests).
It is also expected that continuing analysis of the 2017 Act, as well as additional guidance as it is issued, will have an impact on the estimated rate.
below) and net cost savings across all segments.
ATOIof the segments.
Beginning in the first quarter of 2017, Arconic’s segment reporting metric will change from ATOI to Adjusted EBITDA.
| 2016 | 2015 | 2014 | ||||||||||
Third-party aluminum shipments (kmt) | 1,339 | 1,375 | 1,598 | |||||||||
Average realized price per metric ton of aluminum(2) | $ | 3,633 | $ | 3,820 | $ | 3,970 | ||||||
Third-party sales | $ | 4,864 | $ | 5,253 | $ | 6,344 | ||||||
Intersegment sales | 118 | 125 | 185 | |||||||||
Total sales | $ | 4,982 | $ | 5,378 | $ | 6,529 | ||||||
ATOI | $ | 269 | $ | 225 | $ | 224 | ||||||
|
|
The Global Rolled Products segment produces aluminum sheet and plate for a variety of end markets. Sheet and plate is sold directly to customers and through distributors related to the aerospace, automotive, commercial transportation, packaging, building and construction, and industrial products (mainly used in the production of machinery and equipment and consumer durables) end markets. A small portion of this segment also produces aseptic foil for the packaging end market. While the customer base for flat-rolled products is large, a significant amount of sales of sheet
and plate is to a relatively small number of customers. Generally, the sales and costs and expenses of this segment are transacted in the local currency of the respective operations, which are mostly the U.S. dollar, Chinese yuan, the euro, the Russian ruble, the Brazilian real, and the British pound.
In March 2015, Arconic completed the sale of a rolling mill located in Belaya Kalitva, Russia to a wholly-owned subsidiary of Stupino Titanium Company. While owned by Arconic, the operating results and assets and liabilities of the rolling mill were included in the Global Rolled Products segment. The rolling mill generated sales of approximately $130 in 2014 and, at the time of divestiture, had approximately 1,870 employees. See Restructuring and Other Charges in Results of Operations above.
In December 2014, Arconic completed the sale of three rolling mills located in Spain (Alicante and Amorebieta) and France (Castelsarrasin) to a subsidiary of Atlas Holdings LLC. While owned by Arconic, the operating results and assets and liabilities of the rolling mills were included in the Global Rolled Products segment. The rolling mills combined generated sales of approximately $500 in 2013 and, at the time of divestiture, had approximately 750 employees. See Restructuring and Other Charges in Results of Operations above.
In February 2014, management approved the permanent shutdown of Arconic’s two rolling mills in Australia, Point Henry and Yennora. This decision was made due to the significant impact of excess can sheet capacity in both Australia and Asia. The two rolling mills had a combined can sheet capacity of 200 kmt-per-year and were closed by the end of 2014. See Restructuring and Other Charges in Results of Operations above.
Third-party sales for the Global Rolled Products segment declined 7% in 2016 compared with 2015, primarily due to the ramp-down of Tennessee packaging ($251); lower aluminum prices; and lower demand in the industrial products, packaging, commercial aerospace, commercial transportation, and North American heavy duty truck markets. These decreases were partially offset by higher volume in the automotive market.
Third-party sales for this segment declined 17% in 2015 compared with 2014, primarily driven by the absence of sales ($1,052) from six rolling mills in Australia, Spain, Russia, and France (see above), unfavorable pricing, mostly due to a decrease in metal prices (both LME and regional premium components), and unfavorable foreign currency movements, mainly the result of a weaker euro, Russian ruble, and Brazilian real. These negative impacts were somewhat offset by increased demand of the remaining rolling portfolio and favorable product mix (automotive and aerospace versus industrial products). The volume improvement of the remaining portfolio was largely attributable to the automotive (North America) and can sheet packaging (China) end markets, slightly offset by lower demand in the industrial products end market.
ATOI for the Global Rolled Products segment increased $44, or 20%, in 2016 compared with 2015, primarily driven by strong productivity improvements, which significantly exceeded cost increases, partially offset by lower pricing, primarily due to overall pricing pressure in the global can sheet market, unfavorable product mix and lower volumes as detailed above.
ATOI for this segment increased $1 in 2015 compared with 2014, primarily attributable to net productivity improvements across most businesses and higher volumes principally driven by higher demand in the automotive end market, offset by unfavorable price and product mix, largely the result of overall pricing pressure in the global can sheet packaging end market, and higher costs related to growth projects, including research and development as Arconic develops and qualifies products from a new Micromill™ production process and the ramp-up of the Tennessee automotive expansion.
On November 1, 2016, Arconic entered into a Toll Processing and Services Agreement with Alcoa Corporation for the tolling of metal for the Warrick, IN rolling mill which became a part of Alcoa Corporation upon the completion of the Separation Transaction. As part of this arrangement, Arconic will provide a toll processing service to Alcoa Corporation to produce can sheet products at its facility in Tennessee through the expected end date of the contract,
December 31, 2018. Alcoa Corporation will supply all required raw materials to Arconic and Arconic will process the raw materials into finished can sheet coils ready for shipment to the end customer. Tolling revenue for the two months ended December 31, 2016 was approximately $37 million.
In 2017, demand in the automotive end market is expected to continue to grow due to the growing demand for innovative products and aluminum-intensive vehicles. Demand from the commercial airframe end market is expected to be flat in 2017 as the ramp up of new programs is offset by customer destocking and lower build rates for aluminum intensive wide-body programs. Sales to the packaging market are expected to decline due to continuing pricing pressure within this market and the ramp-down of the North American packaging operations. Net productivity improvements are anticipated to continue.
Engineered Products and Solutions
| 2016 | 2015 | 2014 | ||||||||||
Third-party sales | $ | 5,728 | $ | 5,342 | $ | 4,217 | ||||||
ATOI | $ | 642 | $ | 595 | $ | 579 | ||||||
| 2017 | 2016 | 2015 | |||||||
| Third-party sales | $ | 5,935 | $ | 5,728 | $ | 5,342 | |||
| Adjusted EBITDA | $ | 1,224 | $ | 1,195 | $ | 1,111 | |||
In November 2014, Arconic completed the acquisition of Firth Rixson, a global leader in aerospace jet engine components. Firth Rixson manufactures rings, forgings, and metal products for the aerospace end market, as well as other markets requiring highly-engineered material applications. The purpose of the acquisition was to strengthen Arconic’s aerospace business and position the Company to capture additional aerospace growth with a broader range of high-growth, value-add jet engine components. Firth Rixson generated sales of approximately $970 in 2014 and had 13 operating facilities in the United States, United Kingdom, Europe, and Asia employing approximately 2,400 people combined. The operating results and assets and liabilities of Firth Rixson have been included within the Engineered Products and Solutions segment since the date of acquisition.
Third-party sales for this segment improved 27% in 2015 compared with 2014, largely attributable to the third-party sales ($1,310) of the three acquired businesses (see above), and higher volumes in this segment’s legacy businesses, both of which were primarily related to the aerospace end market. These positive impacts were slightly offset by unfavorable foreign currency movements, principally driven by a weaker euro.
ATOI
ATOI for this segment increased $16, or 3%, in 2015 compared with 2014, principally the result of net productivity improvements across most businesses, a positive contribution from acquisitions, and overall higher volumes in this segment’s legacy businesses. These positive impacts were partially offset by unfavorable price and product mix, higher costs related to growth projects, and net unfavorable foreign currency movements, primarily related to a weaker euro.
| 2017 | 2016 | 2015 | |||||||
| Third-party sales | $ | 4,992 | $ | 4,864 | $ | 5,253 | |||
| Intersegment sales | 148 | 118 | 125 | ||||||
| Total sales | $ | 5,140 | $ | 4,982 | $ | 5,378 | |||
| Adjusted EBITDA | $ | 599 | $ | 577 | $ | 512 | |||
| Third-party aluminum shipments (kmt) | 1,197 | 1,339 | 1,375 | ||||||
Average realized price per metric ton of aluminum (2) | $ | 4,171 | $ | 3,633 | $ | 3,820 | |||
(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 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. In this circumstance, the metal price component is a pass-through to this segment’s customers with limited exception (e.g., fixed-priced contracts, certain regional premiums). |
| 2016 | 2015 | 2014 | ||||||||||
Third-party sales | $ | 1,802 | $ | 1,882 | $ | 2,021 | ||||||
ATOI | $ | 176 | $ | 166 | $ | 180 | ||||||
| 2017 | 2016 | 2015 | |||||||
| Third-party sales | $ | 1,985 | $ | 1,802 | $ | 1,882 | |||
| Adjusted EBITDA | $ | 321 | $ | 291 | $ | 271 | |||
Third-party sales for this segment decreased 7% in 2015 compared with 2014, primarily driven by unfavorable foreign currency movements, principally caused by a weaker euro and Brazilian real, and lower volume related to the building and construction end market, somewhat offset by higher volume related to the commercial transportation end market.
ATOI
ATOI for this segment declined $14, or 8%, in 2015 compared with 2014, mainly due to higher costs, net unfavorable foreign currency movements, primarily related to a weaker euro and Brazilian real, and unfavorable price and product mix. These negative impacts were mostly offset by net productivity improvements across all businesses.
results of discontinued operations.
| 2016 | 2015 | 2014 | ||||||||||
Total segment ATOI | $ | 1,087 | $ | 986 | $ | 983 | ||||||
Unallocated amounts (net of tax): | ||||||||||||
Impact of LIFO | (11 | ) | 66 | (52 | ) | |||||||
Metal price lag | 21 | (115 | ) | 68 | ||||||||
Interest expense | (324 | ) | (307 | ) | (287 | ) | ||||||
Noncontrolling interests | - | (1 | ) | - | ||||||||
Corporate expense | (306 | ) | (252 | ) | (268 | ) | ||||||
Impairment of goodwill | - | (25 | ) | - | ||||||||
Restructuring and other charges | (114 | ) | (192 | ) | (249 | ) | ||||||
Discontinued operations | 121 | (165 | ) | 329 | ||||||||
Other | (1,415 | ) | (317 | ) | (256 | ) | ||||||
Consolidated net (loss) income attributable to Arconic | $ | (941 | ) | $ | (322 | ) | $ | 268 | ||||
| 2017 | 2016 | 2015 | |||||||
| Combined segment adjusted EBITDA | $ | 2,144 | $ | 2,063 | $ | 1,894 | |||
| Unallocated amounts: | |||||||||
| Depreciation and amortization | (551 | ) | (535 | ) | (508 | ) | |||
| Impairment of goodwill | (719 | ) | — | (25 | ) | ||||
| Restructuring and other charges | (165 | ) | (155 | ) | (214 | ) | |||
| Impact of LIFO | (110 | ) | (18 | ) | 101 | ||||
| Metal price lag | 72 | 27 | (175 | ) | |||||
| Corporate expense | (274 | ) | (454 | ) | (371 | ) | |||
| Other | (71 | ) | (109 | ) | (74 | ) | |||
| Operating income | $ | 326 | $ | 819 | $ | 628 | |||
| Interest expense | (496 | ) | (499 | ) | (473 | ) | |||
| Other income, net | 640 | 94 | 28 | ||||||
| Income from continuing operations before income taxes | $ | 470 | $ | 414 | $ | 183 | |||
| Provision for income taxes | (544 | ) | (1,476 | ) | (339 | ) | |||
| Discontinued operations | — | 121 | (165 | ) | |||||
| Net income attributable to noncontrolling interest | — | — | (1 | ) | |||||
| Net loss attributable to Arconic | $ | (74 | ) | $ | (941 | ) | $ | (322 | ) |
an increase in Depreciation and amortization related to a full year of D&A related to two acquisitions which occurred during 2015 (see Engineered Products and Solutions under Segment Information above)
a favorable change in Metal price lag, the result of higher prices for aluminum;
an increase in Corporate expense, largely attributable to an increase in costs related to the Separation Transaction of $193, partially offset by decreases in corporate research and development expenses and other various expenses;
an increase in Corporate expense, largelyProvision for income taxes attributable to an increase in costs related to the Separation Transaction ($134), partially offset by decreases in corporate research and development expenses and other various expenses;
a decrease in Restructuring and other charges, due to fewer portfolio actions; and
a decrease in Other, primarily due to a charge for tax valuation allowances related to the Separation Transaction ($1,267), slightly offset by a favorable adjustment to the contingent earn-out liability and a post-closing adjustment, both of which related to the November 2014 acquisition$1,267.
The significant changes in the reconciling items between total segment ATOI and Consolidated net (loss) incomeNet loss attributable to Arconic for 2015 compared with 2014 consisted of:
a change in the impact of LIFO, mostly due to lower prices for aluminum, driven by both lower base metal prices (LME) and regional premiums (decrease in price at December 31, 2015 indexedConsolidated adjusted EBITDA
a change in Metal price lag, the result of lower prices for aluminum;
an increase in Interest expense, principally caused by an 8% higher average debt level, which was largelyreconcile Net loss attributable to higher outstanding long-term debt dueArconic to the September 2014 issuanceConsolidated adjusted EBITDA include: Depreciation and amortization; Impairment of $1,250 in 5.125% Notes, somewhat offset by the absence of fees paid associated with the execution and termination of a 364-day senior unsecured bridge term loan facility related to the then-planned acquisition of Firth Rixson ($8);
a decline in Corporate expense, largely attributable to decreases in various expenses, including lower acquisition costs ($13), partially offset by expenses related to the Separation Transaction ($24);
a decrease ingoodwill; Restructuring and other charges, mostly the resultcharges; Other income, net; Interest expense; Income tax expense; and Discontinued operations.
| 2017 | 2016 | 2015 | |||||||
| Net loss attributable to Arconic | $ | (74 | ) | $ | (941 | ) | $ | (322 | ) |
| Depreciation and amortization | 551 | 535 | 508 | ||||||
| Impairment of goodwill | 719 | — | 25 | ||||||
| Restructuring and other charges | 165 | 155 | 214 | ||||||
| Other income, net | (640 | ) | (94 | ) | (28 | ) | |||
| Interest expense | 496 | 499 | 473 | ||||||
| Income taxes | 544 | 1,476 | 339 | ||||||
| Discontinued operations | — | (121 | ) | 165 | |||||
Consolidated Adjusted EBITDA (1) | $ | 1,761 | $ | 1,509 | $ | 1,374 | |||
a change in Other, primarily due to a discrete income tax charge for valuation allowances on certain deferred tax assets in the United States and Iceland ($190) partially offset by gains on various asset sales, a tax rate change in Brazil, and a net benefit for a number of small items.
Environmental Matters
Along with the foregoing actions, cash
The components of the negativeunfavorable change in working capital were as follows:
an unfavorable change ofincluded $450 in receivables;
a positive change of $35 in inventories;
an unfavorable change ofreceivables and $122 in prepaid expenses and other current assets;
a positive change of
a positive change of $68 in taxes, including income taxes; $43 in accrued expenses; and
a favorable change of $68 $35 in taxes, including income taxes.
Cash provided from operations in 2015 was $1,582 compared with $1,674 in 2014. The decrease of $92, or 5%, was due to a negative change in noncurrent assets of $328, lower operating results (net (loss) income plus net add-back for noncash transactions in earnings) and a negative change in noncurrent liabilities of $18, mostly offset by a positive change associated with working capital of $572 and lower pension contributions of $31.
The components of the positive change in working capital were as follows:
a favorable change of $524 in receivables, mostly driven by lower customer sales as a result of closed, divested, and curtailed locations and lower metal prices;
a positive change of $291 in inventories, largely attributable to the absence of inventory build related to the ramp-up of automotive production at the Davenport, IA plant and customer requirements related to smelters (Alcoa Corporation) that have been curtailed or shut down;
a favorable change of $71 in prepaid expenses and other current assets;
a negative change of $346 in accounts payable, trade, principally the result of timing of payments;
a positive change of $14 in accrued expenses, mainly caused by a smaller payment to the United States government due to the resolution of a legal matter (Alcoa Corporation); and
a favorable change of $18 in taxes, including income taxes.
The unfavorable change in noncurrent assets was mostly related to a $300 prepayment made under a natural gas supply agreement in Australia (Alcoa Corporation).
Financing Activities
proceeds from the exercise of stock options.
The source of cash in 2014 was mostly driven by $2,878 in additions to debt, driven by $1,238 in net proceeds from the issuance of new senior debt securities used for the acquisition of Firth Rixson (see below) and $1,640 in borrowings under certain revolving credit facilities (see below); net proceeds of $1,211 from the issuance of mandatory convertible preferred stock related to the aforementioned acquisition; and $150 in proceeds from employee exercises of 17.3 million stock options at a weighted average exercise price of $8.70 (not in millions). These items were somewhat offset by $1,723 in payments on debt, mostly related to $1,640 for the repayment of borrowings under certain revolving credit facilities (see below), and $161 in dividends paid to shareholders.
interest.
In February 2014, Arconic’s automatic shelf registration statement filed with the Securities and Exchange Commission expired. On July 11, 2014, Arconic filed a new shelf registration statement, which was amended on July 25, 2014 and became effective on July 30, 2014, for up to $5,000 of securities on an unallocated basis for future issuance. As of December 31, 2016, $2,500 in securities were issued under the new shelf registration statement.
Rixson. On October 2, 2017, all outstanding 24,975,978 depositary shares 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 31,420 shares of Arconic common stock. No gain or loss was recognized associated with this noncash equity transaction.
2, 2017). On April 21, 2016, Fitch affirmed the following ratings for Arconic:Arconic’s long-term debt rating at BB+, a non-investment grade, and short-term debt at B. Additionally, Fitch changed the current outlook from positive to evolving. On July 7, 2016, Fitch changed the current outlook from evolving to stable based(ratings and outlook were affirmed on the filing of a Form 10 registration statement related to the planned separation of Arconic.
On April 29, 2016, Standard and Poor’s Ratings Service (S&P) affirmed the following ratings for Arconic: long-term debt at BBB- and short-term debt at A-3. Additionally, S&P maintained the current outlook as stable. On September 19, 2016, S&P affirmed its ratings for Arconic: long-term debt at BBB- and short-term debt at A-3. Additionally, S&P maintained the current outlook as stable.
July 3, 2017).
the receipt of proceeds from the sale of the Yadkin Hydroelectric Project of $243, somewhat offset by cash used for capital expenditures of $596, including the aerospace expansion (very thick plate stretcher and horizontal heat treat furnace) at the Davenport, IA plant and a titanium aluminide furnace at the Niles, Ohio facility, and the injection of $10 into the Fusina rolling business prior to its sale.
The use of cash in 2014 was principally due to $2,385 (net of cash acquired) for the acquisition of Firth Rixson (see Engineered Products and Solutions in Segment Information above); $1,219 in capital expenditures ($444 for Alcoa Corporation) (includes costs related to environmental control in new and expanded facilities of $129), 40% of which related to growth projects, including the automotive expansions at the Alcoa, TN and Davenport, IA fabrication plants, the aerospace expansion at the La Porte, IN plant, the aluminum-lithium capacity expansion at the Lafayette, IN plant, and the specialty foil expansion at the Itapissuma plant in Brazil; and $195 in additions to investments, including equity contributions of $120 related to the aluminum complex joint venture in Saudi Arabia (Alcoa Corporation) and the purchase of $49 in equities and fixed income securities held by Arconic’s captive insurance company. These items were slightly offset by $253 in proceeds from the sale of assets and businesses, largely attributable to the sale of an ownership stake in a bauxite mine and refinery in Jamaica (Alcoa Corporation), an ownership stake in a smelter in the United States (Alcoa Corporation), three rolling mills in Spain and France combined (see Global Rolled Products in Segment Information above), and a rod plant in Canada (Alcoa Corporation); and $57 in sales of investments, mostly related to $42 in combined proceeds from the sale of a mining interest in Suriname (Alcoa Corporation) and a portion of an equity investment in a China rolling mill.
approximately 1.3 billion shares to approximately 0.4 billion shares. The par value of the common stock remained at $1.00 per share. Accordingly, Common stock and Additional capital in the Company’s Consolidated Balance Sheet at December 31, 2016 reflect a decrease and increase of $877, respectively. This transaction was not reflected in the accompanying Statement of Consolidated Cash Flows for the year ended December 31, 2016 as it represents a noncash financing activity.
In early 2014, holders of $575 principal amount of Arconic’s 5.25% Convertible Notes due March 15, 2014 (the “2014 Notes”) exercised their option to convert the 2014 Notes into 30 million shares (89 million shares—pre-Reverse Stock Split—see Note A) of Arconic common stock. This transaction was not reflected in the accompanying Statement of Consolidated Cash Flows as it represents a noncash financing activity.
In late 2014, Arconic paid $2,995 (net of cash acquired) to acquire Firth Rixson. A portion of this consideration was paid through the issuance of 12 million shares (37 million shares—pre-Reverse Stock Split) in Arconic common stock valued at $610. The issuance of common stock was not reflected in the accompanying Statement of Consolidated Cash Flows as it represents a noncash investing activity.
transaction.
| Total | 2017 | 2018-2019 | 2020-2021 | Thereafter | ||||||||||||||||
Operating activities: | ||||||||||||||||||||
Energy-related purchase obligations | $ | 42 | $ | 28 | $ | 13 | $ | 1 | $ | - | ||||||||||
Raw material purchase obligations | 563 | 379 | 126 | 58 | - | |||||||||||||||
Other purchase obligations | 119 | 83 | 24 | 7 | 5 | |||||||||||||||
Operating leases | 494 | 115 | 171 | 92 | 116 | |||||||||||||||
Interest related to total debt | 3,197 | 445 | 804 | 577 | 1,371 | |||||||||||||||
Estimated minimum required pension funding | 1,735 | 310 | 650 | 775 | - | |||||||||||||||
Other postretirement benefit payments | 890 | 95 | 190 | 190 | 415 | |||||||||||||||
Layoff and other restructuring payments | 59 | 59 | - | - | - | |||||||||||||||
Deferred revenue arrangements | 84 | 20 | 27 | 37 | - | |||||||||||||||
Uncertain tax positions | 29 | - | - | - | 29 | |||||||||||||||
Financing activities: | ||||||||||||||||||||
Total debt | 8,137 | 39 | 2,168 | 2,253 | 3,677 | |||||||||||||||
Dividends to shareholders | - | - | - | - | - | |||||||||||||||
Investing activities: | ||||||||||||||||||||
Capital projects | 580 | 311 | 235 | 34 | - | |||||||||||||||
Payments related to acquisitions | 90 | - | 23 | 67 | - | |||||||||||||||
Totals | $ | 16,019 | $ | 1,884 | $ | 4,431 | $ | 4,091 | $ | 5,613 | ||||||||||
| Total | 2018 | 2019-2020 | 2021-2022 | Thereafter | |||||||||||
| Operating activities: | |||||||||||||||
| Energy-related purchase obligations | $ | 71 | $ | 40 | $ | 26 | $ | 5 | $ | — | |||||
| Raw material purchase obligations | 1,013 | 801 | 210 | 2 | — | ||||||||||
| Other purchase obligations | 51 | 20 | 14 | 12 | 5 | ||||||||||
| Operating leases | 442 | 108 | 150 | 84 | 100 | ||||||||||
| Interest related to total debt | 2,675 | 371 | 693 | 429 | 1,182 | ||||||||||
| Estimated minimum required pension funding | 1,600 | 350 | 675 | 575 | — | ||||||||||
| Other postretirement benefit payments | 785 | 90 | 180 | 180 | 335 | ||||||||||
| Layoff and other restructuring payments | 58 | 58 | — | — | — | ||||||||||
| Deferred revenue arrangements | 30 | 12 | 18 | — | — | ||||||||||
| Uncertain tax positions | 75 | — | — | — | 75 | ||||||||||
| Financing activities: | |||||||||||||||
| Total debt | 6,844 | 29 | 1,883 | 1,870 | 3,062 | ||||||||||
| Dividends to shareholders | — | — | — | — | — | ||||||||||
| Investing activities: | |||||||||||||||
| Capital projects | 426 | 340 | 86 | — | — | ||||||||||
| Totals | $ | 14,070 | $ | 2,219 | $ | 3,935 | $ | 3,157 | $ | 4,759 | |||||
Total debt amounts in the preceding table represent the principal amounts of all outstanding debt, including short-term borrowings and long-term debt. Maturities for long-term debt extend to 2042.
2017; however, Arconic paid the dividends on December 31, 2016. As of December 31, 2016,2017, there were 438,519,780481,416,537 shares of outstanding common stock and 546,024 and 2,500,000 shares of outstanding Class A and Class Bpreferred stock. The annual preferred stock respectively. The annual Class A and Class B preferred stock dividends aredividend is at thea rate of $3.75 and $26.8750 per share respectively, and the annual common stock dividend expected to be paid is $0.24 per share for 2017.
2018.
Payments related to acquisitions are based on provisions in certain acquisition agreements that state additional funds are due to the seller from Arconic if the businesses acquired achieve stated financial and operational thresholds. Amounts are only presented in the preceding table if it has been determined that payment is more likely than not to occur. In connection with the acquisition of Firth Rixson (see Engineered Products and Solutions in Segment Information above), Arconic entered into an earn-out agreement, which states that Arconic will make earn-out payments up to an aggregate maximum amount of $150 through 2020. Based upon the evaluation of financial and operational forecasts, the expected estimated payment has been reduced. The amounts in the preceding table represent Arconic’s best estimate of the amount and timing of payments.
2018.
As part of2017.
Arconic was also required to provide guarantees of $50guarantee related to two Alcoa Corporationthe Rockdale energy supply contracts. These guarantees expire in March 2017. Additionally, Arconic was requiredcontract. The decision to provide guarantees of $53 related to certain Alcoa Corporation environmental liabilities. Notification ofenter into a change in guarantor has beenclaims purchase agreement will be made to the appropriate environmental agencies and Alcoa Corporation is required by the end of March 2017 to self-bond or provide collateral.
on an annual basis going forward.
As part of2017.
November 1, 2016. Alcoa Corporation workers’ compensation claims and letter of credit fees paid by Arconic are being
2017.
probable, management weighs the probability of estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is deemed to be reasonably possible, then the matter is disclosed and no liability is recorded. With respect to unasserted claims or assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood of an unfavorable outcome or the estimate of a potential loss.
this realignment.
Arconic’s policy for
current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using high, medium, and low weighting. Furthermore, management considers the results of the most recent two-step quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital (WACC) between the current and prior years for each reporting unit.
In Arconic would recognize an impairment charge for the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional analysis would be required. The additional analysis would compareamount by which the carrying amount ofexceeds the reporting unit’s goodwill with the implied fair value of that goodwill, which may involvewithout exceeding the use of valuation experts. The implied fair valuetotal amount of goodwill is the excess of the fair value of theallocated to that reporting unit over the fair value amounts assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an impairment loss equal to such excess would be recognized, which could significantly and adversely impact reported results of operations and shareholders’ equity.
unit.
However, the
segment. In the fourth quarter of 2015, for SAE,the soft alloy extrusion business in Brazil, the estimated fair value as determined by the DCF model was lower than the associated carrying value of the SAEits reporting unit’s goodwill. As a result, management performed the second step of the impairment analysis in order to determine the implied fair value of the SAE reporting unit’s goodwill. The results of the second-step analysis showeddetermined that the implied fair value of the reporting unit’s goodwill was zero. Therefore, in the fourth quarter of 2015, Arconic recorded a goodwill impairment of $25.$25 in 2015. The impairment of the SAE goodwill resulted from headwinds from the downturn in the Brazilian economy and the continued erosion of gross margin despite the execution of cost reduction strategies. As a result of the goodwill impairment, there is no goodwill remaining for the SAE reporting unit.
estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. An impairment loss would be recognized when the carrying amount of the assets (asset group) exceeds the estimated undiscounted net cash flows. The amount of the impairment loss to be recorded is calculated as the excess of the carrying value of the assets (asset group) over their fair value, with fair value determined using the best information available, which generally is a DCF model. The determination of what constitutes an asset group, the associated estimated undiscounted net cash flows, and the estimated useful lives of assets also require significant judgments.
The decrease of 75 basis points in the expected long-term rate is due to a decrease in the expected return by asset class and the 20-year moving average.
During 2014, an independent U.S. organization that publishes standard mortality rates based on statistical analysis and studies issued updated mortality tables. The rates within these standard tables are used by actuaries as one2018.
decrease in the discount rate of 45 basis points and asset performance less than expected, which was partially offset by the amortization of actuarial losses. In 2016, a net benefit of $1,601 (after-tax and noncontrolling interest) was recorded in other comprehensive loss, primarily due to the transfer of $2,080 to Alcoa Corporation which was partially offset by a net charge of $479. The charge was due to the unfavorable performance of the plan assets and a 9 basis point decrease in the discount rate, which was partially offset by the amortization of actuarial losses. In 2015, a net charge of $10 (after-tax and noncontrolling interest) was recorded in other comprehensive loss, primarily due to the unfavorable performance of the plan assets, which was mostly offset by the amortization of actuarial losses and a 29 basis point increase in the discount rate.
Consolidated Operations.
Upon separation, Arconic retained foreign tax credits in the United States which have a 10-year carryforward period with expirations ranging from 2017 to 2026 (as of December 31, 2016). Arconic also retained suspended foreign tax credit carryforwards whose expiration period begins when the credits become unsuspended. A valuation allowance of $135 was initially established in 2013 on a portion of the foreign tax credit carryforwards, primarily due to insufficient foreign source income to allow for full utilization of the credits within the expiration period. An incremental valuation allowance of $134 was recognized in 2015. At the end of 2015 and 2016, $15 and $128 of foreign tax credits respectively expired resulting in a corresponding decrease to the valuation allowance. As a result of the Separation Transaction, management determined that it was no longer more likely than not that Arconic would realize the full tax benefit of its foreign tax credit carryforwards based on changes in the availability of foreign sourced taxable income. After consideration of all available evidence including potential tax planning strategies and earnings of foreign subsidiaries projected to be distributable as taxable foreign dividends, an incremental valuation allowance of $302 was recognized in 2016. At December 31, 2016, the cumulative amount of the valuation allowance was $427. The need for this valuation allowance will be reassessed on a continuous basis in future periods and, as a result, the allowance may increase or decrease based on changes in facts and circumstances.
tax law change. These valuation allowances fully offset current year changes in deferred tax asset balances of each respective jurisdiction, resulting in no net impact to tax expense. The need for a valuation allowance will be reassessed on a continuous basis in future periods by each jurisdiction and, as a result, the allowances may increase or decrease based on changes in facts and circumstances.
On October 31, 2016, Arconic entered into several agreements with Alcoa Corporation that govern the relationship of the parties following the completion of the Separation Transaction. These agreements include the following: Separation and Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Alcoa Corporation to Arconic Inc. Patent, Know-How, and Trade Secret License Agreement, Arconic Inc. to Alcoa Corporation Patent, Know-How, and Trade Secret License Agreement, Alcoa Corporation to Arconic Inc. Trademark License Agreement, Toll Processing and Services Agreement, Master Agreement for the Supply of Primary Aluminum, Massena Lease and Operations Agreement, Fusina Lease and Operations Agreement, and Stockholder and Registration Rights Agreement.
Effective November 1, 2016, Arconic entered into a Toll Processing and Services Agreement with Alcoa Corporation for the tolling of metal for the Warrick, Indiana rolling mill which became a part of Alcoa Corporation upon the completion of the Separation Transaction. As part of this arrangement, Arconic will provide a toll processing service to Alcoa Corporation to produce can sheet products at its facility in Tennessee throughout the expected end date of the contract, December 31, 2018. Alcoa Corporation will supply all required raw materials to Arconic and Arconic will process the raw materials into finished can sheet coils ready for shipment to the end customer. Tolling revenues for the two month period ending December 31, 2016 and accounts receivable at December 31, 2016 were not material to the consolidated results of operations and financial position for the year ended December 31, 2016.
Additionally,
Effective May 2017, upon disposition of the remaining common stock that Arconic held in Alcoa Corporation, they are no longer deemed a related party.
|
/s/ Charles P. Blankenship |
Charles P. Blankenship Chief Executive Officer |
| /s/ Ken Giacobbe |
Ken Giacobbe Executive Vice President and Chief Financial Officer |
PricewaterhouseCoopers LLP
23, 2018
| For the year ended December 31, | 2016 | 2015 | 2014 | |||||||||
Sales (O) | $ | 12,394 | $ | 12,413 | $ | 12,542 | ||||||
Cost of goods sold (exclusive of expenses below) | 9,811 | 10,104 | 10,349 | |||||||||
Selling, general administrative, and other expenses (C) | 942 | 765 | 770 | |||||||||
Research and development expenses | 132 | 169 | 123 | |||||||||
Provision for depreciation and amortization | 535 | 508 | 436 | |||||||||
Impairment of goodwill (A and E) | - | 25 | - | |||||||||
Restructuring and other charges (D) | 155 | 214 | 314 | |||||||||
Interest expense (T) | 499 | 473 | 442 | |||||||||
Other income, net (M) | (94 | ) | (28 | ) | (5 | ) | ||||||
Total costs and expenses | 11,980 | 12,230 | 12,429 | |||||||||
Income from continuing operations before income taxes | 414 | 183 | 113 | |||||||||
Provision for income taxes (R) | 1,476 | 339 | 174 | |||||||||
Loss from continuing operations after income taxes | (1,062 | ) | (156 | ) | (61 | ) | ||||||
Income (loss) from discontinued operations after income taxes (C) | 184 | (41 | ) | 238 | ||||||||
Net (loss) income | (878 | ) | (197 | ) | 177 | |||||||
Less: Net income from continuing operations attributable to noncontrolling interests | - | 1 | - | |||||||||
Net income (loss) from discontinued operations attributable to noncontrolling interests (C) | 63 | 124 | (91 | ) | ||||||||
Net (Loss) Income Attributable to Arconic | $ | (941 | ) | $ | (322 | ) | $ | 268 | ||||
Amounts Attributable to Arconic Common Shareholders (Q): | ||||||||||||
Net (loss) income | $ | (1,010 | ) | $ | (391 | ) | $ | 247 | ||||
Earnings per share—basic: | ||||||||||||
Continuing operations | $ | (2.58 | ) | $ | (0.54 | ) | $ | (0.21 | ) | |||
Discontinued operations | $ | 0.27 | $ | (0.39 | ) | $ | 0.85 | |||||
Net (loss) income per share-basic | $ | (2.31 | ) | $ | (0.93 | ) | $ | 0.64 | ||||
Earnings per share—diluted | ||||||||||||
Continuing operations | $ | (2.58 | ) | $ | (0.54 | ) | $ | (0.21 | ) | |||
Discontinued operations | $ | 0.27 | $ | (0.39 | ) | $ | 0.84 | |||||
Net (loss) income per share-diluted | $ | (2.31 | ) | $ | (0.93 | ) | $ | 0.63 | ||||
| For the year ended December 31, | 2017 | 2016 | 2015 | ||||||
| Sales (N) | $ | 12,960 | $ | 12,394 | $ | 12,413 | |||
| Cost of goods sold (exclusive of expenses below) | 10,357 | 9,811 | 10,104 | ||||||
| Selling, general administrative, and other expenses (C) | 731 | 942 | 765 | ||||||
| Research and development expenses | 111 | 132 | 169 | ||||||
| Provision for depreciation and amortization | 551 | 535 | 508 | ||||||
| Impairment of goodwill (A and E) | 719 | — | 25 | ||||||
| Restructuring and other charges (D) | 165 | 155 | 214 | ||||||
| Operating income | 326 | 819 | 628 | ||||||
| Interest expense (S) | 496 | 499 | 473 | ||||||
| Other income, net (L) | (640 | ) | (94 | ) | (28 | ) | |||
| Income from continuing operations before income taxes | 470 | 414 | 183 | ||||||
| Provision for income taxes (Q) | 544 | 1,476 | 339 | ||||||
| Loss from continuing operations after income taxes | (74 | ) | (1,062 | ) | (156 | ) | |||
| Income (loss) from discontinued operations after income taxes (C) | — | 184 | (41 | ) | |||||
| Net loss | (74 | ) | (878 | ) | (197 | ) | |||
| Less: Net income from continuing operations attributable to noncontrolling interests | — | — | 1 | ||||||
| Less: Net income from discontinued operations attributable to noncontrolling interests (C) | — | 63 | 124 | ||||||
| Net loss Attributable to Arconic | $ | (74 | ) | $ | (941 | ) | $ | (322 | ) |
| Amounts Attributable to Arconic Common Shareholders (P): | |||||||||
| Net loss | $ | (127 | ) | $ | (1,010 | ) | $ | (391 | ) |
| (Loss) earnings per share—basic: | |||||||||
| Continuing operations | $ | (0.28 | ) | $ | (2.58 | ) | $ | (0.54 | ) |
| Discontinued operations | — | 0.27 | (0.39 | ) | |||||
| Net loss per share-basic | $ | (0.28 | ) | $ | (2.31 | ) | $ | (0.93 | ) |
| (Loss) earnings per share—diluted | |||||||||
| Continuing operations | $ | (0.28 | ) | $ | (2.58 | ) | $ | (0.54 | ) |
| Discontinued operations | — | 0.27 | (0.39 | ) | |||||
| Net loss per share-diluted | $ | (0.28 | ) | $ | (2.31 | ) | $ | (0.93 | ) |
(Loss) Income
| Arconic | Noncontrolling Interests | Total | ||||||||||||||||||||||||||||||||||
| For the year ended December 31, | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||||
Net (loss) income | $ | (941 | ) | $ | (322 | ) | $ | 268 | $ | 63 | $ | 125 | $ | (91 | ) | $ | (878 | ) | $ | (197 | ) | $ | 177 | |||||||||||||
Other comprehensive loss, net of tax (B): | ||||||||||||||||||||||||||||||||||||
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits | (479 | ) | (10 | ) | (69 | ) | (3 | ) | 8 | (13 | ) | (482 | ) | (2 | ) | (82 | ) | |||||||||||||||||||
Foreign currency translation adjustments | 268 | (1,566 | ) | (1,025 | ) | 182 | (429 | ) | (241 | ) | 450 | (1,995 | ) | (1,266 | ) | |||||||||||||||||||||
Net change in unrealized gains on available-for-sale securities | 137 | (5 | ) | (2 | ) | - | - | - | 137 | (5 | ) | (2 | ) | |||||||||||||||||||||||
Net change in unrecognized losses on cash flow hedges | (617 | ) | 827 | 78 | 5 | (1 | ) | - | (612 | ) | 826 | 78 | ||||||||||||||||||||||||
Total Other comprehensive (loss) income, net of tax | (691 | ) | (754 | ) | (1,018 | ) | 184 | (422 | ) | (254 | ) | (507 | ) | (1,176 | ) | (1,272 | ) | |||||||||||||||||||
Comprehensive (loss) income | $ | (1,632 | ) | $ | (1,076 | ) | $ | (750 | ) | $ | 247 | $ | (297 | ) | $ | (345 | ) | $ | (1,385 | ) | $ | (1,373 | ) | $ | (1,095 | ) | ||||||||||
| Arconic | Noncontrolling Interests | Total | |||||||||||||||||||||||||||
| For the year ended December 31, | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Net (loss) income | $ | (74 | ) | $ | (941 | ) | $ | (322 | ) | $ | — | $ | 63 | $ | 125 | $ | (74 | ) | $ | (878 | ) | $ | (197 | ) | |||||
| Other comprehensive (loss) income, net of tax (B): | |||||||||||||||||||||||||||||
| Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits | (220 | ) | (479 | ) | (10 | ) | — | (3 | ) | 8 | (220 | ) | (482 | ) | (2 | ) | |||||||||||||
| Foreign currency translation adjustments | 252 | 268 | (1,566 | ) | 2 | 182 | (429 | ) | 254 | 450 | (1,995 | ) | |||||||||||||||||
| Net change in unrealized gains on available-for-sale securities | (134 | ) | 137 | (5 | ) | — | — | — | (134 | ) | 137 | (5 | ) | ||||||||||||||||
| Net change in unrecognized gains (losses) on cash flow hedges | 26 | (617 | ) | 827 | — | 5 | (1 | ) | 26 | (612 | ) | 826 | |||||||||||||||||
| Total Other comprehensive (loss) income, net of tax | (76 | ) | (691 | ) | (754 | ) | 2 | 184 | (422 | ) | (74 | ) | (507 | ) | (1,176 | ) | |||||||||||||
| Comprehensive (loss) income | $ | (150 | ) | $ | (1,632 | ) | $ | (1,076 | ) | $ | 2 | $ | 247 | $ | (297 | ) | $ | (148 | ) | $ | (1,385 | ) | $ | (1,373 | ) | ||||
| December 31, | 2016 | 2015 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents (V) | $ | 1,863 | $ | 1,362 | ||||
Receivables from customers, less allowances of $13 in 2016 and $8 in 2015 (S) | 974 | 960 | ||||||
Other receivables (C and S) | 477 | 394 | ||||||
Inventories (G) | 2,253 | 2,284 | ||||||
Prepaid expenses and other current assets | 325 | 397 | ||||||
Current assets of discontinued operations (C) | - | 2,556 | ||||||
Total current assets | 5,892 | 7,953 | ||||||
Properties, plants, and equipment, net (H) | 5,499 | 5,425 | ||||||
Goodwill (A and E) | 5,148 | 5,249 | ||||||
Deferred income taxes (R) | 1,234 | 1,308 | ||||||
Investment in common stock of Alcoa Corporation (C and V) | 1,020 | - | ||||||
Other noncurrent assets (I) | 1,245 | 1,944 | ||||||
Noncurrent assets of discontinued operations (C) | - | 14,598 | ||||||
Total Assets | $ | 20,038 | $ | 36,477 | ||||
Liabilities | ||||||||
Current liabilities: | ||||||||
Short-term borrowings (J and V) | $ | 36 | $ | 38 | ||||
Accounts payable, trade | 1,744 | 1,510 | ||||||
Accrued compensation and retirement costs | 398 | 410 | ||||||
Taxes, including income taxes | 85 | 103 | ||||||
Accrued interest payable | 153 | 170 | ||||||
Other current liabilities | 329 | 441 | ||||||
Long-term debt due within one year (J and V) | 4 | 3 | ||||||
Current liabilities of discontinued operations (C) | - | 2,536 | ||||||
Total current liabilities | 2,749 | 5,211 | ||||||
Long-term debt, less amount due within one year (J and V) | 8,044 | 8,786 | ||||||
Accrued pension benefits (U) | 2,345 | 1,925 | ||||||
Accrued other postretirement benefits (U) | 889 | 917 | ||||||
Other noncurrent liabilities and deferred credits (K) | 870 | 828 | ||||||
Noncurrent liabilities of discontinued operations (C) | - | 4,679 | ||||||
Total liabilities | 14,897 | 22,346 | ||||||
Contingencies and commitments (L) | ||||||||
Equity | ||||||||
Arconic shareholders’ equity: | ||||||||
Preferred stock (P) | 55 | 55 | ||||||
Mandatory convertible preferred stock (P) | 3 | 3 | ||||||
Common stock (P) | 438 | 1,391 | ||||||
Additional capital | 8,214 | 10,019 | ||||||
Retained (deficit) earnings | (1,027 | ) | 8,834 | |||||
Treasury stock, at cost (P) | - | (2,825 | ) | |||||
Accumulated other comprehensive loss (B) | (2,568 | ) | (5,431 | ) | ||||
Total Arconic shareholders’ equity | 5,115 | 12,046 | ||||||
Noncontrolling interests | 26 | 2,085 | ||||||
Total equity | 5,141 | 14,131 | ||||||
Total Liabilities and Equity | $ | 20,038 | $ | 36,477 | ||||
| December 31, | 2017 | 2016 | ||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents (U) | $ | 2,150 | $ | 1,863 | ||
| Receivables from customers, less allowances of $8 in 2017 and $13 in 2016 (R) | 1,035 | 974 | ||||
| Other receivables (C and R) | 339 | 477 | ||||
| Inventories (G) | 2,480 | 2,253 | ||||
| Prepaid expenses and other current assets | 374 | 325 | ||||
| Total current assets | 6,378 | 5,892 | ||||
| Properties, plants, and equipment, net (H) | 5,594 | 5,499 | ||||
| Goodwill (A and E) | 4,535 | 5,148 | ||||
| Deferred income taxes (Q) | 743 | 1,234 | ||||
| Investment in common stock of Alcoa Corporation (C and U) | — | 1,020 | ||||
| Intangibles, net (E) | 987 | 988 | ||||
| Other noncurrent assets | 481 | 257 | ||||
| Total Assets | $ | 18,718 | $ | 20,038 | ||
| Liabilities | ||||||
| Current liabilities: | ||||||
| Accounts payable, trade | $ | 1,839 | $ | 1,744 | ||
| Accrued compensation and retirement costs | 399 | 398 | ||||
| Taxes, including income taxes | 75 | 85 | ||||
| Accrued interest payable | 124 | 153 | ||||
| Other current liabilities | 349 | 329 | ||||
| Short-term debt (I and U) | 38 | 40 | ||||
| Total current liabilities | 2,824 | 2,749 | ||||
| Long-term debt, less amount due within one year (I and U) | 6,806 | 8,044 | ||||
| Accrued pension benefits (T) | 2,564 | 2,345 | ||||
| Accrued other postretirement benefits (T) | 841 | 889 | ||||
| Other noncurrent liabilities and deferred credits (J) | 759 | 870 | ||||
| Total liabilities | 13,794 | 14,897 | ||||
| Contingencies and commitments (K) | ||||||
| Equity | ||||||
| Arconic shareholders’ equity: | ||||||
| Preferred stock (O) | 55 | 55 | ||||
| Mandatory convertible preferred stock (O) | — | 3 | ||||
| Common stock (O) | 481 | 438 | ||||
| Additional capital | 8,266 | 8,214 | ||||
| Accumulated deficit | (1,248 | ) | (1,027 | ) | ||
| Accumulated other comprehensive loss (B) | (2,644 | ) | (2,568 | ) | ||
| Total Arconic shareholders’ equity | 4,910 | 5,115 | ||||
| Noncontrolling interests | 14 | 26 | ||||
| Total equity | 4,924 | 5,141 | ||||
| Total Liabilities and Equity | $ | 18,718 | $ | 20,038 | ||
| For the year ended December 31, | 2016 | 2015 | 2014 | |||||||||
Cash from Operations | ||||||||||||
Net (loss) income | $ | (878 | ) | $ | (197 | ) | $ | 177 | ||||
Adjustments to reconcile net (loss) income to cash from operations: | ||||||||||||
Depreciation, depletion and amortization | 1,132 | 1,280 | 1,372 | |||||||||
Deferred income taxes | 1,125 | 34 | (35 | ) | ||||||||
Equity income, net of dividends | 42 | 158 | 104 | |||||||||
Impairment of goodwill (A and E) | - | 25 | - | |||||||||
Restructuring and other charges | 257 | 1,195 | 1,168 | |||||||||
Net gain from investing activities—asset sales | (156 | ) | (74 | ) | (47 | ) | ||||||
Net periodic pension benefit cost | 304 | 485 | 423 | |||||||||
Stock-based compensation | 86 | 92 | 87 | |||||||||
Excess tax benefits from stock-based payment arrangements | - | (9 | ) | (9 | ) | |||||||
Other | 60 | (32 | ) | 66 | ||||||||
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments: | ||||||||||||
(Increase) decrease in receivables | (238 | ) | 212 | (312 | ) | |||||||
(Increase) in inventories | (29 | ) | (64 | ) | (355 | ) | ||||||
(Increase) decrease in prepaid expenses and other current assets | (76 | ) | 46 | (25 | ) | |||||||
Increase (decrease) in accounts payable, trade | 232 | (90 | ) | 256 | ||||||||
(Decrease) in accrued expenses | (394 | ) | (437 | ) | (451 | ) | ||||||
Increase in taxes, including income taxes | 93 | 25 | 7 | |||||||||
Pension contributions | (290 | ) | (470 | ) | (501 | ) | ||||||
(Increase) in noncurrent assets | (152 | ) | (370 | ) | (42 | ) | ||||||
(Decrease) in noncurrent liabilities | (248 | ) | (227 | ) | (209 | ) | ||||||
Cash provided from operations | 870 | 1,582 | 1,674 | |||||||||
Financing Activities | ||||||||||||
Net change in short-term borrowings (original maturities of three months or less) | (3 | ) | (16 | ) | (2 | ) | ||||||
Additions to debt (original maturities greater than three months) | 1,962 | 1,901 | 2,878 | |||||||||
Debt issuance costs | (1 | ) | (3 | ) | (17 | ) | ||||||
Payments on debt (original maturities greater than three months) | (2,734 | ) | (2,030 | ) | (1,723 | ) | ||||||
Proceeds from exercise of employee stock options | 4 | 25 | 150 | |||||||||
Excess tax benefits from stock-based payment arrangements | - | 9 | 9 | |||||||||
Issuance of mandatory convertible preferred stock (P) | - | - | 1,211 | |||||||||
Dividends paid to shareholders | (228 | ) | (223 | ) | (161 | ) | ||||||
Distributions to noncontrolling interests | (226 | ) | (106 | ) | (120 | ) | ||||||
Contributions from noncontrolling interests | 51 | 2 | 53 | |||||||||
Acquisitions of noncontrolling interests | - | - | (28 | ) | ||||||||
Net cash transferred from Alcoa Corporation at separation | 421 | - | - | |||||||||
Cash (used for) provided from financing activities | (754 | ) | (441 | ) | 2,250 | |||||||
Investing Activities | ||||||||||||
Capital expenditures | (1,125 | ) | (1,180 | ) | (1,219 | ) | ||||||
Acquisitions, net of cash acquired (F and N) | 10 | 97 | (2,385 | ) | ||||||||
Proceeds from the sale of assets and businesses | 692 | 112 | 253 | |||||||||
Additions to investments | (52 | ) | (134 | ) | (195 | ) | ||||||
Sales of investments | 280 | 40 | 57 | |||||||||
Net change in restricted cash | 14 | (20 | ) | (2 | ) | |||||||
Other | 16 | 25 | 31 | |||||||||
Cash used for investing activities | (165 | ) | �� | (1,060 | ) | (3,460 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (7 | ) | (39 | ) | (24 | ) | ||||||
Net change in cash and cash equivalents | (56 | ) | 42 | 440 | ||||||||
Cash and cash equivalents at beginning of year | 1,919 | 1,877 | 1,437 | |||||||||
Cash and cash equivalents at end of year | $ | 1,863 | $ | 1,919 | $ | 1,877 | ||||||
| For the year ended December 31, | 2017 | 2016 | 2015 | ||||||
| Cash from Operations | |||||||||
| Net loss | $ | (74 | ) | $ | (878 | ) | $ | (197 | ) |
| Adjustments to reconcile net loss to cash from operations: | |||||||||
| Depreciation, depletion and amortization | 551 | 1,132 | 1,280 | ||||||
| Deferred income taxes | 434 | 1,125 | 34 | ||||||
| Equity income, net of dividends | — | 42 | 158 | ||||||
| Impairment of goodwill (A and E) | 719 | — | 25 | ||||||
| Restructuring and other charges | 165 | 257 | 1,195 | ||||||
| Net gain from investing activities—asset sales | (513 | ) | (156 | ) | (74 | ) | |||
| Net periodic pension benefit cost | 217 | 304 | 485 | ||||||
| Stock-based compensation | 67 | 86 | 92 | ||||||
| Excess tax benefits from stock-based payment arrangements | — | — | (9 | ) | |||||
| Other | 61 | 60 | (32 | ) | |||||
| Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments: | |||||||||
| (Increase) decrease in receivables | (124 | ) | (238 | ) | 212 | ||||
| (Increase) in inventories | (192 | ) | (29 | ) | (64 | ) | |||
| Decrease (increase) in prepaid expenses and other current assets | 11 | (76 | ) | 46 | |||||
| Increase (decrease) in accounts payable, trade | 62 | 232 | (90 | ) | |||||
| (Decrease) in accrued expenses | (116 | ) | (394 | ) | (437 | ) | |||
| (Decrease) increase in taxes, including income taxes | (23 | ) | 93 | 25 | |||||
| Pension contributions | (310 | ) | (290 | ) | (470 | ) | |||
| (Increase) in noncurrent assets | (41 | ) | (152 | ) | (370 | ) | |||
| (Decrease) in noncurrent liabilities | (193 | ) | (248 | ) | (227 | ) | |||
| Cash provided from operations | 701 | 870 | 1,582 | ||||||
| Financing Activities | |||||||||
| Net change in short-term borrowings (original maturities of three months or less) | (2 | ) | (3 | ) | (16 | ) | |||
| Additions to debt (original maturities greater than three months) | 816 | 1,962 | 1,901 | ||||||
| Payments on debt (original maturities greater than three months) | (1,634 | ) | (2,734 | ) | (2,030 | ) | |||
| Proceeds from exercise of employee stock options | 50 | 4 | 25 | ||||||
| Excess tax benefits from stock-based payment arrangements | — | — | 9 | ||||||
| Dividends paid to shareholders | (162 | ) | (228 | ) | (223 | ) | |||
| Distributions to noncontrolling interests | (14 | ) | (226 | ) | (106 | ) | |||
| Contributions from noncontrolling interests | — | 51 | 2 | ||||||
| Net cash transferred from Alcoa Corporation at separation | — | 421 | — | ||||||
| Other | (17 | ) | (1 | ) | (3 | ) | |||
| Cash used for financing activities | (963 | ) | (754 | ) | (441 | ) | |||
| Investing Activities | |||||||||
| Capital expenditures | (596 | ) | (1,125 | ) | (1,180 | ) | |||
| Acquisitions, net of cash acquired (F and M) | — | 10 | 97 | ||||||
| Proceeds from the sale of assets and businesses (M) | (9 | ) | 692 | 112 | |||||
| Additions to investments | (2 | ) | (52 | ) | (134 | ) | |||
| Sales of investments (C and M) | 890 | 280 | 40 | ||||||
| Net change in restricted cash | 12 | 14 | (20 | ) | |||||
| Other (C) | 245 | 16 | 25 | ||||||
| Cash provided from (used for) investing activities | 540 | (165 | ) | (1,060 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 9 | (7 | ) | (39 | ) | ||||
| Net change in cash and cash equivalents | 287 | (56 | ) | 42 | |||||
| Cash and cash equivalents at beginning of year | 1,863 | 1,919 | 1,877 | ||||||
| Cash and cash equivalents at end of year | $ | 2,150 | $ | 1,863 | $ | 1,919 | |||
| Arconic Shareholders | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Mandatory convertible preferred stock | Common stock | Additional capital | Retained (deficit) earnings | Treasury stock | Accumulated Other Comprehensive Loss | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||
Balance at December 31, 2013 | $ | 55 | $ | - | $ | 1,178 | $ | 7,509 | $ | 9,272 | $ | (3,762 | ) | $ | (3,659 | ) | $ | 2,929 | $ | 13,522 | ||||||||||||||||
Net (loss) income | - | - | - | - | 268 | - | - | (91 | ) | 177 | ||||||||||||||||||||||||||
Other comprehensive loss (B) | - | - | - | - | - | - | (1,018 | ) | (254 | ) | (1,272 | ) | ||||||||||||||||||||||||
Cash dividends declared: | ||||||||||||||||||||||||||||||||||||
Preferred–Class A @ $3.75 per share | - | - | - | - | (2 | ) | - | - | - | (2 | ) | |||||||||||||||||||||||||
Preferred–Class B @ 7.53993 per share | - | - | - | - | (19 | ) | - | - | - | (19 | ) | |||||||||||||||||||||||||
Common @ $0.12 per share | - | - | - | - | (140 | ) | - | - | - | (140 | ) | |||||||||||||||||||||||||
Stock-based compensation (P) | - | - | - | 87 | - | - | - | - | 87 | |||||||||||||||||||||||||||
Common stock issued: compensation plans (P) | - | - | - | (584 | ) | - | 720 | - | - | 136 | ||||||||||||||||||||||||||
Issuance of mandatory convertible preferred stock (P) | - | 3 | - | 1,210 | - | - | - | - | 1,213 | |||||||||||||||||||||||||||
Issuance of common stock (F and P) | - | - | 126 | 1,059 | - | - | - | - | 1,185 | |||||||||||||||||||||||||||
Distributions | - | - | - | - | - | - | - | (120 | ) | (120 | ) | |||||||||||||||||||||||||
Contributions | - | - | - | - | - | - | - | 53 | 53 | |||||||||||||||||||||||||||
Purchase of equity from noncontrolling interest | - | - | - | 3 | - | - | - | (31 | ) | (28 | ) | |||||||||||||||||||||||||
Other | - | - | - | - | - | - | - | 2 | 2 | |||||||||||||||||||||||||||
Balance at December 31, 2014 | $ | 55 | $ | 3 | $ | 1,304 | $ | 9,284 | $ | 9,379 | $ | (3,042 | ) | $ | (4,677 | ) | $ | 2,488 | $ | 14,794 | ||||||||||||||||
Net (loss) income | - | - | - | - | (322 | ) | - | - | 125 | (197 | ) | |||||||||||||||||||||||||
Other comprehensive loss (B) | - | - | - | - | - | - | (754 | ) | (422 | ) | (1,176 | ) | ||||||||||||||||||||||||
Cash dividends declared: | ||||||||||||||||||||||||||||||||||||
Preferred–Class A @ | - | - | - | - | (2 | ) | - | - | - | (2 | ) | |||||||||||||||||||||||||
Preferred–Class B @ | - | - | - | - | (67 | ) | - | - | - | (67 | ) | |||||||||||||||||||||||||
Common @ $0.12 per share | - | - | - | - | (154 | ) | - | - | - | (154 | ) | |||||||||||||||||||||||||
Equity option on convertible notes (F) | - | - | - | 55 | - | - | - | - | 55 | |||||||||||||||||||||||||||
Stock-based compensation (P) | - | - | - | 92 | - | - | - | - | 92 | |||||||||||||||||||||||||||
Common stock issued: compensation plans (P) | - | - | - | (195 | ) | - | 217 | - | - | 22 | ||||||||||||||||||||||||||
Issuance of common stock (F and P) | - | - | 87 | 783 | - | - | - | - | 870 | |||||||||||||||||||||||||||
Distributions | - | - | - | - | - | - | - | (106 | ) | (106 | ) | |||||||||||||||||||||||||
Contributions | - | - | - | - | - | - | - | 2 | 2 | |||||||||||||||||||||||||||
Other | - | - | - | - | - | - | - | (2 | ) | (2 | ) | |||||||||||||||||||||||||
Balance at December 31, 2015 | $ | 55 | $ | 3 | $ | 1,391 | $ | 10,019 | $ | 8,834 | $ | (2,825 | ) | $ | (5,431 | ) | $ | 2,085 | $ | 14,131 | ||||||||||||||||
Net (loss) income | - | - | - | - | (941 | ) | - | - | 63 | (878 | ) | |||||||||||||||||||||||||
Other comprehensive loss (B) | - | - | - | - | - | - | (691 | ) | 184 | (507 | ) | |||||||||||||||||||||||||
Cash dividends declared: | ||||||||||||||||||||||||||||||||||||
Preferred–Class A @ $3.75 per share | - | - | - | - | (2 | ) | - | - | - | (2 | ) | |||||||||||||||||||||||||
Preferred–Class B @ $26.8750 per share | - | - | - | - | (67 | ) | - | - | - | (67 | ) | |||||||||||||||||||||||||
Common @ $0.36 per share | - | - | - | - | (159 | ) | - | - | - | (159 | ) | |||||||||||||||||||||||||
Stock-based compensation (P) | - | - | - | 86 | - | - | - | - | 86 | |||||||||||||||||||||||||||
Common stock issued: compensation plans (P) | - | - | - | (205 | ) | - | 186 | - | - | (19 | ) | |||||||||||||||||||||||||
Retirement of Treasury stock (P) | - | - | (76 | ) | (2,563 | ) | - | 2,639 | - | - | - | |||||||||||||||||||||||||
Reverse stock split (A and P) | - | - | (877 | ) | 877 | - | - | - | - | - | ||||||||||||||||||||||||||
Distribution of Alcoa Corporation | - | - | - | - | (8,692 | ) | - | 3,554 | (2,133 | ) | (7,271 | ) | ||||||||||||||||||||||||
Distributions | - | - | - | - | - | - | - | (226 | ) | (226 | ) | |||||||||||||||||||||||||
Contributions | - | - | - | - | - | - | - | 51 | 51 | |||||||||||||||||||||||||||
Other | - | - | - | - | - | - | - | 2 | 2 | |||||||||||||||||||||||||||
Balance at December 31, 2016 | $ | 55 | $ | 3 | $ | 438 | $ | 8,214 | $ | (1,027 | ) | $ | - | $ | (2,568 | ) | $ | 26 | $ | 5,141 | ||||||||||||||||
| Arconic Shareholders | |||||||||||||||||||||||||||
Preferred stock | Mandatory convertible preferred stock | Common stock | Additional capital | Retained earnings (deficit) | Treasury stock | Accumulated Other Comprehensive Loss | Noncontrolling interests | Total equity | |||||||||||||||||||
| Balance at December 31, 2014 | $ | 55 | $ | 3 | $ | 1,304 | $ | 9,284 | $ | 9,379 | $ | (3,042 | ) | $ | (4,677 | ) | $ | 2,488 | $ | 14,794 | |||||||
| Net (loss) income | — | — | — | — | (322 | ) | — | — | 125 | (197 | ) | ||||||||||||||||
| Other comprehensive loss (B) | — | — | — | — | — | — | (754 | ) | (422 | ) | (1,176 | ) | |||||||||||||||
| Cash dividends declared: | |||||||||||||||||||||||||||
| Preferred–Class A @ $3.75 per share | — | — | — | — | (2 | ) | — | — | — | (2 | ) | ||||||||||||||||
| Preferred–Class B @ $26.8750 per share | — | — | — | — | (67 | ) | — | — | — | (67 | ) | ||||||||||||||||
| Common @ $0.12 per share | — | — | — | — | (154 | ) | — | — | — | (154 | ) | ||||||||||||||||
| Equity option on convertible notes (F) | — | — | — | 55 | — | — | — | — | 55 | ||||||||||||||||||
| Stock-based compensation (O) | — | — | — | 92 | — | — | — | — | 92 | ||||||||||||||||||
| Common stock issued: compensation plans (O) | — | — | — | (195 | ) | — | 217 | — | — | 22 | |||||||||||||||||
| Issuance of common stock (F and O) | — | — | 87 | 783 | — | — | — | — | 870 | ||||||||||||||||||
| Distributions | — | — | — | — | — | — | — | (106 | ) | (106 | ) | ||||||||||||||||
| Contributions | — | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||
| Other | — | — | — | — | — | — | — | (2 | ) | (2 | ) | ||||||||||||||||
| Balance at December 31, 2015 | $ | 55 | $ | 3 | $ | 1,391 | $ | 10,019 | $ | 8,834 | $ | (2,825 | ) | $ | (5,431 | ) | $ | 2,085 | $ | 14,131 | |||||||
| Net (loss) income | — | — | — | — | (941 | ) | — | — | 63 | (878 | ) | ||||||||||||||||
| Other comprehensive (loss) income (B) | — | — | — | — | — | — | (691 | ) | 184 | (507 | ) | ||||||||||||||||
| Cash dividends declared: | |||||||||||||||||||||||||||
| Preferred–Class A @ $3.75 per share | — | — | — | — | (2 | ) | — | — | — | (2 | ) | ||||||||||||||||
| Preferred–Class B @ $26.8750 per share | — | — | — | — | (67 | ) | — | — | — | (67 | ) | ||||||||||||||||
| Common @ $0.36 per share | — | — | — | — | (159 | ) | — | — | — | (159 | ) | ||||||||||||||||
| Stock-based compensation (O) | — | — | — | 86 | — | — | — | — | 86 | ||||||||||||||||||
| Common stock issued: compensation plans (O) | — | — | — | (205 | ) | — | 186 | — | — | (19 | ) | ||||||||||||||||
| Retirement of Treasury stock (O) | — | — | (76 | ) | (2,563 | ) | — | 2,639 | — | — | — | ||||||||||||||||
| Reverse stock split (O) | — | — | (877 | ) | 877 | — | — | — | — | — | |||||||||||||||||
| Distribution of Alcoa Corporation | — | — | — | — | (8,692 | ) | — | 3,554 | (2,133 | ) | (7,271 | ) | |||||||||||||||
| Distributions | — | — | — | — | — | — | — | (226 | ) | (226 | ) | ||||||||||||||||
| Contributions | — | — | — | — | — | — | — | 51 | 51 | ||||||||||||||||||
| Other | — | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||
| Balance at December 31, 2016 | $ | 55 | $ | 3 | $ | 438 | $ | 8,214 | $ | (1,027 | ) | $ | — | $ | (2,568 | ) | $ | 26 | $ | 5,141 | |||||||
| Net loss | — | — | — | — | (74 | ) | — | — | — | (74 | ) | ||||||||||||||||
| Other comprehensive loss (B) | — | — | — | — | — | — | (76 | ) | 2 | (74 | ) | ||||||||||||||||
| 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 | — | — | — | — | (109 | ) | — | — | — | (109 | ) | ||||||||||||||||
| Stock-based compensation (O) | — | — | — | 67 | — | — | — | — | 67 | ||||||||||||||||||
| Common stock issued: compensation plans (O) | — | — | — | 21 | — | — | — | — | 21 | ||||||||||||||||||
| Conversion of mandatory convertible preferred stock (O) | — | (3 | ) | 39 | (36 | ) | — | — | — | — | — | ||||||||||||||||
| Issuance of common stock (F and O) | — | — | 4 | — | — | — | — | — | 4 | ||||||||||||||||||
| Distributions | — | — | — | — | — | — | — | (14 | ) | (14 | ) | ||||||||||||||||
| Other | — | — | — | — | 15 | — | — | — | 15 | ||||||||||||||||||
| Balance at December 31, 2017 | $ | 55 | $ | — | $ | 481 | $ | 8,266 | $ | (1,248 | ) | $ | — | $ | (2,644 | ) | $ | 14 | $ | 4,924 | |||||||
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 and authorized shares of common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, every 3 shares of issued and outstanding common stock were combined into one issued and outstanding share of common stock, without any change in the par value per share. The Reverse Stock Split reduced the number of shares 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 NYSE on October 6, 2016.
| Segment | Structures | Machinery and equipment | ||||||
Global Rolled Products | 31 | 21 | ||||||
Engineered Products and Solutions | 29 | 17 | ||||||
Transportation and Construction Solutions | 27 | 19 | ||||||
| Segment | Structures | Machinery and equipment |
| Engineered Products and Solutions | 29 | 17 |
| Global Rolled Products | 31 | 21 |
| Transportation and Construction Solutions | 27 | 18 |
See Note F for information regarding asset impairments.
In November 2014, Arconic acquired Firth Rixson (see Note F), and, as a result recognized $1,801 in goodwill. This amount was allocated between the AFSR and Arconic Forgings and Extrusions (AFE) reporting units, which is part of the Engineered Products and Solutions segment. In March and July 2015, Arconic acquired TITAL and RTI, respectively, (see Note F) and recognized $117 and $298, respectively, in goodwill. The goodwill amount related to TITAL was allocated to the APP reporting unit and the amount related to RTI was allocated to Arconic Titanium and Engineered Products (ATEP), a new Arconic reporting unit that consists solely of the acquired RTI business and is part of the Engineered Products and Solutions segment.
existing two-step quantitative impairment test (described below), otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test.
Arconic’s policy for
In Arconic would recognize an impairment charge for the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional analysis would be required. The additional analysis would compareamount by which the carrying amount ofexceeds the reporting unit’s goodwill with the implied fair value of that goodwill, which may involvewithout exceeding the use of valuation experts. The implied fair valuetotal amount of goodwill is the excess of the fair value of theallocated to that reporting unit over the fair value amounts assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an impairment loss equal to such excess would be recognized, which could significantly and adversely impact reported results of operations and shareholders’ equity.
unit.
However, the estimated fair value of AFE was lower than its carrying value. As such, in the fourth quarter of 2017, Arconic recorded an impairment for the full amount of goodwill in the AFE reporting unit of $719. The decrease in the AFE fair value was primarily due to unfavorable performance that is impacting operating margins and a higher discount rate due to an increase in the risk-free rate of return, while the carrying value increased compared to prior year.
segment. In the fourth quarter of 2015, for SAE,the soft alloy extrusion business in Brazil, the estimated fair value as determined by the DCF model was lower than the associated carrying value of the SAEits reporting unit’s goodwill. As a result, management performed the second step of the impairment analysis in order to determine the implied fair value of the SAE reporting unit’s goodwill. The results of the second-step analysis showeddetermined that the implied fair value of the reporting unit’s goodwill was zero. Therefore, in the fourth quarter of 2015, Arconic recorded a goodwill impairment of $25.$25 in 2015. The impairment of the SAE goodwill resulted from headwinds from the downturn in the Brazilian economy and the continued erosion of gross margin despite the execution of cost reduction strategies. As a result of the goodwill impairment, there is no goodwill remaining for the SAE reporting unit.
| Segment | Software | Other intangible assets | ||||||
Global Rolled Products | 8 | 9 | ||||||
Engineered Products and Solutions | 7 | 34 | ||||||
Transportation and Construction Solutions | 6 | 16 | ||||||
| Segment | Software | Other intangible assets |
| Engineered Products and Solutions | 6 | 34 |
| Global Rolled Products | 6 | 9 |
| Transportation and Construction Solutions | 5 | 16 |
On January 1, 2016, Arconic adopted changes issued by the FASB to the analysis an entity must perform to determine whether it should consolidate certain types of legal entities. These changes (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The adoption of these changes had no impact on the Consolidated Financial Statements.
On January 1, 2016, Arconic adopted changes issued by the FASB to the presentation of debt issuance costs. Previously, such costs were required to be presented as a noncurrent asset in an entity’s balance sheet and amortized into interest expense over the term of the related debt instrument. The changes require that debt issuance costs be presented in an entity’s balance sheet as a direct deduction from the carrying value of the related debt liability. The
amortization of debt issuance costs remains unchanged. The FASB issued an update to these changes based on an announcement of the staff of the U.S. Securities and Exchange Commission. This update provides an exception to the FASB changes allowing debt issuance costs related to line-of-credit arrangements to continue to be presented as an asset regardless of whether there are any outstanding borrowings under such arrangement. This additional change also was adopted by Arconic on January 1, 2016. This adoption is required on a retrospective basis; therefore, the December 31, 2015 Consolidated Balance Sheet has been updated to conform to the December 31, 2016 presentation. As a result, $51 of debt issuance costs (previously reported in Other noncurrent assets) were reclassified to the Long-term debt, less amount due within one year line item on the December 31, 2015 Consolidated Balance Sheet.
For the 2016 annual period, Arconic adopted changes issued by the FASB related to the evaluation of an entity’s ability to continue as a going concern. Previously, under GAAP, continuation of a reporting entity as a going concern was presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation was not imminent, there may have been conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern. Because there was no guidance in GAAP about management’s responsibility to evaluate whether there was substantial doubt about an entity’s ability to continue as a going concern or to provide related note disclosures, there was diversity in practice whether, when, and how an entity discloses the relevant conditions and events in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. The adoption of these changes had no impact on the Consolidated Financial Statements. This guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the Consolidated Financial Statements in a given reporting period.
Recently Issued Accounting Guidance. 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 at 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. Additionally, the impairment assessment of equity investments without readily determinable fair values has been simplified by requiring a qualitative assessment to identify impairment. These changes become effective for Arconic on January 1, 2018. Management has determined that the potential impact of these changes on the Consolidated Financial Statements will not be material.
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, 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. These changes become effective for Arconic on January 1, 2019. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.
In March 2016, the FASB issued changes(“FASB”) to employee share-based payment accounting. Currently,Previously, an entity must determinedetermined for each share-based payment award whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes resultsresulted in either an excess tax benefit or a tax deficiency.
Excess tax benefits arewere recognized in additional paid-in capital; tax deficiencies arewere recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. Excess tax benefits arewere not recognized until the deduction reducesreduced 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.Statement of Consolidated Operations. 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. Additionally,In addition, the presentation of excess tax benefits related to share-based payment awards in the statement of cash flows is changed. Currently,Previously, excess tax benefits must bewere 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. Currently, there is no specific guidance on the classification in the statement of cash flows of cash paid by an employer to the tax authorities when directly withholding shares for tax-withholding purposes. Additionally,Further, for a share-based award to qualify for equity classification it cannotpreviously could not be partially settlesettled in cash in excessin-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 effectiveThe prospective transition method was utilized for Arconic on January 1, 2017.excess tax benefits in the Statement of Consolidated Cash Flows. Management has determined that the adoption of this guidance willdid not have a material effectimpact on the Consolidated Financial Statements.
In March 2016,
In March 2016,
In June 2016,
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 become effective for Arconic on January 1, 2018. Management does not expect these changes to 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. Under current US GAAP,Previously, no immediate tax impact iswas recognized in the consolidated financial statements as a result of intra-entity transfers of assets. The currentprevious standard precludesprecluded an entity from reflecting a tax benefit or expense from an intra-entity asset transfer between entities that file separate tax returns, whether or not such entities arewere in different tax jurisdictions, until the asset has beenwas sold to a third party or otherwise recovered. The currentprevious standard also prohibitsprohibited 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 has determined that the adoption of this guidance willdid not have a material impact on the Consolidated Financial Statements.
In November 2016,
In July 2015,
While the Company generally recognizes revenue at a point in time upon delivery and transfer of title and risk of loss for most arrangements, based on the contract reviews performed, certain contracts within the Engineered Products and Solutions segment were identified as potentially moving to over time revenue recognition. The Company modified certain contract terms in conjunction with its customers to remain at point-in-time revenue recognition. These modifications will not result in significant changes to revenue, business practices or controls. Management has determined that the adoption of this guidance will not have a material impact on the Consolidated Financial Statements. 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.
| Arconic | Noncontrolling Interests | |||||||||||||||||||||||
| 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||
Pension and other postretirement benefits (U) | ||||||||||||||||||||||||
Balance at beginning of period | $ | (3,611 | ) | $ | (3,601 | ) | $ | (3,532 | ) | $ | (56 | ) | $ | (64 | ) | $ | (51 | ) | ||||||
Other comprehensive (loss) income: | ||||||||||||||||||||||||
Unrecognized net actuarial loss and prior service cost/benefit | (1,112 | ) | (478 | ) | (492 | ) | (9 | ) | 5 | (22 | ) | |||||||||||||
Tax benefit (expense) | 380 | 170 | 167 | 3 | (1 | ) | 7 | |||||||||||||||||
Total Other comprehensive (loss) income before reclassifications, net of tax | (732 | ) | (308 | ) | (325 | ) | (6 | ) | 4 | (15 | ) | |||||||||||||
Amortization of net actuarial loss and prior service cost/benefit(1) | 389 | 458 | 394 | 4 | 6 | 3 | ||||||||||||||||||
Tax expense(2) | (136 | ) | (160 | ) | (138 | ) | (1 | ) | (2 | ) | (1 | ) | ||||||||||||
Total amount reclassified from Accumulated other comprehensive loss, net of tax(8) | 253 | 298 | 256 | 3 | 4 | 2 | ||||||||||||||||||
Total Other comprehensive (loss) income | (479 | ) | (10 | ) | (69 | ) | (3 | ) | 8 | (13 | ) | |||||||||||||
Transfer to Alcoa Corporation | 2,080 | - | - | 59 | - | - | ||||||||||||||||||
Balance at end of period | $ | (2,010 | ) | $ | (3,611 | ) | $ | (3,601 | ) | $ | - | $ | (56 | ) | $ | (64 | ) | |||||||
Foreign currency translation | ||||||||||||||||||||||||
Balance at beginning of period | $ | (2,412 | ) | $ | (846 | ) | $ | 179 | $ | (780 | ) | $ | (351 | ) | $ | (110 | ) | |||||||
Other comprehensive income (loss)(3) | 268 | (1,566 | ) | (1,025 | ) | 182 | (429 | ) | (241 | ) | ||||||||||||||
Transfer to Alcoa Corporation | 1,455 | - | - | 596 | - | - | ||||||||||||||||||
Balance at end of period | $ | (689 | ) | $ | (2,412 | ) | $ | (846 | ) | $ | (2 | ) | $ | (780 | ) | $ | (351 | ) | ||||||
Available-for-sale securities | ||||||||||||||||||||||||
Balance at beginning of period | $ | (5 | ) | $ | - | $ | 2 | $ | - | $ | - | $ | - | |||||||||||
Other comprehensive income (loss)(4) | 137 | (5 | ) | (2 | ) | - | - | - | ||||||||||||||||
Transfer to Alcoa Corporation | - | - | - | - | - | - | ||||||||||||||||||
Balance at end of period | $ | 132 | $ | (5 | ) | $ | - | $ | - | $ | - | $ | - | |||||||||||
Cash flow hedges | ||||||||||||||||||||||||
Balance at beginning of period | $ | 597 | $ | (230 | ) | $ | (308 | ) | $ | (3 | ) | $ | (2 | ) | $ | (2 | ) | |||||||
Other comprehensive (loss) income: | ||||||||||||||||||||||||
Net change from periodic revaluations | (843 | ) | 1,138 | 78 | 36 | (1 | ) | - | ||||||||||||||||
Tax benefit (expense) | 252 | (340 | ) | (21 | ) | (10 | ) | - | - | |||||||||||||||
Total Other comprehensive (loss) income before reclassifications, net of tax | (591 | ) | 798 | 57 | 26 | (1 | ) | - | ||||||||||||||||
Net amount reclassified to earnings: | ||||||||||||||||||||||||
Aluminum contracts(5) | 1 | 21 | 27 | - | - | - | ||||||||||||||||||
Energy contracts(6) | (49 | ) | 6 | - | (34 | ) | - | - | ||||||||||||||||
Foreign exchange contracts(5) | - | 5 | (3 | ) | - | - | - | |||||||||||||||||
Interest rate contracts(7) | 9 | 1 | 1 | 5 | - | - | ||||||||||||||||||
Nickel contracts(6) | 1 | 2 | - | - | - | - | ||||||||||||||||||
Sub-total | (38 | ) | 35 | 25 | (29 | ) | - | - | ||||||||||||||||
Tax benefit (expense)(2) | 12 | (6 | ) | (4 | ) | 8 | - | - | ||||||||||||||||
Total amount reclassified from Accumulated other comprehensive loss, net of tax(8) | (26 | ) | 29 | 21 | (21 | ) | - | - | ||||||||||||||||
Total Other comprehensive (loss) income | (617 | ) | 827 | 78 | 5 | (1 | ) | - | ||||||||||||||||
Transfer to Alcoa Corporation | 19 | - | - | (2 | ) | - | - | |||||||||||||||||
Balance at end of period | $ | (1 | ) | $ | 597 | $ | (230 | ) | $ | - | $ | (3 | ) | $ | (2 | ) | ||||||||
| Arconic | Noncontrolling Interests | ||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||
| Pension and other postretirement benefits (U) | |||||||||||||||||||
| Balance at beginning of period | $ | (2,010 | ) | $ | (3,611 | ) | $ | (3,601 | ) | $ | — | $ | (56 | ) | $ | (64 | ) | ||
| Other comprehensive (loss) income: | |||||||||||||||||||
| Unrecognized net actuarial loss and prior service cost/benefit | (466 | ) | (1,112 | ) | (478 | ) | — | (9 | ) | 5 | |||||||||
| Tax benefit (expense) | 102 | 380 | 170 | — | 3 | (1 | ) | ||||||||||||
| Total Other comprehensive (loss) income before reclassifications, net of tax | (364 | ) | (732 | ) | (308 | ) | — | (6 | ) | 4 | |||||||||
Amortization of net actuarial loss and prior service cost/benefit(1) | 222 | 389 | 458 | — | 4 | 6 | |||||||||||||
Tax expense(2) | (78 | ) | (136 | ) | (160 | ) | — | (1 | ) | (2 | ) | ||||||||
Total amount reclassified from Accumulated other comprehensive loss, net of tax(8) | 144 | 253 | 298 | — | 3 | 4 | |||||||||||||
| Total Other comprehensive (loss) income | (220 | ) | (479 | ) | (10 | ) | — | (3 | ) | 8 | |||||||||
| Transfer to Alcoa Corporation | — | 2,080 | — | — | 59 | — | |||||||||||||
| Balance at end of period | $ | (2,230 | ) | $ | (2,010 | ) | $ | (3,611 | ) | $ | — | $ | — | $ | (56 | ) | |||
| Foreign currency translation | |||||||||||||||||||
| Balance at beginning of period | $ | (689 | ) | $ | (2,412 | ) | $ | (846 | ) | $ | (2 | ) | $ | (780 | ) | $ | (351 | ) | |
Other comprehensive income (loss)(3) | 252 | 268 | (1,566 | ) | 2 | 182 | (429 | ) | |||||||||||
| Transfer to Alcoa Corporation | — | 1,455 | — | — | 596 | — | |||||||||||||
| Balance at end of period | $ | (437 | ) | $ | (689 | ) | $ | (2,412 | ) | $ | — | $ | (2 | ) | $ | (780 | ) | ||
| Available-for-sale securities | |||||||||||||||||||
| Balance at beginning of period | $ | 132 | $ | (5 | ) | $ | — | $ | — | $ | — | $ | — | ||||||
Other comprehensive (loss) income (4) | (134 | ) | 137 | (5 | ) | — | — | — | |||||||||||
| Transfer to Alcoa Corporation | — | — | — | — | — | — | |||||||||||||
| Balance at end of period | $ | (2 | ) | $ | 132 | $ | (5 | ) | $ | — | $ | — | $ | — | |||||
| Cash flow hedges | |||||||||||||||||||
| Balance at beginning of period | $ | (1 | ) | $ | 597 | $ | (230 | ) | — | $ | (3 | ) | $ | (2 | ) | ||||
| Other comprehensive income (loss): | |||||||||||||||||||
| Net change from periodic revaluations | 37 | (843 | ) | 1,138 | — | 36 | (1 | ) | |||||||||||
| Tax (expense) benefit | (9 | ) | 252 | (340 | ) | — | (10 | ) | — | ||||||||||
| Total Other comprehensive income (loss) before reclassifications, net of tax | 28 | (591 | ) | 798 | — | 26 | (1 | ) | |||||||||||
| Net amount reclassified to earnings: | |||||||||||||||||||
Aluminum contracts(5) | (2 | ) | 1 | 21 | — | — | — | ||||||||||||
Energy contracts(6) | — | (49 | ) | 6 | — | (34 | ) | — | |||||||||||
Foreign exchange contracts(5) | — | — | 5 | — | — | — | |||||||||||||
Interest rate contracts(7) | — | 9 | 1 | — | 5 | — | |||||||||||||
Nickel contracts(6) | (1 | ) | 1 | 2 | — | — | — | ||||||||||||
| Sub-total | (3 | ) | (38 | ) | 35 | — | (29 | ) | — | ||||||||||
Tax benefit (expense)(2) | 1 | 12 | (6 | ) | — | 8 | — | ||||||||||||
Total amount reclassified from Accumulated other comprehensive loss, net of tax(8) | (2 | ) | (26 | ) | 29 | — | (21 | ) | — | ||||||||||
| Total Other comprehensive income (loss) | 26 | (617 | ) | 827 | — | 5 | (1 | ) | |||||||||||
| Transfer to Alcoa Corporation | — | 19 | — | — | (2 | ) | — | ||||||||||||
| Balance at end of period | $ | 25 | $ | (1 | ) | $ | 597 | $ | — | $ | — | $ | (3 | ) | |||||
(1) | These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note |
(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) | These amounts were included in Sales on the accompanying Statement of Consolidated Operations. |
(6) | These amounts were included in Cost of goods sold on the accompanying Statement of Consolidated Operations. |
(7) | These amounts were included in Interest expense on the accompanying Statement of Consolidated Operations. |
(8) | 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 1 through 7. |
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 I). A gain of $167 on the Debt-for-Equity Exchange was recorded in Other income, net in the accompanying Statement of Consolidated Operations. As of May 4, 2017, the Company no longer maintained a retained interest in Alcoa Corporation common stock. raw materials into finished can sheet coils ready for shipment to the end customer. Tolling revenues for 2017 and the Sheet for the net after-tax proceeds from Alcoa Corporation’s sale of the Yadkin Hydroelectric Project. The transaction closed and the Company received proceeds of $238 in the first quarter of 2017 and the remaining $5 in the second quarter of 2017. The $243 proceeds were included in Other within Investing Activities in the Statement of Consolidated Cash Flows. Sales Cost of goods sold (exclusive of expenses below) Selling, general administrative, and other expenses Research and development Provision for depreciation, depletion and amortization Restructuring and other charges Interest expense Other (income) expenses, net Income from discontinued operations before income taxes Provision for income taxes Income (loss) from discontinued operations after income taxes Less: Net income (loss) from discontinued operations attributable to noncontrolling interests Net income (loss) from discontinued operations Cash and cash equivalents Receivables from customers Other receivables Inventories Prepaid expenses and other current assets Current assets of discontinued operations Properties, plants, and equipment, net Goodwill Investments Deferred income taxes Other noncurrent assets Noncurrent assets of discontinued operations Total assets of discontinued operations Total liabilities of discontinued operations: Accounts payable, trade Accrued compensation and retirement costs Taxes, including income taxes Other current liabilities Long-term debt due within one year Current liabilities of discontinued operations Long-term debt less amount due within one year Accrued pension benefits Accrued other postretirement benefits Other noncurrent liabilities and deferred credits Noncurrent liabilities of discontinued operations Total liabilities of discontinued operations Depreciation, depletion and amortization Restructuring and other charges Capital expenditures Asset impairments Layoff costs Net loss on divestitures of businesses (F) Other Reversals of previously recorded layoff costs Restructuring and other charges Global Rolled Products Engineered Products and Solutions Transportation and Construction Solutions Segment total Corporate Total restructuring and other charges Reserve balances at December 31, 2013 2014: Cash payments Restructuring charges Other* Reserve balances at December 31, 2014 2015: Cash payments Restructuring charges Other* Reserve balances at December 31, 2015 2016: Cash payments Restructuring charges Other* Reserve balances at December 31, 2016C. Separation Transaction and Discontinued OperationsOn November 1, 2016, Arconic completed the Separation Transaction. Alcoa Inc., which was re-named Arconic Inc., continues to own the Global Rolled Products (except for the Warrick, IN rolling operations and the equity interest in the rolling mill at the joint venture in Saudi Arabia), Engineered Products and Solutions, and Transportation and Construction Solutions segments. Alcoa Corporation includes the Alumina and Primary Metals segments and the aforementioned Warrick, IN rolling operations and equity interest in the rolling mill at the joint venture in Saudi Arabia, both of which were formally part of the Global Rolled Products segment.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 (the “Distribution”) as of the close of business on October 20, 2016 (the “Record Date”). Arconic retained 19.9% of the Alcoa Corporation common stock (36,311,767 shares). In the Distribution, each Company shareholder received one share of Alcoa Corporation common stock for every three shares of Arconic common stock held as of the close of business on the Record Date. Shareholders received cash in lieu of fractional shares of Alcoa Corporation common stock.Arconic has The Company had recorded the 19.9% retained interest in Alcoa Corporation common stock as a cost method investment in Investment in common stock of Alcoa Corporation in the December 2016 Consolidated Balance Sheet. The fair value of Arconic’s retained interest in Alcoa Corporation was $1,020 at December 31, 2016 and was based on the closing stock price of Alcoa Corporation as of December 31, 2016 multiplied by the number of shares of Alcoa Corporation common stock owned by the Company asat that date.In February 2017, Arconic sold 23,353,000 of December 31, 2016. The changesits shares of Alcoa Corporation common stock at $38.03 per share, which resulted in fair value since November 1, 2016cash proceeds of $888 which were recorded in Accumulated other comprehensive lossSales of investments within Investing Activities in the accompanying Statement of Consolidated Balance Sheet.On October 31, 2016, Arconic entered into several agreements with Alcoa Corporation that govern the relationship of the parties following the completion of the Separation Transaction. These agreements include the following: Separation and Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Alcoa Corporation to Arconic Inc. Patent, Know-How, and Trade Secret License Agreement, Arconic Inc. to Alcoa Corporation Patent, Know-How, and Trade Secret License Agreement, Alcoa Corporation to Arconic Inc. Trademark License Agreement, Toll Processing and Services Agreement (the “Toll Processing Agreement”), Master Agreement for the Supply of Primary Aluminum, Massena Lease and Operations Agreement, Fusina Lease and Operations Agreement, and Stockholder and Registration Rights Agreement.Effective November 1, 2016, Arconic entered into a Toll Processing and Services Agreement with Alcoa Corporation for the tolling of metal for the Warrick, IN rolling mill which became a part of Alcoa Corporation upon completion of the Separation Transaction. As part of this arrangement, Arconic will provideprovides a toll processing service to Alcoa Corporation to produce can sheet products at its facility in Tennessee through the expected end date of the contract, December 31, 2018. Alcoa Corporation will supplysupplies all required raw materials to Arconic and Arconic will processprocesses thetwo monthtwo-month period endingended December 31, 2016 and accounts receivable atDecember 31, 2017 and December 31, 2016 were not material to the consolidated results of operations and financial position for the yearyears ended December 31, 2017 and December 31, 2016.As part of the Separation Transaction, Arconic was required to provide maximum potential future payment guarantees for Alcoa Corporation issued on behalf of a third party, guarantees related to two long-term Alcoa Corporation energy supply contracts andagreements, guarantees related to certain Alcoa Corporation environmental liabilities and energy supply contracts, letters of credit and surety bonds related to Alcoa Corporation workers’ compensation claims which occurred prior to November 1, 2016, and letters of credit for certain Alcoa Corporation equipment leases and energy contracts (see Note L)K).Additionally, underAs part of the Separation and Distribution Agreement, the Company hasTransaction, Arconic had recorded a receivable of $243 due from Alcoa Corporation for a certain asset sale. This amount was included in Other receivables in the December 2016 Consolidated Balance Sheet.The results of operations of Alcoa Corporation arewere presented as discontinued operations in the Statement of Consolidated Operations as summarized below: Ten months
ended October 31, Year ended December 31, 2016 2015 2014 $ 6,752 $ 10,121 $ 11,364 5,655 7,965 8,782 164 214 231 28 69 95 593 772 935 102 981 854 28 25 31 (75 ) 30 52 257 65 384 73 106 146 184 (41 ) 238 63 124 (91 ) $ 121 $ (165 ) $ 329 Ten monthsended October 31, Year ended December 31, 2016 2015 Sales $ 6,752 $ 10,121 Cost of goods sold (exclusive of expenses below) 5,655 7,965 Selling, general administrative, and other expenses 164 214 Research and development 28 69 Provision for depreciation, depletion and amortization 593 772 Restructuring and other charges 102 981 Interest expense 28 25 Other (income) expenses, net (75 ) 30 Income from discontinued operations before income taxes 257 65 Provision for income taxes 73 �� 106 Income (loss) from discontinued operations after income taxes 184 (41 ) Less: Net income from discontinued operations attributable to noncontrolling interests 63 124 Net income (loss) from discontinued operations $ 121 $ (165 ) During 2017, 2016 and 2015, Arconic recognized $18 ($12 after-tax), $193 ($158 after-tax) and $24 ($24 after-tax), respectively, in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations for costs related to the Separation Transaction. In addition, Arconic also incurred capital expenditures and debt issuance costs of $110 during 2016 related to the Separation Transaction. None of the aforementioned costs and expenses related to the Separation Transaction were reclassified into discontinued operations.On November 1, 2016, management evaluated the net assets of Alcoa Corporation for potential impairment and determined that no impairment charge was required.The carrying amount of the major classes of assets and liabilities related to Alcoa Corporation classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheet at December 31, 2015 consisted of the following:Total assets of discontinued operations: $ 557 380 128 1,158 333 2,556 9,390 152 1,472 1,360 2,224 14,598 $ 17,154 $ 1,379 440 136 563 18 $ 2,536 207 1,373 1,189 1,910 4,679 $ 7,215 The cash flows related to Alcoa Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows for 2016 and all prior 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:For the year ended December 31, 2016 2015 2014 $ 593 $ 772 $ 935 $ 102 $ 981 $ 854 $ 298 $ 391 $ 444 For the year ended December 31, 2016 2015 Depreciation, depletion and amortization $ 593 $ 772 Restructuring and other charges $ 102 $ 981 Capital expenditures $ 298 $ 391 D. Restructuring and Other ChargesRestructuring and other charges for each year in the three-year period ended December 31, 20162017 were comprised of the following: 2016 2015 2014 $ 80 $ - $ 65 70 97 105 3 136 111 27 (11 ) 43 (25 ) (8 ) (10 ) $ 155 $ 214 $ 314 2017 2016 2015 Asset impairments $ 58 $ 80 $ — Layoff costs 64 70 97 Net loss on divestitures of businesses (F) 57 3 136 Other (3 ) 27 (11 ) Reversals of previously recorded layoff costs (11 ) (25 ) (8 ) Restructuring and other charges $ 165 $ 155 $ 214 Layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified positions to be eliminated, benefits to be paid under existing severance plans, union contracts or statutory requirements, and the expected timetable for completion of the plans.2017 Actions. In 2017, Arconic recorded Restructuring and other charges of $165 ($143 after-tax), which were comprised of the following components: $69 ($47 after-tax) for layoff costs related to cost reduction initiatives including the separation of approximately 880 employees (400 in the Engineered Products and Solutions segment, 245 in the Global Rolled Products segment, 135 in the Transportation and Construction Solutions segment and 100 in Corporate), a charge of $60 ($60 after-tax) related to the sale of the Fusina, Italy rolling mill; a charge of $41 ($41 after-tax) for the impairment of assets associated with the agreement to sell the Latin America Extrusions business (see Note F); 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 of $12 ($7 after-tax) for other miscellaneous items; and a favorable benefit of $11 ($8 after-tax) for the reversal of a number of small layoff reserves related to prior periods.As of December 31, 2017, approximately 300 of the 880 employees were separated. The remaining separations for 2017 restructuring programs are expected to be completed by the end of 2018. In 2017, cash payments of $28 were made against layoff reserves related to 2017 restructuring programs.2016 Actions. In 2016, Arconic recorded Restructuring and other charges of $155 ($114 after-tax), which were comprised of the following components: $57 ($46 after-tax) for costs related to the exit of certain legacy Firth Rixson operations in the U.K.; $37 ($24 after-tax) for exit costs related to the decision to permanently shut down a can sheet facility; $20 ($14 after-tax) for costs related to the closures of five facilities, primarily in the Transportation and Construction Solutions segment and Engineered Products and Solutions segment, including the separation of approximately 280 employees; $53 ($33 after-tax) for other layoff costs, including the separation of approximately 1,315 employees (30(1,045 in TCS, 1,045the Engineered Products and Solutions segment, 210 in EPS,Corporate, 30 in GRPthe Global Rolled Products segment and 21030 in Corporate)the Transportation and Construction Solutions segment); $11 ($8 after-tax) for other miscellaneous items, including $3 ($2 after-tax) for the sale of Remmele Medical, an RTI subsidiary;Medical; $2 ($1 after-tax) for a pension settlement; and $25 ($12 after-tax) for the reversal of a number of small layoff reserves related to prior periods.In 2016, management made the decision to exit certain legacy Firth Rixson facilities in the U.K. Costs related to these actions included asset impairments and accelerated depreciation of $51; other exit costs of $4; and $2 for the separation of 60 employees.Also in 2016, management approved the shutdown and demolition of the can sheet facility in Tennessee upon completion of the Toll Processing and Services Agreement with Alcoa Corporation. Costs related to this action included $21 in asset impairments; $9 in other exit costs; and $7 for the separation of 145 employees. The other exit costs of $9 represent $4 in asset retirement obligations and $3 in environmental remediation, both of which were triggered by the decision to permanently shut down and demolish the can sheet facility in Tennessee, and $2 in other exit costs.As of December 31, 2016,2017, approximately 8801,280 of the 1,8001,700 (previously 1,750) employees were separated. The total number of employees associated with 2016 restructuring programs was updated to reflect employees, who were initially identified for separation, accepting other positions within Arconic and natural attrition. The remaining separations for 2016 restructuring programs are expected to be completed by the end of 2017.2018. In 2017 and 2016, cash payments of $26 and $16 were made against layoff reserves related to 2016 restructuring programs.2015 Actions. In 2015, Arconic recorded Restructuring and other charges of $214 ($192 after-tax), which were comprised of the following components: a $136 ($134 after-tax) net loss related to the March 2015 divestiture of a rolling mill in Russia and post-closing adjustments associated with the December 2014 divestitures of three rolling mills located in Spain and France; $97 ($70 after-tax) for layoff costs, including the separation of approximately 1,505 employees (425(590 in the Engineered Products and Solutions segment, 425 in the Transportation and Construction Solutions segment, 590400 in the Engineered ProductsCorporate and Solutions segment, 90 in the Global Rolled Products segment, and 400 in Corporate)segment); an $18 ($13 after-tax) gain on the sale of land related to one of the rolling mills in Australia that was permanently closed in December 2014 (see 2014 Actions below);2014; a net charge of $7 ($4 after-tax) for other miscellaneous items; and $8 ($3 after-tax) for the reversal of a number of small layoff reserves related to prior periods.As of December 31, 2016, approximately 1,100 of2017, the 1,240 (previously 1,505) employees were separated. The total number of employeesseparations associated with the 2015 restructuring programs was updated to reflect employees, who were initially identified for separation, accepting other positions within Arconic and natural attrition. The remaining separations for 2015 restructuring programs are expected to be completed by the end of 2017.essentially complete. In 2017, 2016 and 2015, cash payments of $5, $55 and $18, respectively, were made against layoff reserves related to 2015 restructuring programs.2014 Actions. In 2014, Arconic recorded Restructuring and other charges of $314 ($249 after-tax), which were comprised of the following components: $154 ($107 after-tax) for exit costs related to the decision to permanently shut down and demolish two rolling mills (see below); a $111 ($112 after-tax) net loss primarily for the divestitures of three rolling mills in Spain and France (see Note F); $49 ($28 after-tax) for other layoff costs, including the separation of approximately 1,035 employees (470 in the Engineered Products and Solutions segment, 410 in the Transportation and Construction Solutions segment, 45 in the Global Rolled Products segment, and 110 in Corporate); a net charge of $10 ($7 after-tax) for other miscellaneous items; and $10 ($5 after-tax) for the reversal of a number of layoff reserves related to prior periods.In early 2014, management approved the permanent shutdown of Arconic’s two rolling mills in Australia, Point Henry and Yennora. This decision was made due to the significant impact of excess can sheet capacity in both Australia and Asia. The two rolling mills had a combined can sheet capacity of 200,000 metric-tons-per-year and were closed by the end of 2014. Costs related to the shutdown of the two rolling mills included $56 for the separation of approximately 470 employees; accelerated depreciation of $58 as the rolling mills continued to operate during 2014; asset impairments of $7 representing the write-off of the remaining book value of all related properties, plants, and equipment; and $33 in other exit costs. Additionally, in 2014, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $13 ($9 after-tax), which was recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. The other exit costs of $33 represent $18 in environmental remediation and $8 in asset retirement obligations, both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in Australia, and $7 in other related costs, including supplier and customer contract-related costs. Demolition and remediation activities related to the two rolling mills began in mid-2015 and are expected to be completed by the end of 2018.As of December 31, 2016, the separations associated with 2014 restructuring programs were essentially complete. In 2016, 2015, and 2014, cash payments of $3, $27, and $54, respectively, were made against layoff reserves related to 2014 restructuring programs.Arconic does not include Restructuring and other charges in the results of its reportable segments. The pretaxpre-tax impact of allocating such charges to segment results would have been as follows: 2016 2015 2014 $ 40 $ 121 $ 267 78 46 13 14 8 10 132 175 290 23 39 24 $ 155 $ 214 $ 314 2017 2016 2015 Engineered Products and Solutions $ 30 $ 78 $ 46 Global Rolled Products 72 40 121 Transportation and Construction Solutions 52 14 8 Segment total 154 132 175 Corporate 11 23 39 Total restructuring and other charges $ 165 $ 155 $ 214 Activity and reserve balances for restructuring charges were as follows: Layoff
costs Other
exit costs Total $ 37 $ 29 $ 66 (75 ) (16 ) (91 ) 105 43 148 (19 ) (36 ) (55 ) 48 20 68 (45 ) (12 ) (57 ) 97 7 104 (16 ) (6 ) (22 ) 84 9 93 (73 ) (13 ) (86 ) 70 27 97 (31 ) (14 ) (45 ) $ 50 $ 9 59 LayoffcostsOtherexit costsTotal Reserve balances at December 31, 2014 $ 48 $ 20 $ 68 2015: Cash payments (45 ) (12 ) (57 ) Restructuring charges 97 7 104 Other* (16 ) (6 ) (22 ) 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 (59 ) (6 ) (65 ) Restructuring charges 64 1 65 Other* 1 (2 ) (1 ) Reserve balances at December 31, 2017 $ 56 $ 2 $ 58 * Other includes reversals of previously recorded restructuring charges and the effects of foreign currency translation. In 2017, Other for layoff costs also includes the reclassification of a stock awards reversal of $13. In 2016, and 2014, Other for other exit costs also included a reclassification of $8 and $8, respectively, in asset retirement and $2 and $18, respectively, in environmental obligations, as these liabilities were included in Arconic’s separate reserves for asset retirement obligations and environmental remediation. Other for other exit costs also included a reclassification of $4 in legal obligations, as these liabilities were included in Arconic’s separate reserves for legal costs. In 2015, Other for other exit costs included a reclassification of $5 for certain obligations included in Arconic’s separate reserves for warranties, lease terminations and tax indemnities. In 2016, Other for other exit costs also included a reclassification of $4 in legal obligations, as these liabilities were included in Arconic’s separate reserves for legal costs.
2018.
Global Products | Engineered Products | Transportation and Construction Solutions | Corporate* | Total | ||||||||||||||||
Balance at December 31, 2014: | ||||||||||||||||||||
Goodwill | $ | 210 | $ | 4,458 | $ | 114 | $ | 333 | $ | 5,115 | ||||||||||
Accumulated impairment losses | - | - | (28 | ) | - | (28 | ) | |||||||||||||
| 210 | 4,458 | 86 | 333 | 5,087 | ||||||||||||||||
Acquisitions and Divestitures (F) | (1 | ) | 261 | - | - | 260 | ||||||||||||||
Impairment (A) | - | - | (25 | ) | - | (25 | ) | |||||||||||||
Translation and other | (8 | ) | (59 | ) | (3 | ) | (3 | ) | (73 | ) | ||||||||||
Balance at December 31, 2015: | ||||||||||||||||||||
Goodwill | 201 | 4,660 | 111 | 330 | 5,302 | |||||||||||||||
Accumulated impairment losses | - | - | (53 | ) | - | (53 | ) | |||||||||||||
| 201 | 4,660 | 58 | 330 | 5,249 | ||||||||||||||||
Acquisitions and Divestitures (F) | - | 47 | - | - | 47 | |||||||||||||||
Translation and other | (20 | ) | (128 | ) | (1 | ) | 1 | (148 | ) | |||||||||||
Balance at December 31, 2016: | ||||||||||||||||||||
Goodwill | 181 | 4,579 | 110 | 331 | 5,201 | |||||||||||||||
Accumulated impairment losses | - | - | (53 | ) | - | (53 | ) | |||||||||||||
| 181 | 4,579 | 57 | 331 | 5,148 | ||||||||||||||||
| Engineered Products and Solutions | Global Rolled Products | Transportation and Construction Solutions | Corporate* | Total | |||||||||||
| Balances at December 31, 2015 | |||||||||||||||
| Goodwill | $ | 4,660 | $ | 201 | $ | 111 | $ | 330 | $ | 5,302 | |||||
| Accumulated impairment losses | — | — | (53 | ) | — | (53 | ) | ||||||||
| 4,660 | 201 | 58 | 330 | 5,249 | |||||||||||
| Acquisitions and Divestitures (F) | 47 | — | — | — | 47 | ||||||||||
| Translation and other | (128 | ) | (20 | ) | (1 | ) | 1 | (148 | ) | ||||||
| Balances at December 31, 2016 | |||||||||||||||
| Goodwill | 4,579 | 181 | 110 | 331 | 5,201 | ||||||||||
| Accumulated impairment losses | — | — | (53 | ) | — | (53 | ) | ||||||||
| 4,579 | 181 | 57 | 331 | 5,148 | |||||||||||
| Impairment (A) | (719 | ) | — | — | — | (719 | ) | ||||||||
| Translation and other | 89 | 12 | 3 | 2 | 106 | ||||||||||
| Balances at December 31, 2017 | |||||||||||||||
| Goodwill | 4,668 | 193 | 113 | 333 | 5,307 | ||||||||||
| Accumulated impairment losses | (719 | ) | — | (53 | ) | — | (772 | ) | |||||||
| $ | 3,949 | $ | 193 | $ | 60 | $ | 333 | $ | 4,535 | ||||||
| * | As of December 31, |
| December 31, 2016 | Gross carrying amount | Accumulated amortization | ||||||
Computer software | $ | 755 | $ | (623 | ) | |||
Patents and licenses | 110 | (102 | ) | |||||
Other intangibles (F) | 897 | (81 | ) | |||||
Total amortizable intangible assets | 1,762 | (806 | ) | |||||
Indefinite-lived trade names and trademarks | 32 | - | ||||||
Total other intangible assets | $ | 1,794 | $ | (806 | ) | |||
Computer software Patents and licenses Other intangibles (F) Total amortizable intangible assets Indefinite-lived trade names and trademarks Total other intangible assetsDecember 31, 2015 Gross
carrying
amount Accumulated
amortization $ 793 $ (643 ) 110 (98 ) 961 (64 ) 1,864 (805 ) 45 - $ 1,909 $ (805 )
| December 31, 2017 | Gross carrying amount | Accumulated amortization | ||||
| Computer software | $ | 789 | $ | (674 | ) | |
| Patents and licenses | 110 | (107 | ) | |||
| Other intangibles | 953 | (116 | ) | |||
| Total amortizable intangible assets | 1,852 | (897 | ) | |||
| Indefinite-lived trade names and trademarks | 32 | — | ||||
| Total other intangible assets | $ | 1,884 | $ | (897 | ) | |
| December 31, 2016 | Gross carrying amount | Accumulated amortization | ||||
| Computer software | $ | 755 | $ | (623 | ) | |
| Patents and licenses | 110 | (102 | ) | |||
| Other intangibles | 897 | (81 | ) | |||
| Total amortizable intangible assets | 1,762 | (806 | ) | |||
| Indefinite-lived trade names and trademarks | 32 | — | ||||
| Total other intangible assets | $ | 1,794 | $ | (806 | ) | |
2022.
common stock). Each issued and outstanding share of RTI common stock prior to the completion of the transaction was converted into the right to receive 2.8315 shares of Arconic common stock. In total, Arconic issued 29,132,471 shares (87,397,414 shares pre-reverse stock split – see Note A and Note P)O) of its common stock to consummate this transaction, which was not reflected in the accompanying Statement of Consolidated Cash Flows as it represents a noncash financing activity. The exchange ratio was the quotient of a $41 per RTI common share acquisition price and the $14.48 per share March 6, 2015 closing price of Arconic’s common stock. In addition to the transaction price, Arconic also paid $25 ($19 after-tax) in professional fees and costs related to this acquisition. This amount was recorded in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations.
The following table represents the final allocation of the purchase price by major asset acquired and liability assumed, as well as the amount of goodwill recognized:
Assets: | ||||
Cash | $ | 303 | ||
Receivables from customers | 94 | |||
Inventories | 483 | |||
Prepaid expenses and other current assets | 47 | |||
Properties, plants, and equipment | 321 | |||
Goodwill | 298 | |||
Other noncurrent assets | 60 | |||
Total assets | $ | 1,606 | ||
Liabilities: | ||||
Accounts payable | $ | 86 | ||
Other current liabilities | 94 | |||
Long-term debt due within one year | 115 | |||
Long-term debt, less amount due within one year | 387 | |||
Other noncurrent liabilities | 96 | |||
Total liabilities | $ | 778 | ||
Equity: | ||||
Additional capital | $ | 60 | ||
Total equity | $ | 60 |
As reflected in the table above,
The other noncurrent assets in the table above primarily represent intangible assets. These Arconic also recorded intangible assets consistof $37 consisting mainly of customer relationships which are being amortized over a period of 20 years.
2019 (principal amount of $403)., unless earlier converted or purchased by Arconic at the holder’s option under specific conditions. Upon conversion of the 2019 convertible notes, in accordance with their terms, holders will receive, at Arconic’s election, cash, shares of common stock (approximately 14,156,00014,294,000 shares currently, which givesusing the effect to the Reverse Stock Split (See Note A) and the DistributionDecember 31, 2017 conversion rate of Alcoa Corporation)35.5119 shares per $1,000 (not in millions) bond or per-share conversion price of $28.1596), or a combination of cash and shares. ThisOn the maturity date, each holder of outstanding notes will be entitled to receive $1,000 (not in millions) in cash for each $1,000 (not in millions) bond, together with accrued and unpaid interest. The cash conversion feature requires the convertible notes to be bifurcated into a liability component and an equity component. The fair value of the liability component was determined by calculating the net present value of the cash flows of the convertible notes using the interest rate of a similar instrument without a conversion feature. The fair value of the equity component is the difference between the fair value of the entire instrument on the date of acquisition and the fair value of the liability and is included as Additional capital on the accompanying Consolidated Balance Sheet.
In addition to the transaction price, Arconic also paid $42 ($34 after-tax) in professional fees and costs related to this acquisition. This amount was recorded in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations. Additionally, Arconic recorded $13 ($8 after-tax) in Interest expense on the accompanying Statement of Consolidated Operations for costs associated with the execution (in June 2014) and termination (in September 2014) of a $2,500 364-day senior unsecured bridge term loan facility. This facility was entered into for the purpose of financing all or a portion of the cash consideration for this acquisition and to pay fees and expenses incurred in connection therewith. However, in September 2014, the facility was no longer necessary as Arconic completed the issuance of $2,500 in debt and equity (see Note P) instruments to finance the acquisition.
Firth Rixson manufactures rings, forgings, and metal products for the aerospace end market, as well as other markets requiring highly engineered material applications. At acquisition, this business had 13 operating facilities in the United States, United Kingdom, Europe, and Asia employing approximately 2,400 people combined. The purpose of this acquisition was to strengthen Arconic’s aerospace business and position the Company to capture additional aerospace growth with a broader range of high-growth, value-add jet engine components. The operating results and assets and liabilities of Firth Rixson were included within the Engineered Products and Solutions segment since the date of acquisition. Third-party sales and after-tax operating income (Arconic’s primary segment performance measure—see Note O) of Firth Rixson from the acquisition date through December 31, 2014 were $81 and $(12), respectively.
The following table represents the final allocation of the purchase price by major asset acquired and liability assumed, as well as the amount of goodwill recognized and the net present value of the potential earn-out:
Assets: | ||||
Receivables from customers | $ | 193 | ||
Inventories | 227 | |||
Prepaid expenses and other current assets | 22 | |||
Properties, plants, and equipment | 493 | |||
Goodwill | 1,801 | |||
Other noncurrent assets | 758 | |||
Total assets | $ | 3,494 | ||
Liabilities: | ||||
Accounts payable | $ | 162 | ||
Other current liabilities | 100 | |||
Contingent consideration | 130 | |||
Other noncurrent liabilities | 107 | |||
Total liabilities | $ | 499 |
As reflected in the table above, Arconic recognized goodwill of $1,801, which represents the earnings growth potential of Firth Rixson and expected synergies from combining the operations of the two companies. The goodwill was allocated to two of Arconic’s reporting units associated with the Engineered Products and Solutions segment, Arconic Fastening Systems and Rings ($1,117) and Arconic Forgings and Extrusions ($684), on a relative fair value basis. None of the goodwill is deductible for income tax purposes.
The other noncurrent assets in the table above represent intangible assets, which were included in the other intangibles class (see Note E). These intangible assets consist primarily of customer relationships and contracts, backlog, qualifications, and technology, and have a weighted-average amortization period of 35 years.
The contingent consideration liability presented in the table above represents the net present value of the potential earn-out of $150 (Level 3 in the fair value hierarchy – see Note V).conditions. This earn-out iswas contingent on the Firth Rixson forging business in Savannah, Georgia achieving certain identified financial targets through December 31, 2020. During the fourth quarter of 2016, management determined that payment of the maximum amount was not probable based on the forecasted financial performance of this location. Therefore, the fair value of this liability was reduced by $56 with a corresponding credit to Other income, net on the accompanying Statement of Consolidated Operations. It is estimatedDuring the fourth quarter of 2017, management determined that payment of the earn-out will be paid in 2019 through 2020.
In August 2014, Arconic completed the acquisition
2014 Divestitures. In 2014, Arconic completedforecasted financial performance of this location. Therefore, the salefair value of three rolling mills located in Spain (Alicante and Amorebieta) and France (Castelsarrasin)this liability was reduced by $81 to zero at December 31, 2017 with a subsidiary of Atlas Holdings LLC. While owned by Arconic, the operating results and assets and liabilities of the rolling mills were included in the Global Rolled Products segment. The rolling mills combined generated sales of approximately $500 in 2013 and, at the time of divestiture, had approximately 750 employees. This transaction yieldedcorresponding credit to Other income, net cash proceeds of $24 and resulted in a net loss of $116, which was recorded in Restructuring and other charges (see Note D) on the accompanying Statement of Consolidated Operations. This transaction was subject to certain post-closing adjustments as defined in the purchase agreement as of December 31, 2014 (see 2015 Divestitures above).
| December 31, | 2016 | 2015 | ||||||
Finished goods | $ | 625 | $ | 672 | ||||
Work-in-process | 1,144 | 1,115 | ||||||
Purchased raw materials | 408 | 425 | ||||||
Operating supplies | 76 | 72 | ||||||
| $ | 2,253 | $ | 2,284 | |||||
| December 31, | 2017 | 2016 | ||||
| Finished goods | $ | 669 | $ | 625 | ||
| Work-in-process | 1,349 | 1,144 | ||||
| Purchased raw materials | 381 | 408 | ||||
| Operating supplies | 81 | 76 | ||||
| $ | 2,480 | $ | 2,253 | |||
2015.
| December 31, | 2016 | 2015 | ||||||
Land and land rights | $ | 135 | $ | 149 | ||||
Structures: | ||||||||
Global Rolled Products | 1,061 | 1,042 | ||||||
Engineered Products and Solutions | 733 | 658 | ||||||
Transportation and Construction Solutions | 254 | 239 | ||||||
Other | 248 | 290 | ||||||
| 2,296 | 2,229 | |||||||
Machinery and equipment: | ||||||||
Global Rolled Products | 4,570 | 4,500 | ||||||
Engineered Products and Solutions | 2,728 | 2,745 | ||||||
Transportation and Construction Solutions | 723 | 682 | ||||||
Other | 337 | 442 | ||||||
| 8,358 | 8,369 | |||||||
Less: accumulated depreciation and amortization | | 10,789 6,073 | | | 10,747 6,143 | | ||
Construction work-in-progress | | 4,716 783 | | | 4,604 821 | | ||
| $ | 5,499 | $ | 5,425 | |||||
| December 31, | 2017 | 2016 | ||||
| Land and land rights | $ | 140 | $ | 135 | ||
| Structures: | ||||||
| Engineered Products and Solutions | 784 | 733 | ||||
| Global Rolled Products | 1,090 | 1,061 | ||||
| Transportation and Construction Solutions | 268 | 254 | ||||
| Other | 253 | 248 | ||||
| 2,395 | 2,296 | |||||
| Machinery and equipment: | ||||||
| Engineered Products and Solutions | 3,054 | 2,728 | ||||
| Global Rolled Products | 4,641 | 4,570 | ||||
| Transportation and Construction Solutions | 777 | 723 | ||||
| Other | 358 | 337 | ||||
| 8,830 | 8,358 | |||||
| 11,365 | 10,789 | |||||
| Less: accumulated depreciation and amortization | 6,392 | 6,073 | ||||
| 4,973 | 4,716 | |||||
| Construction work-in-progress | 621 | 783 | ||||
| $ | 5,594 | $ | 5,499 | |||
| December 31, | 2016 | 2015 | ||||||
Intangibles, net (E) | $ | 988 | $ | 1,104 | ||||
Investments | 102 | 193 | ||||||
Cash surrender value of life insurance | 14 | 492 | ||||||
Other | 141 | 155 | ||||||
| $ | 1,245 | $ | 1,944 | |||||
Investments. As of December 31, 2016 and 2015, Investments were composed of exchange-traded fixed income and equity securities, which are classified as available-for-sale and are carried at fair value (see Note V) with unrealized gains and losses recognized in other comprehensive income. Unrealized and realized gains and losses related to these securities were immaterial in 2016, 2015, and 2014.
During 2016, Arconic sold various fixed income and equity securities held by its captive insurance company for $130, which is included in Sales of investments on the accompanying Statement of Consolidated Cash Flows, and recorded a loss of $3 ($2 after-tax) in Other income, net on the accompanying Statement of Consolidated Operations.
Cash surrender value of life insurance. In the first quarter of 2016, Arconic received $234 in proceeds from the redemption of certain company-owned life insurance policies. In the second quarter of 2016, Arconic liquidated additional company-owned life insurance policies for $223 in cash. Both of these amounts were included in Proceeds from the sale of assets and businesses on the accompanying Statement of Consolidated Cash Flows. As the cash received was equivalent to the cash surrender value of these policies, no gain or loss was recognized on the sales of these policies.
J. Debt
| December 31, | 2016 | 2015 | ||||||
5.55% Notes, due 2017 | $ | - | $ | 750 | ||||
6.50% Bonds, due 2018 | 250 | 250 | ||||||
6.75% Notes, due 2018 | 750 | 750 | ||||||
5.72% Notes, due 2019 | 750 | 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 (4.75%) | 250 | 250 | ||||||
Other** | (32 | ) | (41 | ) | ||||
| 8,048 | 8,789 | |||||||
Less: amount due within one year | 4 | 3 | ||||||
| $ | 8,044 | $ | 8,786 | |||||
| December 31, | 2017 | 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 (4.75%) | 250 | 250 | ||||
| Other** | (23 | ) | (32 | ) | ||
| 6,807 | 8,048 | |||||
| Less: amount due within one year | 1 | 4 | ||||
| $ | 6,806 | $ | 8,044 | |||
| * | Amount was assumed in conjunction with the acquisition of RTI (see Note F). |
| ** | Other includes various financing arrangements related to subsidiaries, unamortized debt discounts related to the outstanding notes and bonds listed in the table above, an equity option related to the convertible notes due in 2019 (see Note F), adjustments to the carrying value of long-term debt related to an interest swap contract accounted for as a fair value hedge that was unwound during 2017, and unamortized debt issuance |
2022.
date up to, but not including, the
K.
| December 31, | 2016 | 2015 | ||||||
Environmental remediation (L) | $ | 260 | $ | 288 | ||||
Income taxes (R) | 154 | 13 | ||||||
Accrued compensation and retirement costs | 216 | 237 | ||||||
Contingent payment related to an acquisition (F) | 78 | 130 | ||||||
Other | 162 | 160 | ||||||
| $ | 870 | $ | 828 | |||||
| December 31, | 2017 | 2016 | ||||
| Environmental remediation (L) | $ | 253 | $ | 260 | ||
| Income taxes (Q) | 162 | 154 | ||||
| Accrued compensation and retirement costs | 218 | 216 | ||||
| Contingent payment related to an acquisition (F) | — | 78 | ||||
| Other | 126 | 162 | ||||
| $ | 759 | $ | 870 | |||
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.
environmental matters. In general, the respective parties will be responsible for the environmental matters associated with their operations, and with the properties and other assets assigned to each. The only material and reportable matter assigned to Arconic concerns the Grasse River at Arconic’s Massena West location, thecurrent status of which is as follows:
the most significant remediation reserve related to a current Arconic site.
Additionally, the Separation and Distribution Agreement lists environmental matters and sites where both parties, Arconic and Alcoa Corporation, share the liability. The Separation and Distribution Agreement provides for the allocation of responsibility between the two companies as well as identifies the lead party responsible for overall management of the matter. One such site previously reported on was Fusina, Italy. The share for this site allocated to Arconic is not material, and therefore, Arconic will no longer report on this matter unless and until some event in the future causes this to become material and reportable.
Lastly, Arconic previously reported on other environmental matters associated with East St. Louis, IL, Sherwin, TX, Baie Comeau, Quebec, Canada and Mosjoen, Norway. Under the Separation and Distribution Agreement, the legal entities named as parties to these matters are now affiliated with Alcoa Corporation and/or Alcoa Corporation has agreed to take full responsibility for these locations and has agreed to indemnify Arconic for any future liability associated with these locations, including the need for any future environmental remediation. Therefore, Arconic will also no longer report on these matters unless and until some event in the future causes any of them to become material and reportable.
The combined assessments (remeasured for a tax rate change enacted in November 2014) total $258 (€246). On January 16, 2017, Spain’s National Court issued a decision in favor of the Company related to the assessment received in September 2010. It is not yet known if Spain’s tax authorities will appeal this decision. Spain’s National Court has not yet rendered a decision related to the assessment received in July 2013.
The assessment for the 2006 through 2009 tax years is $155 (€130), including interest.
would be shared between Arconicthe Company and Alcoa Corporation as provided for in the Tax Matters Agreement relatedAgreement. Additionally, while the tax years 2010 through 2013 are closed to the Separation Transaction. Additionally,audit, it is possible that the Company may receive similar assessments for tax years subsequent to 2009.2013. At this time, the Company is unable to reasonably predict an ultimate outcome for this matter.
Purchase Obligations. Arconic has entered into purchase commitments for raw materials, energy and other goods and services, which total $490 in 2017, $90$861 in 2018, $73$176 in 2019, $64$74 in 2020, $2$13 in 2021, $6 in 2022, and $5 thereafter.
Arconic was also required to provide guarantees of $50guarantee related to two Alcoa Corporationthe Rockdale energy supply contracts. These guarantees expire in March 2017. Additionally, Arconic was requiredcontract. The decision to provide guarantees of $53 related to certain Alcoa Corporation environmental liabilities. Notification ofenter into a change in guarantor has beenclaims purchase agreement will be made to the appropriate environmental agencies and Alcoa Corporation is required by the end of March 2017 to self-bond or provide collateral.
on an annual basis going forward.
Arconic are being proportionally billed to and are being fully reimbursed by Alcoa Corporation. Additionally, Arconic was required to provide letters of credit for certain Alcoa Corporation equipment leases and energy contracts and, as a result, Arconic hashad $103 of outstanding letters of credit relating to these liabilities. The entire $103 of outstanding letters of credit were canceled in 2017 when Alcoa Corporation issued its own letters of credit to cover these obligations.
| 2016 | 2015 | 2014 | ||||||||||
Equity income | $ | (7 | ) | $ | - | $ | (2 | ) | ||||
Interest income | (16 | ) | (16 | ) | (19 | ) | ||||||
Foreign currency (gains) losses, net | (4 | ) | 51 | 23 | ||||||||
Net loss (gain) from asset sales | 11 | (42 | ) | (13 | ) | |||||||
Net loss (gain) on mark-to-market derivative contracts | 1 | (3 | ) | 2 | ||||||||
Other, net | (79 | ) | (18 | ) | 4 | |||||||
| $ | (94 | ) | $ | (28 | ) | $ | (5 | ) | ||||
| 2017 | 2016 | 2015 | |||||||
| Equity income | $ | — | $ | (7 | ) | $ | — | ||
| Interest income | (19 | ) | (16 | ) | (16 | ) | |||
| Foreign currency (gains) losses, net | (5 | ) | (4 | ) | 51 | ||||
| Net (gain) loss from asset sales | (513 | ) | 11 | (42 | ) | ||||
| Net loss (gain) on mark-to-market derivative contracts | — | 1 | (3 | ) | |||||
| Other, net | (103 | ) | (79 | ) | (18 | ) | |||
| $ | (640 | ) | $ | (94 | ) | $ | (28 | ) | |
N.
| 2016 | 2015 | 2014 | ||||||||||
Interest, net of amount capitalized | $ | 524 | $ | 487 | $ | 441 | ||||||
Income taxes, net of amount refunded | $ | 324 | $ | 345 | $ | 301 | ||||||
| 2017 | 2016 | 2015 | |||||||
| Interest, net of amount capitalized | $ | 508 | $ | 524 | $ | 487 | |||
| Income taxes, net of amount refunded | $ | 118 | $ | 324 | $ | 345 | |||
| 2017 | 2016 | 2015 | |||||||
| Assets acquired | $ | — | $ | — | $ | 2,003 | |||
| Liabilities assumed | — | — | (868 | ) | |||||
| Equity issued | — | — | (870 | ) | |||||
| Working capital adjustment | — | (10 | ) | — | |||||
| Increase in Arconic’s shareholders’ equity | — | — | (60 | ) | |||||
| Cash paid | — | (10 | ) | 205 | |||||
| Less: cash acquired | — | — | 302 | ||||||
| Net cash paid | $ | — | $ | (10 | ) | $ | (97 | ) | |
| 2016 | 2015 | 2014 | ||||||||||
Assets acquired | $ | - | $ | 2,003 | $ | 3,515 | ||||||
Liabilities assumed | - | (868 | ) | (345 | ) | |||||||
Contingent consideration liability | - | - | (130 | ) | ||||||||
Equity issued | - | (870 | ) | (610 | ) | |||||||
Noncontrolling interest acquired | - | - | 31 | |||||||||
Working capital adjustment | (10 | ) | - | - | ||||||||
Increase in Arconic’s shareholders’ equity | - | (60 | ) | (3 | ) | |||||||
Cash paid | (10 | ) | 205 | 2,458 | ||||||||
Less: cash acquired | - | 302 | 45 | |||||||||
Net cash paid | $ | (10 | ) | $ | (97 | ) | $ | 2,413 | ||||
included in Sales of investments on the accompanying Statement of Consolidated Cash Flows.
In early 2014, holders of $575 principal amount of Arconic’s 5.25% Convertible Notes due March 15, 2014 (the “2014 Notes”) exercised their option to convert the 2014 Notes into 30 million shares (89 million shares—pre-Reverse Stock Split—see Note A and Note P) of Arconic common stock. This transaction was not reflected in the accompanying Statement of Consolidated Cash Flows as it represents a noncash financing activity.
In late 2014, Arconic paid $2,995 (net of cash acquired) to acquire Firth Rixson (see Note F). A portion of this consideration was paid through the issuance of 12 million shares (37 million shares—pre-Reverse Stock Split—see Note A and Note P) in Arconic common stock valued at $610. The issuance of common stock was not reflected in the accompanying Statement of Consolidated Cash Flows as it represents a noncash investing activity.
transaction.
results of discontinued operations.
Engineered Products and Solutions. This segment produces products that are used mostly in the aerospace (commercial and defense), industrial, commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys) and seamless rolled rings (mostly nickel superalloys); investment castings (nickel superalloys, titanium, and aluminum), including airfoils and forged jet engine components (e.g., jet engine disks); and extruded, machined and formed aircraft parts (titanium and aluminum), all of which are sold directly to customers and through distributors. More than 75% of the third-party sales in this segment are from the aerospace end market. A small part of this segment also produces various forged, extruded, and machined metal products (titanium, aluminum and steel) for the oil and gas, industrial products, automotive, and land and sea defense end markets. Seasonal decreases in sales are generally experienced in the third quarter of the year due to the European summer slowdown across all end markets.
Global Products | Engineered Products | Transportation and Construction Solutions | Total | |||||||||||||
2016 | ||||||||||||||||
Sales: | ||||||||||||||||
Third-party sales | $ | 4,864 | $ | 5,728 | $ | 1,802 | $ | 12,394 | ||||||||
Intersegment sales | 118 | - | - | 118 | ||||||||||||
Total sales | $ | 4,982 | $ | 5,728 | $ | 1,802 | $ | 12,512 | ||||||||
Profit and loss: | ||||||||||||||||
Depreciation and amortization | 201 | 255 | 48 | 504 | ||||||||||||
Income taxes | 107 | 298 | 67 | 472 | ||||||||||||
ATOI | 269 | 642 | 176 | 1,087 | ||||||||||||
2015 | ||||||||||||||||
Sales: | ||||||||||||||||
Third-party sales | $ | 5,253 | $ | 5,342 | $ | 1,882 | $ | 12,477 | ||||||||
Intersegment sales | 125 | - | - | 125 | ||||||||||||
Total sales | $ | 5,378 | $ | 5,342 | $ | 1,882 | $ | 12,602 | ||||||||
Profit and loss: | ||||||||||||||||
Depreciation and amortization | 203 | 233 | 43 | 479 | ||||||||||||
Income taxes | 85 | 282 | 63 | 430 | ||||||||||||
ATOI | 225 | 595 | 166 | 986 | ||||||||||||
2014 | ||||||||||||||||
Sales: | ||||||||||||||||
Third-party sales | $ | 6,344 | $ | 4,217 | $ | 2,021 | $ | 12,582 | ||||||||
Intersegment sales | 185 | - | - | 185 | ||||||||||||
Total sales | $ | 6,529 | $ | 4,217 | $ | 2,021 | $ | 12,767 | ||||||||
Profit and loss: | ||||||||||||||||
Depreciation and amortization | 211 | 137 | 42 | 390 | ||||||||||||
Income taxes | 67 | 298 | 69 | 434 | ||||||||||||
ATOI | 224 | 579 | 180 | 983 | ||||||||||||
2016 | ||||||||||||||||
Assets: | ||||||||||||||||
Capital expenditures | $ | 293 | $ | 333 | $ | 63 | $ | 689 | ||||||||
Goodwill | 181 | 4,579 | 57 | 4,817 | ||||||||||||
Total assets | 3,891 | 10,542 | 982 | 15,415 | ||||||||||||
2015 | ||||||||||||||||
Assets: | ||||||||||||||||
Capital expenditures | $ | 256 | $ | 383 | $ | 77 | $ | 716 | ||||||||
Goodwill | 201 | 4,660 | 58 | 4,919 | ||||||||||||
Total assets | 3,861 | 10,732 | 947 | 15,540 | ||||||||||||
| Engineered Products and Solutions | Global Rolled Products | Transportation and Construction Solutions | Total | |||||||||
| 2017 | ||||||||||||
| Sales: | ||||||||||||
| Third-party sales | $ | 5,935 | $ | 4,992 | $ | 1,985 | $ | 12,912 | ||||
| Intersegment sales | — | 148 | — | 148 | ||||||||
| Total sales | $ | 5,935 | $ | 5,140 | $ | 1,985 | $ | 13,060 | ||||
| Profit and loss: | ||||||||||||
| Depreciation and amortization | 268 | 205 | 50 | 523 | ||||||||
| Adjusted EBITDA | 1,224 | 599 | 321 | 2,144 | ||||||||
| 2016 | ||||||||||||
| Sales: | ||||||||||||
| Third-party sales | $ | 5,728 | $ | 4,864 | $ | 1,802 | $ | 12,394 | ||||
| Intersegment sales | — | 118 | — | 118 | ||||||||
| Total sales | $ | 5,728 | $ | 4,982 | $ | 1,802 | $ | 12,512 | ||||
| Profit and loss: | ||||||||||||
| Depreciation and amortization | $ | 255 | $ | 201 | $ | 48 | $ | 504 | ||||
| Adjusted EBITDA | 1,195 | 577 | 291 | 2,063 | ||||||||
| 2015 | ||||||||||||
| Sales: | ||||||||||||
| Third-party sales | $ | 5,342 | $ | 5,253 | $ | 1,882 | $ | 12,477 | ||||
| Intersegment sales | — | 125 | — | 125 | ||||||||
| Total sales | $ | 5,342 | $ | 5,378 | $ | 1,882 | $ | 12,602 | ||||
| Profit and loss: | ||||||||||||
| Depreciation and amortization | $ | 233 | $ | 203 | $ | 43 | $ | 479 | ||||
| Adjusted EBITDA | 1,111 | 512 | 271 | 1,894 | ||||||||
| 2017 | ||||||||||||
| Assets: | ||||||||||||
| Capital expenditures | $ | 308 | $ | 178 | $ | 57 | $ | 543 | ||||
| Goodwill | 3,949 | 193 | 60 | 4,202 | ||||||||
| Total assets | 10,252 | 4,179 | 1,068 | 15,499 | ||||||||
| 2016 | ||||||||||||
| Assets: | ||||||||||||
| Capital expenditures | $ | 333 | $ | 293 | $ | 63 | $ | 689 | ||||
| Goodwill | 4,579 | 181 | 57 | 4,817 | ||||||||
| Total assets | 10,542 | 3,891 | 982 | 15,415 | ||||||||
| 2016 | 2015 | 2014 | ||||||||||
Sales: | ||||||||||||
Total segment sales | $ | 12,512 | $ | 12,602 | $ | 12,767 | ||||||
Elimination of intersegment sales | (118 | ) | (125 | ) | (185 | ) | ||||||
Corporate | - | (64 | ) | (40 | ) | |||||||
Consolidated sales | $ | 12,394 | $ | 12,413 | $ | 12,542 | ||||||
| 2016 | 2015 | 2014 | ||||||||||
Net (loss) income attributable to Arconic: | ||||||||||||
Total segment ATOI | $ | 1,087 | $ | 986 | $ | 983 | ||||||
Unallocated amounts (net of tax): | ||||||||||||
Impact of LIFO | (11 | ) | 66 | (52 | ) | |||||||
Metal price lag | 21 | (115 | ) | 68 | ||||||||
Interest expense | (324 | ) | (307 | ) | (287 | ) | ||||||
Noncontrolling interests | - | (1 | ) | - | ||||||||
Corporate expense | (306 | ) | (252 | ) | (268 | ) | ||||||
Impairment of goodwill | - | (25 | ) | - | ||||||||
Restructuring and other charges | (114 | ) | (192 | ) | (249 | ) | ||||||
Discontinued operations | 121 | (165 | ) | 329 | ||||||||
Other(1) | (1,415 | ) | (317 | ) | (256 | ) | ||||||
Consolidated net (loss) income attributable to Arconic | $ | (941 | ) | $ | (322 | ) | $ | 268 | ||||
|
| December 31, | 2016 | 2015 | ||||||
Assets: | ||||||||
Total segment assets | $ | 15,415 | $ | 15,540 | ||||
Unallocated amounts: | ||||||||
Cash and cash equivalents | 1,863 | 1,362 | ||||||
Deferred income taxes | 1,234 | 1,308 | ||||||
Corporate goodwill | 331 | 330 | ||||||
Corporate fixed assets, net | 308 | 279 | ||||||
LIFO reserve | (371 | ) | (387 | ) | ||||
Fair value of derivative contracts | 24 | - | ||||||
Investment in common stock of Alcoa Corporation | 1,020 | - | ||||||
Assets of discontinued operations | - | 17,154 | ||||||
Other | 214 | 891 | ||||||
Consolidated assets | $ | 20,038 | $ | 36,477 | ||||
| 2017 | 2016 | 2015 | |||||||
| Sales: | |||||||||
| Total segment sales | $ | 13,060 | $ | 12,512 | $ | 12,602 | |||
| Elimination of intersegment sales | (148 | ) | (118 | ) | (125 | ) | |||
| Corporate | 48 | — | (64 | ) | |||||
| Consolidated sales | $ | 12,960 | $ | 12,394 | $ | 12,413 | |||
| 2017 | 2016 | 2015 | |||||||
| Combined segment adjusted EBITDA | $ | 2,144 | $ | 2,063 | $ | 1,894 | |||
| Unallocated amounts: | |||||||||
| Depreciation and amortization | (551 | ) | (535 | ) | (508 | ) | |||
| Impairment of goodwill | (719 | ) | — | (25 | ) | ||||
| Restructuring and other charges | (165 | ) | (155 | ) | (214 | ) | |||
| Impact of LIFO | (110 | ) | (18 | ) | 101 | ||||
| Metal price lag | 72 | 27 | (175 | ) | |||||
| Corporate expense | (274 | ) | (454 | ) | (371 | ) | |||
| Other | (71 | ) | (109 | ) | (74 | ) | |||
| Operating income | 326 | 819 | 628 | ||||||
| Interest expense | (496 | ) | (499 | ) | (473 | ) | |||
| Other income, net | 640 | 94 | 28 | ||||||
| Income from continuing operations before income taxes | 470 | 414 | 183 | ||||||
| Provision for income taxes | (544 | ) | (1,476 | ) | (339 | ) | |||
| Discontinued operations | — | 121 | (165 | ) | |||||
| Net income attributable to noncontrolling interest | — | — | (1 | ) | |||||
| Net loss attributable to Arconic | $ | (74 | ) | $ | (941 | ) | $ | (322 | ) |
| December 31, | 2017 | 2016 | ||||
| Assets: | ||||||
| Total segment assets | $ | 15,499 | $ | 15,415 | ||
| Unallocated amounts: | ||||||
| Cash and cash equivalents | 2,150 | 1,863 | ||||
| Deferred income taxes | 743 | 1,234 | ||||
| Corporate goodwill | 333 | 331 | ||||
| Corporate fixed assets, net | 310 | 308 | ||||
| LIFO reserve | (481 | ) | (371 | ) | ||
| Fair value of derivative contracts | 91 | 24 | ||||
| Investment in common stock of Alcoa Corporation | — | 1,020 | ||||
| Other | 73 | 214 | ||||
| Consolidated assets | $ | 18,718 | $ | 20,038 | ||
| 2016 | 2015 | 2014 | ||||||||||
Sales: | ||||||||||||
Flat-rolled aluminum | 4,864 | 5,253 | 6,344 | |||||||||
Fastening systems | 2,060 | 2,168 | 1,647 | |||||||||
Investment castings | 1,870 | 1,812 | 1,784 | |||||||||
Other extruded and forged products | 1,495 | 1,332 | 1,019 | |||||||||
Architectural aluminum systems | 1,010 | 951 | 1,002 | |||||||||
Aluminum wheels | 689 | 790 | 786 | |||||||||
Other | 406 | 107 | (40 | ) | ||||||||
| $ | 12,394 | $ | 12,413 | $ | 12,542 | |||||||
| 2017 | 2016 | 2015 | |||||||
| Sales: | |||||||||
| Flat-rolled aluminum | $ | 4,992 | $ | 4,864 | $ | 5,253 | |||
| Fastening systems and rings | 2,102 | 2,060 | 2,168 | ||||||
| Investment castings | 1,983 | 1,870 | 1,812 | ||||||
| Other extruded and forged products | 1,565 | 1,495 | 1,332 | ||||||
| Architectural aluminum systems | 1,065 | 1,010 | 951 | ||||||
| Aluminum wheels | 805 | 689 | 790 | ||||||
| Other | 448 | 406 | 107 | ||||||
| $ | 12,960 | $ | 12,394 | $ | 12,413 | ||||
| 2016 | 2015 | 2014 | ||||||||||
Sales: | ||||||||||||
United States | $ | 7,823 | $ | 8,044 | $ | 7,205 | ||||||
France | 930 | 802 | 915 | |||||||||
United Kingdom | 711 | 698 | 464 | |||||||||
Hungary | 619 | 622 | 630 | |||||||||
China | 582 | 565 | 415 | |||||||||
Russia | 433 | 455 | 642 | |||||||||
Germany | 284 | 264 | 229 | |||||||||
Canada | 262 | 180 | 125 | |||||||||
Brazil | 250 | 297 | 417 | |||||||||
Japan | 145 | 138 | 157 | |||||||||
Italy | 127 | 139 | 150 | |||||||||
Australia | 53 | 49 | 523 | |||||||||
Spain | 4 | 2 | 460 | |||||||||
Other | 171 | 158 | 210 | |||||||||
| $ | 12,394 | $ | 12,413 | $ | 12,542 | |||||||
| 2017 | 2016 | 2015 | |||||||
| Sales: | |||||||||
| United States | $ | 8,167 | $ | 7,823 | $ | 8,044 | |||
| France | 965 | 930 | 802 | ||||||
| Hungary | 739 | 619 | 622 | ||||||
| United Kingdom | 721 | 711 | 698 | ||||||
| China | 615 | 582 | 565 | ||||||
| Russia | 500 | 433 | 455 | ||||||
| Germany | 309 | 284 | 264 | ||||||
| Brazil | 285 | 250 | 297 | ||||||
| Canada | 261 | 262 | 180 | ||||||
| Japan | 141 | 145 | 138 | ||||||
| Italy | 37 | 127 | 139 | ||||||
| Other | 220 | 228 | 209 | ||||||
| $ | 12,960 | $ | 12,394 | $ | 12,413 | ||||
| December 31, | 2016 | 2015 | ||||||
Long-lived assets: | ||||||||
United States | $ | 3,966 | $ | 3,833 | ||||
China | 336 | 352 | ||||||
Russia | 295 | 303 | ||||||
United Kingdom | 232 | 312 | ||||||
Hungary | 194 | 190 | ||||||
France | 118 | 107 | ||||||
Other | 358 | 328 | ||||||
| $ | 5,499 | $ | 5,425 | |||||
P.
| December 31, | 2017 | 2016 | ||||
| Long-lived assets: | ||||||
| United States | $ | 4,005 | $ | 3,966 | ||
| China | 347 | 336 | ||||
| Russia | 276 | 295 | ||||
| United Kingdom | 259 | 232 | ||||
| Hungary | 227 | 194 | ||||
| France | 159 | 118 | ||||
| Germany | 88 | 64 | ||||
| Canada | 63 | 58 | ||||
| Brazil | 62 | 97 | ||||
| Other | 108 | 139 | ||||
| $ | 5,594 | $ | 5,499 | |||
3.75 cumulative dividend preference per share. There were 546,024 of such shares outstanding at December 31, 20162017 and 2015.2016. Class B Serial Preferred Stock has 10 million10,000,000 shares authorized at a par value of $1 per share. There were 2.5 millionno shares outstanding at December 31, 2017 and 2,500,000 of such shares outstanding at December 31, 2016 and 2015 (see below).
On
If Arconic undergoes a fundamental change, as defined in the terms of the Mandatory Convertible Preferred Stock, holders may elect to convert their Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock), into shares of Arconic’s common stock. Holders who elect to convert will also receive any accumulated and unpaid dividends and a Fundamental Change Dividend Make-whole Amount (as defined in the terms of the Mandatory Convertible Preferred Stock) equal to the present value of all remaining dividend payments on the Mandatory Convertible Preferred Stock.
Common Stock. As discussed in Note A, Arconic completed a 1-for-3 Reverse Stock Split on October 5, 2016. The Reverse Stock Split reduced the number of shares of common stock outstanding from approximately 1.3 billion shares to approximately 0.4 billion shares. The par value of the common stock remained at $1.00$1 per share. Accordingly, Common stock and Additional capital in the accompanying Consolidated Balance Sheet at December 31, 2016 reflectreflected a decrease and increase of $877, respectively. The number of authorized shares of common stock was also decreased from 1.8 billion shares to 0.6 billion shares. The Company’s common stock began trading on a reverse stock split-adjusted basis on the NYSE on October 6, 2016.
As of December 31, 2017 and 2016, there was no outstanding treasury stock.
In early 2014, Additionally, Arconic issued 30 millionassumed the obligation to repay two tranches of convertible debt; one tranche was due and settled in cash on December 1, 2015 (principal amount of $115) and the other tranche is due on October 15, 2019 (principal amount of $403), unless earlier converted or purchased by Arconic at the holder’s option under specific conditions. Upon conversion of the 2019 convertible notes, holders will receive, at Arconic’s election, cash, shares (89 million shares—pre-Reverse Stock Split) of common stock under(approximately 14,294,000 shares using the termsDecember 31, 2017 conversion rate of Arconic’s 5.25% Convertible Notes due March 15, 2014. Also,35.5119 shares per $1,000 (not in November 2014, Arconic issued 12 million shares (37 million shares—pre-Reverse Stock Split)millions) bond or per-share conversion price of common stock as part$28.1596), or a combination of cash and shares. On the consideration paidmaturity date, each holder of outstanding notes will be entitled to acquire Firth Rixson (see Note F).
receive on such date $1,000 (not in millions) in cash for each $1,000 (not in millions) bond, together with accrued and unpaid interest.
| Common stock | ||||||||
| Treasury | Outstanding | |||||||
Balance at end of 2013 | 106,895,705 | 1,071,011,162 | ||||||
Conversion of convertible notes | - | 89,383,953 | ||||||
Private placement | - | 36,523,010 | ||||||
Issued for stock-based compensation plans | (19,745,536 | ) | 19,745,536 | |||||
Balance at end of 2014 | 87,150,169 | 1,216,663,661 | ||||||
Acquisition of RTI | - | 87,397,414 | ||||||
Issued for stock-based compensation plans | (6,099,066 | ) | 6,099,066 | |||||
Balance at end of 2015 | 81,051,103 | 1,310,160,141 | ||||||
Treasury stock retirement | (75,831,443 | ) | - | |||||
Reverse Stock Split (A) | - | (876,942,489 | ) | |||||
Issued for stock-based compensation plans | (5,219,660 | ) | 5,302,128 | |||||
Balance at end of 2016 | - | 438,519,780 | ||||||
| Common stock | ||||
| Treasury | Outstanding | |||
| Balance at end of 2014 | 87,150,169 | 1,216,663,661 | ||
| Issued for stock-based compensation plans | (6,099,066 | ) | 6,099,066 | |
| Acquisition of RTI | — | 87,397,414 | ||
| Balance at end of 2015 | 81,051,103 | 1,310,160,141 | ||
| Issued for stock-based compensation plans | (5,219,660 | ) | 5,302,128 | |
| Treasury stock retirement | (75,831,443 | ) | — | |
| Reverse Stock Split | — | (876,942,489 | ) | |
| Balance at end of 2016 | — | 438,519,780 | ||
| Conversion of convertible notes | — | 39,242,706 | ||
| Issued for stock-based compensation plans | — | 3,654,051 | ||
| Balance at end of 2017 | — | 481,416,537 | ||
Additionally, the 2017 awards will be scaled by a total shareholder return (“TSR”) multiplier, which depends upon relative three-year performance against the TSRs of a group of peer companies.
expense related to non-vested stock option grants and non-vested restricted stock unit award grants. This expense is expected to be recognized over a weighted average period of 1.51.6 years. As part of Arconic’s stock-based compensation plan design, individuals who are retirement-eligible have a six-month requisite service period in the year of grant. As a result, a larger portion of expense will be recognized in the first half of each year for these retirement-eligible employees. Of the total pretaxpre-tax compensation expense recognized in 2017, 2016 and 2015, $15, $19, and 2014, $19, $15, and $11, respectively, pertains to the acceleration of expense related to retirement-eligible employees.
| Stock options(A)(D) | Stock awards(A)(D) | |||||||||||||||
Number of options | Weighted average exercise price | Number of awards | Weighted average FMV per award | |||||||||||||
Outstanding, January 1, 2016 | 11 | $ | 35.72 | 7 | $ | 34.13 | ||||||||||
Granted | 3 | $ | 20.22 | 4 | $ | 20.64 | ||||||||||
Exercised | - | $ | 26.89 | - | $ | - | ||||||||||
Converted | - | $ | - | (3 | ) | $ | 26.72 | |||||||||
Expired or forfeited | - | $ | 36.75 | - | $ | 31.90 | ||||||||||
Cancelled due to Separation Transaction(B) | (4 | ) | $ | 32.70 | (2 | ) | $ | 30.46 | ||||||||
Adjustment due to Separation Transaction(C)(D) | 3 | $ | 24.14 | 2 | $ | 22.20 | ||||||||||
Performance share adjustment | - | $ | - | - | $ | 20.87 | ||||||||||
Outstanding, December 31, 2016 | 13 | $ | 24.14 | 8 | $ | 22.26 | ||||||||||
|
|
|
|
| Stock options | Stock awards | ||||||||||
Number of options | Weighted average exercise price | Number of awards | Weighted average FMV per award | ||||||||
| Outstanding, January 1, 2017 | 13 | $ | 24.14 | 8 | $ | 22.26 | |||||
| Granted | 2 | 21.13 | 3 | 21.86 | |||||||
| Exercised | (2 | ) | 20.65 | — | — | ||||||
| Converted | — | — | (2 | ) | 24.95 | ||||||
| Expired or forfeited | (2 | ) | 25.99 | (2 | ) | 21.26 | |||||
| Performance share adjustment | — | — | — | 21.48 | |||||||
| Outstanding, December 31, 2017 | 11 | 23.94 | 7 | 21.49 | |||||||
vested and exercisable and had a weighted average remaining contractual life of 4.754.2 years, a weighted average exercise price of $26.23,$25.90, and a total intrinsic value of $0.2$26 as of December 31, 2016.2017. In 2017, 2016 2015, and 2014,2015, the cash received from stock option exercises was $50, $4, $25, and $150$25 and the total tax benefit realized from these exercises was $4, $0, $6, and $28,$6, respectively. The total intrinsic value of stock options exercised during 2017, 2016 and 2015 was $13, $1, and 2014 was $1, $19, and $84, respectively.
Q.
| 2016 | 2015 | 2014 | ||||||||||
Net loss from continuing operations attributable to Arconic | $ | (1,062 | ) | $ | (156 | ) | $ | (61 | ) | |||
Net income from continuing operations attributable to noncontrolling interests | - | (1 | ) | - | ||||||||
Less: preferred stock dividends declared | 69 | 69 | 21 | |||||||||
Loss from continuing operations available to Arconic common shareholders | (1,131 | ) | (226 | ) | (82 | ) | ||||||
Income (loss) from discontinued operations after income taxes and noncontrolling interests(1) | 121 | 165 | (329 | ) | ||||||||
Net (loss) income available to Arconic common shareholders—basic | (1,010 | ) | (391 | ) | 247 | |||||||
Add: interest expense related to convertible notes | - | - | - | |||||||||
Add: dividends related to mandatory convertible preferred stock | - | - | - | |||||||||
Net (loss) income available to Arconic common shareholders—diluted | $ | (1,010 | ) | $ | (391 | ) | $ | 247 | ||||
Average shares outstanding—basic | 438 | 420 | 387 | |||||||||
Effect of dilutive securities: | ||||||||||||
Stock options | - | - | 2 | |||||||||
Stock and performance awards | - | - | 4 | |||||||||
Mandatory convertible preferred stock | - | - | - | |||||||||
Convertible notes | - | - | - | |||||||||
Average shares outstanding—diluted | 438 | 420 | 393 | |||||||||
| 2017 | 2016 | 2015 | |||||||
| Net loss from continuing operations attributable to Arconic | $ | (74 | ) | $ | (1,062 | ) | $ | (156 | ) |
| Net income from continuing operations attributable to noncontrolling interests | — | — | (1 | ) | |||||
| Less: preferred stock dividends declared | (53 | ) | (69 | ) | (69 | ) | |||
| Loss from continuing operations available to Arconic common shareholders | (127 | ) | (1,131 | ) | (226 | ) | |||
Income (loss) from discontinued operations after income taxes and noncontrolling interests(1) | — | 121 | (165 | ) | |||||
| Net loss available to Arconic common shareholders—basic | (127 | ) | (1,010 | ) | (391 | ) | |||
| Add: interest expense related to convertible notes | — | — | — | ||||||
| Add: dividends related to mandatory convertible preferred stock | — | — | — | ||||||
| Net loss available to Arconic common shareholders—diluted | $ | (127 | ) | $ | (1,010 | ) | $ | (391 | ) |
| Average shares outstanding—basic | 451 | 438 | 420 | ||||||
| Effect of dilutive securities: | |||||||||
| Stock options | — | — | — | ||||||
| Stock and performance awards | — | — | — | ||||||
| Mandatory convertible preferred stock | — | — | — | ||||||
| Convertible notes | — | — | — | ||||||
| Average shares outstanding—diluted | 451 | 438 | 420 | ||||||
(1) | Calculated from the Statement of Consolidated Operations as Income (loss) from discontinued operations after income taxes less Net income |
5 million, 4 million, and 1 million potential shares of common stock related to the mandatory convertible preferred
In 2014, 6 million and 7 million share equivalents related to convertible notes and mandatory convertible preferred stock, respectively, were not included in the computation of diluted EPS because their effect was anti-dilutive.
R.
| 2016 | 2015 | 2014 | ||||||||||
United States | $ | 84 | $ | 124 | $ | 207 | ||||||
Foreign | 330 | 59 | (94 | ) | ||||||||
| $ | 414 | $ | 183 | $ | 113 | |||||||
| 2017 | 2016 | 2015 | |||||||
| United States | $ | 500 | $ | 84 | $ | 124 | |||
| Foreign | (30 | ) | 330 | 59 | |||||
| $ | 470 | $ | 414 | $ | 183 | ||||
| 2016 | 2015 | 2014 | ||||||||||
Current: | ||||||||||||
Federal* | $ | - | $ | - | $ | - | ||||||
Foreign | 133 | 115 | 70 | |||||||||
State and local | 1 | (1 | ) | 1 | ||||||||
| 134 | 114 | 71 | ||||||||||
Deferred: | ||||||||||||
Federal* | 1,208 | 196 | 67 | |||||||||
Foreign | 136 | 29 | 37 | |||||||||
State and local | (2 | ) | - | (1 | ) | |||||||
| 1,342 | 225 | 103 | ||||||||||
Total | $ | 1,476 | $ | 339 | $ | 174 | ||||||
| 2017 | 2016 | 2015 | |||||||
| Current: | |||||||||
| Federal* | $ | — | $ | — | $ | — | |||
| Foreign | 98 | 133 | 115 | ||||||
| State and local | (2 | ) | 1 | (1 | ) | ||||
| 96 | 134 | 114 | |||||||
| Deferred: | |||||||||
| Federal* | 489 | 1,208 | 196 | ||||||
| Foreign | 37 | 136 | 29 | ||||||
| State and local | (78 | ) | (2 | ) | — | ||||
| 448 | 1,342 | 225 | |||||||
| Total | $ | 544 | $ | 1,476 | $ | 339 | |||
| 2016 | 2015 | 2014 | ||||||||||
U.S. federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Taxes on foreign operations | (10.2 | ) | 2.5 | (9.4 | ) | |||||||
Permanent differences on restructuring and other charges and asset disposals | (107.8 | ) | 3.6 | (1.0 | ) | |||||||
Non-deductible acquisition costs | 8.4 | 7.1 | 7.3 | |||||||||
Statutory tax rate and law changes(1) | (15.7 | ) | (1.0 | ) | 78.8 | |||||||
Tax holidays(2) | (0.8 | ) | (3.9 | ) | 38.5 | |||||||
Tax credits | (1.2 | ) | (2.8 | ) | (1.9 | ) | ||||||
Changes in valuation allowances | 426.8 | 145.8 | 17.3 | |||||||||
Impairment of goodwill | - | 4.8 | - | |||||||||
Company-owned life insurance/split-dollar net premiums | 23.0 | (3.0 | ) | (9.6 | ) | |||||||
Changes in uncertain tax positions | 2.3 | (2.0 | ) | (5.6 | ) | |||||||
Other | (3.3 | ) | (0.9 | ) | 4.6 | |||||||
Effective tax rate | 356.5 | % | 185.2 | % | 154.0 | % | ||||||
| 2017 | 2016 | 2015 | ||||
| U.S. federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % |
| Taxes on foreign operations | (7.5 | ) | (10.2 | ) | 2.5 | |
| Federal benefit of state tax | 3.1 | 0.4 | 0.3 | |||
Permanent differences on restructuring and other charges and asset disposals(1) | (167.4 | ) | (107.8 | ) | 3.6 | |
| Non-deductible acquisition costs | 0.3 | 8.4 | 7.1 | |||
Statutory tax rate and law changes(2) | 52.5 | (15.7 | ) | (1.0 | ) | |
| Tax holidays | (3.0 | ) | (0.8 | ) | (3.9 | ) |
| Tax credits | (0.7 | ) | (1.2 | ) | (2.8 | ) |
| Changes in valuation allowances | 137.9 | 426.8 | 145.8 | |||
| Impairment of goodwill | 53.5 | — | 4.8 | |||
| Company-owned life insurance/split-dollar net premiums | — | 23.0 | (3.0 | ) | ||
| Changes in uncertain tax positions | 10.1 | 2.1 | (2.2 | ) | ||
| Other | 1.9 | (3.5 | ) | (1.0 | ) | |
| Effective tax rate | 115.7 | % | 356.5 | % | 185.2 | % |
(1) |
|
(2) | On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act of 2017 ("the 2017 Act”) resulting in significant changes to the Internal Revenue Code (see below). In December 2016, Spain and the United States enacted tax law changes which resulted in the remeasurement of certain deferred tax liabilities recorded by Arconic. |
|
| 2016 | 2015 | |||||||||||||||
| December 31, | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | ||||||||||||
Depreciation | $ | 15 | $ | 817 | $ | 8 | $ | 964 | ||||||||
Employee benefits | 1,382 | 8 | 1,521 | 11 | ||||||||||||
Loss provisions | 181 | 1 | 172 | 2 | ||||||||||||
Tax loss carryforwards | 1,540 | - | 926 | - | ||||||||||||
Tax credit carryforwards | 652 | - | 673 | - | ||||||||||||
Other | 184 | 93 | 311 | 31 | ||||||||||||
| 3,954 | 919 | 3,611 | 1,008 | |||||||||||||
Valuation allowance | (1,940 | ) | - | (1,291 | ) | - | ||||||||||
| $ | 2,014 | $ | 919 | $ | 2,320 | $ | 1,008 | |||||||||
| 2017 | 2016 | ||||||||||||
| December 31, | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | |||||||||
| Depreciation | $ | 31 | $ | 693 | $ | 15 | $ | 817 | |||||
| Employee benefits | 936 | 23 | 1,382 | 8 | |||||||||
| Loss provisions | 134 | 14 | 181 | 1 | |||||||||
| Deferred income/expense | 19 | 1,144 | 20 | 74 | |||||||||
| Tax loss carryforwards | 3,305 | — | 1,540 | — | |||||||||
| Tax credit carryforwards | 638 | — | 652 | — | |||||||||
| Other | 24 | 33 | 164 | 19 | |||||||||
| 5,087 | 1,907 | 3,954 | 919 | ||||||||||
| Valuation allowance | (2,584 | ) | — | (1,940 | ) | — | |||||||
| $ | 2,503 | $ | 1,907 | $ | 2,014 | $ | 919 | ||||||
| December 31, 2016 | Expires within 10 years | Expires within 11-20 years | No expiration* | Other* | Total | |||||||||||||||
Tax loss carryforwards | $ | 81 | $ | 744 | $ | 715 | $ | - | $ | 1,540 | ||||||||||
Tax credit carryforwards | 428 | 89 | 100 | 35 | 652 | |||||||||||||||
Other | - | - | 72 | 1,690 | 1,762 | |||||||||||||||
Valuation allowance | (465 | ) | (663 | ) | (677 | ) | (135 | ) | (1,940 | ) | ||||||||||
| $ | 44 | $ | 170 | $ | 210 | $ | 1,590 | $ | 2,014 | |||||||||||
| December 31, 2017 | Expires within 10 years | Expires within 11-20 years | No expiration* | Other* | Total | ||||||||||
| Tax loss carryforwards | $ | 81 | $ | 781 | $ | 2,443 | $ | — | $ | 3,305 | |||||
| Tax credit carryforwards | 531 | 97 | 10 | — | 638 | ||||||||||
| Other | — | — | 84 | 1,060 | 1,144 | ||||||||||
| Valuation allowance | (467 | ) | (646 | ) | (1,376 | ) | (95 | ) | (2,584 | ) | |||||
| $ | 145 | $ | 232 | $ | 1,161 | $ | 965 | $ | 2,503 | ||||||
| * | Deferred tax assets with no expiration may still have annual limitations on utilization. Other represents deferred tax assets whose expiration is dependent upon the reversal of the underlying temporary difference. A substantial amount |
of Other relates to employee benefits that will become deductible for tax purposes over an extended period of time as contributions are made to employee benefit plans and payments are made to retirees. |
Upon separation, Arconic retained foreign tax credits in the United States which have a 10-year carryforward period with expirations ranging from 2017 to 2026 (as of December 31, 2016). Arconic also retained suspended foreign tax credit carryforwards whose expiration period begins when the credits become unsuspended. A valuation allowance of $135 was initially established in 2013 on a portion of the foreign tax credit carryforwards, primarily due to insufficient foreign source income to allow for full utilization of the credits within the expiration period. An incremental valuation allowance of $134 was recognized in 2015. At the end of 2015 and 2016, $15 and $128 of foreign tax credits respectively expired resulting in a corresponding decrease to the valuation allowance. As a result of the Separation Transaction, management determined that it was no longer more likely than not that Arconic would realize the full tax benefit of its foreign tax credit carryforwards based on changes in the availability of foreign sourced taxable income. After consideration of all available evidence including potential tax planning strategies and earnings of foreign subsidiaries projected to be distributable as taxable foreign dividends, an incremental valuation allowance of $302 was recognized in 2016. At December 31, 2016, the cumulative amount of the valuation allowance was $427. The need for this valuation allowance will be reassessed on a continuous basis in future periods and, as a result, the allowance may increase or decrease based on changes in facts and circumstances.
In December 2011, one of Arconic’s former subsidiaries in Brazil applied for a tax holiday related to its expanded mining and refining operations. During 2013, the application was amended and re-filed and, separately, a similar application was filed for another one of Arconic’s former subsidiaries in Brazil. The deadline for the Brazilian government to deny the application was July 11, 2014. Since Arconic did not receive notice that its applications were denied, the tax holiday took effect automatically on July 12, 2014. As a result, the tax rate applicable to qualified holiday income for these subsidiaries decreased significantly (from 34% to 15.25%), resulting in future cash tax savings over the 10-year holiday period (retroactively effective as of January 1, 2013). Additionally, a portion of one of the subsidiaries net deferred tax assets that reverses within the holiday period was remeasured at the new tax rate (the net deferred tax asset of the other subsidiary was not remeasured since it could still be utilized against the subsidiary’s future earnings not subject to the tax holiday). This remeasurement resulted in a decrease to that subsidiary’s net deferred tax assets and a noncash charge to earnings of $52 ($31 after noncontrolling interests).
| December 31, | 2016 | 2015 | 2014 | |||||||||
Balance at beginning of year | $ | 1,291 | $ | 1,151 | $ | 1,252 | ||||||
Increase to allowance | 772 | 180 | 102 | |||||||||
Release of allowance | (209 | ) | (42 | ) | (70 | ) | ||||||
Acquisitions and divestitures (F) | (1 | ) | 29 | (36 | ) | |||||||
Tax apportionment, tax rate and tax law changes | 106 | (15 | ) | (67 | ) | |||||||
Foreign currency translation | (19 | ) | (12 | ) | (30 | ) | ||||||
Balance at end of year | $ | 1,940 | $ | 1,291 | $ | 1,151 | ||||||
| December 31, | 2017 | 2016 | 2015 | ||||||
| Balance at beginning of year | $ | 1,940 | $ | 1,291 | $ | 1,151 | |||
| Increase to allowance | 831 | 772 | 180 | ||||||
| Release of allowance | (246 | ) | (209 | ) | (42 | ) | |||
| Acquisitions and divestitures (F) | (1 | ) | (1 | ) | 29 | ||||
| Tax apportionment, tax rate and tax law changes | (24 | ) | 106 | (15 | ) | ||||
| Foreign currency translation | 84 | (19 | ) | (12 | ) | ||||
| Balance at end of year | $ | 2,584 | $ | 1,940 | $ | 1,291 | |||
calculation. Arconic has not yet made this policy decision and will update the GILTI and BEAT impact in accordance with SAB 118.
2016.
| December 31, | 2016 | 2015 | 2014 | |||||||||
Balance at beginning of year | $ | 18 | $ | 7 | $ | 8 | ||||||
Additions for tax positions of the current year | 12 | - | - | |||||||||
Additions for tax positions of prior years | - | 14 | 4 | |||||||||
Reductions for tax positions of prior years | - | (2 | ) | (3 | ) | |||||||
Settlements with tax authorities | (1 | ) | - | (1 | ) | |||||||
Expiration of the statute of limitations | (1 | ) | (1 | ) | - | |||||||
Foreign currency translation | - | - | (1 | ) | ||||||||
Balance at end of year | $ | 28 | $ | 18 | $ | 7 | ||||||
| December 31, | 2017 | 2016 | 2015 | ||||||
| Balance at beginning of year | $ | 28 | $ | 18 | $ | 7 | |||
| Additions for tax positions of the current year | 23 | 12 | — | ||||||
| Additions for tax positions of prior years | 27 | — | 14 | ||||||
| Reductions for tax positions of prior years | — | — | (2 | ) | |||||
| Settlements with tax authorities | — | (1 | ) | — | |||||
| Expiration of the statute of limitations | (5 | ) | (1 | ) | (1 | ) | |||
| Foreign currency translation | — | — | — | ||||||
| Balance at end of year | $ | 73 | $ | 28 | $ | 18 | |||
S.
See Note A for additional information on new accounting guidance that will affect the Company during 2018.
| Customer receivables | Other receivables | |||||||||||||||||||||||
| December 31, | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | ||||||||||||||||||
Balance at beginning of year | $ | 8 | $ | 6 | $ | 8 | $ | 34 | $ | 24 | $ | 28 | ||||||||||||
Provision for doubtful accounts | 7 | 4 | 4 | 6 | 8 | 8 | ||||||||||||||||||
Write off of uncollectible accounts | (3 | ) | (2 | ) | (3 | ) | (1 | ) | 2 | (4 | ) | |||||||||||||
Recoveries of prior write-offs | (1 | ) | - | (2 | ) | 1 | (1 | ) | (7 | ) | ||||||||||||||
Other | 2 | - | (1 | ) | (8 | ) | 1 | (1 | ) | |||||||||||||||
Balance at end of year | $ | 13 | $ | 8 | $ | 6 | $ | 32 | $ | 34 | $ | 24 | ||||||||||||
T.
| Customer receivables | Other receivables | ||||||||||||||||||
| December 31, | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||
| Balance at beginning of year | $ | 13 | $ | 8 | $ | 6 | $ | 32 | $ | 34 | $ | 24 | |||||||
| Provision for doubtful accounts | 1 | 7 | 4 | 9 | 6 | 8 | |||||||||||||
| Write off of uncollectible accounts | (5 | ) | (3 | ) | (2 | ) | (1 | ) | (1 | ) | 2 | ||||||||
| Recoveries of prior write-offs | — | (1 | ) | — | (3 | ) | 1 | (1 | ) | ||||||||||
| Other | (1 | ) | 2 | — | (3 | ) | (8 | ) | 1 | ||||||||||
| Balance at end of year | $ | 8 | $ | 13 | $ | 8 | $ | 34 | $ | 32 | $ | 34 | |||||||
| 2016 | 2015 | 2014 | ||||||||||
Amount charged to expense | $ | 499 | $ | 473 | $ | 442 | ||||||
Amount capitalized | 32 | 27 | 22 | |||||||||
| $ | 531 | $ | 500 | $ | 464 | |||||||
U.
| 2017 | 2016 | 2015 | |||||||
| Amount charged to expense | $ | 496 | $ | 499 | $ | 473 | |||
| Amount capitalized | 22 | 32 | 27 | ||||||
| $ | 518 | $ | 531 | $ | 500 | ||||
| Pension benefits | Other postretirement benefits | |||||||||||||||
| December 31, | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Change in benefit obligation(1) | ||||||||||||||||
Benefit obligation at beginning of year | $ | 14,247 | $ | 15,019 | $ | 2,319 | $ | 2,368 | ||||||||
Service cost | 165 | 187 | 13 | 14 | ||||||||||||
Interest cost | 435 | 583 | 63 | 92 | ||||||||||||
Amendments | 2 | 18 | - | - | ||||||||||||
Actuarial (gains) losses | 770 | (222 | ) | 112 | 26 | |||||||||||
Acquisitions (F) | - | 188 | - | 48 | ||||||||||||
Transfer to Alcoa Corporation | (7,577 | ) | - | (1,340 | ) | - | ||||||||||
Settlements | (82 | ) | (72 | ) | - | - | ||||||||||
Curtailments | - | (12 | ) | - | (6 | ) | ||||||||||
Benefits paid, net of participants’ contributions | (794 | ) | (1,033 | ) | (197 | ) | (235 | ) | ||||||||
Medicare Part D subsidy receipts | - | - | 9 | 15 | ||||||||||||
Foreign currency translation impact | (140 | ) | (409 | ) | 1 | (3 | ) | |||||||||
Benefit obligation at end of year(2) | $ | 7,026 | $ | 14,247 | $ | 980 | $ | 2,319 | ||||||||
Change in plan assets(1) | ||||||||||||||||
Fair value of plan assets at beginning of year | $ | 10,928 | $ | 11,717 | $ | - | $ | - | ||||||||
Actual return on plan assets | 89 | 24 | - | - | ||||||||||||
Employer contributions | 296 | 479 | - | - | ||||||||||||
Participants’ contributions | 16 | 21 | - | - | ||||||||||||
Benefits paid | (762 | ) | (1,015 | ) | - | - | ||||||||||
Administrative expenses | (65 | ) | (55 | ) | - | - | ||||||||||
Acquisitions (F) | - | 164 | - | - | ||||||||||||
Transfer to Alcoa Corporation | (5,610 | ) | - | - | - | |||||||||||
Settlements | (82 | ) | (72 | ) | - | - | ||||||||||
Foreign currency translation impact | (144 | ) | (335 | ) | - | - | ||||||||||
Fair value of plan assets at end of year(2) | $ | 4,666 | $ | 10,928 | $ | - | $ | - | ||||||||
Funded status* | $ | (2,360 | ) | $ | (3,319 | ) | $ | (980 | ) | $ | (2,319 | ) | ||||
Less: Amounts attributed to joint venture partners | - | 30 | - | - | ||||||||||||
Net funded status | $ | (2,360 | ) | $ | (3,289 | ) | $ | (980 | ) | $ | (2,319 | ) | ||||
Amounts recognized in the Consolidated Balance Sheet consist of: | ||||||||||||||||
Noncurrent assets | $ | 6 | $ | 9 | $ | - | $ | - | ||||||||
Noncurrent assets of discontinued operations | - | 35 | - | - | ||||||||||||
Current liabilities | (21 | ) | (23 | ) | (91 | ) | (93 | ) | ||||||||
Current liabilities of discontinued operations | - | (12 | ) | - | (120 | ) | ||||||||||
Noncurrent liabilities | (2,345 | ) | (1,925 | ) | (889 | ) | (917 | ) | ||||||||
Noncurrent liabilities of discontinued operations | - | (1,373 | ) | - | (1,189 | ) | ||||||||||
Net amount recognized | $ | (2,360 | ) | $ | (3,289 | ) | $ | (980 | ) | $ | (2,319 | ) | ||||
Amounts recognized in Accumulated Other Comprehensive Loss consist of: | ||||||||||||||||
Net actuarial loss | $ | 2,979 | $ | 5,351 | $ | 150 | $ | 398 | ||||||||
Prior service cost (benefit) | 15 | 70 | (45 | ) | (106 | ) | ||||||||||
Total, before tax effect | 2,994 | 5,421 | 105 | 292 | ||||||||||||
Less: Amounts attributed to joint venture partners | - | 38 | - | - | ||||||||||||
Net amount recognized, before tax effect | $ | 2,994 | $ | 5,383 | $ | 105 | $ | 292 | ||||||||
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss consist of: | ||||||||||||||||
Net actuarial loss | $ | (1,992 | ) | $ | 440 | $ | (224 | ) | $ | 23 | ||||||
Amortization of accumulated net actuarial loss | (380 | ) | (468 | ) | (24 | ) | (17 | ) | ||||||||
Prior service (benefit) cost | (42 | ) | (7 | ) | 37 | 1 | ||||||||||
Amortization of prior service (cost) benefit | (13 | ) | (25 | ) | 24 | 37 | ||||||||||
Total, before tax effect | (2,427 | ) | (60 | ) | (187 | ) | 44 | |||||||||
Less: Amounts attributed to joint venture partners | (38 | ) | (5 | ) | - | - | ||||||||||
Net amount recognized, before tax effect | $ | (2,389 | ) | $ | (55 | ) | $ | (187 | ) | $ | 44 | |||||
| Pension benefits | Other postretirement benefits | ||||||||||||
| December 31, | 2017 | 2016 | 2017 | 2016 | |||||||||
| Change in benefit obligation | |||||||||||||
| Benefit obligation at beginning of year | $ | 7,026 | $ | 14,247 | $ | 980 | $ | 2,319 | |||||
| Service cost | 90 | 165 | 7 | 13 | |||||||||
| Interest cost | 234 | 435 | 30 | 63 | |||||||||
| Amendments | 1 | 2 | — | — | |||||||||
| Actuarial (gains) losses | 311 | 770 | 1 | 112 | |||||||||
| Transfer to Alcoa Corporation | — | (7,577 | ) | — | (1,340 | ) | |||||||
| Settlements | — | (82 | ) | — | — | ||||||||
| Benefits paid, net of participants’ contributions | (425 | ) | (794 | ) | (98 | ) | (197 | ) | |||||
| Medicare Part D subsidy receipts | — | — | 7 | 9 | |||||||||
| Foreign currency translation impact | 122 | (140 | ) | — | 1 | ||||||||
Benefit obligation at end of year(1) | $ | 7,359 | $ | 7,026 | $ | 927 | $ | 980 | |||||
Change in plan assets(1) | |||||||||||||
| Fair value of plan assets at beginning of year | $ | 4,666 | $ | 10,928 | $ | — | $ | — | |||||
| Actual return on plan assets | 212 | 89 | — | — | |||||||||
| Employer contributions | 310 | 296 | — | — | |||||||||
| Participants’ contributions | — | 16 | — | — | |||||||||
| Benefits paid | (404 | ) | (762 | ) | — | — | |||||||
| Administrative expenses | (33 | ) | (65 | ) | — | — | |||||||
| Transfer to Alcoa Corporation | — | (5,610 | ) | — | — | ||||||||
| Settlements | — | (82 | ) | — | — | ||||||||
| Foreign currency translation impact | 111 | (144 | ) | — | — | ||||||||
Fair value of plan assets at end of year(1) | $ | 4,862 | $ | 4,666 | $ | — | $ | — | |||||
| Funded status* | $ | (2,497 | ) | $ | (2,360 | ) | $ | (927 | ) | $ | (980 | ) | |
| Less: Amounts attributed to joint venture partners | — | — | — | — | |||||||||
| Net funded status | $ | (2,497 | ) | $ | (2,360 | ) | $ | (927 | ) | $ | (980 | ) | |
| Amounts recognized in the Consolidated Balance Sheet consist of: | |||||||||||||
| Noncurrent assets | $ | 89 | $ | 6 | $ | — | $ | — | |||||
| Current liabilities | (22 | ) | (21 | ) | (86 | ) | (91 | ) | |||||
| Noncurrent liabilities | (2,564 | ) | (2,345 | ) | (841 | ) | (889 | ) | |||||
| Net amount recognized | $ | (2,497 | ) | $ | (2,360 | ) | $ | (927 | ) | $ | (980 | ) | |
| Amounts recognized in Accumulated Other Comprehensive Loss consist of: | |||||||||||||
| Net actuarial loss | $ | 3,240 | $ | 2,979 | $ | 146 | $ | 150 | |||||
| Prior service cost (benefit) | 10 | 15 | (37 | ) | (45 | ) | |||||||
| Total, before tax effect | 3,250 | 2,994 | 109 | 105 | |||||||||
| Less: Amounts attributed to joint venture partners | — | — | — | — | |||||||||
| Net amount recognized, before tax effect | $ | 3,250 | $ | 2,994 | $ | 109 | $ | 105 | |||||
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss consist of: | |||||||||||||
| Net actuarial loss (gain) | $ | 481 | $ | (1,992 | ) | $ | 1 | $ | (224 | ) | |||
| Amortization of accumulated net actuarial loss | (220 | ) | (380 | ) | (5 | ) | (24 | ) | |||||
| Prior service (benefit) cost | — | (42 | ) | — | 37 | ||||||||
| Amortization of prior service (cost) benefit | (5 | ) | (13 | ) | 8 | 24 | |||||||
| Total, before tax effect | 256 | (2,427 | ) | 4 | (187 | ) | |||||||
| Less: Amounts attributed to joint venture partners | — | 38 | — | — | |||||||||
| Net amount recognized, before tax effect | $ | 256 | $ | (2,389 | ) | $ | 4 | $ | (187 | ) | |||
(1) |
|
U.S. pension plans were $6,018, $3,544, and $(2,474), respectively. At December 31, 2016, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were $5,707, $3,495, and $(2,212), respectively. |
The projected benefit obligation and accumulated benefit obligation for all defined benefit pension plans was as follows: Projected benefit obligation Accumulated benefit obligation The aggregate projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets was as follows: Projected benefit obligation Fair value of plan assets The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets was as follows: Accumulated benefit obligation Fair value of plan assets Service cost Interest cost Expected return on plan assets Recognized net actuarial loss Amortization of prior service cost (benefit) Settlements(3) Curtailments(4) Special termination benefits(5) Net periodic benefit cost(6) Discontinued operations Net amount recognized in Statement of Consolidated Operations In 2017, 2016 In 2017, 2016 In 2016, settlements were due to workforce reductions (see Note D) and the payment of lump sum benefits and/or purchases of annuity contracts. In 2015, settlements were due to workforce reductions (see Note D) and the payment of lump sum benefits and/or purchases of annuity contracts. In 2015, curtailments were due to elimination of benefits or workforce reductions (see Note D). In 2016 and 2015, special termination benefits were due to workforce reductions (see Note D). Amounts attributed to joint venture partners are not included.Pension Plan Benefit Obligations Pension benefits 2016 2015 $ 7,026 $ 14,247 6,850 13,832 6,995 14,146 4,629 10,786 6,104 12,510 3,894 9,512 Pension benefits 2017 2016 The projected benefit obligation and accumulated benefit obligation for all defined benefit pension plans was as follows: Projected benefit obligation $ 7,359 $ 7,026 Accumulated benefit obligation 7,169 6,850 The aggregate projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets was as follows: Projected benefit obligation 6,600 6,995 Fair value of plan assets 4,016 4,629 The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets was as follows: Accumulated benefit obligation 6,422 6,104 Fair value of plan assets 3,998 3,894 Components of Net Periodic Benefit Cost Pension benefits(1) Other postretirement benefits(2) 2016 2015 2014 2016 2015 2014 $ 155 $ 175 $ 166 $ 13 $ 14 $ 15 431 577 630 63 92 114 (677 ) (753 ) (782 ) - - - 380 468 391 24 17 13 13 16 18 (24 ) (37 ) (25 ) 19 16 26 - - - - 9 - - (4 ) - 2 16 - - - - $ 323 $ 524 $ 449 $ 76 $ 82 $ 117 122 248 215 41 43 68 $ 201 $ 276 $ 234 $ 35 $ 39 $ 49 Pension benefits(1) Other postretirement benefits(2) 2017 2016 2015 2017 2016 2015 Service cost $ 90 $ 155 $ 175 $ 7 $ 13 $ 14 Interest cost 234 431 577 30 63 92 Expected return on plan assets (332 ) (677 ) (753 ) — — — Recognized net actuarial loss 220 380 468 5 24 17 Amortization of prior service cost (benefit) 5 13 16 (8 ) (24 ) (37 ) Settlements(3)— 19 16 — — — Curtailments(4)— — 9 — — (4 ) Special termination benefits(5)— 2 16 — — — Net periodic benefit cost(6)$ 217 $ 323 $ 524 $ 34 $ 76 $ 82 Discontinued operations — 122 248 — 41 43 Net amount recognized in Statement of Consolidated Operations $ 217 $ 201 $ 276 $ 34 $ 35 $ 39 Note: the footnotes below include components of Net Periodic Benefit Cost related to Alcoa Corporation through the completion of the Separation Transaction. (1) 2015, and 2014,2015, net periodic benefit cost for U.SU.S. pension plans was $206, $261, and $423, and $335, respectively.(2) 2015, and 2014,2015, net periodic benefit cost for other postretirement benefits reflects a reduction of $11, $22, $34, and $38,$34, respectively, related to the recognition of the federal subsidy awarded under Medicare Part D.(3) In 2014, settlements were due to workforce reductions (see Note D).(4) (5) (6)
Net actuarial loss recognition Prior service cost (benefit) recognition Discount rate Rate of compensation increase Discount rate* Expected long-term rate of return on plan assets Rate of compensation increase The decrease of 75 basis points in the expected long-term rate is due to a decrease in the expected return by asset class and the 20-year moving average. Health care cost trend rate assumed for next year Rate to which the cost trend rate gradually declines Year that the rate reaches the rate at which it is assumed to remain 1% increase Effect on other postretirement benefit obligations Effect on total of service and interest cost components Equities Fixed income Other investments Total Equities: Equity securities Fixed income: Intermediate and long duration government/credit Other Other investments: Real estate Other Net plan assets subject to leveling Plan assets measured at net asset value: Equity securities Long/short equity hedge funds Private equity Fixed income Real estate Discretionary and systematic macro hedge funds Other investments Total plan assets measured at net asset value Net plan assets* Equities Equity securities Fixed income: Intermediate and long duration government/credit Other Other investments: Real estate Other Net plan assets subject to leveling Plan assets measured at net asset value: Equity securities Long/short equity hedge funds Private equity Fixed income Real estate Discretionary and systematic macro hedge funds Other investments Total plan assets measured at net asset value Net plan assets** hierarchy or net asset cost: The first payment of $50 was made on April 18, 2017. 2017 2018 2019 2020 2021 2022 through 2026 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 and unobservable. Cash and cash equivalents Restricted cash Derivatives – current asset Noncurrent receivables Derivatives – noncurrent asset Available-for-sale securities Investment in common stock of Alcoa Corporation Short-term borrowings Derivatives – current liability Commercial paper Long-term debt due within one year Derivatives – noncurrent liability Contingent payment related to an acquisition Long-term debt, less amount due within one year 2018, the Company's primary measure of segment performance will change from Adjusted EBITDA to Operating income, which more closely aligns segment performance with Operating income as presented in the Statement of Consolidated Operations. As part of this change, LIFO and metal price lag will be included in the Operating income of the segments. 2016 Sales Net income (loss) attributable to Arconic Earnings per share attributable to Arconic common shareholders(1)(2): Basic Continuing operations Discontinued operations Net income (loss) per share—basic Diluted Continuing operations Discontinued operations Net income (loss) per share—diluted 2015 Sales Net income (loss) attributable to Arconic Earnings per share attributable to Arconic common shareholders(1)(2): Basic Continuing operations Discontinued operations Net income (loss) per share—basic Diluted Continuing operations Discontinued operations Net income (loss) per share—basic Per share amounts are calculated independently for each period presented; therefore, the sum of the quarterly per share amounts may not equal the per share amounts for the year. In the fourth quarter of 2016, as a result of the Separation Transaction, Arconic recorded a charge of $1,267 for valuation allowances on certain deferred tax assets. 57. pages 58-59. Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders1 Equity compensation plans not approved by security holders Total The information required by Item 403 of RegulationS-K is contained under the captions “Arconic Stock Ownership— Stock Ownership of Certain Beneficial Owners” and “— Stock Ownership of Directors and Executive Officers” of the Proxy Statement and is incorporated by reference. Description* 101. INS 101. SCH 101. CAL 101. DEF 101. LAB 101. PRE /s/ Ken Giacobbe *By /s/Amounts Expected to be Recognized in Net Periodic Benefit Cost Pension benefits Other postretirement benefits 2017 2017 216 8 5 (8 ) Pension benefits Other postretirement benefits 2018 2018 Net actuarial loss recognition 168 9 Prior service cost (benefit) recognition 3 (8 ) AssumptionsWeighted average assumptions used to determine benefit obligations for U.S. pension and other postretirement benefit plans were as follows (assumptions for non-U.Snon-U.S. plans did not differ materially):December 31, 2016 2015 4.20 % 4.29 % 3.5 3.5 December 31, 2017 2016 Discount rate 3.75 % 4.20 % Rate of compensation increase 3.50 3.50 The discount rate is determined using a Company-specific yield curve model (above-median) developed with the assistance of an external actuary. The cash flows of the plans’ projected benefit obligations are discounted using a single equivalent rate derived from yields on high quality corporate bonds, which represent a broad diversification of issuers in various sectors, including finance and banking, consumer products,industrials, transportation, insurance, and pharmaceutical,utilities, among others. The yield curve model parallels the plans’ projected cash flows, which have an average duration of 11 years, and theyears. The underlying cash flows of the bonds included in the model exceed the cash flows needed to satisfy the Company’s plans’ obligations multiple times.The rate of compensation increase is based upon actual experience. For 2017,2018, the rate of compensation increase will be 3.5%, which approximates the five-year average.Weighted average assumptions used to determine net periodic benefit cost for U.S. pension and other postretirement benefit plans were as follows (assumptions for non-U.Snon-U.S. plans did not differ materially): 2016 2015 2014 4.29 % 4.00 % 4.80 % 7.75 7.75 8.00 3.50 3.50 3.50 2017 2016 2015 Discount rate to calculate service cost* 4.20 % 4.29 % 4.00 % Discount rate to calculate interest cost* 3.60 3.15 4.00 Expected long-term rate of return on plan assets 7.75 7.75 7.75 Rate of compensation increase 3.50 3.50 3.50 * In all periods presented, the respective discount rates were used to determine net periodic benefit cost for most U.S. pension plans for the full annual period. However, the discount rates for a limited number of plans were updated during 2017, 2016, 2015, and 20142015 to reflect the remeasurement of these plans due to new union labor agreements, settlements, and/or curtailments. The updated discount rates used were not significantly different from the discount rates presented.In conjunction with the annual measurement of the funded status of Arconic’s pension and other postretirement benefit plans at December 31, 2015, management elected to change the manner in which the interest cost component of net periodic benefit costs is determined in 2016 and beyond. Previously, the interest component was determined by multiplying the single equivalent rate and the aggregate discounted cash flows of the plans’ projected benefit obligations. Under the new methodology, the interest cost component is determined by aggregating the product of the discounted cash flows of the plans’ projected benefit obligations for each year and an individual spot rate (referred to as the “spot rate” approach). This change resulted in a lower interest cost component of net periodic benefit cost under the new methodology compared to the previous methodology in 2017 and 2016 of $34 and $84, respectively, for pension plans and $6 and $14, respectively, for other postretirement benefit plans. Management believes this new methodology, which represents a change in an accounting estimate, is a better measure of the interest cost as each year’s cash flows are specifically linked to the interest rates of bond payments in the same respective year.The expected long-term rate of return on plan assets is generally applied to a five-year market-related value of plan assets (a four-year average or the fair value at the plan measurement date is used for certain non-U.S. plans). The process used by management to develop thisassumption is one that relies on a combination of historical asset return information and forward-looking returns by asset class. As it relates to historical asset return information, management focuses on various historical moving averages when developing this assumption. While consideration is given to recent performance and historical returns, the assumption represents a long-term, prospective return. Management also incorporates expected future returns on current and planned asset allocations using information from various external investment managers and consultants, as well as management’s own judgment.For 2017, 2016 2015, and 2014,2015, the expected long-term rate of return used by management was based on the prevailing and planned strategic asset allocations, as well as estimates of future returns by asset class. These rates fell within the respective range of the 20-year moving average of actual performance and the expected future return developed by asset class. In 2015, the decrease of 25 basis points in the expected long-term rate of return was due to a decrease in the 20-year moving average of actual performance. For 2017,2018, management anticipates that 7.75%7.00% will be the expected long-term rate of return.Assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows (assumptions for non-U.Snon-U.S. plans did not differ materially): 2016 2015 2014 5.5 % 5.5 % 5.5 % 4.5 % 4.5 % 4.5 % 2020 2019 2018 2017 2016 2015 Health care cost trend rate assumed for next year 5.50 % 5.50 % 5.50 % Rate to which the cost trend rate gradually declines 4.50 % 4.50 % 4.50 % Year that the rate reaches the rate at which it is assumed to remain 2021 2020 2019 The assumed health care cost trend rate is used to measure the expected cost of gross eligible charges covered by Arconic’s other postretirement benefit plans. For 2017,2018, a 5.5% trend rate will be used, reflecting management’s best estimate of the change in future health care costs covered by the plans. The plans’ actual annual health care cost trend experience over the past three years has ranged from 3.6%.(2.2%) to 9.6%9.0%. Management does not believe this three-year range is indicative of expected increases for future health care costs over the long-term.Assumed health care cost trend rates have an effect on the amounts reported for the health care plan. A one-percentage point change in these assumed rates would have the following effects: 1%
decrease $ 44 $ (40 ) 4 (3 ) 1%increase1%decreaseEffect on other postretirement benefit obligations $ 29 $ (28 ) Effect on total of service and interest cost components 1 (1 ) Plan AssetsArconic’s pension plans’ investment policy and weighted average asset allocations at December 31, 20162017 and 2015,2016, by asset class, were as follows: Plan assets
at
December 31, Asset class Policy range 2016 2015 20–55 % 30 % 30 % 25–55 % 42 43 15–35 % 28 27 100 % 100 % Plan assetsatDecember 31,Asset class Policy range 2017 2016 Equities 20–55% 28 % 30 % Fixed income 25–55% 47 42 Other investments 15–35% 25 28 Total 100 % 100 % The principal objectives underlying the investment of the pension plans’ assets are to ensure that Arconic can properly fund benefit obligations as they become due under a broad range of potential economic and financial scenarios, maximize the long-term investment return with an acceptable level of risk based on such obligations, and broadly diversify investments across and within various asset classes to protect asset values against adverse movements. Specific objectives for long-term investment strategy include reducing the volatility of pension assets relative to pension liabilities and achieving risk factor diversification across the balance of the asset portfolio. The use of derivative instruments is permitted where appropriate and necessary for achievingoverall investment policy objectives. The investment strategy has used long duration cash bonds and derivative instruments to offset a portion of the interest rate sensitivity of U.S. pension liabilities. Exposure to broad equity risk has been decreased and diversified through investments in discretionary and systematic macro hedge funds, long/short equity hedge funds, high yield bonds, emerging market debt and global and emerging market equities. Investments are further diversified by strategy, asset class, geography, and sector to enhance returns and mitigate downside risk. A large number of external investment managers are used to gain broad exposure to the financial markets and to mitigate manager-concentration risk.Investment practices comply with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and other applicable laws and regulations.The following section describes the valuation methodologies used by the trustees to measure the fair value of pension plan assets, including an indication of the level in the fair value hierarchy in which each type of asset is generally classified (see Note VU for the definition of fair value and a description of the fair value hierarchy).Equities. These securities consist of: (i) direct investments in the stock of publicly traded U.S. and non-U.S. companies and are valued based on the closing price reported in an active market on which the individual securities are traded (generally classified in Level 1); (ii) the plans’ share of commingled funds that are invested in the stock of publicly traded companies and are valued at the net asset value of shares held at December 31 (included in Level 1); and (iii) direct investments in long/short equity hedge funds and private equity (limited partnerships and venture capital partnerships) and are valued by investment managers based on the most recent financial information available, which typically represents significant unobservable data.Fixed income. These securities consist of: (i) U.S. government debt and are generally valued using quoted prices (included in Level 1); (ii) publicly traded U.S. and non-U.S. fixed interest obligations (principally corporate and sovereign bonds and debentures) and are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data (included in Level 2); (iii) cash and cash equivalents; and (iv) interest rate swaps and are generally valued using industry standard models with market-based observable inputs.Other investments. These investments include, among others: (i) exchange traded funds, such as gold, and real estate investment trusts and are valued based on the closing price reported in an active market on which the investments are traded (included in Level 1) and (ii) direct investments of discretionary and systematic macro hedge funds and private real estate (includes limited partnerships) and are valued by investment managers based on the most recent financial information available, which typically represents significant unobservable data.The fair value methods described above may not be indicative of net realizable value or reflective of future fair values. Additionally, while Arconic believes the valuation methods used by the plans’ trustees are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.The following table presents the fair value of pension plan assets classified under the appropriate level of the fair value hierarchy:December 31, 2016 Level 1 Level 2 Total $ 393 $ - $ 393 $ 23 $ 95 $ 118 1,060 51 1,111 $ 1,083 $ 146 $ 1,229 $ 81 $ - $ 81 65 - 65 $ 146 $ - $ 146 $ 1,622 $ 146 $ 1,768 $ 431 406 165 729 185 784 178 $ 2,878 $ 4,646 December 31, 2015 Level 1 Level 2 Total $ 826 $ - $ 826 $ 2,496 $ 487 $ 2,983 - 307 307 $ 2,496 $ 794 $ 3,290 $ 158 $ - $ 158 126 - 126 $ 284 $ - $ 284 $ 3,606 $ 794 $ 4,400 $ 1,099 932 466 1,413 578 1,671 367 $ 6,526 $ 10,926 December 31, 2017 Level 1 Level 2 Net asset value Total Equities: Equity securities $ 379 $ — $ 593 $ 972 Long/short equity hedge funds — — 230 230 Private equity — — 155 155 $ 379 $ — $ 978 $ 1,357 Fixed income: Intermediate and long duration government/credit $ 201 $ 981 $ 779 $ 1,961 Other 164 8 145 317 $ 365 $ 989 $ 924 $ 2,278 Other investments: Real estate $ 85 $ — $ 172 $ 257 Discretionary and systematic macro hedge funds — — 583 583 Other 77 7 275 359 $ 162 $ 7 $ 1,030 $ 1,199 Net plan assets* $ 906 $ 996 $ 2,932 $ 4,834 December 31, 2016 Level 1 Level 2 Net Asset Value Total Equities Equity securities $ 393 $ — $ 431 $ 824 Long/short equity hedge funds — — 406 406 Private equity — — 165 165 $ 393 $ — $ 1,002 $ 1,395 Fixed income: Intermediate and long duration government/credit $ 23 $ 95 $ 655 $ 773 Other 1,060 51 74 1,185 $ 1,083 $ 146 $ 729 $ 1,958 Other investments: Real estate $ 81 $ — $ 185 $ 266 Discretionary and systematic macro hedge funds — — 784 784 Other 65 — 178 243 $ 146 $ — $ 1,147 $ 1,293 Net plan assets** $ 1,622 $ 146 $ 2,878 $ 4,646 * As of December 31, 2017, the total fair value of pension plans’ assets excludes a net receivable of $28, which represents assets due from Alcoa Corporation as a result of plan separations and securities sold but not yet settled plus interest and dividends earned on various investments. ** As of December 31, 2016, the total fair value of pension plans’ assets excludes a net receivable of $20, which represents assets due from the Alcoa Corporation as a result of plan separations and securities sold not yet settled plus interest and dividends earned on various investments.**As of December 31, 2015, the total fair value of pension plans’ assets excludes a net receivable of $2 which represents securities sold not yet settled plus interest and dividends earned on various investments.Funding and Cash FlowsIt is Arconic’s policy to fund amounts for pension plans sufficient to meet the minimum requirements set forth in applicable country benefits laws and tax laws, including the Pension Protection Act of 2006; the Worker, Retiree, and Employer Recovery Act of 2008; the Moving Ahead for Progress in the 21st Century Act of 2012; the Highway and Transportation Funding Act of 2014; and the Bipartisan Budget Act of 2015 for U.S. plans. From time to time,laws. Periodically, Arconic contributes additional amounts as deemed appropriate. In 20162017 and 2015,2016, cash contributions to Arconic’s pension plans were $290$310 and $470.$290. The minimum required contribution to pension plans in 20172018 is estimated to be $310,$350, of which $290$320 is for U.S. plans.During the third quarter of 2016, the Pension Benefit Guaranty Corporation approved management’s plan to separate the former Alcoa Inc. pension plans between Arconic and Alcoa Corporation in connection with the Separation Transaction. The plan stipulates that Arconic will make cash contributions totaling $150 over a period of 30 months to its two largest pension plans. The payments are expected to be made in increments no less than $50 each over the 30-month period, with the firstpayment due no later than six months after the separation date of November 1, 2016.Benefit payments expected to be paid to pension and other postretirement benefit plans’ participants and expected Medicare Part D subsidy receipts are as follows utilizing the current assumptions outlined above:Year ended December 31, Pension
benefits Gross Other post-
retirement
benefits Medicare Part D
subsidy receipts Net Other post-
retirement
benefits $ 420 $ 95 $ 5 $ 90 425 95 5 90 425 95 5 90 430 95 5 90 435 95 5 90 2,195 415 35 380 $ 4,330 $ 890 $ 60 $ 830 Year ended December 31, Pensionbenefits paidGross Other post-retirementbenefitsMedicare Part Dsubsidy receiptsNet Other post-retirementbenefits2018 $ 435 $ 90 $ 5 $ 85 2019 440 90 5 85 2020 440 90 5 85 2021 445 90 5 85 2022 450 90 5 85 Thereafter 2,265 335 25 310 $ 4,475 $ 785 $ 50 $ 735 Defined Contribution PlansArconic sponsors savings and investment plans in various countries, primarily in the United States. Expenses related to these plans were $89 in 2017, $71 in 2016, $83 in 2015, and $83 in 2014.2015. In the United States, employees may contribute a portion of their compensation to the plans, and Arconic matches a portion of these contributions in equivalent form of the investments elected by the employee.V.U. Other Financial InstrumentsFair 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 (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:The carrying values and fair values of Arconic’s financial instruments were as follows: 2016 2015 December 31, Carrying
value Fair
value Carrying
value Fair
value $ 1,863 $ 1,863 $ 1,362 $ 1,362 15 15 37 37 14 14 67 67 21 21 17 17 10 10 31 31 102 102 193 193 1,020 1,020 - - 36 36 38 38 5 5 49 49 - - - - 4 4 3 3 3 3 19 19 78 78 130 130 8,044 8,519 8,786 8,714 2017 2016 December 31, CarryingvalueFairvalue CarryingvalueFairvalueCash and cash equivalents $ 2,150 $ 2,150 $ 1,863 $ 1,863 Restricted cash 4 4 15 15 Derivatives – current asset 61 61 14 14 Noncurrent receivables 20 20 21 21 Derivatives – noncurrent asset 33 33 10 10 Available-for-sale securities 106 106 102 102 Investment in common stock of Alcoa Corporation — — 1,020 1,020 Short-term debt 38 38 40 40 Derivatives – current liability 45 45 5 5 Commercial paper — — — — Derivatives – noncurrent liability 14 14 3 3 Contingent payment related to an acquisition — — 78 78 Long-term debt, less amount due within one year 6,806 7,443 8,044 8,519 The following methods were used to estimate the fair values of financial instruments:Cash and cash equivalents, Restricted cash, Short-term borrowings,debt, and Commercial paper. The carrying amounts approximate fair value because of the short maturity of the instruments. The fair value amounts for Cash and cash equivalents, Restricted cash, and Commercial paper were classified in Level 1, and Short-term borrowings weredebt was 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 (see Note C).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 stock owned by Arconic as of December 31, 2016. This investment was classified in Level 1 of the fair value hierarchy.Contingent payment related to an acquisition (see Note F).The fair value was based on 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.W. Related Party TransactionsOn October 31, 2016, Arconic entered into several agreements with Alcoa Corporation that govern the relationship of the parties following the completion of the Separation Transaction. These agreements include the following: Separation and Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Alcoa Corporation to Arconic Inc. Patent, Know-How, and Trade Secret License Agreement, Arconic Inc. to Alcoa Corporation Patent, Know-How, and Trade Secret License Agreement, Alcoa Corporation to Arconic Inc. Trademark License Agreement, Toll Processing and Services Agreement, Master Agreement for the Supply of Primary Aluminum, Massena Lease and Operations Agreement, Fusina Lease and Operations Agreement, and Stockholder and Registration Rights Agreement.Effective November 1, 2016, Arconic entered into a Toll Processing and Services Agreement with Alcoa Corporation for the tolling of metal for the Warrick, Indiana rolling mill which became a part of Alcoa Corporation on the completion of the Separation Transaction. As part of this arrangement, Arconic will provide a toll processing service to Alcoa Corporation to produce can sheet products at its facility in Tennessee through the expected end date of the contract, December 31, 2018. Alcoa Corporation will supply all required raw materials to Arconic and Arconic will process the raw materials into finished can sheet coils ready for shipment to the end customer. Tolling revenues for the two month period ending December 31, 2016 and accounts receivable at December 31, 2016 were not material to the consolidated results of operations and financial position for the year ended December 31, 2016.Additionally, Arconic buys products from and sells products to various related companies, including Alcoa Corporation, at negotiated prices between the two parties. These transactions, including accounts payable, were not material to the financial position or results of operations of Arconic for all periods presented.X.V. Subsequent EventsManagement evaluated all activity of Arconic and concluded that no subsequent events have occurred that would require recognition in the Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial Statements, except as noted below:On February 14, 2017, Arconic sold 23,353,000In January 2018, the Company announced the freeze of its sharesU.S. defined benefit pension plans for salaried and non-bargained hourly employees, effective April 1, 2018. Benefit accruals for future service and compensation under all of Alcoa Corporationthe Company’s qualified and non-qualified defined benefit pension plans for U.S. salaried and non-bargained hourly employees (the “Pension Plans”) will cease. In connection with this change, effective April 1, 2018, impacted employees will commence receiving an employer contribution of 3% of eligible compensation under the Arconic Salaried Retirement Savings Plan, and, for the period from April 1, 2018 through December 31, 2018, an additional transition employer contribution of 3% of eligible compensation.In January 2018, management announced a change in the organizational structure of the Engineered Products and Solutions segment, from four business units to three business units, with a focus on aligning its internal structure to core markets and customers and reducing cost. As a result of this change, goodwill will be reallocated to the three new reporting units and evaluated for impairment during the first quarter of 2018. The Company does not expect any goodwill impairment as a result of the realignment.In February 2018, the Company announced that its Board of Directors authorized a share repurchase program of up to $500 of its outstanding common stock at $38.03 per share which resulted in $888 in cash proceeds and a pre-tax gain$500 early debt reduction. Under the share repurchase program, the Company may repurchase shares from time to time, in amounts, at prices, and at such times as the Company deems appropriate. Repurchases will be subject to market conditions, legal requirements and other considerations. Arconic is not obligated to repurchase any specific number of approximately $350shares or to do so at any particular time, and the share repurchase program may be recordedsuspended, modified or terminated at any time without prior notice. For the early debt reduction, Arconic intends to redeem in Other incomeMarch 2018 all of its outstanding 5.72% Notes due in 2019.Beginning in the first quarter of 2017.Supplemental Financial Information (unaudited)Quarterly Data(in millions, except per-share amounts) First Second Third Fourth(3) Year $ 3,055 $ 3,234 $ 3,138 $ 2,967 $ 12,394 $ 16 $ 135 $ 166 $ (1,258 ) $ (941 ) $ 0.21 $ 0.08 $ 0.11 $ (2.98 ) $ (2.58 ) (0.21 ) 0.19 0.23 0.07 0.27 $ 0.00 $ 0.27 $ 0.34 $ (2.91 ) $ (2.31 ) $ 0.21 $ 0.08 $ 0.11 $ (2.98 ) $ (2.58 ) (0.21 ) 0.19 0.22 0.07 0.27 $ 0.00 $ 0.27 $ 0.33 $ (2.91 ) $ (2.31 ) $ 3,091 $ 3,204 $ 3,127 $ 2,991 $ 12,413 $ 195 $ 140 $ 44 $ (701 ) $ (322 ) $ (0.31 ) $ 0.21 $ 0.05 $ (0.48 ) $ (0.54 ) 0.75 0.09 0.01 (1.16 ) (0.39 ) $ 0.44 $ 0.30 $ 0.06 $ (1.64 ) $ (0.93 ) $ (0.31 ) $ 0.21 $ 0.05 $ (0.48 ) $ (0.54 ) 0.74 0.09 0.01 (1.16 ) (0.39 ) $ 0.43 $ 0.30 $ 0.06 $ (1.64 ) $ (0.93 ) First Second Third Fourth(2)Year 2017 Sales $ 3,192 $ 3,261 $ 3,236 $ 3,271 $ 12,960 Net income (loss) attributable to Arconic $ 322 $ 212 $ 119 $ (727 ) $ (74 ) Earnings (loss) per share attributable to Arconic common shareholders(1): Basic Net income (loss) per share—basic $ 0.69 $ 0.44 $ 0.23 $ (1.51 ) $ (0.28 ) Diluted Net income (loss) per share—diluted $ 0.65 $ 0.43 $ 0.22 $ (1.51 ) $ (0.28 ) 2016 Sales $ 3,055 $ 3,234 $ 3,138 $ 2,967 $ 12,394 Net income (loss) attributable to Arconic $ 16 $ 135 $ 166 $ (1,258 ) $ (941 ) Earnings (loss) per share attributable to Arconic common shareholders(1): Basic Continuing operations $ 0.21 $ 0.08 $ 0.11 $ (2.98 ) $ (2.58 ) Discontinued operations (0.21 ) 0.19 0.23 0.07 0.27 Net income (loss) per share—basic $ 0.00 $ 0.27 $ 0.34 $ (2.91 ) $ (2.31 ) Diluted Continuing operations $ 0.21 $ 0.08 $ 0.11 $ (2.98 ) $ (2.58 ) Discontinued operations (0.21 ) 0.19 0.22 0.07 0.27 Net income (loss) per share—basic $ 0.00 $ 0.27 $ 0.33 $ (2.91 ) $ (2.31 ) (1) (2) Per share amounts for all periods presented have been updatedIn the fourth quarter of 2017, Arconic recorded an impairment of goodwill related to reflect the Reverse Stock Split (see Note A)forgings and extrusions business of $719 ($719 pre-tax); a provisional charge of $272 associated with the revaluation of U.S. net deferred tax assets due to a decrease in the U.S. corporate tax rate from 35% to 21%, as well as a one-time transition tax on the non-previously taxed earnings and profits of certain U.S.-owned foreign corporations as of December 31, 2017; a favorable adjustment to the Firth Rixson earn-out liability of $81 ($81 pre-tax); and a favorable adjustment to a separation-related guarantee liability of $18 ($25 pre-tax).(3) In the fourth quarter of 2015, operations related to Alcoa Corporation, which were recorded in discontinued operations, recorded a loss of $508 primarily relating to restructuring and other charges of $685.Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.(a) Evaluation of Disclosure Controls and ProceduresArconic’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules13a-15(e) and15d-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) Management’s Annual Report on Internal Control over Financial ReportingManagement’s Report on Internal Control over Financial Reporting is included in Part II, Item 8 of this Form10-K beginning on page 65.(c) Attestation Report of the Registered Public Accounting FirmThe effectiveness of Arconic’s internal control over financial reporting as of December 31, 20162017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in Part II, Item 8 of this Form10-K on page 66.(d) Changes in Internal Control over Financial ReportingThere have been no changes in internal control over financial reporting during the fourth quarter of 2016,2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.Item 9B. Other Information.In connection with the Separation, Arconic’s Board of Directors conducted a special review of the Company’s compensation arrangements, and on January 13, 2017, it approved amendments to the Company’s Change in Control Severance Plan (the “CIC Plan”) which took effect on February 27, 2017. Certain senior executives of the Company, including Klaus Kleinfeld, the Chief Executive Officer, and Ken Giacobbe, the Chief Financial Officer, participate in the CIC Plan. Prior to the amendments, Mr. Kleinfeld was the sole participant in the CIC Plan who retained two grandfathered benefits under the plan – eligibility for a golden parachute excise tax reimbursement, and the right to resign for any reason during a window of thirty days beginning six months following a change in control and receive severance benefits – which were previously eliminated from the CIC Plan for new participants who became eligible on or after January 1, 2010. The amendments to the CIC Plan eliminated both of these grandfathered benefits for Mr. Kleinfeld. In addition, the amendments reduced the level of severance benefits for participants in the CIC Plan below the level of Chief Executive Officer. Consequently, the severance benefits for which Mr. Giacobbe is potentially eligible under the amended CIC Plan are (i) a cash payment equal to two times annual salary plus target annual cash incentive compensation (reduced from three times), (ii) continuation of health care benefits for two years (reduced from three years), (iii) two additional years of pension credit calculated as described in the CIC Plan (reduced from three years), and (iv) six months of outplacement benefits (there was no change to this benefit).Arconic’s Board of Directors also approved, on January 13, 2017, the Arconic Inc. Executive Severance Plan (the “Severance Plan”), which took effect on February 27, 2017. The Severance Plan covers the same executives who are eligible to participate in the CIC Plan, other than any such executive who is party to an individual agreement providing for severance benefits. Mr. Kleinfeld is party to an individual agreement, dated December 8, 2008, with the Company providing for severance benefits on an involuntary termination of employment that are substantially similar to thoseprovided under the Severance Plan, which are described below. Mr. Kleinfeld has waived the severance benefits under such individual agreement pursuant to a letter agreement dated February 27, 2017 (the “Letter Agreement”) and is therefore eligible to participate in the Severance Plan. The Severance Plan provides for severance benefits upon a termination of a participant’s employment without cause or resignation by a participant for good reason (unless the participant receives severance benefits under the CIC Plan), subject to execution and non-revocation of a general release of legal claims against the Company. The severance benefits under the Severance Plan for Messrs. Kleinfeld and Giacobbe are: (i) a cash severance payment equal to two times, for Mr. Kleinfeld, and one times, for Mr. Giacobbe, the sum of base salary and target annual cash incentive, (ii) continued health care benefits for a two-year period, and (iii) two additional years of pension accrual calculated as described in the Severance Plan.The foregoing descriptions of the amendments to the CIC Plan, the Severance Plan and the Letter Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the applicable documents filed as exhibits 10(x), 10(aa) and 10(y)(1), respectively, to this Form 10-K.On February 23, 2017, Arconic’s Board of Directors approved and adopted amended and restated by-laws (the “Amended By-laws”) in order to provide eligible shareholders with a “proxy access” mechanism for nominating director candidates, subject to the terms and conditions set forth therein. The proxy access provision allows eligible shareholders or groups of up to 20 shareholders, who have maintained continuous qualifying ownership of at least 3% of the Company’s outstanding common stock for at least three years and have complied with the other requirements set forth in the Amended By-laws, to include director nominees for up to the greater of two candidates or 20% of the Board in the Company’s proxy materials for an annual meeting of shareholders. The amendments also include certain conforming and ministerial changes to certain advance notice provisions of the Amended By-laws.In addition, the Amended By-laws provide that meetings of shareholders may be held by means of the Internet or other electronic communications technology in the manner provided by Pennsylvania law.The Amended By-laws became effective immediately upon approval and adoption by the Board. The proxy access provision will be first available to shareholders in connection with the Company’s 2018 Annual Meeting of Shareholders.The foregoing description of the Amended By-laws does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended By-laws filed as exhibit 3(b) to this Form 10-K.None.PART IIIItem 10. Directors, Executive Officers and Corporate Governance.The information required by Item 401 of Regulation S-K regarding directors is contained under the caption “Item 1 Election of Directors” of the Proxy Statement and is incorporated by reference. The information required by Item 401 of Regulation S-K regarding executive officers is set forth in Part I, Item 1 of this report under “Executive Officers of the Registrant”.The information required by Item 405 of RegulationS-K is contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement and is incorporated by reference.The Company’s Code of Ethics for the CEO, CFO and Other Financial Professionals is publicly available on the Company’s Internet website athttp://www.arconic.comunder the section “Investors—Corporate Governance.” The remaining information required by Item 406 of RegulationS-K is contained under the captions “Corporate Governance” and “Corporate Governance—Business Conduct Policies and Code of Ethics” of the Proxy Statement and is incorporated by reference.The information required by Items 407(c)(3), (d)(4) and (d)(5) of RegulationS-K is included under the captions “Item 1 Election of Directors—Nominating Board Candidates—Procedures and Director Qualifications” and “Corporate Governance—Committees of the Board—Audit Committee” of the Proxy Statement and is incorporated by reference.Item 11. Executive Compensation.The information required by Item 402 of RegulationS-K is contained under the captions “Director Compensation”, “Executive Compensation” and “Corporate Governance—Recovery of Incentive Compensation” of the Proxy Statement. Such information is incorporated by reference.The information required by Items 407(e)(4) and (e)(5) of RegulationS-K is contained under the captions “Corporate Governance—Compensation Committee Interlocks and Insider Participation” and “Item 3 Advisory Approval of Executive Compensation—Compensation Committee Report” of the Proxy Statement. Such information (other than the Compensation Committee Report, which shall not be deemed to be “filed”) is incorporated by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The following table gives information about Arconic’s common stock that could be issuedrequired by Item 201(d) of Regulation S-K relating to securities authorized for issuance under the company’s equity compensation plans asis contained under the caption “Equity Compensation Plan Information” of December 31, 2016.Plan Category 20,911,605 1 $ 24.14 25,952,673 2 0 0 0 20,911,605 1 $ 24.14 25,952,673 2
the Proxy Statement and is incorporated by reference.1Includes the 2013 Arconic Stock Incentive Plan (approved by shareholders in May 2013) (2013 ASIP) and 2009 Alcoa Stock Incentive Plan (approved by shareholders in May 2009) (2009 ASIP). Also includes 438,157 stock options and 96,223 restricted share units resulting from the merger conversion of RTI Metals employee equity. Table amounts are comprised of the following:12,787,786 stock options567,551 performance options5,236,870 restricted share units2,319,398 performance share awards (1,399,565 granted in 2016 at target)2The 2013 ASIP authorizes, in addition to stock options, other types of stock-based awards in the form of stock appreciation rights, restricted shares, restricted share units, performance awards and other awards. The shares that remain available for issuance under the 2013 ASIP may be issued in connection with any one of these awards. Up to 46,666,667 shares may be issued under the plan. Any award other than an option or a stock appreciation right shall count as 2.33 shares. Options and stock appreciation rights shall be counted as one share for each option or stock appreciation right. In addition, the 2013 ASIP provides the following are available to grant under the 2013 ASIP: (i) shares that are issued under the 2013 ASIP, which are subsequently forfeited, cancelled or expire in accordance with the terms of the award and (ii) shares that had previously been issued under prior plans that are outstanding as of the date of the 2013 ASIP which are subsequently forfeited, cancelled or expire in accordance with the terms of the award.Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required by Item 404 of RegulationS-K is contained under the captions “Executive Compensation” (excluding the information under the caption “Compensation Committee Report”) and “Corporate Governance— Related Person Transactions” of the Proxy Statement and is incorporated by reference.The information required by Item 407(a) of Regulation S-K regarding director independence is contained under the captions “Item 1 Election of Directors” and “Corporate Governance” of the Proxy Statement and is incorporated by reference.Item 14. Principal Accounting Fees and Services.The information required by Item 9(e) of Schedule 14A is contained under the captions “Item 2 Ratification of Appointment of Independent Registered Public Accounting Firm—Report of the Audit Committee” and “— Audit andNon-Audit Fees” of the Proxy Statement and in Attachment A(Pre-Approval (Pre-Approval Policies and Procedures for Audit andNon-Audit Services) thereto and is incorporated by reference.PART IVItem 15. Exhibits, Financial Statement Schedules.(a) The consolidated financial statements and exhibits listed below are filed as part of this report.(1) The Company’s consolidated financial statements, the notes thereto and the report of the Independent Registered Public Accounting Firm are on pages 6559 through 124114 of this report.(2) Financial statement schedules have been omitted because they are not applicable, not required, or the required information is included in the consolidated financial statements or notes thereto.(3) Exhibits.ExhibitNumber Share Purchase Agreement, dated as of June 25, 2014, by and among Alcoa Inc., Alcoa IH Limited, FR Acquisition Corporation (US), Inc., FR Acquisitions Corporation (Europe) Limited, FR Acquisition Finance Subco (Luxembourg), S.à.r.l. and Oak Hill Capital Partners III, L.P. and Oak Hill Capital Management Partners III, L.P., collectively in their capacity as the Seller Representative, incorporated by reference to exhibit 2.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated June 26,27, 2014. Separation and Distribution Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa Corporation, incorporated by reference to exhibit 2.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. Transition Services Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa Corporation, incorporated by reference to exhibit 2.2 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. Tax Matters Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa Corporation, incorporated by reference to exhibit 2.3 to the Company’s Current Report on Form 8-K (Commission file number1-3610) dated November 4, 2016. Employee Matters Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa Corporation, incorporated by reference to exhibit 2.4 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. Amendment No. 1, dated December 13, 2016, to Employee Matters Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa Corporation.Corporation, incorporated by reference to exhibit 2(e)(1) to the Company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2016. Alcoa Corporation to Arconic Inc. Patent,Know-How, and Trade Secret License Agreement, dated as of October 31, 2016, by and between Alcoa USA Corp. and Arconic Inc., incorporated by reference to exhibit 2.5 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. Arconic Inc. to Alcoa Corporation Patent,Know-How, and Trade Secret License Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa USA Corp., incorporated by reference to exhibit 2.6 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. 2(h). Alcoa Corporation to Arconic Inc. Trademark License Agreement, dated as of October 31, 2016, by and between Alcoa USA Corp. and Arconic Inc., incorporated by reference to exhibit 2.7 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. 2(i). Amended and Restated Alcoa Corporation to Arconic Inc. Trademark License Agreement, dated as of June 25, 2017, by and between Alcoa USA Corp. and Arconic Inc., incorporated by reference to exhibit 2 to the Company’s Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended June 30, 2017. Toll Processing and Services Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa Warrick LLC, incorporated by reference to exhibit 2.8 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. Master Agreement for the Supply of Primary Aluminum, dated as of October 31, 2016, by and between Alcoa Corporation and its affiliates and Arconic Inc., incorporated by reference to exhibit 2.9 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. Massena Lease and Operations Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa Corporation, incorporated by reference to exhibit 2.10 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. English TranslationAgreement and Plan of Fusina Lease and Operations Agreement,Merger, dated as of August 4, 2016,October 12, 2017, by and between Alcoa Servizi S.r.l.Arconic Inc., a Pennsylvania corporation, and Fusina Rolling S.r.l.Arconic Inc., a Delaware corporation, incorporated by reference to exhibit 2(k)2.1 to the Company’s QuarterlyCurrent Report on Form10-Q 8-K (Commission file number1-3610) for the quarter ended September 30, 2016. dated January 4, 2018. 3(a). ArticlesCertificate of the Registrant, as amended effective November 1, 2016,Incorporation of Arconic Inc., a Delaware corporation, incorporated by reference to exhibit 3(a)3.1 to the Company’s QuarterlyCurrent Report on Form10-Q 8-K (Commission file number1-3610) for the quarter ended September 30, 2016. dated January 4, 2018. By-LawsBylaws of Arconic Inc., a Delaware corporation, incorporated by reference to exhibit 3.2 to the Registrant, as amended effective as of February 23, 2017.Company’s Current Report on Form 8-K (Commission file number 1-3610) dated January 4, 2018. Articles.Form of Certificate for Shares of Common Stock of Arconic Inc., a Delaware corporation, incorporated by reference to exhibit 4.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated January 4, 2018.Bylaws. See Exhibit 3(a)exhibit 3(b) above. 4(b)4(c). By-Laws. See Exhibit 3(b) above. 4(c).Form of Indenture, dated as of September 30, 1993, between Alcoa Inc. and The Bank of New York Trust Company, N.A., as successor to J. P. Morgan Trust Company, National Association (formerly Chase Manhattan Trust Company, National Association), as successor Trustee to PNC Bank, National Association, as Trustee (undated form of Indenture incorporated by reference to exhibit 4(a) to Registration StatementNo. 33-49997 on FormS-3). First Supplemental Indenture, dated as of January 25, 2007, between Alcoa Inc. and The Bank of New York Trust Company, N.A., as successor to J.P. Morgan Trust Company, National Association (formerly Chase Manhattan Trust Company, National Association), as successor Trustee to PNC Bank, National Association, as Trustee, incorporated by reference to exhibit 99.4 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated January 25, 2007. Second Supplemental Indenture, dated as of July 15, 2008, between Alcoa Inc. and The Bank of New York Mellon Trust Company, N.A., as successor in interest to J. P. Morgan Trust Company, National Association (formerly Chase Manhattan Trust Company, National Association, as successor to PNC Bank, National Association), as Trustee, incorporated by reference to exhibit 4(c) to the Company’s Current Report on Form8-K (Commission file number1-3610) dated July 15, 2008. Fourth Supplemental Indenture, dated as of December 31, 2017, between Arconic Inc., a Pennsylvania corporation, Arconic Inc., a Delaware corporation, and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to exhibit 4.3 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated January 4, 2018. Form of 6.75% Bonds Due 2028. Form of 5.90% Notes Due 2027, incorporated by reference to exhibit 4(d)4(e) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2008. 4(e) Form of 5.95% Notes Due 2037, incorporated by reference to exhibit 4(d)4(f) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2008. 4(f). Form of 6.75%5.72% Notes Due 2018,2019, incorporated by reference to exhibit 4(b)4.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated July 15, 2008.February 21, 2007. 4(g) Form of 5.87% Notes Due 2022, incorporated by reference to exhibit 4.2 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated February 21, 2007. Form of 6.150% Notes Due 2020, incorporated by reference to exhibit 4 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated August 3, 2010. 4(h) Form of 5.40% Notes Due 2021, incorporated by reference to exhibit 4 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated April 21, 2011. 4(i)4(k). Form of 5.125% Notes Due 2024, incorporated by reference to exhibit 4.5 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated September 22, 2014. 4(j) Deposit Agreement, dated September 22, 2014, among Alcoa Inc., Computershare Trust Company, N.A., Computershare Inc., and the holders from time to time of the depositary receipts evidencing the Depositary Shares (including Form of Depositary Receipt), incorporated by reference to exhibit 4.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated September 22, 2014. 4(k).Form of Depositary Receipt for Deposit Agreement, dated September 22, 2014, among Alcoa Inc., Computershare Trust Company, N.A., Computershare Inc., and the holders from time to time of the depositary receipts evidencing the Depositary Shares, incorporated by reference to exhibit A to exhibit 4.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated September 22, 2014. 4(l).Indenture, dated as of December 14, 2010, between RTI International Metals, Inc. and The Bank of New York Trust Company, N.A., as Trustee, incorporated by reference to exhibit 4(m) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2015. 4(m). Third Supplemental Indenture, dated as of April 17, 2013, between RTI International Metals, Inc. and The Bank of New York Trust Company, N.A., as Trustee, incorporated by reference to exhibit 4(n) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2015. 4(n). Fourth Supplemental Indenture, dated as of July 23, 2015, between RTI International Metals, Inc. and The Bank of New York Trust Company, N.A., as Trustee, incorporated by reference to Exhibitexhibit 4.1 on Form8-K (Commission file number1-3610) dated July 23, 2015. 4(o). Fifth Supplemental Indenture, dated as of November 30, 2017, between RTI International Metals, Inc. and The Bank of New York Trust Company, N.A., as Trustee, incorporated by reference to exhibit 4.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated December 4, 2017. Sixth Supplemental Indenture, dated as of December 31, 2017, between Arconic Inc., a Pennsylvania corporation, Arconic Inc., a Delaware corporation, and The Bank of New York Mellon Trust Company, N.A., as Trustee, incorporated by reference to exhibit 4.2 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated January 4, 2018. Form of 1.625% Convertible Senior Notes Due 2019. See exhibit 4(l)(1) above. Arconic Bargaining Retirement Savings Plan (formerly known as the Alcoa Retirement Savings Plan for Bargaining Employees), as Amended and Restated effective January 1, 2015, incorporated by reference to exhibit 4(p) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2015. 4(p) Arconic HourlyNon-Bargaining Retirement Savings Plan (formerly known as the Alcoa Retirement Savings Plan for HourlyNon-Bargaining Employees), as Amended and Restated effective January 1, 2015, incorporated by reference to exhibit 4(q) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2015. 4(q). Arconic Fastener Systems and Rings Retirement Savings Plan (formerly known as the Alcoa Retirement Savings Plan for Fastener Systems Employees), as Amended and Restated effective January 1, 2015, incorporated by reference to exhibit 4(r) to the Company’s Annual Report onForm 10-K (Commission file number1-3610) for the year ended December 31, 2015. 4(r). Arconic Salaried Retirement Savings Plan (formerly known as the Alcoa Retirement Savings Plan for Salaried Employees), as Amended and Restated effective January 1, 2015, incorporated by reference to exhibit 4(s) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2015. 4(s) Arconic Retirement Savings Plan for ATEP Bargaining Employees, effective January 1, 2017, incorporated by reference to exhibit 4 to Post-Effective Amendment, dated December 30, 2016, to Registration StatementNo. 333-32516 on FormS-8. Earnout Agreement, dated as of June 25, 2014, by and among Alcoa Inc., FR Acquisition Finance Subco (Luxembourg), S.à.r.l. and Oak Hill Capital Partners III, L.P. and Oak Hill Capital Management Partners III, L.P., collectively in their capacity as the Seller Representative, incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated June 26,27, 2014. Stockholder and Registration Rights Agreement, dated as of October 31, 2016, by and between Arconic Inc. and Alcoa Corporation, incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 4, 2016. 10(c).Five-Year Revolving Credit Agreement, dated as of July 25, 2014, among Alcoa Inc., the 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 10.2 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated July 31, 2014. 10(c) Extension Request and Amendment Letter, dated as of June 5, 2015, among Alcoa Inc., each lender and issuer party thereto, and Citibank, N.A., as Administrative Agent, effective July 7, 2015, incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated July 13, 2015. 10(c) Amendment No. 1, dated September 16, 2016, to the Five-Year Revolving Credit Agreement dated as of July 25, 2014, among Arconic Inc., the lenders and issuers named therein, Citibank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A. as syndication agent, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K (Commission file number 1-3610) dated September 19, 2016. 10(d) Assumption Agreement, dated as of December 31, 2017, by Arconic Inc., a Delaware corporation, in favor of and for the benefit of the Lenders and Citibank, N.A., as administrative agent, incorporated by reference to exhibit 4.4 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated January 4, 2018. Plea Agreement dated January 8, 2014, between the United States of America and Alcoa World Alumina LLC, incorporated by reference to exhibit 10(l) to the Company’s Annual Report onForm 10-K (Commission file number1-3610) for the year ended December 31, 2013. 10(e) Offer of Settlement of Alcoa Inc. before the Securities and Exchange Commission dated December 27, 2013, incorporated by reference to exhibit 10(m) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2013. 10(f) Securities and Exchange Commission Order dated January 9, 2014, incorporated by reference to exhibit 10(n) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2013. 10(g) Agreement, dated February 1, 2016, by and between Elliott Associates, L.P., Elliott International, L.P., Elliott International Capital Advisors Inc. and Alcoa Inc., incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated February 1, 2016. 10(h) Settlement Agreement, dated as of May 22, 2017, by and among Elliott Associates, L.P., Elliott International, L.P., Elliott International Capital Advisors Inc. and Arconic Inc., incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated May 22, 2017 (reporting an event on May 21, 2017). Letter Agreement, by and among Arconic Inc. and Elliott Associates, L.P., Elliott International, L.P. and Elliott International Capital Advisors Inc., dated as of December 19, 2017, incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated December 19, 2017. Registration Rights Agreement, by and among Arconic Inc. and Elliott Associates, L.P., Elliott International, L.P. and Elliott International Capital Advisors Inc., dated as of December 19, 2017, incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated December 19, 2017. Amendment to Registration Rights Agreement, by and among Arconic Inc. and Elliott Associates, L.P., Elliott International, L.P. and Elliott International Capital Advisors Inc., dated as of February 2, 2018, incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated February 6, 2018. Alcoa Internal Revenue Code Section 162(m) Compliant Annual Cash Incentive Compensation Plan, as Amended and Restated, incorporated by reference to Exhibit 10(b) to the Company’s Current Report on Form8-K (Commission file number1-3610) dated May 11, 2016. 10(i) 2004 Summary Description of the Alcoa Incentive Compensation Plan, incorporated by reference to exhibit 10(g) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended September 30, 2004. 10(i) Incentive Compensation Plan of Alcoa Inc., as revised and restated effective November 8, 2007, incorporated by reference to exhibit 10(k)(1) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2007. 10(i) Amendment to Incentive Compensation Plan of Alcoa Inc., effective December 18, 2009, incorporated by reference to exhibit 10(n)(2) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2009. 10(j) Arconic Employees’ Excess Benefits Plan C (formerly referred to as the Alcoa Inc. Employees’ Excess Benefits Plan, Plan C), as amended and restated effective August 1, 2016, incorporated by reference to exhibit 10(j) to the Company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2016. First Amendment to Arconic Employees’ Excess Benefits Plan C (as amended and restated effective August 1, 2016), effective January 1, 2018. Second Amendment to Arconic Employees’ Excess Benefits Plan C (as amended and restated effective August 1, 2016), effective January 1, 2018. Third Amendment to Arconic Employees’ Excess Benefits Plan C (as amended and restated effective August 1, 2016), incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated January 8, 2018. 10(k) Deferred Fee Plan for Directors, as amended effective July 9, 1999, incorporated by reference to exhibit 10(g)(1) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended June 30, 1999. 10(l) Amended and Restated Deferred Fee Plan for Directors, effective November 1, 2016, incorporated by reference to exhibit 10(c) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended September 30, 2016. 10(m) Restricted Stock Plan forNon-Employee Directors, as amended effective March 10, 1995, incorporated by reference to exhibit 10(h) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 1994. 10(m)(1).Amendment to Restricted Stock Plan forNon-Employee Directors, effective November 10, 1995, incorporated by reference to exhibit 10(h)(1) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 1995. 10(n).Non-Employee Director Compensation Policy, effective November 1, 2016, incorporated by reference to exhibit 10(d) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended September 30, 2016. 10(o) Non-Employee Director Compensation Policy, effective December 5, 2017. 10(q). Fee Continuation Plan forNon-Employee Directors, incorporated by reference to exhibit 10(k) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 1989. 10(o) Amendment to Fee Continuation Plan forNon-Employee Directors, effective November 10, 1995, incorporated by reference to exhibit 10(i)(1) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 1995. 10(o) Second Amendment to the Fee Continuation Plan forNon-Employee Directors, effective September 15, 2006, incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated September 20, 2006. 10(p) Arconic Deferred Compensation Plan, as amended and restated effective August 1, 2016, incorporated by reference to exhibit 10(p) to the Company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2016. 10(q) First Amendment to the Arconic Deferred Compensation Plan (as amended and restated effective August 1, 2016), effective January 1, 2018. 10(s). Summary of the Executive Split Dollar Life Insurance Plan, dated November 1990, incorporated by reference to exhibit 10(m) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 1990. 10(r) Amended and Restated Dividend Equivalent Compensation Plan, effective January 1, 1997, incorporated by reference to exhibit 10(h) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended September 30, 2004. 10(s)10(u). Form of Indemnity Agreement between the Company and individual directors or officers, incorporated by reference to exhibit 10(j) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 1987.) 10(t) Form of Indemnification Agreement between the Company and individual directors or officers, incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated January 25, 2018. Amended and Restated 2009 Alcoa Stock Incentive Plan, dated February 15, 2011, incorporated by reference to exhibit 10(z)(1) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2010. 10(u).Terms and Conditions for Special Retention Awards under the 2009 Alcoa Stock Incentive Plan, effective January 1, 2010, incorporated by reference to exhibit 10(e) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended March 31, 2010. 10(v) Arconic Supplemental Pension Plan for Senior Executives (formerly referred to as the Alcoa Supplemental Pension Plan for Senior Executives), as amended and restated effective August 1, 2016, incorporated by reference to exhibit 10(v) to the Company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2016. 10(w) First Amendment to Arconic Supplemental Pension Plan for Senior Executives (as amended and restated effective August 1, 2016), effective January 1, 2018. Second Amendment to Arconic Supplemental Pension Plan for Senior Executives (as amended and restated effective August 1, 2016), effective January 1, 2018. Deferred Fee Estate Enhancement Plan for Directors, effective July 10, 1998, incorporated by reference to exhibit 10(r) to the Company’s Annual Report on Form10-K (Commission file number1- 3610) for the year ended December 31, 1998. 10(x) Arconic Inc. Change in Control Severance Plan, as amended and restated effective February 27, 2017.1, 2018, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated February 6, 2018. 10(y) Letter Agreement, dated August 14, 2007, between Alcoa Inc. and Klaus Kleinfeld, incorporated by reference to exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended September 30, 2007. Executive Severance Agreement, as amended and restated effective December 8, 2008, between Alcoa Inc. and Klaus Kleinfeld, incorporated by reference to exhibit 10(gg) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2008. 10(y) Letter Agreement between Arconic Inc. and Klaus Kleinfeld, dated February 27, 2017, incorporated by reference to exhibit 10(y)(1) to the Company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2016. Separation Agreement between Arconic Inc. and Klaus Kleinfeld, dated July 31, 2017, incorporated by reference to exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended June 30, 2017. 10(z) Form of Executive Severance Agreement between the Company and new officers entered into after July 22, 2010, incorporated by reference to exhibit 10(a) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended September 30, 2010. 10(z)(1)Letter Agreement between Arconic Inc. and Kay Meggers, dated February 27, 2017. 10(aa). Arconic Inc. Executive Severance Plan, as effective February 27, 2017.2017, incorporated by reference to exhibit 10(aa) to the Company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2016.Letter Agreement, by and between Alcoa Inc. and Katherine H. Ramundo, dated as of July 28, 2016. Letter Agreement between Arconic Inc. and David P. Hess, dated May 17, 2017, incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated May 22, 2017 (reporting an event on May 17, 2017). Letter Agreement, by and between Arconic Inc. and Charles P. Blankenship, dated as of October 19, 2017, incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated October 23, 2017 Letter Agreement, by and between Arconic Inc. and Mark J. Krakowiak, dated as of January 20, 2018. 10(bb) Arconic Global Pension Plan, as amended and restated effective August 1, 2016. 10(cc).Form of Award Agreement for Stock Options, effective May 8, 2009,2016, incorporated by reference to exhibit 10.210(bb) to the Company’s CurrentAnnual Report on Form8-K 10-K (Commission file number1-3610) dated May 13, 2009. for the year ended December 31, 2016. 10(dd) Terms and Conditions for Stock Options, effective JanuaryGlobal Expatriate Employee Policy (pre-January 1, 2011,2003), incorporated by reference to exhibit 10(c)10(uu) to the Company’s QuarterlyAnnual Report on Form10-Q 10-K (Commission file number1-3610) for the quarteryear ended June 30, 2011.December 31, 2005. 10(ee) Form of Award Agreement for Restricted Share Units, effective May 8, 2009, incorporated by reference to exhibit 10.3 to the Company’s Current Report on Form8-K (Commission file number 1- 3610) dated May 13, 2009. 10(ff).Terms and Conditions for Restricted Share Units, effective January 1, 2011, incorporated by reference to exhibit 10(b) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended June 30, 2011. 10(gg).Summary Description of Equity Choice Program for Performance Equity Award Participants, dated November 2005, incorporated by reference to exhibit 10.6 to the Company’s Current Report on Form8-K (Commission file number1-3610) dated November 16, 2005. 10(hh) Global Expatriate Employee Policy(pre-January 1, 2003),2013 Arconic Stock Incentive Plan, as Amended and Restated, incorporated by reference to exhibit 10(uu) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2005. 10(ii).Form of Special Retention Stock Award Agreement, effective July 14, 2006, incorporated by reference to exhibit 10.310(a) to the Company’s Current Report on Form8-K (Commission file number1-3610) dated September 20, 2006.May 11, 2016. 10(jj) Letter Agreement, dated August 14, 2007, between Alcoa Inc.Terms and Klaus Kleinfeld,Conditions (Australian Addendum) to the 2013 Arconic Stock Incentive Plan, effective May 3, 2013, incorporated by reference to exhibit 10(b)10(d) to the Company’s QuarterlyCurrent Report on Form10-Q 8-K (Commission file number1-3610) for the quarter ended September 30, 2007. dated May 8, 2013. 10(kk) Consulting Agreement, effective January 1, 2017, betweenFirst Amendment to the 2013 Arconic Inc.Stock Incentive Plan, as amended and Audrey Strauss. 10(ll).Director Plan: You Make a Difference Award,restated, incorporated by reference to exhibit 10(uu)10.4 to the Company’s AnnualCurrent Report on Form10-K 8-K (Commission file number1-3610) for the year ended December 31, 2008. dated February 6, 2018. 10(mm) RTI International Metals, Inc. 2004 Stock Plan, incorporated by reference to exhibit 4(b) to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated July 23, 2015. RTI International Metals, Inc. 2014 Stock and Incentive Plan, incorporated by reference to exhibit 4(a) to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated July 23, 2015. First Amendment to the RTI International Metals, Inc. 2014 Stock and Incentive Plan, as amended and assumed by Arconic Inc., dated January 19, 2018. Form of Award Agreement for Stock Options, effective May 8, 2009, incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission file number 1-3610) dated May 13, 2009. Form of Award Agreement for Stock Options, effective January 1, 2010, incorporated by reference to exhibit 10(ddd) to the Company’s Annual Report on Form10-K (Commission file number1-3610) for the year ended December 31, 2009. 10(nn). 2013 AlcoaTerms and Conditions for Stock Incentive Plan, as Amended and Restated,Options, effective January 1, 2011, incorporated by reference to exhibit 10(a)10(c) to the Company’s CurrentQuarterly Report on Form8-K 10-Q (Commission file number1-3610) dated May 11, 2016. for the quarter ended June 30, 2011. 10(oo). Alcoa Inc. Terms and Conditions for Stock Option Awards, effective May 3, 2013, incorporated by reference to exhibit 10(b) to the Company’s Current Report on Form8-K (Commission file number1-3610) dated May 8, 2013. 10(pp). Terms and Conditions for Stock Option Awards under the 2013 AlcoaArconic Stock Incentive Plan, effective July 22, 2016, incorporated by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended June 30, 2016.Global Stock Option Award Agreement, effective January 19, 2018. Stock Option Award Agreement - Chief Executive Officer (Charles P. Blankenship) Initial Equity Award, effective January 19, 2018. 10(qq) Alcoa Inc. Terms and Conditions for Restricted Share Units, effective January 1, 2011, incorporated by reference to exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended June 30, 2011.Terms and Conditions for Restricted Share Units, effective May 3, 2013, incorporated by reference to exhibit 10(c) to the Company’s Current Report on Form8-K (Commission file number 1- 3610) dated May 8, 2013. 10(rr). Terms and Conditions for Restricted StockShare Units under the 2013 AlcoaArconic Stock Incentive Plan, effective July 22, 2016, incorporated by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended June 30, 2016. 10(ss)Terms and Conditions (Australian Addendum) 2013 Alcoa Stock Incentive Plan, effective May 3, 2013, incorporated by reference to exhibit 10(d) to the Company’s Current Report on Form8-K (Commission file number1-3610) dated May 8, 2013. 10(tt).Alcoa Inc. Terms and Conditions for Special Retention Awards under the 2013 Alcoa Stock Incentive Plan, incorporated by reference to exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q (Commission file number1-3610) for the quarter ended June 30, 2013. 10(uu).Terms and Conditions for Special Retention Awards under the 2013 Alcoa Stock Incentive Plan, effective July 22, 2016, incorporated by reference to exhibit 10(e) to the Company’s Quarterly Report on Form10-Q (Commission file number1-3610) for the quarter ended June 30, 2016. 10(vv). Terms and Conditions for Restricted Share Units for Annual Director Awards under the 2013 Arconic Stock Incentive Plan, effective November 30, 2016, incorporated by reference to exhibit 10(vv) to the Company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2016. 10(ww) Terms and Conditions for Deferred Fee Restricted Share Units for Director Awards under the 2013 Arconic Stock Incentive Plan, effective November 30, 2016, incorporated by reference to exhibit 10(ww) to the Company’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2016. 10(xx) Terms and Conditions for Restricted Share Units issued on or after January 13, 2017, under the 2013 Arconic Stock Incentive Plan, effective January 13, 2017. 10(yy).RTI International Metals, Inc. 2014 Stock and Incentive Plan,2017, incorporated by reference to Exhibit 4(a)exhibit 10(xx) to the Company’s CurrentAnnual Report on Form8-K 10-K (Commission file number1-3610) dated July 23, 2015. for the year ended December 31, 2016. 10(zz). RTI International Metals, Inc. 2004Terms and Conditions for Restricted Share Units - Interim CEO (David P. Hess) Award, effective October 23, 2017. Terms and Conditions for Restricted Share Units - Non-Executive Chairman (John C. Plant) Director Award, effective October 23, 2017. Global Restricted Share Unit Award Agreement, effective January 19, 2018. Terms and Conditions for Restricted Share Units issued on or after January 19, 2018, under the 2013 Arconic Stock Incentive Plan, effective January 19, 2018. Restricted Share Unit Award Agreement - Chief Executive Officer (Charles P. Blankenship) Initial Equity Award, effective January 19, 2018. Restricted Share Unit Award Agreement - Sign-On Award - Mark J. Krakowiak (2018 Grant), effective February 15, 2018. Terms and Conditions for Special Retention Awards under the 2013 Arconic Stock Incentive Plan, effective January 1, 2015, incorporated by reference to Exhibit 4(b)exhibit 10(a) to the Company’s CurrentQuarterly Report on Form8-K 10-Q (Commission file number1-3610) dated for the quarter ended June 30, 2015.Terms and Conditions for Special Retention Awards under the 2013 Arconic Stock Incentive Plan, effective July 23, 2015.22, 2016, incorporated by reference to exhibit 10(e) to the Company’s Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended June 30, 2016.Global Special Retention Award Agreement, effective January 19, 2018. Computation of Ratio of Earnings to Fixed Charges. Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm. Power of Attorney for certain directors. Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. XBRL Instance Document. XBRL Taxonomy Extension Schema Document. XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition Linkbase Document. XBRL Taxonomy Extension Label Linkbase Document. XBRL Taxonomy Extension Presentation Linkbase Document. *Exhibit Nos. 10(h) through 10(zz) are management contracts or compensatory plans required to be filed as Exhibits to this Form10-K.* Exhibit Nos. 10(j) through 10(kkk) are management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K.Amendments and modifications to other Exhibits previously filed have been omitted when in the opinion of the registrant such Exhibits as amended or modified are no longer material or, in certain instances, are no longer required to be filed as Exhibits.No other instruments defining the rights of holders of long-term debt of the registrant or its subsidiaries have been filed as Exhibits because no such instruments met the threshold materiality requirements under RegulationS-K. The registrant agrees, however, to furnish a copy of any such instruments to the Commission upon request.Item 16. Form10-K Summary.SIGNATURESPursuant to the requirements of Section 13 or 15(d) 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. ARCONIC INC.February 28, 201723, 2018 By /s/ Paul Myron Paul Myron Vice President and Controller (Also signing as Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.SignatureTitleDate /s/ Klaus KleinfeldSignatureTitle Chairman and Date/s/ Charles P. Blankenship Chief Executive Officer February 28, 201723, 2018 Klaus KleinfeldCharles P. Blankenship(Principal Executive Officer and Director) February 23, 2018 Ken Giacobbe Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 28, 2017 Ken GiacobbeDr. Amy E. Alving,James F. Albaugh, Christopher L. Ayers, Arthur D. Collins, Jr., Elmer L. Doty, Rajiv L. Gupta, David P. Hess, Sean O. Mahoney, David J. Miller, E. Stanley O’Neal, John C. Plant, Dr. L. Rafael Reif, Julie G. Richardson, Patricia F. Russo and Ulrich R. Schmidt, Sir Martin Sorrell and Ratan N. Tata, each as a Director, on February 28, 2017,23, 2018, by W. Paul Myron, theirAttorney-in-Fact.* Paul Myron W. Paul Myron Paul Myron Attorney-in-Fact 138125