Focused on the Future
2022 ANNUAL REPORT
11%
revenue from aerospace
11,550
employees globally
20
major manufacturing operations
$9.0B
2022 revenue
35%
revenue from ground transportation
17%
revenue from building and construction
18%
revenue from packaging
Arconic at a Glance
19%
revenue from industrial products and other
Dear Shareholders,
In our second full year as a standalone company, our agility
and commitment to building a sustainable future continued to
prevail as we navigated new challenges. The year started with our
best quarter since separation, and all of our end markets were
moving in the right direction. By the second quarter, we were
on track to deliver double-digit adjusted EBITDA growth for a
second straight year, but the escalating conflict in Ukraine led to
both immediate and longer-term impacts on our operations in
Russia and throughout Europe.
After a thoughtful review of strategic alternatives given the
untenable nature of the situation in Ukraine and the limitations
imposed on our operations by the Russian government, we
made the difficult decision to sell our Russian operations.
In November, we completed the sale for gross cash proceeds
of $230 million.
Like many global companies, we felt the impacts of
hyperinflationary energy prices in Europe leading to diminished
demand and higher operational costs. Although demand in
North America remained relatively strong throughout the year,
production outages in some of our U.S.-based plants prevented
the Company from being able to offset the impact of the
recessionary economy in Europe. These operational challenges
were resolved through the second half of the year and demand
in North America remained steady.
In August we completed our first $300 million share repurchase
authorization, which started in May of 2021, and in November
we announced a new two-year share repurchase program
authorizing the repurchase of $200 million of common stock.
Throughout 2022, we continued our strong foundational efforts,
investing in new programs to rebuild our workforce. We initiated
programs to upskill and train ourselves and improved our
employees' benefits and wages. We supported our customers
as their markets rebounded and invested in opportunities
to expand our business. We worked together to advance
everything we value—our employees’ health and safety, our
integrity, our communities, our customers, our commitment to
diversity, equity and inclusion, and returns to our shareholders.
At the core of these efforts was a company-wide re-examination
and reconfirmation of our Vision, Mission and Purpose, which
are highlighted within this report.
Our employees were, as always, pivotal in these efforts.
Together, we enhanced safety protocols, focused on delivering
results for our shareholders and continued to make significant
progress on our sustainability strategy. Our Environmental,
Social and Governance (ESG) journey commenced when we
launched in 2020, and by 2022, we signed the United Nations’
Women Empowerment Principles, added diversity and
environmental sustainability metrics to our performance
Arconic I 2022 Annual Report I 1
“Together, we enhanced safety protocols,
focused on delivering results for our
shareholders and continued to make
significant progress on our sustainability
strategy.”
Timothy D. Myers, Chief Executive Officer
Letter from the Chief Executive Officer
goals in the United States, and laid the groundwork for setting
our 2030 ESG targets in accordance with the United Nations
Sustainable Development Goals. The level of commitment and
energy invested by our employees to advance these initiatives
once again illustrates that our culture is deeply rooted by
our values.
We have continued to build on our commitment to operating
safely, responsibly and with respect for the environment
and the health of our employees, our customers and the
communities where we operate worldwide. In 2022, we received
a Multi-Site Performance Standard Certificate under the
Aluminium Stewardship Initiative (ASI) after rigorous audits and
testing. The sites include our Corporate Center in Pittsburgh,
Pennsylvania and our plants in Kofem, Hungary and Bohai, China.
We continue to pursue ASI Performance Standard certifications
in all our plant locations for the responsible production, sourcing
and stewardship of aluminum.
Companywide, we have continued to focus on earning the
loyalty of our customers through innovation and best-in-class
products and services. Our Building and Construction Systems
business had their best year ever in terms of profitability, and
we continue to build brand loyalty and demand for high quality
products around the world. We completed our capacity
expansions in North America to capture demand and drive
operational gains in the packaging and industrial markets, and we
initiated high-return investments in Lancaster, Pennsylvania and
Davenport, Iowa that will capitalize on and further strengthen
our position in almost all of our end markets. In addition to these
capacity expansions and upgrades, we have partnered with our
automotive customers to develop new alloys that enable them
to meet light-weighting goals and enhance battery life and range
in electric vehicles. And as our aerospace customers continue to
ramp up to meet recovering demand, we are well positioned to
meet their increased production levels.
Looking back on the past two years, nothing could have
prepared us better to seize the opportunities in front of us.
Going forward we are poised to capitalize on year-over-year
tailwinds across the end markets we serve and improve
operational efficiency at our key facilities. We expect to deliver
meaningful free cash flow that will allow us to continue executing
our disciplined capital allocation strategy as we deliver value
to our shareholders and continue to build upon our legacy as a
responsible corporate citizen. We are committed to achieving
our ESG targets and delivering value for our customers,
employees and shareholders as we strive to improve the
communities where we live and work.
We appreciate your continued investment and support in our
efforts to make the world better as we focus on the future,
together.
2 I Arconic I 2022 Annual Report
“We are committed to achieving our ESG targets and delivering value for
our customers, employees and shareholders as we strive to improve the
communities where we live and work.”
Timothy D. Myers
Chief Executive Officer
Act With Integrity.
We lead with respect, honesty, transparency
and accountability.
Safeguard Our Future.
We protect and improve the health and safety of
our employees, communities and environment.
Grow Stronger Together.
We cultivate an inclusive and diverse culture
that advocates for equity.
Earn Customer Loyalty.
We build customer partnerships through best-in-class
products and service.
Drive Operational Excellence.
We pursue continuous improvement through innovation,
agility, people development and collaboration.
Create Value.
We achieve success by generating and growing value
for our shareholders.
OUR VALUES
VISION
MISSION
PURPOSE
Where we want to be in the future.
What we do to achieve the vision.
To deliver the most sustainable
aluminum solutions throughout
our value chain.
Pioneering aluminum products
and technologies that advance
our world, together.
We create sustainable
solutions for a better world.
Why we exist.
At Arconic, we take pride in our work and our
innovative products and technologies that
advance sustainable solutions for a better
world. We strive to create a safe, inclusive and
collaborative workplace with competitive
benefits, development opportunities and a
culture that values and rewards employees
at all levels of the organization.
Our Employee Promise
Arconic I 2022 Annual Report I 3
Hungary
United
States
China
Russia
France
Other
United Kingdom
Packaging
Ground
Transportation
Building and
Construction
Aerospace
Industrial Products
and Other
Adjusted EBITDA and Net debt are non-GAAP measures. See Reconciliation of Non-GAAP Financial Measures at the end of this Annual Report for a reconciliation to the most directly
comparable GAAP financial measure and management’s rationale for the use of each of these non-GAAP measures.
BY MARKET
2022 SALES: $9.0B
SHARE PRICE PERFORMANCE
SALES AND ADJUSTED EBITDA BY QUARTER
BY COUNTRY
35%
18%
17%
11%
19%
66%
9%
9%
7%
3%
3%
3%
4 I Arconic I 2022 Annual Report
Share Price
in millions
in millions
12/31/21
$40
30
20
10
–
$3,000
2,500
2,000
1,500
1,000
500
–
$250
200
150
100
50
–
1Q22
1Q22
2Q22
2Q22
3Q22
3Q22
4Q22
4Q22
2,191
205
2,548
204
2,280
143
1,942
154
12/31/22
Sales
Adjusted EBITDA
FINANCIAL PERFORMANCE
(in millions)
2022
2021
Sales
$8,961
$7,504
Net loss
$(182)
$(397)
Adjusted EBITDA
$706
$712
Net debt
$1,336
$1,259
Common stock outstanding at year end
99.4
105.3
2022 Financial Highlights
21.16
33.01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-39162
ARCONIC CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
(State of incorporation)
84-2745636
(I.R.S. Employer Identification No.)
201 Isabella Street, Pittsburgh, Pennsylvania 15212-5872
(Address of principal executive offices) (Zip code)
(412) 992-2500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act;
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
ARNC
New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act: None
Indicate 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 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 (or for such shorter period that the registrant was to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑
Accelerated filer ☐
Non-accelerated filer ☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 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 $2.9 billion. As of
February 17, 2023, there were 99,399,365 shares of common stock, par value $0.01 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 2023
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A (2023 Proxy Statement).
TABLE OF CONTENTS
Page
Special Note Regarding Forward-looking Statements
1
Summary of Risks Affecting Our Business
2
Part I
Item 1.
Business
4
Item 1A.
Risk Factors
13
Item 1B.
Unresolved Staff Comments
32
Item 2.
Properties
32
Item 3.
Legal Proceedings
33
Item 4.
Mine Safety Disclosures
33
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
33
Item 6.
Reserved
35
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
35
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
49
Item 8.
Financial Statements and Supplementary Data
50
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
109
Item 9A.
Controls and Procedures
109
Item 9B.
Other Information
110
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
110
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
110
Item 11.
Executive Compensation
110
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
110
Item 13.
Certain Relationships and Related Transactions, and Director Independence
110
Item 14.
Principal Accounting Fees and Services
110
Part IV
Item 15.
Exhibits, Financial Statement Schedules
110
Item 16.
Form 10-K Summary
111
Signatures
115
1
Forward-Looking Statements
This Annual Report on Form 10-K contains statements that relate to future events and expectations and, as such, constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,”
“goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or
other words of similar meaning. All statements that reflect Arconic Corporation’s expectations, assumptions, projections,
beliefs or opinions about the future, other than statements of historical fact, are forward-looking statements, including, without
limitation, statements relating to the condition of, or trends or developments in, the ground transportation, aerospace, building
and construction, industrial, packaging and other end markets; Arconic Corporation's future financial results, operating
performance, working capital, cash flows, liquidity and financial position; cost savings and restructuring programs; Arconic
Corporation’s strategies, outlook, business and financial prospects; share repurchases; costs associated with pension and other
postretirement benefit plans; projected sources of cash flow; potential legal liability; the impact of inflationary price pressures;
and the potential impact of public health epidemics or pandemics, including the COVID-19 pandemic. These statements reflect
beliefs and assumptions that are based on Arconic Corporation’s perception of historical trends, current conditions and expected
future developments, as well as other factors Arconic Corporation believes are appropriate in the circumstances. Forward-
looking statements are not guarantees of future performance, and actual results may differ materially from those indicated by
these forward-looking statements due to a variety of risks, uncertainties and changes in circumstances, many of which are
beyond Arconic Corporation’s control.
For a discussion of some of the specific factors that could cause actual results to differ materially from the information
contained in this report, see the following sections of this report: “Summary of Risks Affecting our Business,” 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 T 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 Corporation 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.
Unless otherwise specified or the context otherwise requires, when used in this Annual Report on Form 10-K, the terms “we,”
“our,” “us,” “Arconic,” or the “Company” refer to Arconic Corporation and its subsidiaries. The term "ParentCo" refers to
Arconic Inc. prior to our separation from Arconic Inc. on April 1, 2020, and “Howmet” refers to “Howmet Aerospace Inc.,” the
name of ParentCo following the separation on April 1, 2020.
2
Summary of Risks Affecting our Business
Our business is subject to numerous risks. The following summary highlights some of the risks you should consider with
respect to our business, financial condition and results of operations. This summary is not complete and the risks summarized
below are not the only risks we face. You should review and consider carefully the risks and uncertainties described in more
detail in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K, which includes a more complete discussion of the
risks summarized below as well as a discussion of other risks related to our business and an investment in our common stock.
Business Risks – Global Conditions
•
The markets for our products are cyclical and are influenced by a number of factors, including global economic
conditions, that could have a material adverse effect on our business, financial condition or results of operations.
•
Our business, results of operations, financial condition, liquidity and cash flows have been, and in the future could be,
materially adversely affected by the effects of widespread public health epidemics/pandemics.
•
Climate change, and evolving customer and stakeholder expectations, legal, regulatory and policy requirements, and
market dynamics driven by climate change, could adversely affect our business, financial condition or results of
operations.
•
Governments of countries in which we operate could nationalize or expropriate private enterprises, or otherwise
change their policies regarding private enterprise, which could adversely impact the value of our operations in those
countries.
•
We are exposed to economic factors, including inflation, fluctuations in aluminum prices, foreign currency exchange
rates and interest rates, and currency controls in the countries in which we operate.
•
Our global operations expose us to risks that could adversely affect our business, financial condition, results of
operations, cash flows or the market price of our securities.
•
An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and other
factors could affect our results of operations or amount of pension funding contributions in future periods.
Business Risks – Competition and Customers
•
We face significant competition, which may have an adverse effect on profitability.
•
We could be adversely affected by the loss of key customers, the impact of supply chain disruptions or other economic
conditions on our key customers, or significant changes in the business or financial condition of our customers.
•
Our customers may reduce their demand for aluminum products in favor of alternative materials.
•
We may face challenges to our intellectual property rights which could adversely affect our reputation, business and
competitive position, financial condition and results of operations.
Business Risks – Operations and Product Development
•
We could encounter manufacturing difficulties or other issues that impact product performance, quality or safety,
which could affect our ability to supply customers or meet contractual obligations, reputation, business and financial
condition and results of operations.
•
Our business depends, in part, on our ability to meet increased customer demand successfully and to mitigate the
impact of customer program cancellations, reductions and delays.
•
A material disruption or limitation of our operations, particularly at one or more of our manufacturing facilities, could
adversely affect our business.
•
We may be unable to develop innovative new products or implement technology initiatives successfully.
Business Risks – Supply Chain
•
Our business could be adversely affected by increases in the cost or volatility in the availability of aluminum or other
raw materials.
•
We are dependent on a limited number of suppliers for a substantial portion of our primary and scrap aluminum and
certain other raw materials essential to our operations.
Business Risks – Strategy
•
We may not be able to realize the expected benefits of our re-entry into the packaging market in the U.S. and other
geographies.
3
•
We may be unable to realize future targets or goals established for our business segments, or complete capital or other
projects, at the levels, projected costs or by the dates targeted.
•
Our business and growth prospects may be negatively impacted by limits in our capital expenditures.
Business Risks – Information Security and Internal Controls
•
Information technology system failures, cyber-attacks and security breaches may threaten the integrity of our
intellectual property and sensitive information, disrupt our business operations, and result in reputational harm and
other negative consequences that could have a material adverse effect on our financial condition and results of
operations.
•
If we fail to maintain an effective system of internal controls, we may not be able to accurately report financial results
or prevent fraud.
Risks Related to Employee and Labor Matters
•
Labor disputes and difficulties retaining or hiring skilled employees could adversely affect our business, financial
condition or results of operations.
•
A failure to attract, retain or provide adequate succession plans for key personnel could adversely affect our operations
and competitiveness.
•
Failure to comply with domestic or international employment and related laws could result in penalties or costs that
could have a material adverse effect on our business results.
Risks Related to Legal Proceedings and Government Regulations
•
Product liability, product safety, personal injury, property damage, and recall claims and investigations may materially
affect our financial condition and damage our reputation.
•
We may be exposed to significant legal proceedings, investigations or changes in U.S. federal, state, local or foreign
laws, regulations or policies.
•
We are exposed to environmental and safety risks and are subject to a broad range of health, safety and environmental
laws and regulations, which may result in substantial costs and liabilities.
•
We are subject to privacy and data security/protection laws in the jurisdictions in which we operate and may be
exposed to substantial costs and liabilities associated with such laws and regulations.
•
Unanticipated changes in our tax provisions or exposure to additional tax liabilities could affect our future profitability.
Risks Related to Our Indebtedness
•
We have significant debt obligations, and may in the future incur, additional debt obligations that could adversely
affect our business and profitability and our ability to meet other obligations.
•
Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events
beyond our control, could result in an event of default that could materially and adversely affect our business, financial
condition, results of operations or cash flows.
Risks Related to the Separation
•
We have a limited history of operating as an independent company and our historical financial information may not be
a reliable indicator of our future results.
•
In connection with the separation into two public companies, we and Howmet agreed to indemnify each other for
certain liabilities. If we are required to pay under these indemnities to Howmet, our financial results could be
negatively impacted. The Howmet indemnities may not be sufficient to hold us harmless from the full amount of
liabilities for which Howmet has been allocated responsibility, and Howmet may not be able to satisfy its
indemnification obligations in the future.
•
Howmet may fail to perform under various transaction agreements that were executed as part of the separation.
•
If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free
for U.S. federal income tax purposes, we, as well as Howmet and Howmet’s stockholders, could be subject to
significant tax liabilities, and, in certain circumstances, we could be required to indemnify Howmet for material taxes
and other related amounts pursuant to indemnification obligations under the tax matters agreement.
4
PART I
Item 1. Business.
Overview
Arconic Corporation ("Arconic" or the "Company") is a global leader in manufacturing aluminum sheet, plate, extrusions
and architectural products and systems, serving primarily the ground transportation, aerospace, building and construction,
industrial, and packaging end markets. We maintain a competitive position in our targeted markets through our global footprint
of 20 primary manufacturing facilities, as well as various sales and service facilities, located across North America, Europe, the
United Kingdom and China.
On April 1, 2020 (the “Separation Date”), ParentCo separated into two standalone, publicly-traded companies, Arconic and
Howmet (the “Separation”). The spin-off company, Arconic, comprised the rolled aluminum products, aluminum extrusions,
and architectural products operations of ParentCo, as well as the Latin America extrusions operations sold in April 2018
(collectively, the “Arconic Corporation Businesses”).
Sale of our Samara Facility
On November 15, 2022, we completed the sale of our Russian operations. For a discussion of the sale of our facility in
Samara, Russia and the potential impact on our business, see “Part II, Item 7. "Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Results of Operations—Segment Information—Rolled Products,” and Note S
to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data.” For a discussion of
legal proceedings involving our facility in Samara, Russia prior to the sale, see Note T to the Consolidated Financial Statements
in Part II, Item 8. “Financial Statements and Supplementary Data” under the caption “Contingencies and Commitments—
Contingencies—Litigation—Federal Antimonopoly Service Of The Russian Federation Litigation."
Description of the Business
We manage our business operations through three reportable segments: Rolled Products, Building and Construction
Systems ("BCS") and Extrusions. We strive to make our portfolio of facilities operationally efficient and competitive in the
industry. We are well positioned in attractive end markets, and our long-term contracts with customers enhance the strength and
stability of our business and our earnings. We believe our extensive manufacturing experience and our commitment to quality
and innovation are competitive advantages.
Rolled Products
Rolled products are used in the production of finished goods ranging from automotive body panels and airframes to
industrial plate and brazing sheet. Sheet and plate are used extensively in the transportation industries as well as in building and
construction and packaging. They are also used for industrial applications such as tooling plate for the production of plastic
products.
Our Rolled Products segment produces a range of aluminum sheet and plate products for the following end markets:
Ground Transportation — provides specialty aluminum sheet and plate products, including auto body sheet, structural
reinforcement, proprietary heat exchanger products like multilayer brazing sheet, trailer and cab structures, vehicle components,
mold plate for wheels, and sheet for fuel tanks.
Aerospace — supplies a wide range of highly differentiated sheet and plate products that meet strict quality requirements
for aerospace applications, including polished fuselage sheet, structural parts, aluminum-lithium stringers, and wing skins.
Industrial — supplies a diverse range of industrial solutions for applications that include mold and tooling plate for
semiconductors; general engineering/machinery and injection molding applications; specialty finishes for appliances, cosmetic
packaging and RVs; tread plate/sheet for toolbox and flooring applications; and circles for cookware.
Building and Construction — supplies a wide range of products serving both the commercial and residential end markets,
including roofing, architectural composite panels, curtain walls, ventilated facades and ceiling panels, spacers, culvert pipes and
gutters.
Packaging — serves the packaging end market in North America, primarily through our facility in Tennessee, and the
markets in Asia and Mexico through our facility located in Bohai, China.
5
Competitive Conditions
Our Rolled Products segment is one of the leaders in many of the aluminum flat rolled end markets in which it participates,
including the ground transportation, aerospace, industrial, building and construction, and packaging end markets. While Rolled
Products participates in end markets where we believe we have a significant competitive advantage due to our extensive
knowledge of our customers, advanced manufacturing capability, unique technology and/or differentiated products, in certain
cases, our competitors are capable of making products similar to our products. We continuously work to maintain and enhance
our competitive position through innovation: new alloys such as high-formability automotive alloys, aluminum lithium
aerospace alloys, differentiated products such as our 5-layer brazing products and break-through processes such as A951™
bonding technology.
Some of our Rolled Products markets are global and some are more regionally focused. Participation in these markets by
competitors varies. Additionally, there are a number of new competitors emerging, particularly in China and other developing
economies. We expect that this competitive pressure will continue and increase in the future as customers seek to globalize their
supply bases in order to reduce costs.
Principal Facilities
The table below sets forth our Rolled Products principal properties as of December 31, 2022.
Country
Location
Products
China
Kunshan
Sheet
Qinhuangdao(1)
Sheet and Plate
Hungary
Székesfehérvár
Sheet, Plate, Slabs and Billets
United Kingdom
Birmingham
Plate
United States
Davenport, IA
Sheet and Plate
Danville, IL
Sheet and Plate
Hutchinson, KS
Sheet and Plate
Lancaster, PA
Sheet and Plate
Alcoa, TN
Sheet and Plate
___________________
(1)
Leased property or partially leased property.
Building and Construction Systems
Our BCS segment manufactures differentiated products and building envelope solutions, including entrances, curtain walls,
windows, composite panel and coil coated sheet. The business is focused on two product lines: architectural systems, which
carry the Kawneer® brand, and architectural products, which carry the Reynobond® and Reynolux® brands. The BCS segment
has competitive positions with respect to both product lines, attributable to its strong brand recognition, high quality products
and strong relationships through the building and construction value chain.
As the inventor of the modern storefront more than 100 years ago, our Kawneer® branded architectural systems products
include windows, doors and curtain walling. Kawneer is a premium brand, known for the breadth, depth and performance of its
product portfolio and is a leading manufacturer of architectural systems in North America, with an established presence in
Europe. Key customers of this market segment include fabricators and glazing subcontractors.
The Reynobond and Reynolux brands deliver innovative exterior and interior cladding and coil coated sheet solutions with
end uses that include building façades, retail, sign and display, interior applications and various industrial applications.
Reynobond is composite material that consists of an extruded core that is fused between two sheets of coil-coated aluminum
and Reynolux is coil-coated aluminum sheet that can be sold in coil or flat-sheet form. Key customers include metal fabricators
and installers.
BCS differentiates itself through its footprint in North America and Europe and by offering a broad portfolio of building
envelope products that span the range of building end-use and building complexities. Architects, general contractors and
fabricators consider BCS a go-to provider of products and systems with product lines that can address localized functional and
building code requirements. We believe that our products and systems have a reputation for quality and reliability.
6
Competitive Conditions
In North America, our BCS segment primarily competes with manufacturers of products used in nonresidential
construction. In Europe, it competes with manufacturers of products used in both residential and nonresidential construction.
Our competitive advantage is based on strong brands, innovative products, customer intimacy and technical services.
In the architectural systems market we compete with regional competitors. The competitive landscape in the architectural
systems market has been relatively stable since the mid-2000s, with the major competitors in North America and Europe
remaining constant, despite some industry consolidation in North America during the late 2000s.
The primary product categories in architectural products are aluminum composite material and coil coated sheet. The
market for our architectural products business is more global and primarily served by subsidiaries of larger multinational
companies.
Principal Facilities
The table below sets forth our BCS principal properties as of December 31, 2022.
Country
Location
Products
Canada
Lethbridge, Alberta
Architectural Systems
France
Merxheim(1)
Architectural Products
United Kingdom
Runcorn
Architectural Systems
United States
Springdale, AR
Architectural Systems
Visalia, CA
Architectural Systems
Eastman, GA
Architectural Products
Bloomsburg, PA
Architectural Systems
Cranberry, PA
Architectural Systems
___________________
(1)
Leased property or partially leased property.
Principal facilities are listed, and do not include locations that serve as service centers or administrative offices. The
service centers perform light manufacturing, such as assembly and fabrication of certain products.
Extrusions
Our Extrusions segment produces a range of extruded products, including automotive shapes (e.g., driveshafts, anti-lock
brake housings, and turbo chargers), aerospace shapes (e.g., wing stringers, floor beams, fuselage, cargo), seamless tube,
hollows, mortar fins, and high strength rod and bar. With process and product technologies that include large and small
extrusion presses, integrated cast houses, horizontal heat treat furnaces, vertical heat treat furnaces, annealing furnaces,
induction billet heating and ultrasonic inspection capabilities, our Extrusions segment serves a broad range of customers in
several of our core end markets, including the following:
Ground Transportation — provides aluminum extrusions for applications that include driveshafts for the automotive
market and aluminum frame rails for the commercial transportation market.
Aerospace — supplies a wide range of applications for commercial airframes.
Industrial — supplies a diverse range of industrial solutions for applications that include rods and bars for building
supplies and other industrial applications.
Competitive Conditions
The Extrusions segment is a prominent supplier in many of the end markets in which it participates, including automotive
(including driveshafts), aerospace, and industrial markets. Extrusions participates in end markets where we believe we have a
significant competitive position due to our extensive knowledge of our customers, advanced manufacturing capability, unique
technology and/or differentiated products. We continuously work to maintain and enhance our competitive position through
innovation: new alloys such as aluminum lithium aerospace alloys and differentiated products.
7
Some of our Extrusions end markets are worldwide and some are more regionally focused. Participation in these segments
by competitors varies. Additionally, there are a number of other competitors emerging, particularly in China and other
developing economies. We expect that this competitive pressure will continue and increase in the future as customers seek to
globalize their supply bases in order to reduce costs.
Principal Facilities
The table below sets forth our Extrusions principal properties as of December 31, 2022.
Country
Location
Products
Germany
Hannover(1)
Extrusions
United States
Lafayette, IN
Extrusions
Massena, NY(2)
Extrusions
___________________
(1)
Leased property.
(2)
Pursuant to certain agreements entered into in connection with the Separation, Arconic leased the Massena property
from Howmet until such time as the property could be conveyed to Arconic. The property was conveyed to Arconic in the
fourth quarter of 2022.
Principal facilities are listed and do not include locations that have been idled. In the second half of 2021, the Chandler, AZ
facility was fully idled and its commercial operations were integrated into the Lafayette facility. The Company may
temporarily restart one or more of the presses at Chandler over short periods of time to address customer demand requirements.
See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations—Extrusions—Overview.”
End Market and Customer Revenues
We provide products to customers in a number of end markets, and the revenues from any end market may vary from year
to year. For more information regarding revenues by major end markets served, see Note C to the Consolidated Financial
Statements in Part II. Item 8. "Financial Statements and Supplementary Data." In addition, the demand for products in certain
end markets is concentrated in a relatively small number of customers. We have multi-year contracts with many of our key
customers, primarily in the aerospace and ground transportation end markets. These contracts indirectly expose us to changes
in these customers' end markets, and the loss of sales under these contracts could have a material adverse effect on our business
if such sales are not replaced by sales to other customers.
Customer and Distribution Channels
Rolled Products and Extrusions
Our Rolled Products and Extrusions segments have two primary sales channels: direct sales to our customers and sales to
distributors.
Direct Sales
Our Rolled Products and Extrusions segments supply various customers all over the world through a direct sales force
operating from individual facilities or sales offices. The direct sales channel typically serves very large, sophisticated customers
and OEMs, but can service medium and small size customers as well. Long-standing relationships are maintained with leading
companies in industries using aluminum rolled and extruded products. Supply contracts for large global customers generally
range from one to five years in length and historically there has been a high degree of renewal business with these customers.
As the manufacture of higher aluminum content vehicles continues to grow, we continue to develop long-term relationships
with the automotive original equipment manufacturers (“OEMs”). In some cases, the products we supply are proprietary in
nature. Further, certain industries, such as automotive and aerospace, and their related customers require suppliers to complete a
rigorous qualification process. The ability to obtain and maintain these qualifications is an important part of doing business in
these segments. A customer’s cost to switch and either find a new product or qualify a new supplier can be significant, so it is in
both the customer’s and the supplier’s best interest to maintain these relationships.
8
Distributors
Our Rolled Products and Extrusions segments also sell their products through third-party distributors. Customers of
distributors are typically widely dispersed, and sales through this channel are usually highly fragmented. Distributors sell
mostly commodity or less specialized products into many end-use segments in smaller quantities.
Building and Construction Systems
Our BCS segment supplies architectural facade systems and products principally in North America and Europe but also
globally through both direct sales and distributors. Its typical customers are installers or fabricators who purchase product on a
project-by-project basis. Long-standing relationships are maintained with its leading customers. BCS also maintains an e-
commerce platform for numerous standard architectural products for use by its North American customers and offers standard
architectural products for purchase in its service centers.
Sources and Availability of Raw Materials
Important raw materials used by Arconic are: primary aluminum for remelting (sows, t-bars, and ingots, including high
purity and off-grade), aluminum alloyed and unalloyed casthouse products (including rolling slab and billet), aluminum scrap,
alloying materials (including, but not limited to, magnesium, copper, and zinc), aluminum coil, electricity, natural gas, coatings,
lube oil, packaging materials, and resin. Generally, other materials are purchased from third-party suppliers under
competitively priced supply contracts or bidding arrangements. We believe that the raw materials necessary to our businesses
are and will continue to be available generally, although we experience and anticipate continued cost, availability and other
impacts to our supply chain arising from, among other factors, the COVID-19 pandemic, geopolitical instability in areas where
we or our suppliers operate, challenges with transportation and logistics, and inflationary price pressures.
Intellectual Property
We believe that our domestic and international intellectual property assets provide us with a significant competitive
advantage, as we continue to strive to improve our products and processes. Our rights under our patents, as well as the products
made and sold under them, are important to us as a whole, and to varying degrees, important to each business segment. The
patents owned by us generally concern metal alloys, particular products, and manufacturing equipment or techniques. Our
business as a whole is not, however, materially dependent on any single patent, trademark or other intellectual property. As a
result of product development and technological advancement, we continue to pursue patent protection in select jurisdictions
throughout the world. As of December 31, 2022, our worldwide patent portfolio consists of approximately 500 granted patents
and 225 pending patent applications. Patent terms extend for varying periods based on the filing date or the grant date in the
various countries where we have or have applied for patent protection. The actual protection afforded by a patent varies from
country to country, with the most significant variations relating to the scope of patent protection and the legal remedies
available.
With respect to domestic and foreign trademarks, we have many that have significant recognition within the markets that
are served. Examples include the name “Arconic” and the Arconic symbol for aluminum products, Kawneer for building
panels, and Reynobond and Reynolux for architectural products. As of December 31, 2022, our worldwide trademark portfolio
consists of approximately 1,060 registered trademarks and 60 pending trademark applications. Our rights under our trademarks
are important to us as a whole and, to varying degrees, important to each business segment. Trademark protection continues in
some countries for as long as the mark is used and in others for as long as it remains registered. Registrations generally are
periodically renewable for additional fixed terms.
Research and Development
We engage in research and development programs that include process and product development, and basic and applied
research. The Arconic Technology Center, located in New Kensington, Pennsylvania, serves as the headquarters for our
research and development efforts, with additional research and development facilities in Norcross, Georgia; Lancaster,
Pennsylvania; Runcorn, United Kingdom; Vendargues, France; and Harderwijk, Netherlands. These facilities focus on
innovation and have given us a leading position in the development of proprietary next-generation specialty alloys, products
and manufacturing processes as evidenced by our robust intellectual property portfolio.
Government Regulations
As a global company, our business is subject to government regulations in various jurisdictions in which we operate. We
believe we are materially compliant with all applicable government laws and regulations, and maintaining compliance, other
than as noted below, is not expected to materially affect our capital expenditures, earnings or competitive position. Any new or
amended laws or regulations that impose significant operational restrictions and compliance requirements may negatively
9
impact our business, capital expenditures, earnings, and competitive position. Additional information is included in Part I. Item
1A. "Risk Factors."
Our operations are subject to national, federal, state and local environmental, health and safety laws and regulations,
including those regulating the discharge of materials into the environment, greenhouse gas emissions, hazardous materials in
products, chemical usage and workplace safety requirements and protocols. We maintain a global environmental, health and
safety program that includes policies and procedures; dedicated environmental, health and safety personnel; procedures for
handling of waste materials and hazardous materials; monitoring, reporting and remediating environmental, health, and safety
issues; compliance auditing; and training, among other measures.
Approved capital expenditures for new or existing facilities for environmental control are approximately $8 million for
2023. Additional information relating to environmental matters and other matters is included in Note T to the Consolidated
Financial Statements included in Part II. Item 8. "Financial Statements and Supplementary Data" under the caption
“Contingencies and Commitments — Contingencies - Environmental Matters.”
Other than the foregoing, we do not anticipate any material capital expenditures during fiscal 2023 related to compliance
with environmental or other government regulations.
Sustainability and Environmental, Social and Governance (“ESG”)
Arconic is committed to being a good corporate citizen and living our core values by working with our stakeholders to
create a better, more sustainable future. Arconic has a cross-functional ESG Council tasked with developing and implementing
our sustainability strategy. The ESG Council regularly reports to executive leadership and to the Governance and Nominating
Committee of the Board of Directors, which has general oversight responsibility for ESG matters, working in conjunction with
other committees of the Board of Directors to which oversight of specific matters have been delegated. Functions responsible
for development and implementation of our sustainability commitments, strategies and initiatives directly report to the Chief
Executive Officer. In 2022, Arconic engaged a third party to advise in the development of long-term sustainability goals based
on findings from the Materiality Assessment conducted in 2021. The Materiality Assessment included stakeholder engagement
on a wide range of issues, including managing the impacts of our business on the climate and environment, ensuring supply
chain sustainability, and fostering positive human capital dynamics. We expect continued engagement to enhance our
understanding of stakeholder views, which help guide our ESG efforts. The use of the terms “material” or “materiality” in this
section and in our 2022 ESG disclosures is not related to or intended to convey matters or facts that could be deemed “material”
to a reasonable investor within the meaning of U.S. securities laws or similar requirements of other jurisdictions.
Human Capital Resources
At Arconic, we are committed to living our core values by protecting and improving the health and safety of our
employees, our communities and the environment. We strive to cultivate an inclusive and diverse culture that advocates for
equity, acts with integrity, and upholds high standards for human rights. We strengthen our global workforce by providing
learning opportunities, employee engagement programs and talent development efforts that drive innovation, agility, people
development and collaboration.
Our worldwide employment at the end of 2022 was approximately 11,550 employees located in 17 countries. The
breakdown of our employees by region is as follows:
Region
Percentage of Total Population
Americas
74%
Europe, Middle East and Africa
18%
Asia
8%
Turnover
During 2022, the Company increased hiring initiatives to support the business’s organic growth strategy, including
participation in various local and national recruiting events, encouraging and responding to employee feedback through its
engagement survey, and leveraging social media campaigns as a vehicle to reach a broader base of existing and potential
employees. As a result of these and other targeted efforts, in 2022 the Company’s employee base increased by approximately
590 employees. This net increase was offset by a reduction of approximately 2,900 employees resulting from the sale of our
facility in Samara, Russia in November 2022.
10
Collective Bargaining Representation
We believe in freedom of association. We respect an individual’s choice to be represented by – or not be represented by – a
union or other legally authorized associations or organizations in accordance with the laws of the countries in which we operate.
Many of our employees are represented by labor unions. We believe that relations with any applicable union representatives are
generally constructive and professional. In the U.S., approximately 4,100 employees are represented by various labor unions.
The largest collective bargaining agreement is the master collective bargaining agreement between us and the United
Steelworkers (“USW”). The USW master agreement covers approximately 3,500 employees at four U.S. locations. The prior
master collective bargaining agreement with the USW expired on May 15, 2022, and we entered into a new labor agreement
that expires on May 15, 2026. There are seven other collective bargaining agreements in the U.S. with varying expiration dates.
On a local basis, there are agreements between Arconic and unions with varying expiration dates that cover employees in
Europe, North America, and Asia.
Governance
Oversight responsibility for the Company’s ESG policies and strategies has been delegated by our Board of Directors to
our Governance and Nominating Committee, which works in conjunction with other committees of the Board to which
oversight of specific matters have been delegated. For example, the responsibilities of our Compensation and Benefits
Committee of the Board of Directors include the oversight of talent management strategies, such as the Company’s recruitment,
development, employee engagement, promotion and retention programs; policies and practices promoting diversity, equity and
inclusion (“DEI”) within the Company; key metrics and objectives related to the Company’s talent; and the succession plan for
our executive officers. Our Board of Directors is also committed to our talent management and has oversight responsibility for
our safety practices.
Diversity, Equity and Inclusion
We are committed to maintaining an inclusive environment where everyone feels valued, and we celebrate both the
differences and similarities among our people. We also believe that diversity in all areas, including cultural background,
experience and thought, is essential in making our Company stronger. Consistent with that belief, we conducted focused
recruiting and retention initiatives that further demonstrate our ongoing commitment to DEI. The breakdown of our female and
U.S. ethnic minority employees globally at the end of 2022, as members of management and as executives, is as follows:
Total %
Management3 %
Executive4 %
Women1
17.7%
25.8%
30.0%
Minorities2
25.6%
13.1%
20.0%
(1) Percentages are on a global basis and include locations where Arconic has valid data. Some regions and countries, such as Germany, have privacy
laws and regulations that may prevent Arconic from reporting on certain employee demographics and those regions or countries are not included in the
global percentages of female employees.
(2) Percentages are on a U.S. basis only.
(3) Represents members of management, other than executives.
(4) Represents our leaders who serve in a Vice President or higher role.
Our Diversity, Equity, and Inclusion Council, chaired by our Chief Executive Officer, continues to advance our mission in
partnership with our six employee resource groups (“ERGs”) with senior executives volunteering as sponsors for each group.
Our six ERGs – Arconic African Heritage Network, Arconic Hispanic Network, Arconic Next Generation Network, Arconic
Veterans Network, Thrive Network (Women) and Spectrum (LGBTQ+) – reflect an inclusive, respectful and values-based
company culture. All of our employees are encouraged to participate in these grassroots, employee-led organizations that:
•
Drive employee engagement through community outreach;
•
Provide learning and development opportunities for employees;
•
Help position Arconic as a global employer of choice through strategic recruiting activities;
•
Inform Company policies around diversity and inclusion; and
•
Reinforce our brand through key external endorsements such as the Human Rights Campaign and the United Nations
Women’s Empowerment Principles.
With the momentum gained from our Grow Together campaigns in 2020 and 2021, we broadened our Grow Together scope
in 2022 to integrate equity into our mission, demonstrating our commitment to create a work environment with equal
opportunities for all. Grow Together continues to provide momentum to enable our DEI focus and encourages employees to
take actions related to inclusion, diversity or social justice through learning activities and volunteering. Employees based in the
U.S. also have the opportunity to donate to various non-profit organizations with a social equity mission aligned with and
recommended by our ERGs and receive a matching contribution from the Arconic Foundation, an independently endowed
11
foundation. As a result, in 2022 the Arconic Foundation granted over $34,000 in matching contributions to organizations that
are driving change with DEI initiatives. In addition, the Arconic Foundation granted over $960,000 to non-profits that support
inclusivity and social equity in communities where Arconic operates.
Talent Development
We are committed to attracting, retaining, and developing talent that shares our values and demonstrates agility, results
focus, and people development capability. All employees have access to a robust, ongoing career planning and performance
management process that begins at recruitment and continues throughout their careers. Our twice-yearly succession-planning
and calibration processes help us identify successors to business-critical roles while developing our high-potential employees.
In addition, we offer management skills training to all supervisory employees, leadership development and coaching programs
for mid- and senior-level leaders, and a variety of technical, business, and soft skills training programs to help our business
units and resource units meet their strategic objectives.
Compensation and Benefits Programs
Our compensation and benefits programs are designed to provide comprehensive total rewards to attract, motivate, engage
and retain a talented workforce. Our programs are competitive with our peers and emphasize performance-based compensation
to align employee rewards with company performance. Benefits are a key component of our total rewards package. We offer a
holistic benefits package designed to provide greater security for our employees and their families, which depending on country
may include healthcare, life insurance, paid parental leave, disability, savings and retirement and various welfare benefit
programs through plans we sponsor or through social programs in the countries where we operate.
Health and Safety
We value human life above all else and are committed to operating worldwide in a safe, responsible manner which respects
the environment and the health of our employees, our customers and the communities where we operate. Our strong health and
safety culture empowers our employees and contractors to take personal responsibility for their actions and the safety of their
coworkers. Our focus on safety also includes an ongoing commitment to maintaining a secure work environment that respects
the dignity and worth of every employee, which drives our continuous improvement approach in our robust safety programs.
Our employees play an important role in actively supporting a workplace that strives to be free of violence, threats,
intimidation, and harassment. This culture is supported by internal policies, standards, rules and procedures that clearly
articulate our stringent expectations for working safely and maintaining a secure work environment in all of our facilities
worldwide.
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest
of our employees, as well as the communities in which we operate. We established strict requirements for onsite work that is
continually assessed against the Centers for Disease Control and other expert guidance to assure that we are providing a safe
work environment. We continue to adapt our requirements in response to the continuing impacts of the COVID-19 pandemic,
including new and developing variants, in the various regions in which we operate.
We are committed to achieving zero fatalities and keeping a major focus on fatality prevention. Each location maintained
an active fatality prevention team and had zero employee and contractor fatalities in 2022. We have prioritized our risk
management processes toward fatality and serious injury potential to focus on the most impactful hazards that have the
potential for life-altering outcomes. In addition, during 2022, all of our key safety rates remained significantly below the most
recent U.S. industry averages. At 0.48, our 2022 days away, restricted and transfer (“DART”) was less than 1 percent lower
than our adjusted 2021 DART of 0.482. Our 2022 total recordable incident rate (“TRR”) of 1.39 (recorded in accordance with
U.S. Occupational Safety and Health Administration (“OSHA”) record keeping requirements) was 35% higher than our
adjusted 2021 TRR of 1.03. Our previously reported 2021 DART was 0.42 and 2021 TRR was 0.88. Both rates for 2021 were
adjusted above to exclude safety rates for our facility in Samara, Russia that was sold in November 2022. At the time of the
sale of our Samara facility in November 2022, our 2022 DART (including our Samara facility) was 0.41 versus our unadjusted
2021 DART of 0.42 and our 2022 TRR (including our Samara facility) was 1.11 versus our unadjusted 2021 TRR of 0.88.
12
Information about our Executive Officers
The following table sets forth information, as of February 17, 2023, regarding the individuals who are executive officers of
Arconic.
Name
Age
Position
Timothy D. Myers
57
Chief Executive Officer
Erick R. Asmussen
56
Executive Vice President and Chief Financial Officer
Daniel G. Fayock
48
Executive Vice President, Chief Legal Officer and Secretary
Melissa M. Miller
51
Executive Vice President and Chief Human Resources Officer
Diana B. Perreiah
58
Executive Vice President, Rolled Products North America
Mark J. Vrablec
62
Executive Vice President and Chief Commercial Officer
Robert L. Woodall
56
Executive Vice President, Rolled Products International and
Extrusions
Timothy D. Myers has served as President of Arconic Corporation since February 2020 and as Chief Executive Officer since
April 2020. From October 2017 to April 2020, Mr. Myers served as Executive Vice President and Group President, Global
Rolled Products, which was restructured in contemplation of the Separation to include the Extrusions and Building and
Construction Systems businesses of ParentCo. From May 2016 to June 2019, he served as Executive Vice President and Group
President of ParentCo’s Transportation and Construction Solutions segment, which then comprised Arconic Wheel and
Transportation Products and Building and Construction Systems and which segment was eliminated in the third quarter of 2019,
with the Building and Construction Systems business then moved to the Global Rolled Products segment. Prior to that
assignment, he was President of Alcoa Wheel and Transportation Products, from June 2009 to May 2016. Mr. Myers was Vice
President and General Manager, Commercial Vehicle Wheels for the Alcoa Wheel Products business from January 2006 to June
2009. Mr. Myers joined Alcoa Inc. 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 Alcoa Inc. and ParentCo since that time.
Erick R. Asmussen has served as Executive Vice President and Chief Financial Officer of Arconic Corporation since February
2020. Mr. Asmussen previously served as Senior Vice President and Chief Financial Officer of Momentive Performance
Materials Inc. from May 2015 to July 2019. Prior to joining Momentive, Mr. Asmussen served as Vice President and Chief
Financial Officer of GrafTech International, Ltd. from September 2013 to May 2015. Mr. Asmussen joined GrafTech in 1999
and served in multiple leadership roles, including Vice President of Strategy, Planning and Corporate Development, Worldwide
Controller, Tax Director, and Treasurer. Prior to GrafTech, Mr. Asmussen worked in various financial positions with Corning
Incorporated, AT&T Corporation, and Arthur Andersen LLP.
Daniel G. Fayock has served as Executive Vice President, Chief Legal Officer and Corporate Secretary of Arconic Corporation
since April 2022. Mr. Fayock previously served as Assistant General Counsel and Secretary of PPG Industries, Inc. from
September 2018 to March 2022, where he was responsible for advising the board of directors and executive team and serving as
counsel to various businesses on legal and strategic issues. Prior to this position, Mr. Fayock served as Corporate Counsel from
January 2015 to September 2018 and previously in a number of senior legal positions over his 15 years with PPG Industries
with a broad spectrum of progressive legal responsibilities. Prior to joining PPG Industries, Mr. Fayock was a senior attorney
with Allegheny Energy after starting his legal career as a corporate associate with K&L Gates.
Melissa M. Miller has served as Executive Vice President and Chief Human Resources Officer of Arconic Corporation since
April 2020. From October 2017 until April 2020, Ms. Miller served as Vice President of Human Resources for ParentCo’s
Global Rolled Products business, which was restructured in contemplation of the Separation to include the Extrusions and
Building and Construction Systems (BCS) businesses of ParentCo. From May 2016 until October 2017, Ms. Miller served as
Vice President of Human Resources for the business segment that comprised the BCS business and Arconic Wheel &
Transportation Products. From June 2011 until February 2016, Ms. Miller served as Global Human Resources Director of the
BCS business. Ms. Miller joined Alcoa Inc. in 2005 and held multiple leadership roles at Alcoa Inc. and ParentCo with a broad
spectrum of progressive HR responsibilities, including HR strategy and delivery, talent management, workforce planning,
succession planning, employee engagement, campus partnerships, HR technology, growth in emerging markets, merger
integrations, turnarounds and employee/labor relations. Prior to joining Alcoa Inc., Ms. Miller served in several HR-related
roles at Marconi Communications (formerly known as FORE Systems) for more than seven years.
Diana B. Perreiah has served as Executive Vice President, Rolled Products North America of Arconic Corporation since
August 2022. Ms. Perreiah served as President, Building and Construction Systems at ParentCo from May 2015 to March 2020
13
and continued in that role at Arconic Corporation from the Separation Date to August 2022. Ms. Perreiah joined Alcoa Inc. in
1986 as a systems analyst and subsequently held a variety of positions with Alcoa Inc. and ParentCo, including Operations
Manager, North American Extrusions, and several positions in corporate, including Global Information Services, and in the
internal manufacturing excellence group. She joined the Building and Construction Systems group in 2009 as Vice President,
Business Operations, Kawneer North America. Since then, she has held a series of leadership positions within Building and
Construction Systems, including Vice President & General Manager, Kawneer North America.
Mark J. Vrablec has served as Executive Vice President and Chief Commercial Officer of Arconic Corporation since April
2020. From February 2019 to April 2020, Mr. Vrablec served as Vice President for ParentCo’s Global Rolled Products
business, which was restructured in contemplation of the Separation to include the Extrusions and Building and Construction
Systems businesses. From July 2017 to February 2019, Mr. Vrablec served as Vice President, Global Rolled Products
Commercial and Business Development. From November 2016 to July 2017, Mr. Vrablec served as President of the Aerospace
and Automotive Products business, holding the same role for Alcoa Inc. from October 2015 until November 2016. From
September 2011 until October 2015, Mr. Vrablec served as President of Alcoa Inc.’s Aerospace, Transportation and Industrial
Rolled Products business. Mr. Vrablec joined Alcoa Inc. in 1982 as a metallurgist, and has held a series of quality assurance,
operations, and management positions with Alcoa Inc. and ParentCo since that time.
Robert L. Woodall has served as Executive Vice President, Rolled Products International and Extrusions of Arconic since
August 2022. Mr. Woodall served as President, Global Rolled Products Europe and Asia from April 2020 to August 2022, and
assumed responsibility for Extrusions in June 2022. From July 2018 to April 2020, he served as Director of Global Plant
Operations for Global Rolled Products at ParentCo, and prior to July 2018, he served as Vice President of Operations at
ParentCo. Mr. Woodall joined Alcoa in 1989 as a mechanical engineer and subsequently held a variety of engineering,
maintenance, production, and management positions with Alcoa Inc. and ParentCo, including Plant Manager, Pt. Henry,
Australia; Director of Australian Rolled Products; and Manufacturing Director for Arconic Davenport Works and Satellite
locations.
Available Information
The Company’s Internet address is www.arconic.com. Arconic makes available free of charge on or through its website its
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-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 amended (“Exchange
Act”), 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 website is not a part of, or incorporated by
reference in, this Annual Report on Form 10-K.
Item 1A. Risk Factors.
Our 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 our business, financial
condition, or results of operations, including causing our actual results to differ materially from those projected in any forward-
looking statements. The following list of significant risk factors is not all-inclusive or necessarily in order of importance.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may materially
adversely affect us in future periods
Business Risks – Global Conditions
The markets for our products are cyclical and are influenced by a number of factors, including global economic conditions,
that could have a material adverse effect on our business, financial condition or results of operations.
We are subject to cyclical fluctuations in global economic conditions and lightweight metals end-use markets. Many of our
products are sold to industries that are cyclical, such as the aerospace, automotive, commercial transportation and building and
construction industries, and the demand for our products are sensitive to, and quickly impacted by, demand for the finished
goods manufactured by our 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 our control.
In particular, we derive a significant portion of our revenue from products sold to the aerospace industry, which can be
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,
14
environmental constraints imposed upon aircraft operators, the retirement of older aircraft, the performance and cost of
alternative materials, and technological improvements to aircraft.
Further, the demand for our ground transportation products is driven by the number of vehicles produced by automotive
and commercial transportation manufacturers and volume of aluminum 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 and commercial transportation
sales and production can also be affected by other factors, including supply chain disruptions, the age of the vehicle fleet and
related scrap rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, interest
rates, health and safety concerns and levels of competition both within and outside of the aluminum industry.
Our products are used in a variety of industrial applications, including mold and tooling plate for semiconductors; general
engineering/machinery and injection molding applications; specialty finishes for appliances, cosmetic packaging, and vehicle
components; tread plate and sheet; and building and construction products. Common alloy sheet, which is a significant portion
of the total industrial products market, is particularly sensitive to the volume of imports of common alloys into the U.S. The
implementation of anti-dumping and countervailing duties imposed on Chinese common alloy sheet during 2018 has led to a
significant decrease in the volume of imports from China. That decrease was followed by a significant increase in imports of
common alloy into the U.S. from other countries, which led to softening prices. In 2021, the U.S. government imposed new
anti-dumping and countervailing duties on imports of common alloy aluminum sheet from 16 additional countries. The anti-
dumping and countervailing duties have led to improved pricing in the U.S. for common alloy sheet, though the long-term
impact of the tariffs on import levels and pricing, as well as the likelihood of extension of such duties, remains difficult to
predict.
We are unable to predict the future course of industry variables, the strength of the U.S., regional or global economies, or
the effects of government actions. 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 our business, financial condition or
results of operations.
Our business, results of operations, financial condition, liquidity and cash flows have been, and in the future could be,
materially adversely affected by the effects of widespread public health epidemics/pandemics.
Outbreaks of contagious diseases, public health epidemics or pandemics (including the COVID-19 pandemic, which
resulted in travel restrictions, governmental restrictions on certain activities, and shutdown of certain businesses globally,
Sudden Acute Respiratory Syndrome, Avian Influenza, H1N1 virus, or the Ebola virus) or other adverse public health
developments in countries where we, our employees, customers and suppliers operate could have a material and adverse effect
on our business, results of operations, financial condition, liquidity and/or cash flows. Any such epidemics or pandemics could
experience resurgences in cases, communicability or severity as a result of the development of different variants, as with the
COVID-19 pandemic, which could extend the magnitude or duration of the adverse impact on our operations. The extent to
which any such outbreak affects our operations over time is highly uncertain and beyond our control, and is dependent on a
variety of factors, including the duration and severity of the initial outbreak or subsequent variants, the imposition of
governmental quarantine or other public health measures, the availability of vaccines or other medical remedies and preventive
measures, and determinations regarding, among other things, health and safety, demand for specific products, and broader
economic conditions. Many of the actions that may be taken to mitigate the impact of an epidemic or pandemic, including
declarations of states of emergency, governmental quarantines, shelter-in-place and stay-at-home orders, social distancing
requirements, business closures and staged procedures for reopening, manufacturing restrictions and a prolonged period of
travel, commercial and/or other similar restrictions and limitations, are highly likely to impact our business and the business of
many of our customers, and therefore are likely to magnify the risks of a material adverse impact on our business, results of
operations, financial condition, liquidity and/or cash flows, as well as on our business strategies and initiatives. In addition, the
impact of any epidemic or pandemic, and the related restrictions, may differ in the areas in which our products are
manufactured, distributed or sold, or may change on short notice in response to new variants or other circumstances and,
accordingly, any such impact on our operations or the operations of our customers and suppliers is difficult to predict. Because
we rely on supply chain continuity, restrictions in one location may materially impact operations in multiple locations, and the
impact of an epidemic or pandemic in one location may have a disproportionate effect on our operations in the future.
An epidemic or pandemic subjects our operations, financial performance and financial condition to a number of risks,
including, but not limited to modification of business practices, including idling or production decreases at our facilities and
workforce reductions; actions we may take associated with the safety and welfare of our employees, including increased costs
associated with recruiting, hiring, training and supervising new employees or employees required to perform new roles,
maintaining high levels of employee awareness of and compliance with our internal procedures and regulatory requirements,
and implementing employee health and safety initiatives; lower demand for our products should our customers experience labor
shortages, supply chain issues or other operational impacts; concessions or contract modifications that we may grant to our
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customers; supply chain disruption, including labor shortages, unavailability of or price volatility for raw materials or energy,
and transportation and logistics challenges; volatility in financial and commodities markets adversely impacting asset
valuations, including pension assets; and the impact on our customers’ businesses related to the financial condition of or other
restrictions on the end users of their products or services, including air travel, construction and the trends in the purchases of
automobiles, industrial products and other manufactured goods. In addition, we may experience decreased availability of
liquidity under our asset-based lending credit facility (the "ABL Credit Facility" and the credit agreement forming a part of the
ABL Credit Facility, the "ABL Credit Agreement"), which is based on a borrowing base calculation based on our financial
results and cash from operations, or credit rating downgrades that could adversely affect our cost of funding and related
margins, liquidity, competitive position, access to capital markets, and ability to refinance indebtedness on favorable terms. The
magnitude of the adverse effects of these and other risks on our business, results of operations, financial condition, liquidity and
cash flows will vary depending on the duration and severity of an epidemic or pandemic and the responses of governmental
authorities, suppliers, customers and Arconic. A sustained impact to our operations and financial results may require material
impairments of our assets including, but not limited to, inventory, goodwill, intangible assets, long-lived assets, right-of-use
assets, and deferred income tax assets.
An epidemic or pandemic may also exacerbate other risks disclosed in this Annual Report on Form 10-K, including, but
not limited to, risks related to global economic conditions and inflation, competition, loss of customers, costs of supplies,
manufacturing difficulties and disruptions, our credit profile, our credit ratings and interest rates. In addition, a future epidemic
or pandemic may also affect our operating and financial results in a manner that is not presently known to us, or present
significant risks to our business, results of operations, financial condition, liquidity and/or cash flows that are different from the
risks presented by prior epidemics or pandemics.
Climate change, and evolving customer and stakeholder expectations, legal, regulatory and policy requirements, and market
dynamics driven by climate change, could adversely affect our business, financial condition or results of operations.
There are inherent climate-related risks in various regions where we conduct business. Global climate change is resulting,
and is expected to continue to result, in certain natural disasters and adverse weather conditions, such as drought, wildfires,
storms, tornados, hurricanes, blizzards, changes in sea-levels, flooding, and extreme temperatures, occurring more frequently or
with greater intensity and unpredictability. Such conditions could result in disruptions to any facility or surrounding
community directly impacted by a climate-related event, including physical damage resulting in shutdowns and requiring repair
or our employees’ unavailability to work, and could also adversely impact our suppliers, customers, and shipping and
transportation networks. These disruptions could make it more difficult and costly for us to produce and deliver our products,
obtain raw materials or other supplies, maintain our critical corporate functions, and could reduce customer demand for our
products.
In addition, customers, communities, investors and other stakeholders are increasingly focusing on environmental issues,
including climate change and the carbon footprint of businesses throughout our supply chain. Changing customer preferences
may result in increased demands regarding, among other matters, the source of aluminum, alloying metals and other materials
used in our products, demand for increased use of recycled materials in our products, the manner in which power we consume
is generated, our use and treatment of water and other natural resources, and the packing materials and shipping methods we
use to deliver our products. In order to respond to these demands, we may need to make changes to our facilities, operations or
production methods, or increase research and development efforts, any of which are likely to result in significant additional
costs. Additional costs, or diminished customer demand for our products, loss of market share, or reputational damage resulting
from our failure to satisfy customer preferences or to meet evolving investor, stakeholder or industry expectations, could have a
material adverse effect on our business, operating results and financial condition.
Additionally, concerns over climate change have resulted in ongoing public pressure to address, and to adopt legal and
regulatory requirements designed to address, climate change, including regulating greenhouse gas emissions (and the
establishment of enhanced internal processes or systems to track emissions), policies mandating or promoting the use of
renewable or zero-carbon energy and sustainability initiatives, and additional taxes on or other costs related to fuel and energy.
For example, in January 2021, the U.S. recommitted to the Paris Agreement and in April 2021, President Biden announced
targets to reduce U.S. greenhouse gas emissions. If newly enacted laws or regulations, or newly adopted policies or initiatives,
are more stringent than current requirements, we, our suppliers and our customers may be subject to increased compliance
burdens, incur significant additional costs, or experience disruption in the sourcing of materials and the manufacturing and
distribution of products, any of which could have a material adverse effect on our business, financial condition or results of
operations.
Governments of countries in which we operate could nationalize or expropriate private enterprises, or otherwise change
their policies regarding private enterprise, which could adversely impact the value of our operations in those countries.
Certain countries in which we operate are subject to political, social, diplomatic and economic uncertainty. The
governments of these countries may develop or implement political, social or economic policies contrary to, or reversing
current policies encouraging, private enterprise, economic decentralization and/or outside investment in such countries.
Changes in policies, the enactment of new laws or regulations, or changes in the interpretation of current policies, laws or
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regulations could result in, among other impacts, the imposition of confiscatory taxation, trade sanctions or embargoes, our
inability to protect our intellectual property rights, renegotiation or nullification of existing agreements or property rights,
restrictions on currency conversion, restrictions or prohibitions on the payment of dividends or distributions, or the
nationalization or expropriation of private enterprises, including our operations. Any of these occurrences could have a material
adverse effect on our business, financial condition or results of operations, and nationalization or expropriation could result in
the loss of all revenues generated in, and the entire value or our investment in, such countries.
We are exposed to economic factors, including inflation, fluctuations in aluminum prices, foreign currency exchange rates
and interest rates, and currency controls in the countries in which we operate.
We have experienced, and continue to experience, inflationary pressures on the prices of aluminum, materials,
transportation, energy and labor. In an inflationary environment, such as the current economic environment, our ability to
implement customer pricing adjustments or surcharges to pass-through or offset the impacts of inflation may be limited.
Continued inflationary pressures could reduce our profit margins and profitability.
Other economic factors, including fluctuations in foreign currency exchange rates and interest rates, competitive factors in
the countries in which we operate, and continued volatility or deterioration in the global economic and financial environment
could affect our revenues, expenses and results of operations. Changes in the valuation of the U.S. dollar against other
currencies, including the Euro, British pound, Canadian dollar, and Chinese yuan (renminbi), may affect our profitability as
some important inputs are purchased in other currencies, while our products are generally sold in U.S. dollars.
Our ABL Credit Facility bears interest at rates equal to the Secured Overnight Financing Rate (“SOFR”) plus a credit
spread adjustment, plus a margin. Accordingly, we will be subject to risk from changes in interest rates on the variable
component of the rate.
We also face risks arising from the imposition of cash repatriation restrictions and exchange controls. Cash repatriation
restrictions and exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and
other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing restrictions or
controls. While we currently have no need, and do not intend, to repatriate or convert cash held in countries that have
significant restrictions or controls in place, should we need to do so to fund our operations, we may be unable to repatriate or
convert such cash, or be unable to do so without incurring substantial costs. We currently have substantial operations in
countries that have, or that may in the future impose, cash repatriation restrictions or exchange controls in place, including
China, and, if we were to need to repatriate or convert such cash, these controls and restrictions may have an adverse effect on
our operating results and financial condition.
Our global operations expose us to risks that could adversely affect our business, financial condition, results of operations,
cash flows or the market price of our securities.
We have operations or activities in numerous countries and regions outside the U.S., including Europe, the United
Kingdom, Canada, and China. As a result, our global operations are affected by economic, political and other conditions in the
foreign countries in which we do business as well as U.S. laws regulating international trade, including:
•
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 (including tariffs imposed by the U.S. as well as retaliatory tariffs imposed by the European Union or other
foreign entities), import or export restrictions, taxation, environmental regulations, production curtailments, exchange
controls, employment regulations and repatriation of assets or earnings;
•
the ongoing uncertainty regarding the United Kingdom’s withdrawal from the European Union (known as “Brexit”)
and its impact and long-term effects on trade, imports and exports, tariffs and currencies, and our relationships with
customers and suppliers;
•
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;
•
the potential for increased tensions between the U.S. and countries in which we operate, including China and European
Union nations;
•
the global impact of the ongoing conflict between Russia and Ukraine, including tariffs, economic sanctions and
import-export restrictions imposed by either nation, and retaliatory actions by the other nation;
•
war or terrorist activities;
•
kidnapping of personnel;
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•
major public health issues such as an outbreak of a pandemic or epidemic, such as the COVID-19 pandemic, which
could cause disruptions in our operations, workforce, supply chain and/or customer demand;
•
shipping, freight and supply chain disruptions;
•
difficulties enforcing contractual rights and intellectual property, including a lack of remedies for misappropriation, in
certain jurisdictions;
•
changes in trade and tax laws that may impact our operations and financial condition and/or 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 products we supply to them;
•
rising labor costs;
•
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 and other anti-bribery and corruption laws;
•
compliance with U.S. laws concerning trade, including the International Traffic in Arms Regulations, the Export
Administration Regulations, and the sanctions, regulations and embargoes administered by the U.S. Department of
Treasury’s Office of Foreign Assets Control;
•
imposition of currency controls;
•
compliance with data privacy regulations; and
•
adverse tax laws and audit rulings.
Although the effect of any of the foregoing factors is difficult to predict, any one or more of them could adversely affect
our business, financial condition, or results of operations. Our international operations subject us to complex and dynamic laws
and regulations that, in some cases, could result in conflict or inconsistency between applicable laws and/or legal obligations.
While we believe we have adopted appropriate risk management, compliance programs and insurance arrangements to mitigate
the associated risks, such measures may provide inadequate protection against costs, penalties, liabilities or other potential risks
such as loss of export privileges or repatriation of assets that may arise from such events.
An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and other factors
could affect our results of operations or amount of pension funding contributions in future periods.
We provide defined benefit pension and retiree healthcare benefits to eligible employees and retirees. Our results of
operations may be negatively affected by the amount of expense we record for our pension and other postretirement benefit
plans, reductions in the fair value of plan assets, significant changes in market interest rates, investment losses or lower than
expected returns on plan assets, and other factors. We calculate income or expense for our 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 significant year-end assumptions used 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, we are required to make an annual measurement of plan assets and
liabilities, which may result in a significant charge to stockholders’ equity. For a discussion regarding how our financial
statements can be affected by pension and other post-retirement benefits accounting policies, see Note B to the Consolidated
Financial Statements in Part II. Item 8, and Part II. Item 7. “Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Critical Accounting Policies and Estimates.” 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 we would contribute to the pension plans. The defined benefit pension
plans were underfunded as of December 31, 2022 by $578 million based on actuarial methods and assumptions in accordance
with GAAP. In the event that actual results differ from the actuarial assumptions, the funded status of our defined benefit plans
and future cash contributions may increase or decrease. See Part II. Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Contractual Obligations and Off-Balance Sheet Arrangements--Contractual
Obligations" and "--Obligations for Operating Activities" for additional information regarding expected contributions and
benefit payments in 2023.
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Business Risks – Competition and Customers
We face significant competition, which may have an adverse effect on profitability.
The markets for our products are highly competitive. Our competitors include a variety of both U.S. and non-U.S.
companies in all major markets. We may also face competition from emerging competitors, particularly in China and other
developing economies, as customers seek to globalize their supply bases in order to reduce costs. New product offerings, new
technologies in the marketplace or new facilities may compete with or replace our products. The willingness of customers to
accept substitutes for our products, the ability of large customers to exert leverage in the marketplace to affect the pricing for
our products, and technological advancements or other developments by or affecting our competitors or customers could
adversely affect our business, financial condition or results of operations. See Part I. Item 1. Business “Description of the
Business—Rolled Products—Competitive Conditions,” “—Extrusions—Competitive Conditions,” and “—Building and
Construction Systems—Competitive Conditions” for additional information about competition in the markets for our products.
In addition, we may face increased competition due to industry consolidation. As companies attempt to strengthen or
maintain their market positions in an evolving industry, they could be acquired or merged. Companies that are strategic alliance
partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with
us. Industry consolidation may result in stronger competitors who are better able to obtain favorable terms from suppliers or
who are better able to compete as sole-source vendors for customers. Consolidation within our customer base may result in
customers who are better able to command increased leverage in negotiating prices and other terms of sale, which could
adversely affect our profitability. Moreover, if, as a result of increased leverage, customers require us to reduce our pricing such
that our gross margins are diminished, we could decide not to sell certain products to a particular customer, or not to sell certain
products at all, which would decrease our revenue. Consolidation within our customer base may also lead to reduced demand
for our products, a combined entity replacing our products with those of our competitors, and cancellations of orders. The result
of these developments could have a material adverse effect on our business, operating results and financial condition.
We could be adversely affected by the loss of key customers, the impact of supply chain disruptions or other economic
conditions on our key customers, or significant changes in the business or financial condition of our customers.
We have long-term contracts with a significant number of our customers, some of which are subject to renewal,
renegotiation or re-pricing at periodic intervals or upon changes in competitive supply conditions. Our failure to successfully
renew, renegotiate or favorably re-price such agreements, or a material deterioration in or termination of these customer
relationships, could result in a reduction or loss in customer purchase volume or revenue.
Additionally, a significant downturn or deterioration in the business or financial condition or loss of a key customer could
affect our financial results. Our customers may experience unavailability or price volatility of raw materials, key components or
other supply chain disruptions, weak demand for their products, delays in the certification or launch of new products, inability
to achieve expected future orders in China or other markets, labor strikes, diminished liquidity or credit unavailability that
negatively impact the customer's ability to make full or timely payment or that require us to restructure payment terms, or other
difficulties in their businesses, any of which could significantly reduce demand for our products. These impacts may be unique
to one customer or a small number of customers. For example, Boeing has experienced negative impacts in recent periods,
including the temporary reduction in the production rate and subsequent temporary suspension of production of the 737 MAX
aircraft, and delays in certification of the 737 MAX aircraft in China; and reduced passenger travel during the COVID-19
pandemic and the resulting elevated inventory of airframes and fuselages. These events have negatively impacted sales of
aluminum sheet and plate products that we produce for Boeing airplanes and may continue to negatively impact sales for future
periods. The impacts may also be experienced by a broader group of customers within an end market that we serve. For
example, in 2020, the impact of the COVID-19 pandemic and other global factors contributed to a severe shortage in
semiconductors used in automotive manufacturing. As a result, automotive customers were forced to curtail production at
various intervals and across many different product lines resulting in reductions in the volume of vehicles manufactured. For
2020, 2021 and 2022, global vehicle production was reduced by more than 10 million vehicles, resulting in a significant
reduction in sales of aluminum sheet and extrusions products that we produce for a number of key automotive customers.
Customer initiatives to recover lost volume as business and economic conditions improve may not be successfully
implemented, or may be implemented over extended time periods. Depending on the nature, extent and duration of negative
business or economic conditions impacting our customers, our financial condition and results of operations may be adversely
affected acutely or over a longer period of time.
Our customers may also change their business strategies or modify their business relationships with us, including to reduce
the amount of our products they purchase or to switch to alternative suppliers. If our customers reduce, terminate or delay
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purchases from us due to the foregoing factors or otherwise and we are unsuccessful in replacing such business in whole or in
part or replace it with less profitable business, our financial condition and results of operations may be adversely affected.
Our customers may reduce their demand for aluminum products in favor of alternative materials.
Certain applications of our aluminum-based products compete with products made from other materials, such as steel,
titanium, plastics, glass and composites. The willingness of customers to pursue materials other than aluminum often depends
upon the desire to achieve specific performance 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 further
reduce the weight and increase the fuel efficiency of aircraft. The automotive industry, while motivated to reduce vehicle
weight through the use of aluminum, may substitute with steel or other materials for certain applications. The packaging
industry continues to experience advances in alternative materials, such as plastics, glass and organic or compostable materials,
which may compare favorably to aluminum with respect to preservation of food and beverage quality and recyclability.
Further, the decision to use aluminum may be impacted by aluminum prices or compatibility of aluminum with other materials
used by a customer in a given application. The willingness of customers to accept other materials in lieu of aluminum could
adversely affect the demand for certain of our products, and thus adversely affect our business, financial condition or results of
operations.
We may face challenges to our intellectual property rights which could adversely affect our reputation, business and
competitive position, financial condition and results of operations.
We own important intellectual property, including patents, trademarks and copyrights. Our intellectual property plays
an important role in maintaining our competitive position in a number of the markets that we serve. Our competitors may
develop technologies that are similar or superior to our proprietary technologies or design around the patents we own or license.
Despite our controls and safeguards, our technology may be misappropriated by our employees, our competitors or other third
parties. The pursuit of remedies for any misappropriation of our intellectual property is expensive and the ultimate remedies
may be deemed insufficient. Further, in jurisdictions where the enforcement of intellectual property rights is less robust, the risk
of misappropriation of our intellectual property increases despite efforts we undertake to protect it. Developments or assertions
by or against us relating to intellectual property rights, and any inability to protect or enforce our rights sufficiently, could
adversely affect our business and competitive position, financial condition and results of operations.
Business Risks – Operations and Product Development
We could encounter manufacturing difficulties or other issues that impact product performance, quality or safety, which
could affect our ability to supply customers or meet contractual obligations, reputation, business and financial condition
and results of operations.
The manufacture of many of our products is a highly exacting and complex process. Problems may arise during
manufacturing for a variety of reasons, including equipment malfunction or unforeseen maintenance outages, failure to follow
specific protocols, specifications and procedures, including those related to quality or safety, unavailability of raw materials,
supply chain interruptions, natural disasters, health pandemics (including the COVID-19 pandemic), labor shortages or unrest,
and environmental factors. Such problems could have an adverse impact on our ability to fulfill customer orders or meet
contractual obligations, including with respect to quantity, delivery times, or product quality, specifications or performance,
which could result in recalls, customer penalties, contract cancellation and product liability exposure. Because of approval,
license and qualification requirements applicable to manufacturers and/or their suppliers, alternatives to mitigate manufacturing
disruptions may not be readily available to us or our customers. Accordingly, manufacturing problems, product defects or other
risks associated with our products could result in significant costs related to remediation and other liabilities that could have a
material adverse effect on our 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 our reputation, which could
adversely impact product demand and customer relationships.
Our business depends, in part, on our ability to meet increased customer demand successfully and to mitigate the impact of
customer program cancellations, reductions and delays.
We are under contract to supply aluminum sheet, plate and extrusions for a number of new and existing commercial and
general aviation aircraft programs, as well as aluminum sheet and extrusions for a number of aluminum-intensive automotive
vehicle programs. Many of these programs are scheduled for production increases over the next several years. In addition, we
expect customer demand for packaging materials to continue to increase. If we fail to meet production levels or encounter
difficulty or unexpected costs in meeting such levels, it could have a material adverse effect on our business, financial condition
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or results of operations. Similarly, program cancellations, reductions or delays could also have a material adverse effect on our
business.
A material disruption or limitation of our operations, particularly at one or more of our manufacturing facilities, could
adversely affect our business.
If our operations, particularly one of our manufacturing facilities, were to be disrupted as a result of significant equipment
failures, natural disasters, adverse weather conditions, power outages, fires, floods, explosions, terrorism, theft, sabotage, public
health crises, labor shortages or disputes or other reasons, we may be unable to effectively meet our obligations to or demand
from our customers, which could adversely affect our financial performance.
Our operations depend on the continued and efficient functioning of our facilities, including critical equipment. Despite
our routine maintenance programs for our facilities and equipment, we may experience periods of reduced production or
production delays due to planned and unplanned equipment outages at our facilities. Our facilities also require significant
capital improvements, including upgrades to or replacements of equipment, from time to time. Repairs, equipment replacement
or other facility improvement projects may also result in periods of reduced or delayed production. Supply chain issues and
labor shortages may impact our ability to obtain parts, materials or replacement equipment necessary to make repairs or
improvements, and may increase the time required to complete such repairs or improvements. Unforeseen delays or
unavailability of parts or materials could significantly increase the costs associated with repairs or improvements.
Interruptions in production could result in significant increases in our costs and reductions in our sales. Any interruption in
production capability could require us to incur costs for premium freight, make substantial capital expenditures or purchase
alternative material at higher costs to fill customer orders, which could negatively affect our profitability and financial
condition. Furthermore, because customers may be dependent on planned deliveries from us, customers that have to reschedule
their own production due to our delivery delays may be able to pursue financial claims against us, and we may incur costs to
correct such problems in addition to any liability resulting from such claims. While we maintain property damage insurance that
we believe to be adequate to provide for reconstruction of facilities and equipment, as well as business interruption insurance to
mitigate certain of our losses resulting from significant production interruption or shutdown caused by an insured loss, not all
events leading to a disruption of operations are covered events. Additionally, any recovery under our insurance policies may not
fully offset the lost profits or increased costs that may be experienced during the disruption of operations, which could
adversely affect our business, results of operations, financial condition and cash flow.
We may be unable to develop innovative new products or implement technology initiatives successfully.
Our competitive position and future performance depend, in part, on our ability to:
•
identify and evolve with emerging technological and broader industry trends in our target end-markets;
•
identify and successfully execute on a strategy to remain an essential and sustainable element of our customers’ supply
chains;
•
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; and
•
achieve sufficient return on investment for new products based on capital expenditures and research and development
spending.
We continuously work on new developments for strategic projects, including alloy development, engineered finishes and
product design, high speed continuous casting and rolling technology and other advanced manufacturing technologies. For
more information on our research and development programs, see Part I, Item 1. Business “Research and Development.”
In spite of our expenditure of financial resources and dedicated effort to develop innovative new products and services, we
may not be able to successfully differentiate our products or services from those of our competitors or match the level of
research and development spending of our competitors, including those developing technology to displace our current products.
In addition, we may not be able to adapt to evolving markets and technologies or achieve and maintain technological
advantages. There can be no assurance that any of our new products or services, development programs or technologies will be
commercially adopted or beneficial to us.
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Business Risks – Supply Chain
Our business could be adversely affected by increases in the cost or volatility in the availability of aluminum or other raw
materials.
We derive a significant portion of our revenue from aluminum-based products. The price of primary aluminum has
historically been subject to significant cyclical price fluctuations, and the timing of changes in the market price of aluminum is
largely unpredictable. Although the pricing of most of our products is generally intended to pass substantially all the risk of
metal price fluctuations on to our customers or is otherwise hedged, there are situations where we are unable to pass on the
entire cost of increases to our customers and there is a potential time lag on certain products between increases in costs for
aluminum and the point when we can implement a corresponding increase in price to our customers and/or there are other
timing factors that may result in our exposure to certain price fluctuations which could have a material adverse effect on our
business, financial condition or results of operations. Further, since metal prices fluctuate among the various exchanges, our
competitors may enjoy a metal price advantage from time to time.
We may be adversely affected by changes in the availability or cost of other raw materials (including, but not limited to,
copper, magnesium, silicon and zinc), as well as labor costs, energy costs and freight costs associated with transportation of
materials. Prices for and the availability of materials necessary for production may fluctuate due to a number of factors,
including inflationary pressure, supply shortages and disruptions caused by geopolitical or global health events, such as the
COVID-19 pandemic. The availability and costs of certain raw materials necessary for the production of our products may also
be influenced by private or government entities, including mergers and acquisitions, changes in world politics or regulatory
requirements (such as human rights regulations, environmental regulations or production curtailments), labor relations between
the producers and their work forces, labor shortages, political instability in exporting nations, export quotas, sanctions, new or
increased import duties, countervailing or anti-dumping duties, infrastructure and transportation issues, 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. We may be unable to
offset fully the effects of material shortages or higher costs through customer price increases, productivity improvements or cost
reduction programs. Shortages or price fluctuations in raw materials could have a material adverse effect on our operating
results.
We are dependent on a limited number of suppliers for a substantial portion of our primary and scrap aluminum and certain
other raw materials essential to our operations.
We have supply arrangements with a limited number of suppliers for aluminum and other raw materials. We maintain
annual or long-term contracts for a majority of our supply requirements, and for the remainder we depend on spot purchases.
From time to time, increasing aluminum demand levels have caused regional supply constraints in the industry and further
increases in demand levels could exacerbate these issues. Such constraints could impact our production or force us to purchase
primary metal and other supplies from alternative sources, which may not be available in sufficient quantities or may only be
available on terms that are less favorable to us. Further, there can be no assurance that we will be able to renew, or obtain
replacements for, any of our long-term contracts when they expire on terms that are as favorable as our existing agreements or
at all. Additionally, we could have exposure if a key supplier in a particular region is unable to deliver sufficient quantities of a
necessary material on a timely basis. A significant interruption in the operations of a key supplier could jeopardize the ability of
plants in that region to operate at capacity, which could in turn have a material adverse effect on our financial condition, results
of operations and cash flow. In addition, a significant downturn in the business or financial condition of our significant
suppliers exposes us to the risk of default by the supplier on our contractual agreements, and this risk is increased by weak and
deteriorating economic conditions on a global, regional or industry sector level.
We also depend on scrap aluminum for our operations and acquire our scrap inventory from numerous sources. These
suppliers generally are not bound by long-term contracts and have no obligation to sell scrap metal to us. In periods of low
inventory prices, suppliers may elect to hold scrap until they are able to charge higher prices. Additionally, the purity and
attributes of scrap material can vary significantly, which could result in a shortage of useable scrap metal. If an adequate supply
of scrap metal is not available to us, we would be unable to recycle metals at desired volumes and our results of operations,
financial condition and cash flows could be materially adversely affected.
22
Business Risks – Strategy
We may not be able to realize the expected benefits of our re-entry into the packaging market in the U.S. and other
geographies.
We have made a significant investment of management time and financial resources in our re-entry into the U.S.
packaging market, including capital investments in machinery, application of research and development resources to developing
innovations in packaging materials, re-tooling portions of our rolled products capacity to produce materials designed to suit the
needs of customers in the packaging market, supplementing our workforce to fulfill capacity, and engaging with a new
customer base that has different needs than our aerospace, automotive, and industrial customers. In addition, the competitive
landscape in the packaging market involves not only some of our current key competitors, with whom we compete for
customers, labor and materials including scrap, but also new competitors offering alternative packaging materials, particularly
plastics and glass products, many of whom are larger and more established in the packaging market than we are. Our ability to
realize the benefits of our strategic decision to re-enter the packaging market could be impacted by availability of labor, raw
materials or scrap necessary to produce sufficient volume to satisfy customer demands, unforeseen outages at our facilities that
serve the packaging market, or unexpected costs. If we are unable to realize the projected benefits of our re-entry into the
packaging market in the U.S. or other geographies, our financial condition and results of operations may be materially
adversely affected.
We may be unable to realize future targets or goals established for our business segments, or complete capital or other
projects at the levels, projected costs or by the dates targeted.
From time to time, we may announce future targets or goals for our business, which are based on our then current
expectations, estimates, forecasts and projections about the operating environment, economies and markets in which we
operate. Future targets and goals reflect our beliefs and assumptions and our perception of historical trends, then current
conditions and expected future developments, as well as other factors 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 therein. The actual outcome may be materially different from projected or target
outcomes, and there can be no assurance that any targets or goals established by us will be accomplished at the levels or by the
dates targeted, if at all. Failure to achieve our targets or goals may have a material adverse effect on our business, financial
condition, results of operations or the market price of our securities.
In addition, the implementation of our business strategy may involve the entry into and the execution of complex capital or
other projects, which place significant demands on our management and personnel, and the completion and ultimate impact of
such projects on our operations may depend on numerous factors beyond our control. There can be no assurance that such
projects will be completed within budgeted costs, on a timely basis, or at all, whether due to the risks described herein, or other
factors. The failure to complete a material project as planned, a significant delay in a material project, increased or unforeseen
costs associated with a project, or the failure of a project to have the projected impact on our business or operations, whatever
the cause, could have an adverse effect on our business, financial condition, or results of operations.
Our business and growth prospects may be negatively impacted by limits in our capital expenditures.
We require substantial capital to invest in growth opportunities and to maintain and prolong the life and capacity of our
existing facilities. Insufficient cash generation or capital project overruns or delays may negatively impact our ability to fund as
planned our sustaining and return-seeking capital projects. Over the long term, our ability to take advantage of improved market
conditions or growth opportunities in our businesses may be constrained by earlier capital expenditure restrictions, which could
adversely affect the long-term value of our business and our position in relation to our competitors.
We may be unable to realize the expected benefits from acquisitions, divestitures, joint ventures and strategic alliances.
We have made, and may continue to plan and execute, acquisitions and divestitures and take other actions to grow our
business or streamline our portfolio. There is no assurance that anticipated benefits will be realized. Acquisitions present
significant challenges and risks, including our effective integration of the acquired business, 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. We may be unable to manage acquisitions successfully. Additionally, adverse factors may prevent us from
realizing the benefits of our growth projects, including unfavorable global economic conditions, currency fluctuations, or
unexpected delays in target timelines.
With respect to portfolio optimization actions such as divestitures, curtailments and closures, we may face barriers to exit
from unprofitable businesses or operations, including high exit costs or objections from customers, suppliers, unions, local or
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national governments, or other stakeholders. In addition, we may retain unforeseen liabilities for divested entities or businesses,
including, but not limited to, if a buyer fails to honor all commitments. Our 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, we have participated in, and may continue to participate in, joint ventures, strategic alliances and other similar
arrangements from time to time. Although we have, in connection with past and existing joint ventures, sought to protect our
interests, joint ventures and strategic alliances inherently involve special risks. Whether or not we hold majority interests or
maintains operational control in such arrangements, our partners may:
•
have economic or business interests or goals that are inconsistent with or opposed to ours;
•
exercise veto rights to block actions that we believe to be in our or the joint venture’s or strategic alliance’s best
interests;
•
take action contrary to our policies or objectives with respect to investments; or
•
as 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
similar arrangements will be undertaken or completed in their entirety as planned or that they will be beneficial to us, whether
due to the above-described risks, unfavorable global economic conditions, increases in construction costs, currency
fluctuations, political risks, or other factors.
A decline in our financial performance or outlook or a deterioration in our credit profile could negatively impact our access
to the capital markets and commercial credit, reduce our liquidity, and increase our borrowing costs.
We have significant capital requirements and may require, in the future, the issuance of debt to fund our operations and
contractual commitments or to pursue strategic acquisitions. A decline in our financial performance or outlook due to internal or
external factors could affect our access to, and the availability or cost of, financing on acceptable terms and conditions. There
can be no assurance that we will have access to the capital markets on terms we find acceptable.
Major credit rating agencies evaluate our creditworthiness and give us specified credit ratings. These credit ratings are
based on a number of factors, including our financial strength and financial policies as well as our strategies, operations and
execution. These credit ratings are limited in scope, and do not address all material risks related to investment in us, but rather
reflect only the view of each rating agency at the time the rating is issued. Nonetheless, the credit ratings we receive will impact
our borrowing costs as well as the terms upon which we will have access to capital. Failure to obtain sufficiently high credit
ratings could adversely affect the interest rate in future financings, our liquidity or our competitive position, and could also
restrict our access to capital markets.
There can be no assurance that one or more of the credit rating agencies will not take negative actions with respect to our
ratings in the future. Increased debt levels, macroeconomic conditions, a deterioration in our debt protection metrics, a
contraction in our liquidity, or other factors could potentially trigger such actions. A credit 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 our credit ratings by one or more credit rating agencies could result in adverse consequences,
including: adversely impact the market price of our securities; adversely affect existing financing; 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
we incur; increase the cost of borrowing or fees on undrawn credit facilities; or result in vendors or counterparties seeking
collateral or letters of credit from us.
Limitations on our ability to access the global capital markets, a reduction in our liquidity or an increase in borrowing
costs could materially and adversely affect our ability to maintain or grow our business, which in turn may adversely affect our
financial condition, liquidity and results of operations.
24
Business Risks – Information Security and Internal Controls
Information technology system failures, cyber-attacks and security breaches may threaten the integrity of our intellectual
property and sensitive information, disrupt our business operations, and result in reputational harm and other negative
consequences that could have a material adverse effect on our financial condition and results of operations.
We rely on our information technology systems to manage and operate our business, process transactions, and summarize
our operating results. Our information technology systems are subject to damage or interruption from power outages, computer,
network and telecommunications failures, computer viruses, and catastrophic events, such as fires, floods, earthquakes,
tornadoes, hurricanes, acts of war or terrorism, and usage errors by employees. If our information technology systems are
damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer
loss of critical data and interruptions or delays in our operations. Any material disruption in our information technology
systems, or delays or difficulties in implementing or integrating new systems or enhancing current systems, could have an
adverse effect on our business, financial condition or results of operations.
We believe that we face the threat of cyber-attacks due to the industries we serve, the locations of our operations and our
technological innovations. These cyber-attacks may range from uncoordinated individual attempts to sophisticated and targeted
measures, known as advanced persistent threats, directed at us and our customers, suppliers and vendors. Cyber-attacks and
security breaches may include, but are not limited to, attempts to access information, computer viruses, denial of service and
other electronic security breaches, any of which could manipulate or improperly use our systems or networks, compromise
confidential information, destroy or corrupt data, or otherwise disrupt our operations. We have experienced cybersecurity
attacks in the past, including breaches of our information technology systems in which information was taken, and may
experience them in the future, potentially with more frequency or sophistication. Based on information known to date, past
attacks have not had a material impact on our financial condition or results of operations. However, due to the evolving nature
of cybersecurity threats, the scope and impact of any future incident cannot be predicted.
We continually work to safeguard our systems and mitigate potential risks, and our enterprise risk management program
and disclosure controls and procedures include elements intended to ensure that we analyze potential disclosure obligations
arising from cyber-attacks and security breaches. However, there is no assurance that these safeguards and controls will be
sufficient to detect, prevent, engage in timely response to, or report cyber-attacks or security breaches. The occurrence of cyber-
attacks or security breaches could negatively impact our reputation and competitive position and could result in litigation with
third parties, regulatory action, loss of business, diminution of the value of investments in research and development, potential
liability and increased remediation costs, any of which could have a material adverse effect on our financial condition and
results of operations.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report financial results or
prevent fraud.
We are subject to reporting and other obligations under the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall
Street Reform and Consumer Protection Act, and the regulations of the New York Stock Exchange, and to the requirements of
Section 404 of Sarbanes-Oxley which requires management to establish and maintain internal control over financial reporting
and disclosure controls and procedures. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with
generally accepted accounting principles. Internal controls are also important in the prevention and detection of fraudulent
activity. Disclosure controls and procedures are processes designed to ensure that information required to be disclosed is
communicated to management and reported in a timely fashion. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance with respect to the reliability of reporting, including financial reporting
and financial statement preparation. If we are not able to maintain effective internal control over financial reporting or
disclosure controls and procedures, or other accounting, financial management or reporting systems or procedures, or
experience difficulties or delays in the implementation of systems or controls, we may not be able to accurately report our
financial results or prevent fraud, and in some cases may be required to restate financial results. As a result, stockholders could
lose confidence in our financial and other public reporting, could result in adverse regulatory consequences and/or loss of
investor confidence, which could limit our ability to access the global capital markets and could have a material adverse effect
on our business, financial condition, results of operations, cash flows or the market price of our securities. In addition, the
remediation of any ineffective internal controls could result in unforeseen expenses.
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Risks Related to Employee and Labor Matters
Labor disputes and difficulties retaining or hiring skilled employees could adversely affect our business, financial condition
or results of operations.
The continuity of our operations depends on maintaining a skilled workforce. We have previously experienced shortages of
qualified labor due in part to the COVID-19 pandemic and other economic factors, and may see similar labor shortages in the
future. Any labor shortage could decrease our ability to effectively produce and deliver product and to achieve our strategic
objectives. In addition, any potential labor shortage may result in increased expenses related to hiring and retention of qualified
employees.
Furthermore, a significant portion of our employees are represented by labor unions in a number of countries under
various collective bargaining agreements with varying durations and expiration dates. While we previously have been
successful in renegotiating our collective bargaining agreements with various unions, we may not be able to satisfactorily
renegotiate all collective bargaining agreements in the U.S. and other countries when they expire. In addition, existing
collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future. We may also be
subject to general country strikes or work stoppages unrelated to our business or collective bargaining agreements. Any such
work stoppages could have a material adverse effect on our business, financial condition or results of operations.
A failure to attract, retain or provide adequate succession plans for key personnel could adversely affect our operations and
competitiveness.
Our existing operations and development projects require highly skilled executives and staff with relevant industry and
technical experience. Our inability to attract and retain such people may adversely impact our ability to meet project demands
adequately and fill roles in existing operations. Skills shortages in engineering, manufacturing, technology, 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.
In addition, the continuity of key personnel and the preservation of institutional knowledge are vital to the success of our
growth and business strategy. The loss of key members of management and other personnel could significantly harm our
business, and any unplanned turnover, or failure to develop adequate succession plans for key positions, could deplete our
institutional knowledge base, result in loss of technical expertise, delay or impede the execution of our business plans and erode
our competitiveness.
Failure to comply with domestic or international employment and related laws could result in penalties or costs that could
have a material adverse effect on our business results.
We are subject to a variety of domestic and foreign employment laws, such as the Fair Labor Standards Act (which
governs such matters as minimum wages, overtime and other working conditions), state and local wage laws, the Employee
Retirement Income Security Act, and regulations related to health and safety, discrimination, organizing, whistleblowing,
classification of employees, privacy, severance payments, citizenship requirements, and healthcare insurance mandates.
Allegations that we have violated such laws or regulations could damage our reputation and lead to fines from or settlements
with federal, state or foreign regulatory authorities or damages payable to employees, which could have a material adverse
impact on our operations and financial condition.
Risks Related to Legal Proceedings and Government Regulations
Product liability, product safety, personal injury, property damage, and recall claims and investigations may materially affect
our financial condition and damage our reputation.
The manufacture and sale of our products exposes us to potential product liability, personal injury, property damage and
related claims. These claims may arise from our alleged failure to meet product specifications, design flaws in our products,
malfunction of our products, misuse of our products, use of our products in an unintended, unapproved or unrecommended
manner, or use of our products with systems not manufactured or sold by us. New data and information, including information
about the ways in which our products are used, may lead regulatory authorities, government agencies or other entities or
organizations to publish guidelines or recommendations, or impose restrictions, related to the manufacturing or use of our
products.
26
In the event that a product of ours fails to perform as expected, regardless of fault, or is used in an unexpected manner, and
such failure or use results in, or is alleged to result in, bodily injury and/or property damage or other losses, we may be subject
to product liability lawsuits and other claims, or may be required or requested by our customers to participate in a recall or other
corrective action involving such product. In addition, if a product of ours is perceived to be defective or unsafe, sales of our
products could be diminished, our reputation could be adversely impacted, and we could be subject to further liability claims.
Moreover, events that give rise to actual, potential or perceived product safety concerns could expose us to government
investigations or regulatory enforcement action.
There can be no assurance that we will be successful in defending any such proceedings or that insurance available to us
will be sufficient to cover any losses associated with such proceedings. An adverse outcome in one or more of these
proceedings or investigations could have a material adverse effect on our business, financial condition or profitability; impose
substantial monetary damages and/or non-monetary penalties; result in additional litigation, regulatory investigations or other
proceedings involving us; result in loss of customers; require changes to our products or business operations; damage our
reputation and/or negatively impact the market price of our common stock. Even if we successfully defend against these types
of claims, we could still be required to spend a substantial amount of money in connection with legal proceedings or
investigations with respect to such claims; our management could be required to devote significant time, attention and
operational resources responding to and defending against these claims and responding to these investigations; and our
reputation could suffer. Product liability claims and related lawsuits and investigations, product recalls, and allegations of
product safety or quality issues, regardless of their validity or ultimate outcome, may have a material adverse effect on our
business, financial condition and reputation and on our ability to attract and retain customers.
For further discussion of potential liability associated with some of our products, including proceedings and investigations
relating to the June 13, 2017 fire at the Grenfell Tower in London, U.K., see Note T to the Consolidated Financial Statements in
Part II. Item 8. "Financial Statements and Supplementary Data" under the caption "Contingencies and Commitments -
Contingencies."
We may be exposed to significant legal proceedings, investigations or changes in U.S. federal, state, local or foreign laws,
regulations or policies.
Our 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 us. We may
experience an unfavorable 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.
We are subject to a variety of legal and regulatory compliance risks in the U.S. and abroad in connection with our business
and products. These risks include, among other things, potential claims relating to product liability, product testing, health and
safety, environmental matters, employment matters, required record keeping and record retention, compliance with securities
laws, intellectual property rights, government contracts and taxes, insurance or commercial matters, as well as compliance with
U.S. and foreign laws and regulations governing import and export, anti-bribery, antitrust and competition, sales and trading
practices, human rights and modern slavery, sourcing of raw materials, third-party relationships, supply chain operations and
the manufacture and sale of products. We may be a party to litigation in a foreign jurisdiction where geopolitical risks might
influence the ultimate outcome of such litigation. We could be subject to fines, penalties, damages (in certain cases, treble
damages), or suspension or debarment from government contracts.
The global and diverse nature of our operations means that these risks will continue to exist, and additional legal
proceedings and contingencies may arise from time to time. While we believe we have adopted appropriate risk management
and compliance programs to address and reduce these risks, including insurance arrangements with respect to these risks, such
measures may provide inadequate protection against liabilities that may arise. In addition, various factors or developments can
lead us to change current estimates of liabilities or make such estimates for matters previously insusceptible to 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 we cannot predict with certainty could have a material adverse effect on our financial condition, results of
operations or cash flows in a particular period. Litigation and compliance efforts may require substantial attention from
management and could result in significant legal expenses, settlement costs or damage awards that could have a material impact
on our financial position, results of operations and cash flows. For additional information regarding our legal proceedings,
including proceedings and investigations relating to the June 13, 2017 fire at the Grenfell Tower in London, U.K., see Note T to
the Consolidated Financial Statements in Part II, Item 8. "Financial Statements and Supplementary Data" under the Caption
"Contingencies and Commitments - Contingencies."
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We are exposed to environmental and safety risks and are subject to a broad range of health, safety and environmental laws
and regulations, which may result in substantial costs and liabilities.
Our 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.
Failure to comply with such laws and regulations could result in significant penalties or criminal liability. Environmental laws
may impose cleanup liability on owners and occupiers of contaminated property, including present, 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 we may be liable may arise in the future at our
present sites, at sites owned or operated by our predecessors or affiliates, at sites that we may acquire in the future, or at third-
party sites used by our predecessors or affiliates for material and waste handling and disposal. Compliance with health, safety
and environmental laws and regulations, including remediation obligations, may prove to be more challenging and costly than
we anticipate. Our 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 as well as other health and safety risks
relating to our operations and products. Additionally, evolving regulatory standards and expectations can result in increased
litigation and/or increased costs, including increased remediation costs, all of which can have a material and adverse effect on
our financial condition, results of operations and cash flows.
In addition, the heavy industrial activities conducted at our facilities present a significant risk of injury or death to our
employees, customers or third parties that may be on site. We have experienced serious injuries in the past, notwithstanding the
safety protocols, practices and precautions we take. Our operations are subject to regulation by various federal, state and local
agencies in the U.S. and regulation by foreign government entities abroad responsible for employee health and safety, including
OSHA. From time to time, we have incurred fines for violations of various health and safety standards. While we maintain
insurance and have in place policies to minimize such risks, we may nevertheless be unable to avoid material liabilities for any
injury or death that may occur in the future. These types of incidents may not be covered by or may exceed our insurance
coverage and could have a material adverse effect on our results of operations and financial condition or result in negative
publicity and/or significant reputational harm.
We are subject to privacy and data security/protection laws in the jurisdictions in which we operate and may be exposed to
substantial costs and liabilities associated with such laws and regulations.
The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent
imposition of new and changing requirements as well as significant fines for non-compliance. While Arconic has appropriate
processes and procedures in place regarding compliance with existing data protection regulations in other countries, such as the
European Union’s General Data Protection Regulation, the California Privacy Rights Act, and China’s Personal Information
Protection Law, further changes may be necessary to ensure those processes and procedures will be adequate to implement
additional state and country specific requirements. Compliance with changes in privacy and information security laws and
standards may result in significant expense due to increased investment in technology and the development of new operational
processes, which could have a material adverse effect on our financial condition and results of operations. In addition, the
payment of potentially significant fines or penalties in the event of a breach of privacy and information security laws, as well as
the negative publicity associated with such a breach, could damage our reputation and adversely impact product demand and
customer relationships.
Unanticipated changes in our tax provisions or exposure to additional tax liabilities could affect our future profitability.
We are subject to income taxes in both the U.S. and various non-U.S. jurisdictions. Our 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 our tax expense and profitability. Our 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 our future earnings that
could impact the valuation of our deferred tax assets. Our 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 our
overall profitability, 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 our tax exposures. Any failure to comply with all such tax laws or regulations
could subject us to liability.
Corporate tax law changes continue to be analyzed in the U.S. and in many other jurisdictions. The Organisation for
Economic Co-operation and Development and current U.S. presidential administration have proposed changes that could
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adversely impact the taxation of corporations in the U.S. and abroad. Any change to the U.S. corporate tax system could have a
substantial impact, positive or negative, on our future effective tax rate, cash tax expenditures, and deferred tax assets and
liabilities.
Risks Related to Our Indebtedness
We have significant debt obligations, and may in the future incur, additional debt obligations that could adversely affect our
business and profitability and our ability to meet other obligations.
On February 7, 2020, we completed an offering for $600 million of 6.125% (fixed rate) Senior Secured Second-Lien Notes
due 2028 (the “2028 Notes”). On May 13, 2020, we completed an offering of $700 million principal amount of 6.0% Senior
Secured First-Lien Notes due 2025 (the "2025 Notes"). Also on May 13, 2020, we entered into the ABL Credit Agreement,
which provides for a senior secured asset-based revolving credit facility in an aggregate principal amount of $800 million,
including a letter of credit sub-facility, a swingline loan sub-facility and an accordion feature allowing the Company to request
one or more increases to the revolving commitments in an aggregate principal amount up to $350 million. On March 3, 2021,
we completed an offering for an additional $300 million principal amount of the 2028 Notes, which were issued under the
indenture governing the existing 2028 Notes. We increased the aggregate principal amount of the ABL Credit Agreement in
February 2022 to $1.2 billion. We may also incur additional indebtedness in the future, including by drawing under the ABL
Credit Facility.
This significant amount of debt could potentially have important consequences to us and our debt and equity investors,
including:
•
requiring a substantial portion of our cash flow from operations to make interest payments;
•
making it more difficult to satisfy debt service and other obligations;
•
increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the
future availability of debt financing;
•
increasing our vulnerability to general adverse economic and industry conditions;
•
reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;
•
limiting our flexibility in planning for, or reacting to, changes in our business and the industry;
•
placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and
•
limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay
cash dividends or repurchase securities.
Subject to the restrictions in the indenture governing the 2025 Notes, the indenture governing the 2028 Notes and the ABL
Credit Agreement, we, including our subsidiaries, have the ability to incur significant additional indebtedness. Although the
terms of the 2025 Notes indenture, the 2028 Notes indenture and the ABL Credit Facility include restrictions on the incurrence
of additional indebtedness, these restrictions are subject to a number of important exceptions, and indebtedness incurred in
compliance with these restrictions could be substantial. Adding new debt to our current debt levels could intensify the related
risks that we and our subsidiaries face now or may face in the future. In addition, our actual cash requirements in the future may
be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes
due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance
our debt.
Our indebtedness restricts our current and future operations, which could adversely affect our ability to respond to changes
in our business and manage our operations.
The terms of the 2025 Notes indenture, the 2028 Notes indenture and the ABL Credit Agreement include a number of
restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to,
among other things:
•
make investments, loans, advances, guarantees and acquisitions;
•
dispose of assets;
•
incur or guarantee additional debt and issue certain disqualified equity interests and preferred stock;
•
make certain restricted payments, including a limit on dividends on equity securities or payments to redeem,
repurchase or retire equity securities or other indebtedness;
•
engage in transactions with affiliates;
•
enter into certain restrictive agreements;
•
create liens on assets to secure debt; and
•
consolidate, merge, sell or otherwise dispose of all or substantially all of our or a subsidiary guarantor’s assets.
29
These covenants limit our operational flexibility and could prevent us from taking advantage of business opportunities as
they arise, growing our business or competing effectively. In addition, the ABL Credit Facility contains a financial maintenance
covenant applicable when the excess availability is less than the greater of (a) 10% of the lesser of (x) the aggregate amount of
the commitments under the ABL Credit Facility and (y) the borrowing base and (b) $50.0 million. In such circumstances, we
would be required to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00. Our ability to draw under the ABL
Credit Facility could be impacted by a number of factors, including but not limited to any impact by disruptions to our
operations and financial performance.
The ABL Credit Facility also provides for “springing control” over the cash in our deposit accounts constituting ABL
priority collateral for the ABL Credit Facility, and such cash management arrangement includes a cash sweep at any time that
excess availability under the ABL Credit Facility is less than the greater of (x) 12.5% of the lesser of the borrowing base and the
aggregate amount of the commitments under the ABL Credit Facility at such time and (y) $62.5 million for five consecutive
business days. Such cash sweep, if in effect, will cause all our available cash in deposit accounts subject to such “springing
control” to be applied to outstanding borrowings under our ABL Credit Facility. If we satisfy the conditions to borrowings
under the ABL Credit Facility while any such cash sweep is in effect, we may be able to make additional borrowings under the
ABL Credit Facility to satisfy our working capital and other operational needs. If we do not satisfy the conditions to borrowing,
we will not be permitted to make additional borrowings under our ABL Credit Facility, and we may not have sufficient cash to
satisfy our working capital and other operational needs.
Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic,
financial and industry conditions. These covenants could have an adverse effect on our business by limiting our ability to take
advantage of financing, merger and acquisition or other opportunities. The breach of any of these covenants or restrictions
could result in a default under the 2025 Notes indenture, the 2028 Notes indenture or the ABL Credit Agreement.
Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond
our control, could result in an event of default that could materially and adversely affect our business, financial condition,
results of operations or cash flows.
If there were an event of default under any of the agreements relating to our outstanding indebtedness, including the 2025
Notes indenture, the 2028 Notes indenture and the ABL Credit Agreement, we may not be able to incur additional indebtedness
and the holders of the defaulted indebtedness could cause all amounts outstanding with respect to that indebtedness to be
immediately due and payable. We cannot assure you that our assets or cash flow would be sufficient to fully repay our
outstanding indebtedness if accelerated upon an event of default, which could have a material adverse effect on our ability to
continue to operate as a going concern. Further, if we are unable to repay, refinance or restructure our secured indebtedness, the
holders of such indebtedness could proceed against the collateral securing that indebtedness. In addition, any event of default
under or declaration of acceleration under one debt instrument also could result in an event of default under one or more of the
agreements governing our other indebtedness.
Risks Related to the Separation
We have a limited history of operating as an independent company and our historical financial information may not be a
reliable indicator of our future results.
The historical information included in this Annual Report on Form 10-K for periods prior to the Separation refers to
Arconic as operated by and integrated with ParentCo for those periods. Our historical financial information is derived from
ParentCo’s accounting records and is presented on a standalone basis as if Arconic was independent of ParentCo. Accordingly,
the historical information does not necessarily reflect the financial condition, results of operations or cash flows that we would
have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future
primarily as a result of significant changes in our cost structure, management, financing and business operations as a result of
operating as a company separate from ParentCo. For additional information about the past financial performance of our
business, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and
Part II, Item 8. “Financial Statements and Supplementary Data.”
30
In connection with the Separation, we and Howmet have agreed to indemnify each other for certain liabilities. If we are
required to pay under these indemnities to Howmet, our financial results could be negatively impacted. The Howmet
indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which Howmet has been
allocated responsibility, and Howmet may not be able to satisfy its indemnification obligations in the future.
Pursuant to the separation agreement and certain other agreements between ParentCo and us, each party has agreed to
indemnify the other for certain liabilities, in each case for uncapped amounts. Indemnities that we may be required to provide
Howmet are not subject to any cap, may be significant and could negatively impact our business. Third parties could also seek
to hold us responsible for any of the liabilities that Howmet has agreed to retain. Any amounts we are required to pay pursuant
to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in
furtherance of our operating business. Further, the indemnities from Howmet for our benefit may not be sufficient to protect us
against the full amount of such liabilities, and Howmet may not be able to fully satisfy its indemnification obligations.
Moreover, even if we ultimately succeed in recovering from Howmet any amounts for which we are held liable, we may
be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of
operations and financial condition.
Howmet may fail to perform under various transaction agreements that were executed as part of the Separation.
In connection with the Separation, we and ParentCo have entered into the separation agreement and various other
agreements, including a tax matters agreement, an employee matters agreement, intellectual property license agreements, an
agreement relating to the Davenport, Iowa plant, metal supply agreements and real estate and office leases. We will rely on
Howmet to satisfy its performance and payment obligations under these agreements. If Howmet is unable or unwilling to satisfy
its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties and/or
losses.
If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for
U.S. federal income tax purposes, we, as well as Howmet and Howmet's stockholders, could be subject to significant tax
liabilities, and, in certain circumstances, we could be required to indemnify Howmet for material taxes and other related
amounts pursuant to indemnification obligations under the tax matters agreement.
It was a condition to the distribution of our common stock to ParentCo stockholders in connect with the Separation that
ParentCo receive an opinion of its outside counsel, satisfactory to the ParentCo Board of Directors, regarding the qualification
of the distribution, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and
368(a)(1)(D) of the U.S. Internal Revenue Code. The opinion of counsel was based upon and relied on, among other things,
various facts and assumptions, as well as certain representations, statements and undertakings of ParentCo and us, including
those relating to the past and future conduct of ParentCo and us. If any of these facts, assumptions, representations, statements
or undertakings was, or becomes, inaccurate or incomplete, or if ParentCo breaches its or we breach any of our respective
representations or covenants contained in the separation agreement and certain other agreements and documents or in any
documents relating to the opinion of counsel, the opinion of counsel may be invalid and the conclusions reached therein could
be jeopardized.
Notwithstanding receipt of the opinion of counsel, the U.S. Internal Revenue Service (“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 opinion of counsel was based are
false or have been violated. In addition, the opinion of counsel represented 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 of the opinion of counsel, there is no assurance that the IRS will not assert that the distribution and/or
certain related transactions do not qualify for tax-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, we, as well as ParentCo and ParentCo’s
stockholders, could be subject to significant U.S. federal income tax liability.
If the distribution were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes
under Sections 355 and 368(a)(1)(D) of the U.S. Internal Revenue Code, in general, for U.S. federal income tax purposes,
ParentCo would recognize taxable gain as if it had sold the our common stock in a taxable sale for its fair market value, and
ParentCo stockholders who received our 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.
31
Under the tax matters agreement entered into between ParentCo and us in connection with the separation, we generally are
required to indemnify Howmet for any taxes resulting from the separation (and any related costs and other damages) to the
extent such amounts resulted from (1) an acquisition of all or a portion of our equity securities or assets, whether by merger or
otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (2) certain of our other actions
or failures to act, or (3) any of our representations, covenants or undertakings contained in the separation agreement and certain
other agreements and documents or in any documents relating to the opinion of counsel being incorrect or violated. Any such
indemnity obligations could be material. In addition, we, Howmet, and the respective subsidiaries may continue to incur
certain tax costs in connection with the separation, including non-U.S. tax costs resulting from transactions (including the
internal reorganization) in non-U.S. jurisdictions, which may be material.
Risks Related to Our Common Stock
We cannot be certain that an active trading market for our common stock will be sustained and our stock price may
fluctuate significantly.
For many reasons, including the risks identified in this Annual Report on Form 10-K, the market price of our common
stock may be volatile. These factors may result in short-term or long-term negative pressure on the value of our common stock.
The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond
our control, including:
•
sales of a significant number of our shares or other shifts in our investor base;
•
actual or anticipated fluctuations in our operating results;
•
changes in earnings estimated by securities analysts or our ability to meet those estimates;
•
the operating and stock price performance of comparable companies;
•
changes to the regulatory and legal environment under which we operate;
•
actual or anticipated fluctuations in commodities prices; and
•
domestic and worldwide economic conditions.
Actions of activist shareholders could have an adverse effect on our business.
Companies across a variety of industries are experiencing an increase in shareholder activism, particularly shareholder
proposals regarding ESG and DEI matters. If we are required to respond to shareholder proposals (including the
implementation of any proposals), proxy contests or other actions by activist shareholders, we could incur significant expense,
disruptions to our operations and diversion of the attention of management and our employees. In addition, perceived
uncertainties as to our future direction, strategy or leadership created as a consequence of activist shareholder initiatives may
result in reputational damage, which could negatively impact relationships with customers, suppliers and strategic partners,
impair our ability to attract and retain employees, and cause volatility in our stock price.
Individual stockholders' percentage of ownership of our common stock may be diluted in the future.
In the future, individual stockholders' percentage of ownership in our common stock may be diluted because of equity
issuances for acquisitions, capital market transactions or otherwise. In addition, from time to time, we grant stock-based
awards to our directors, officers and employees. Such awards will have a dilutive effect on the number of our shares
outstanding, and therefore on our earnings per share, which could adversely affect the market price of our common stock.
We cannot guarantee the timing, amount or payment of dividends on our common stock.
The initiation, timing, declaration, amount and payment of future dividends to our stockholders falls within the discretion
of our Board of Directors. The Board of Directors’ decisions regarding the payment of dividends depends on many factors, such
as our financial condition, earnings, capital requirements, debt service obligations, covenants associated with certain of our debt
service obligations, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors
deems relevant. For more information, see Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.”
Anti-takeover provisions could enable us to resist a takeover attempt by a third party and limit the power of our stockholders.
Our amended and restated certificate of incorporation and amended and restated bylaws contain, and Delaware law
contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such
practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our Board of
Directors rather than to attempt a hostile takeover. These provisions include, among others:
32
•
the ability of our remaining directors to fill vacancies on our Board of Directors that do not arise as a result of removal
by stockholders;
•
limitations on stockholders’ ability to call a special stockholder meeting;
•
rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
and
•
the right of our Board of Directors to issue preferred stock without stockholder approval.
In addition, we are subject to Section 203 of the Delaware General Corporate Law (the “DGCL”), which could have the
effect of delaying or preventing a change of control that stockholders may favor. Section 203 provides that, subject to limited
exceptions, persons that acquire, or are affiliated with persons that acquire, more than 15% of the outstanding voting stock of a
Delaware corporation may not engage in a business combination with that corporation, including by merger, consolidation or
acquisitions of additional shares, for a three-year period following the date on which that person or any of its affiliates becomes
the holder of more than 15% of the corporation’s outstanding voting stock.
We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring
potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess
any acquisition proposal. These provisions are not intended to make us immune from takeovers; however, these provisions will
apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our
Board of Directors determines is not in our best interests and our stockholders’ best interests. These provisions may also prevent
or discourage attempts to remove and replace incumbent directors.
Our amended and restated certificate of incorporation designates the state courts within the State of Delaware as the sole
and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could
discourage lawsuits against us and our directors and officers.
Our amended and restated certificate of incorporation provides that unless the Board of Directors otherwise determines,
the state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the
federal district court for the District of Delaware) will be the sole and exclusive forum for any derivative action or proceeding
brought on behalf of us, any action asserting a claim for or based on a breach of a fiduciary duty owed by any of our current or
former directors or officers to us or our stockholders, including a claim alleging the aiding and abetting of such a breach of
fiduciary duty, any action asserting a claim against us or any of our current or former directors or officers arising under any
provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws, any action
asserting a claim relating to or involving us governed by the internal affairs doctrine, or any action asserting an “internal
corporate claim” as that term is defined in Section 115 of the DGCL.
To the fullest extent permitted by law, this exclusive forum provision applies to state and federal law claims, including
claims under the federal securities laws, including the Securities Act of 1933, as amended (“Securities Act”), and the Exchange
Act, although our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules
and regulations thereunder. The enforceability of similar choice of forum provisions in other companies’ certificates of
incorporation has been challenged in legal proceedings, and it is possible that, in connection with claims arising under federal
securities laws or otherwise, a court could find the exclusive forum provision contained in the amended and restated certificate
of incorporation to be inapplicable or unenforceable.
This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that our
stockholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and
our directors and officers. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable
in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs
associated with resolving such matters in other jurisdictions, which could negatively affect our business, results of operations
and financial condition.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
As of December 31, 2022, we maintain 20 primary manufacturing facilities, as well as various sales and service facilities,
located across North America, Europe, the United Kingdom, and China. Our principal office and corporate center is located at
201 Isabella Street, Suite 400, Pittsburgh, Pennsylvania 15212-5858. The Arconic Technology Center which serves as the
33
headquarters for our research and development efforts is located at 100 Technical Drive, New Kensington, Pennsylvania 15069-
0001.
Arconic believes that its facilities are suitable and adequate for its operations. Although no title examination of properties
owned by Arconic has been made for the purpose of this Annual Report on Form 10-K, the Company knows of no material
defects in title to any such properties. Arconic leases some of its facilities as provided in Part 1. Item 1. "Business—Description
of the Business—Rolled Products—Principal Facilities," "—Building and Construction Systems—Principal Facilities" and "—
Extrusions—Principal Facilities." See Note B and Note P to the Consolidated Financial Statements in Part II, Item 8.
"Financial Statements and Supplementary Data."
Arconic has active plants and holdings in each of its segments. See Part I. Item 1. "Business—Description of the
Business—Rolled Products—Principal Facilities," "—Building and Construction Systems—Principal Facilities" and "—
Extrusions—Principal Facilities."
Item 3. Legal Proceedings.
The information set forth in Note T to the Consolidated Financial Statements in Part II, Item 8. "Financial Statements and
Supplementary Data" under the caption “Contingencies and Commitments - Contingencies” is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
The Company’s common stock is listed on the New York Stock Exchange under the trading symbol “ARNC.”
As of February 17, 2023, there were approximately 8,700 holders of record of shares of the Company's common stock.
Because many of Arconic’s shares are held by brokers and other institutions on behalf of stockholders, the Company is unable
to estimate the total number of stockholders represented by these recordholders.
Arconic did not declare or pay any dividends from April 1, 2020 through December 31, 2022. The timing, declaration,
amount of, and payment of any dividends is within the discretion of the Company’s Board of Directors and depends upon many
factors, including Arconic’s financial condition, earnings, capital requirements of Arconic’s operating subsidiaries, covenants
associated with certain of Arconic’s debt service obligations, legal requirements, regulatory constraints, industry practice,
ability to access capital markets, and other factors deemed relevant by the Company’s Board of Directors. Moreover, if Arconic
determines to pay any dividends in the future, there can be no assurance that Arconic will continue to pay such dividends or the
amount of such dividends.
34
Stock Performance Graph
The following graph compares the performance of the Company’s common stock from market close on April 1, 2020
(beginning of “regular way” trading) to December 31, 2022 with (1) the Standard & Poor’s (S&P) 500® Index, and (2) the S&P
1000® Materials Index, a group of 59 companies categorized by S&P as active in the “materials” market sector. The graph
assumes, in each case, an initial investment of $100 on April 1, 2020, and the reinvestment of dividends, as applicable. The
graph, table and related information shall not be deemed to be “filed” with the SEC, nor shall such information be incorporated
by reference into future filings under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to
the extent that the Company specifically incorporates it by reference into such filing.
CUMULATIVE TOTAL RETURN
Based on an initial investment of $100 on
April 1, 2020 with dividends reinvested, as applicable
Source: S&P Capital IQ
April 1, 2020
December 31, 2020
December 31, 2021
December 31, 2022
Arconic Corporation
$
100.00 $
430.64 $
477.02 $
305.78
S&P 500® Index
100.00
152.04
192.92
155.41
S&P 1000® Materials Index
100.00
175.00
222.10
210.92
35
Issuer Purchases of Equity Securities
Period
Total number of
shares purchased
Average price
paid per share
Total number of shares
purchased as part of
publicly announced plans
or programs*
Approximate dollar value
of shares that may yet be
purchased under the plans
or programs*
October 1 - October 31, 2022
— $
—
— $
—
November 1 - November 30, 2022
468,979 $
21.59
468,979 $
190,000,000
December 1 - December 31, 2022
1,602,856 $
22.56
1,602,856 $
154,000,000
Total for quarter ended
December 31, 2022
2,071,835
2,071,835
________________
* On November 16, 2022, Arconic announced that its Board of Directors approved a share repurchase program authorizing
the Company to repurchase up to $200 million of common stock for a two-year period expiring November 17, 2024.
Repurchases under the program may be made from time to time, as the Company deems appropriate, based on a variety of
factors such as price, capital position, liquidity, financial performance, alternative uses of capital, and overall market
conditions. There can be no assurance as to the number of shares the Company will purchase, if any. The share repurchase
program may be increased or otherwise modified, renewed, suspended or terminated by the Company at any time, without
prior notice. In connection with the establishment of this share repurchase program, the prior $300 million repurchase
program, which the Company completed in August 2022, was terminated. This program is intended to comply with Rule
10b5-1 and all purchases shall be made in compliance with Rule 10b-18, including without limitation the timing, price, and
volume restrictions thereof.
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(dollars in millions, except per-share amounts and per-metric ton amounts; shipments in thousands of metric tons
(kmt))
Overview
Our Business
Arconic Corporation (“Arconic” or the “Company”) is a manufacturer of fabricated aluminum products, including sheet
and plate, extrusions, and architectural products and systems, with a primary focus on the ground transportation, aerospace,
building and construction, industrial products, and packaging end markets. The Company has 20 primary operating locations in
7 countries around the world, situated in the United States, Canada, China, France, Germany, Hungary, and the United
Kingdom. Arconic’s previous operations in Russia were divested in November 2022 (see Rolled Products within Segment
Information under Results of Operations below).
Management Review of 2022 and Outlook for the Future
Arconic had strong sales growth in 2022 resulting primarily from completion of our re-entry into the North American
packaging end market and continued recovery in the aerospace end market, while we navigated challenges associated with our
facility in Russia that was ultimately divested in November 2022 and the operational challenges and production outages
experienced at the North American rolling mills in the second half of the year. We implemented actions to help offset inflation
in alloying materials, energy prices and freight costs through increased pricing. We returned capital to shareholders as we
repurchased $185 of shares of the Company’s common stock and continued to progress high-return, low-risk organic capital
projects in the Rolled Products segment that are expected to drive future EBITDA growth starting in 2023.
In 2022, Sales of $8,961 rose 19% from 2021, reflecting higher aluminum prices and favorable product pricing and mix
that drove double digit increases in all of our end markets. The Company recorded a net loss of $182, or $1.75 per share,
compared to a net loss of $397, or $3.65 per share, in 2021. The 2022 results included a pre-tax charge of $306 ($304 after-tax)
for the loss on sale of the Russian operations and a pre-tax charge of $92 ($70 after-tax) for the impairment of long-lived assets
in the Extrusions segment.
We ended the year with a cash balance of $261, and total liquidity of $1,450 (comprised of Cash and cash equivalents of
$261 and undrawn availability of $1,189 under the Company’s ABL Credit Agreement).
36
As we look forward to 2023, we anticipate continued growth in packaging volumes and ongoing recovery in the aerospace
end-market. Growth in North America is also expected to continue in the ground transportation and building and construction
end markets and is anticipated to occur in the industrial products end market, while these end markets in Europe are anticipated
to improve later in the year. Based on current internal and external projections of build rates and leading indicators in the
markets we serve, our expectations for sales by major end market, excluding the impact of changes in aluminum prices, in 2023
follow. For the ground transportation end market, we expect sales to be relatively flat to an increase of approximately 5% in
2023 compared with 2022, driven by continued strength in North American automotive, offset partly by weakness in European
commercial transportation and automotive. For the industrial products end market, we anticipate sales to be relatively flat to an
increase of approximately 10% in 2023 compared with 2022, driven by improved operations in North America, as production
outages that reduced output in 2022 have been addressed and the Company’s rolling mills work through backlog, while
European recovery is anticipated in the second half of the year. For the building and construction end market, we anticipate
sales to be relatively flat to an increase of approximately 5% in 2023 compared with 2022, as North American non-residential
spend is expected to continue driving growth while the current European weakness is expected to improve later in the year. For
the packaging end market, we expect sales to increase by approximately 5% to 10% in 2023 compared with 2022, as
incremental North American can sheet production is expected to drive growth. For the aerospace end market, we expect sales to
grow by approximately 25% to 30% in 2023 compared with 2022, as the market continues to recover, driven by increased
aircraft build rates and consumer air travel.
Results of Operations
The discussion and analysis that follows includes a comparison of Arconic’s results of operations between the 2022 and
2021 annual periods for both the total company and each reportable segment. Please refer to the Results of Operations section
included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II Item 7 of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (filed on February 22, 2022) for a discussion
and analysis of Arconic’s results of operations between the 2021 and 2020 annual periods for both the total company and each
reportable segment.
Earnings Summary
Sales. Sales were $8,961 in 2022 compared to $7,504 in 2021, an increase of $1,457, or 19%. The increase was
principally due to favorable impacts from higher aluminum prices, aluminum hedging activities, product pricing, and product
mix, all of which were partially offset by the sale of the Company’s Russian operations and unfavorable foreign currency
movements driven by a weaker euro.
In March 2021, the Company entered into a settlement agreement with a customer related to the terms of an existing long-
term contract. As a result, the customer agreed to pay Arconic $18, which was recognized over the applicable three-year period.
Accordingly, the Company’s sales in 2022 and 2021 included $6 and $12, respectively, associated with this settlement.
Cost of Goods Sold. COGS was $8,032 in 2022 compared to $6,573 in 2021, an increase of $1,459, or 22%. COGS as a
percentage of Sales was 89.6% in 2022 compared to 87.6% in 2021. This percentage was negatively impacted by higher costs
for direct materials, including alloying materials, energy, and transportation; operational issues and production outages affecting
the Rolled Products segment; higher aluminum prices (underlying metal price is contractually passed-through to most
customers at cost); an unfavorable impact related to environmental remediation matters (change of $39); and the sale of the
Company’s Russian operations. These negative impacts were partially offset by favorable product pricing driven by pricing
pressures as a result of inflation.
Additionally, on May 14, 2022, the Company and the United Steelworkers reached a tentative four-year labor agreement
covering approximately 3,300 employees at four U.S. locations; the previous labor agreement expired on May 15, 2022. The
tentative agreement was ratified by the union employees on June 1, 2022. In 2022, Arconic recognized $19 in Cost of goods
sold primarily for a one-time signing bonus for the covered employees.
In the 2022 fourth quarter, Arconic recorded both a $61 charge and a $53 benefit in Cost of goods sold to establish a
liability for a potential settlement and a receivable for anticipated insurance reimbursement, respectively, related to a litigation
matter. See the Reynobond PE matter in the Litigation section of Note T to the Consolidated Financial Statements in Part II
Item 8 of this Form 10-K.
Selling, General Administrative, and Other Expenses. SG&A expenses were $246, or 2.7% of Sales, in 2022 compared
to $247, or 3.3% of Sales, in 2021. The decrease of $1 was largely attributable to a benefit for an expected insurance
reimbursement for legal fees related to a litigation matter and a reduction in stock-based compensation expense including the
reversal of expense previously recognized in 2021 related to the performance condition portion of the 2021 performance stock
units ($4), partially offset by higher labor costs, selling commission expense, and consulting fees.
37
Research and Development Expenses. R&D expenses were $37 in 2022 compared to $34 in 2021. The increase was
primarily driven by increased costs for contracted services and utilities as a result of inflation.
Provision for Depreciation and Amortization. The provision for depreciation and amortization was $237 in 2022
compared to $253 in 2021. The decrease of $16 was mainly caused by the absence of depreciation resulting from an impairment
charge on Properties, plants and equipment in the Extrusions segment taken in the 2022 third quarter (See Extrusions in
Segment Information below), the sale of the Company’s operations in Russia on November 15, 2022 (See Rolled Products in
Segment Information below), and asset retirements.
Impairment of Goodwill. In 2022, after completing its annual review of goodwill for impairment, management
determined there was no goodwill impairment for any of the Company's reporting units. In 2021, the Company recognized a
charge of $65 in connection with its annual review of goodwill for impairment related to the Extrusions reporting unit. In
accordance with Arconic’s accounting policy, this review is performed in the fourth quarter each calendar year. Accordingly,
this charge was recognized in the fourth quarter of 2021. See Goodwill in Critical Accounting Policies and Estimates below for
additional information.
Restructuring and Other Charges. In 2022 and 2021, Restructuring and other charges were comprised of a net charge
of $456 and $624, respectively. See Note E to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for
additional information.
Interest Expense. Interest expense was $104 in 2022 compared to $100 in 2021. The increase of $4, or 4%, was
primarily due to $87 in weighted-average borrowings under the ABL Credit Facility in 2022 (no borrowings occurred in 2021)
and a $300 debt offering completed in March 2021, somewhat offset by higher capitalized interest. See Financing Activities
under Liquidity and Capital Resources below for additional information related to these financing transactions.
Other Expenses, Net. Other expenses, net was $41 in 2022 compared to $67 in 2021. See Note G to the Consolidated
Financial Statements in Part II Item 8 of this Form 10-K for additional information.
(Benefit) Provision for Income Taxes. The Company’s effective tax rate, including discrete items, was 5.7% (benefit on
a loss) in 2022 and 13.5% (benefit on a loss) in 2021. See Note I to the Consolidated Financial Statements in Part II Item 8 of
this Form 10-K for a reconciliation of the effective tax rate for each of these years to the U.S. federal statutory rate of 21%.
Segment Information
Arconic’s operations consist of three reportable segments: Rolled Products, Building and Construction Systems, and
Extrusions. Segment performance under the Company’s management reporting system is evaluated based on several factors;
however, the primary measure of performance is Segment Adjusted EBITDA (Earnings before interest, taxes, depreciation, and
amortization).
The Company calculates Segment Adjusted EBITDA as Total sales (third-party and intersegment) minus each of (i) Cost of
goods sold, (ii) Selling, general administrative, and other expenses, and (iii) and Research and development expenses, plus each
of (i) Stock-based compensation expense, (ii) Metal price lag, and (iii) Unrealized (gains) losses on mark-to-market hedging
instruments and derivatives (see below). Arconic’s Segment Adjusted EBITDA may not be comparable to similarly titled
measures of other companies’ reportable segments.
Effective in the first quarter of 2022, management modified the Company's definition of Segment Adjusted EBITDA to
exclude the impact of unrealized gains and losses on mark-to-market hedging instruments and derivatives. This modification
was deemed appropriate as Arconic is considering entering into additional hedging instruments in future reporting periods if
favorable conditions exist to mitigate cost inflation. Certain of these instruments may not qualify for hedge accounting resulting
in unrealized gains and losses being recorded directly to Sales or Cost of goods sold, as appropriate (i.e., mark-to-market).
Additionally, this change was also applied to derivatives that do not qualify for hedge accounting for consistency purposes. The
Company does not have a regular practice of entering into contracts that are treated as derivatives for accounting purposes.
Ultimately, this change was made to maintain the transparency and visibility of the underlying operating performance of
Arconic's reportable segments. Prior to this change, the Company had a limited number of hedging instruments and derivatives
that did not qualify for hedge accounting, the unrealized impact of which was not material to Arconic's Segment Adjusted
EBITDA performance measure. Accordingly, prior period information presented was not recast to reflect this change.
Segment Adjusted EBITDA for all reportable segments totaled $729 in 2022, $757 in 2021, and $648 in 2020. The
following information provides Sales and Segment Adjusted EBITDA for each reportable segment for each of the three years in
the period ended December 31, 2022. See Note D to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K
for additional information.
38
Rolled Products
2022
2021
2020
Third-party sales
$
7,313 $
6,187 $
4,335
Intersegment sales
44
33
19
Total sales
$
7,357 $
6,220 $
4,354
Segment Adjusted EBITDA
$
581 $
655 $
527
Third-party aluminum shipments (kmt)
1,372
1,404
1,179
Overview. The Rolled Products segment produces aluminum sheet and plate for a variety of end markets. Sheet and plate
are sold directly to customers and through distributors related to the aerospace, ground transportation, packaging, building and
construction, and industrial products (mainly used in the production of machinery and equipment and consumer durables) end
markets. 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. Prices for these products are generally based on the price of metal plus a premium for
adding value to the aluminum to produce a semi-finished product, resulting in a business model in which the underlying price
of metal is contractually passed-through to customers. Generally, the sales and costs and expenses of this segment are
transacted in the local currency of the respective operations, which are the U.S. dollar and, to a lesser extent, each of the
following: the Russian ruble (see below), the Chinese yuan, the euro, and the British pound.
On November 15, 2022, the Company completed the sale of all of its operations in Russia to Promishlennie Investitsii
LLC, the majority owner of VSMPO-AVISMA Corporation. Arconic’s former operations in Russia were comprised of one
principal location in Samara, which manufactured sheet, plate, extrusions, and forgings across all of the Company’s end
markets. The Samara facility generated third-party sales of $903, $968, and $705, in 2022, 2021, and 2020, respectively, and, at
the time of divestiture, had approximately 2,900 employees. See Note S to the Consolidated Financial Statements in Part II Item
8 of this Form 10-K for additional information.
Sales. Third-party sales for the Rolled Products segment increased $1,126, or 18%, in 2022 compared to 2021. The
improvement was largely attributable to higher aluminum prices (see below), price increases for the pass-through of certain
inflation impacts, favorable product mix, and favorable impacts from aluminum hedging activities partially offset by the
divestiture of the Company’s Russian operations, unfavorable foreign currency movements due to a weaker euro, and a net
decrease in volumes (see below).
The higher aluminum prices were mostly driven by a 9% rise in the average LME aluminum price and increases in regional
premiums, including a 13% improvement in the average Midwest premium (United States).
The net decrease in volumes was negatively impacted by the absence of shipments from November 15, 2022 through
December 31, 2022 due to the sale of this segment’s former operations in Russia (see Overview above). Otherwise, the overall
net volume for this segment slightly increased in 2022 compared to 2021, largely driven by improvements in the packaging,
aerospace, and automotive component of ground transportation end markets. Volume related to the packaging end market
increased significantly as the can sheet operation at the Tennessee rolling mill essentially reached full capacity by the end of the
2022 second quarter. Higher volume associated with the aerospace end market was driven by continued recovery from the
COVID-19 pandemic. An improvement in volume for the automotive component of ground transportation was due to slow
recovery from the global semiconductor chip shortage. These higher volumes were mostly offset by declines in the industrial
products, building and construction, and the commercial transportation component of ground transportation end markets, which
were impacted by supply chain disruptions. Additionally, the Rolled Products segment experienced operational challenges and
production outages associated with electrical and mechanical issues at the Tennessee and Lancaster rolling mills and disruptions
in both the Tennessee and Davenport casting operations.
In March 2021, the Company entered into a settlement agreement with a customer related to the terms of an existing long-
term contract. As a result, the customer agreed to pay Arconic $18, which was recognized over the applicable three-year period.
Accordingly, in 2022 and 2021, Rolled Products’ sales included $6 and $12, respectively, associated with this settlement.
Segment Adjusted EBITDA. Segment Adjusted EBITDA for the Rolled Products segment decreased $74, or 11%, in
2022 compared to 2021. The decline was primarily due to higher costs for alloying materials, energy, transportation, and
maintenance all due to inflation, increased expenses for labor as this segment increases its workforce to address current and
future volume growth, the impact of the previously mentioned operational challenges and production outages, and the
divestiture of the Company’s Russian operations. These higher costs were partially offset by customer price increases due to
adjustments for inflation impacts and a benefit derived from the absence of below normal absorption of fixed costs that
occurred in the 2021 first quarter.
39
Building and Construction Systems
2022
2021
2020
Third-party sales
$
1,245 $
1,011
$
963
Segment Adjusted EBITDA
$
195 $
130 $
137
Overview. The Building and Construction Systems segment manufactures products that are used primarily in the non-
residential building and construction end market. These products include integrated aluminum architectural systems and
architectural extrusions, which are sold directly to customers and through distributors. A limited amount of this segment’s
product sales is directly impacted by metal pricing, which is a pass-through to the related customers. Generally, the sales and
costs and expenses of this segment are transacted in the local currency of the respective operations, which are the U.S. dollar
and, to a lesser extent, each of the following: the euro, the British pound, and Canadian dollar.
The Company is evaluating strategic options for the businesses that comprise the Building and Construction Systems
segment. See Note S to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information.
Sales. Third-party sales for the Building and Construction Systems segment increased $234, or 23%, in 2022 compared to
2021. The improvement was mostly due to multiple product price increases implemented since March 2021 across the entire
portfolio to address inflationary cost pressures. Additionally, a positive impact from higher aluminum prices was virtually offset
by a negative impact from unfavorable foreign currency movements due to a weaker euro.
Segment Adjusted EBITDA. Segment Adjusted EBITDA for the Building and Construction Systems segment increased
$65, or 50%, in 2022 compared to 2021. The improvement was principally driven by favorable product pricing, partially offset
by higher costs for aluminum, alloying materials, maintenance, and transportation, all due to inflation.
Extrusions
2022
2021
2020
Third-party sales
$
409 $
306 $
381
Segment Adjusted EBITDA
$
(47)
$
(28)
$
(16)
Third-party aluminum shipments (kmt)
38
35
40
Overview. The Extrusions segment produces a range of extruded and machined parts for the aerospace, ground
transportation, and industrial products end markets. These products are sold directly to customers and through distributors.
Prices for these products are generally based on the price of metal plus a premium for adding value to the aluminum to produce
a semi-finished product, resulting in a business model in which the underlying price of metal is contractually passed-through to
customers. Generally, the sales and costs and expenses of this segment are transacted in the local currency of the respective
operations, which are the U.S. dollar and, to a lesser extent, the euro.
In the 2022 third quarter, management initiated a business review of the Extrusions segment aimed at identifying
alternatives to improve the financial performance of this segment in future periods. Management continues to assess
alternatives and no decisions or commitments were made as of December 31, 2022. In connection with this review, the
Company updated its five-year strategic plan, the results of which indicated that there is an expected decline in the forecasted
financial performance for the Extrusions segment (and asset group), including continued forecasted losses. As such,
management evaluated the recoverability of the long-lived assets of the Extrusions asset group by comparing the aggregate
carrying value to the undiscounted future cash flows. The result of this evaluation was that the long-lived assets were deemed to
be impaired as the aggregate carrying value exceeded the undiscounted future cash flows. The impairment charge was measured
as the difference between the aggregate carrying value and aggregate fair value of the long-lived assets. Fair value was
determined using an orderly liquidation methodology for the machinery and equipment and a sales comparison approach for the
land and structures. Significant judgments and assumptions were applied in estimating the fair value of the long-lived assets,
including the use of market-based information specific to the machinery and equipment and information from recent sales or
current listings of comparable properties for the land and structures. As a result, the Company recorded an impairment charge of
$92, composed of $90 for Properties, plants, and equipment and $2 for intangible assets (included within Other noncurrent
assets), in Restructuring and other charges on the Company's Statement of Consolidated Operations. See Note E to the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information.
In the 2021 first quarter, management approved the idling of the casthouse at the Lafayette (Indiana) plant. Additionally, in
the 2021 second quarter, management approved the idling of the remaining operations (primarily small presses) at the Chandler
40
(Arizona) plant. These actions were deemed necessary to address the then-depressed demand related to the aerospace end
market and identified operational inefficiencies in the Extrusions portfolio. The Lafayette casthouse action is near completion.
Ultimately, the casthouse function will be fully outsourced to third-party vendors. The Chandler action was completed in the
2021 third quarter. The commercial operations related to Chandler were integrated into Lafayette for the foreseeable future. In
2021, the Company incurred certain charges related to these decisions such as inventory write-downs, severance costs, and
customer qualification costs. These items were not material, individually or in the aggregate, and were reported in Corporate
(i.e., not included in Extrusion’s Segment Adjusted EBITDA). The Company may temporarily restart one or more of the presses
at Chandler over short periods of time to address customer demand requirements.
Sales. Third-party sales for the Extrusions segment increased $103, or 34%, in 2022 compared to 2021. The improvement
was largely attributable to favorable product mix, primarily due to higher volumes for aerospace; price increases due to
adjustments for inflation impacts and higher aluminum prices; and a net increase in volumes, mostly driven by aerospace due to
the lessened impact of the COVID-19 pandemic.
Segment Adjusted EBITDA. Segment Adjusted EBITDA for the Extrusions segment decreased $19, or 68%, in 2022
compared to 2021. The decline was mostly related to higher costs for aluminum, maintenance, energy, transportation, and
outside services. The higher costs were the result of both increased pricing due to inflation and usage due to operational issues.
These negative impacts were mostly offset by customer price increases due to adjustments for inflation impacts. Overall,
operational issues are driving underperformance in this segment.
Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net Loss Attributable to Arconic Corporation
For the year ended December 31,
2022
2021
2020
Total Segment Adjusted EBITDA
$
729 $
757 $
648
Unallocated amounts:
Corporate expenses(1)
(29)
(33)
(24)
Stock-based compensation expense
(15)
(22)
(23)
Metal price lag(2)
17
(16)
(27)
Unrealized gains on mark-to-market hedging instruments and derivatives
6
—
—
Provision for depreciation and amortization
(237)
(253)
(251)
Impairment of goodwill
—
(65)
—
Restructuring and other charges(3),(4)
(456)
(624)
(188)
Other(5)
(62)
(36)
(55)
Operating (loss) income
(47)
(292)
80
Interest expense
(104)
(100)
(118)
Other expenses, net
(41)
(67)
(70)
Benefit (Provision) for income taxes
11
62
(1)
Net income attributable to noncontrolling interest
(1)
—
—
Consolidated net loss attributable to Arconic(1)
$
(182) $
(397) $
(109)
_____________________
(1) Corporate expenses are composed of general administrative and other expenses of operating the corporate headquarters and
other global administrative facilities. The amounts presented for all periods prior to second quarter 2020 include an
allocation of ParentCo’s corporate expenses, including research and development expenses, for the portion of the period
prior to the Separation Date.
(2) Metal price lag represents the financial impact of the timing difference between when aluminum prices included in Sales
are recognized and when aluminum purchase prices included in Cost of goods sold are realized. This adjustment aims to
remove the effect of the volatility in metal prices and the calculation of this impact considers applicable metal hedging
transactions.
(3) In 2022, Restructuring and other charges includes a loss of $306 related to the sale of the Company’s operations in Russia
and a $92 asset impairment charge related to the Extrusions segment. See Note E to the Consolidated Financial Statements
in Part II Item 8 of this Form 10-K for additional information.
(4) In 2022, 2021, and 2020, Restructuring and other charges includes a $47, $584, and $199, respectively, charge for the
settlement of certain employee retirement benefits virtually all of which were within the United States and the United
41
Kingdom. See Note H to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional
information.
(5) Other includes certain items that impact Cost of goods sold and Selling, general administrative, and other expenses on the
Company’s Statement of Consolidated Operations that are not included in Segment Adjusted EBITDA. In 2022, Other
includes costs related to environmental remediation charges of $27 (see Environmental Matters in Note T to the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information) and costs related to the
new labor agreement of $19 (see Note H to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for
additional information). These charges were recorded in Costs of goods sold on Arconic’s Statement of Consolidated
Operations.
Environmental Matters
See the Environmental Matters section of Note T to the Consolidated Financial Statements in Part II Item 8 of this Form
10-K.
Liquidity and Capital Resources
Arconic’s primary future cash needs are centered on operating activities, including working capital, as well as recurring
and strategic capital expenditures. The Company’s ability to fund its cash needs depends on its ongoing ability to generate and
raise cash in the future. Although management believes that Arconic’s future cash from operations, together with the
Company’s access to capital markets, will provide adequate resources to fund Arconic’s operating and investing needs, the
Company’s access to, and the availability of, financing on acceptable terms in the future will be affected by many factors,
including: (i) Arconic’s credit rating; (ii) the liquidity of the overall capital markets; and (iii) the current state of the economy.
There can be no assurances that the Company will continue to have access to capital markets on terms acceptable to Arconic.
Cash provided from operations and financing activities is expected to be adequate to cover the Company’s operational and
business needs over the next 12 months. For an analysis of long-term liquidity, see Contractual Obligations and Off-Balance
Sheet Arrangements below.
At December 31, 2022, the Company’s Cash and cash equivalents were $261, of which $110 was held outside the United
States. Arconic has a number of commitments and obligations related to the Company’s operations in various foreign
jurisdictions, resulting in the need for cash outside the United States. Management continuously evaluates the Company’s local
and global cash needs for future business operations, which may influence future repatriation decisions.
The discussion and analysis that follows includes a comparison of Arconic’s cash flows between the 2022 and 2021 annual
periods. Please refer to the Liquidity and Capital Resources section included in Management’s Discussion and Analysis of
Financial Condition and Results of Operations in Part II Item 7 of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2021 (filed on February 22, 2022) for a discussion and analysis of Arconic’s cash flows between the 2021
and 2020 annual periods.
Operating Activities
Cash provided from operations was $338 in 2022 compared with cash used for operations of $407 in 2021.
In 2022, cash provided from operations was mostly comprised of a positive add-back for non-cash transactions in earnings
of $753, partially offset by an unfavorable change in working capital of $222 and a net loss of $181. The change in working
capital was largely driven by inventory build due to operational disruptions at the Company’s North American rolling facilities.
In 2021, cash used for operations was comprised of an unfavorable change in working capital of $505, pension
contributions of $458 (see below), and a net loss of $397, partially offset by a positive add-back for non-cash transactions in
earnings of $953. The impact in working capital was largely driven by higher volumes and higher aluminum prices due to an
increase in both the average LME price and regional premiums.
In January 2021, the Company contributed a total of $200 to its two funded U.S. defined benefit pension plans, comprised
of the estimated minimum required funding for 2021 of $183 and an additional $17. Additionally, in April 2021, the Company
contributed a total of $250 to its two funded U.S. defined benefit pension plans to maintain the funding level of the remaining
plan obligations not transferred under a group annuity contract (see U.S. Pension Plan Annuitizations in Note H to the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional information). This contribution was funded
with the net proceeds from a March 2021 debt offering (see 2021 Debt Activity in Financing Activities below).
42
In addition, in 2022 and 2021, the Company received $6 and $12, respectively, related to a settlement agreement reached
with a customer in March 2021. See Sales under Results of Operations above for additional information.
Financing Activities
Cash used for financing activities was $196 in 2022 compared with cash provided from financing activities of $135 in
2021. The use of cash in 2022 was mostly due to $185 for the repurchase of 6,935,507 shares of the Company’s common stock
(see Share Repurchase Programs below). In 2021, the source of cash was due to $314 in net proceeds from the issuance of new
indebtedness (see 2021 Debt Activity below), somewhat offset by $161 for the repurchase of 4,912,505 shares of the
Company's common stock (see Share Repurchase Programs below).
2022 Activity—On February 16, 2022, the Company amended its five-year credit agreement, dated May 13, 2020, with a
syndicate of lenders named therein and Deutsche Bank AG New York Branch as administrative agent (the “ABL Credit
Agreement”) which provides for a senior secured asset-based revolving credit facility (the “ABL Credit Facility”) to be used,
generally, for working capital or other general corporate purposes. The ABL Credit Agreement was amended to increase the
revolving commitments under the ABL Credit Facility to $1,200 from $800. Additionally, the accordion feature of the ABL
Credit Facility was revised to provide for the Company to request a further increase to the revolving commitments in an
aggregate principal amount equal to the greater of $350 and the excess of the borrowing base over the ABL Credit Facility
commitments. Furthermore, the LIBOR-based floating interest rate was replaced with a term SOFR-based interest rate, plus a
credit spread adjustment equal to 0.10%, 0.15%, or 0.25% per annum for SOFR-based borrowings with interest periods of one
month, three months, or six months, respectively, under the ABL Credit Facility. Arconic paid $1 in upfront costs associated
with these amendments.
In 2022, the Company borrowed $275 and repaid $275 under the ABL Credit Facility. These borrowings were designated
as SOFR loans with either an initial one-month or three-month interest period. In 2022, the weighted-average interest rate and
weighted-average days outstanding of the borrowings was 4.3% and 90 days, respectively.
2021 Debt Activity—On March 3, 2021, the Company completed a Rule 144A (U.S. Securities Act of 1933, as amended)
debt offering for an additional $300 aggregate principal amount of 6.125% Senior Secured Second-Lien Notes due 2028 (the
“Additional 2028 Notes”). The Additional 2028 Notes were issued under the indenture governing Arconic’s existing 6.125%
Senior Secured Second-Lien Notes due 2028. Other than with respect to the date of issuance and issue price, the Additional
2028 Notes are treated as a single series with and have the same terms as the referenced existing notes. The Additional 2028
Notes were sold at 106.25% of par (i.e., a premium) and, after reflecting a discount to the initial purchasers of the Additional
2028 Notes, the Company received $315 in net proceeds from the debt offering. Arconic used the net proceeds of this issuance
to fund an annuitization of certain U.S. defined benefit pension plan obligations (see Note H to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K for additional information). The premium ($19) and costs to complete the
financing ($5) were deferred and are being amortized to interest expense over the term of the Additional 2028 Notes. The
amortization of the premium is reflected as a reduction to interest expense and the amortization of the costs to complete the
financing is reflected as an addition to interest expense. Interest on the Additional 2028 Notes is paid semi-annually in February
and August, and commenced August 15, 2021.
Descriptions of the 2028 Notes, 2025 Notes, and ABL Credit Agreement are set forth in Note Q to the Consolidated
Financial Statements in Part II Item 8 of this Form 10-K.
Share Repurchase Programs—On May 4, 2021, Arconic announced that its Board of Directors approved a share
repurchase program authorizing the Company to repurchase shares of its outstanding common stock up to an aggregate
transactional value of $300 over a two-year period expiring April 28, 2023. In 2022 and 2021, Arconic repurchased 4,863,672
and 4,912,505 shares, respectively, of the Company's common stock for $139 and $161, respectively, resulting in the
completion of the total authorization under this program in August 2022. In connection with the establishment of a new
repurchase program (see below), this repurchase program was terminated.
On November 16, 2022, Arconic announced that its Board of Directors approved a share repurchase program authorizing
the Company to repurchase shares of its outstanding common stock up to an aggregate transactional value of $200 over a two-
year period expiring November 17, 2024. In 2022, Arconic repurchased 2,071,835 shares of the Company's common stock for
$46 under this program. See Note K to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K for additional
information.
Ratings—Arconic’s cost of borrowing and ability to access the capital markets are affected not only by market conditions
but also by the ratings assigned to Arconic and its debt by the major credit rating agencies. As of December 31, 2022, the
following are the most recent ratings for Arconic and its outstanding debt.
43
Moody’s Investor Service (Moody’s) has assigned a Ba3 rating to both the Company and the 2028 Notes and a Ba1 rating
to the 2025 Notes. Additionally, Moody's has given these ratings a stable outlook.
Standard and Poor’s Global Ratings (S&P) has assigned a BB rating to the Company, a B+ rating to the 2028 Notes, and a
BB+ rating to the 2025 Notes. Additionally, S&P has given these ratings a stable outlook.
Fitch Ratings (Fitch) has assigned a BB+ rating to both the Company and the 2028 Notes and a BBB- rating to both the
2025 Notes and the ABL Credit Facility. On September 9, 2022, Fitch revised the rating outlook from stable to positive.
Investing Activities
Cash used for investing activities was $214 in 2022 compared with $181 in 2021.
The use of cash in 2022 reflects capital expenditures of $245, more than half of which was attributable to sustaining spend
at the U.S. rolling mills and the remaining amount due to growth spend at the Davenport and Lancaster mills, slightly offset by
$27 in net proceeds from the sale of the Company’s operations in Russia (see Note S to the Consolidated Financial Statements
in Part II Item 8 of this Form 10-K).
The use of cash in 2021 reflects capital expenditures of $184, more than half of which was attributable to sustaining spend
at the U.S. rolling mills.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations. Arconic is required to make future payments under various contracts, including long-term
purchase obligations, lease agreements, and financing arrangements. The Company also has commitments to make
contributions to its funded pension plans, provide payments for pension (unfunded) and other postretirement benefit plans, and
fund capital projects. As of December 31, 2022, a summary of Arconic’s outstanding contractual obligations is as follows (these
contractual obligations are grouped in the same manner as they are classified in the Statement of Consolidated Cash Flows in
order to provide a better understanding of the nature of the obligations and to provide a basis for comparison to historical
information):
Total
2023
2024-2025
2026-2027
Thereafter
Operating activities:
Raw material purchase obligations*
$
966 $
880 $
86
$
— $
—
Energy-related purchase obligations
83
15
29
22
17
Other purchase obligations
37
14
10
6
7
Operating leases
137
40
55
23
19
Interest related to debt
408
97
173
110
28
Pension contributions - funded plans
367
38
148
181
—
Pension benefit payments - unfunded plans
71
7
14
14
36
Other postretirement benefit payments
261
27
54
53
127
Layoff and other restructuring payments
1
1
—
—
—
Uncertain tax positions
—
—
—
—
—
Financing activities:
Debt
1,600
—
700
—
900
Dividends to stockholders
—
—
—
—
—
Investing activities:
Capital projects
208
154
51
3
—
Totals
$
4,139 $
1,273 $
1,320 $
412 $
1,134
_____________________
*
Subsequent to December 31, 2022, the Company entered into additional aluminum supply contracts totaling approximately
$765, of which approximately $375, $195, and $195 is expected to be purchased in 2023, 2024, and 2025, respectively.
Additionally, through February 20, 2023, Arconic is currently negotiating terms for further aluminum supply contracts
totaling approximately $2,580.
44
Obligations for Operating Activities
Raw material purchase obligations consist mostly of aluminum with expiration dates ranging from less than one year to
two years. Energy-related purchase obligations consist primarily of electricity and natural gas contracts with expiration dates
ranging from one year to five years. Many of these purchase obligations contain variable pricing components, and, as a result,
actual cash payments may differ from the estimates provided in the preceding table.
Operating leases represent multi-year obligations for certain land and buildings, plant equipment, vehicles, and computer
equipment.
Interest related to debt is based on stated interest rates on debt with maturities that extend to 2028 (see the 2022 Debt
Activity and 2021 Debt Activity sections of Financing Activities under Liquidity and Capital Resources above).
Pension contributions (funded plans) and pension (unfunded plans) and other postretirement benefit payments are based on
actuarial estimates using current assumptions for, among others, discount rates, long-term rate of return on plan assets, rate of
compensation increases, and/or health care cost trend rates. It is Arconic’s policy to contribute amounts to funded pension plans
sufficient to meet the minimum requirements set forth in applicable country employee benefit and tax regulations, including
ERISA for U.S. plans. Management has determined that it is not practicable to present pension contributions (funded plans) and
both pension (unfunded plans) and other postretirement benefit payments beyond 2027 and 2032, respectively.
Layoff and other restructuring payments primarily relate to severance costs.
Uncertain tax positions taken or expected to be taken on an income tax return may result in additional payments to tax
authorities. As of December 31, 2022, there was no balance of uncertain tax positions and as such, no related interest and
penalties were accrued. If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of
limitations expires, then additional payments will not be necessary.
Obligations for Financing Activities
The debt amount in the preceding table represents the principal amounts of all outstanding long-term debt, which have
maturities that extend to 2028 (see the 2022 Debt Activity and 2021 Debt Activity sections of Financing Activities under
Liquidity and Capital Resources above).
As of December 31, 2022, Arconic had 99,432,194 outstanding shares of common stock. Dividends on common stock are
subject to authorization by the Company’s Board of Directors. Arconic did not declare or pay any dividends from the
Separation Date through December 31, 2022.
On November 16, 2022, Arconic announced that its Board of Directors approved a share repurchase program authorizing
the Company to repurchase shares of its outstanding common stock up to an aggregate transactional value of $200, depending
on cash availability, market conditions, and other factors. This program has a predetermined expiration date of November 17,
2024; however, the Company is under no contractual obligation to make such repurchases. Accordingly, amounts have not been
included in the preceding table. In 2022, the Company repurchased 2,071,835 shares of its common stock for $46 under this
program. See the Common Stock section of Note K to the Consolidated Financial Statements in Part II Item 8 of this Form 10-
K.
Obligations for Investing Activities
Capital projects in the preceding table only include amounts approved by management as of December 31, 2022. Funding
levels may vary in future years based on anticipated construction schedules of the projects. It is expected that significant
expansion projects will be funded through various sources, including cash provided from operations. Total capital expenditures
are anticipated to be approximately $275 in 2023.
Off-Balance Sheet Arrangements. Arconic Corporation has outstanding bank guarantees, letters of credit, and surety
bonds related to outstanding responsibilities and obligations. See the Commitments section of Note T to the Consolidated
Financial Statements in Part II Item 8 of this Form 10-K.
Critical Accounting Policies and Estimates
The preparation of Arconic’s Consolidated Financial Statements in accordance with accounting principles generally
accepted in the United States of America requires management to make certain estimates based on judgments and assumptions
regarding uncertainties that may affect the amounts reported in the Consolidated Financial Statements and disclosed in the
Notes to the Consolidated Financial Statements. Areas that require such estimates include the review of properties, plants, and
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equipment and goodwill for impairment, and accounting for each of the following: environmental and litigation matters;
pension and other postretirement employee benefit obligations; stock-based compensation; and income taxes.
Management uses historical experience and all available information to make these estimates, and actual results may differ
from those used to prepare the Company’s Consolidated Financial Statements at any given time. Despite these inherent
limitations, management believes that Management’s Discussion and Analysis of Financial Condition and Results of Operations
and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, provide a meaningful
and fair representation of the Company.
A summary of Arconic’s significant accounting policies is included in Note B to the Consolidated Financial Statements in
Part II Item 8 of this Form 10-K. Management believes that the application of these policies on a consistent basis enables the
Company to provide the users of the Consolidated Financial Statements with useful and reliable information about Arconic’s
operating results and financial condition.
Prior to the Separation Date, the Company did not operate as a separate, standalone entity. Arconic’s operations were
included in ParentCo’s financial results. Accordingly, in all periods prior to the Separation Date, the Company’s Consolidated
Financial Statements were prepared from ParentCo’s historical accounting records and were presented on a standalone basis as
if the Arconic Corporation Businesses had been conducted independently from ParentCo. Such Consolidated Financial
Statements include the historical operations that were considered to comprise the Arconic Corporation Businesses, as well as
certain assets and liabilities that were historically held at ParentCo’s corporate level but were specifically identifiable or
otherwise attributable to the Arconic Corporation Businesses. The Critical Accounting Policies described below reflect any
incremental judgments and assumptions made by management in the preparation of the Company’s Consolidated Financial
Statements prior to the Separation Date.
Properties, Plants, and Equipment. Properties, plants, and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of assets is
determined by comparing the estimated undiscounted net cash flows of the related operations (asset group) to the carrying value
of the associated assets. An impairment loss would be recognized when the carrying value of the assets exceeds the estimated
undiscounted net cash flows of the asset group. The amount of the impairment loss to be recorded is calculated as the excess of
the carrying value of the assets over their fair value, with fair value determined using the best information available, which
generally is a discounted cash flow (DCF) model. In certain circumstances, Arconic may use the services of a third-party to
assist with other valuation techniques. The determination of what constitutes an asset group, the associated estimated
undiscounted net cash flows, and the estimated useful lives of the assets also require significant judgments.
Goodwill. Goodwill is not amortized; it is reviewed for impairment annually (in the fourth quarter) or more frequently if
indicators of impairment exist or if a decision is made to sell, exit, or realign a business. A significant amount of judgment is
involved in determining if an indicator of impairment has occurred. Such indicators may include, among others, deterioration in
general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an
entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or
declining cash flows over multiple periods. The fair value that could be realized in an actual transaction may differ from that
used to evaluate goodwill for impairment.
Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating
segment or one level below an operating segment. Arconic has three reporting units, the Rolled Products segment, the Building
and Construction Systems segment, and the Extrusions segment (full impairment of goodwill in 2021 – see below). At the time
of the Company’s annual 2022 review of goodwill for impairment, the carrying value of goodwill for Rolled Products and
Building and Construction Systems was $232 and $67, respectively.
In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated
fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and
determines that an impairment is more likely than not, the entity is then required to perform a 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 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
quantitative impairment test.
Arconic determines annually, based on facts and circumstances, which of its reporting units will be subject to the
qualitative assessment. For those reporting units where a qualitative assessment is either not performed or for which the
conclusion is that an impairment is more likely than not, a quantitative impairment test will be performed. The Company’s
policy is that a quantitative impairment test be performed for each reporting unit at least once during every three-year period.
46
Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair value of
a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact
they would have on the estimated fair value using positive, neutral, and adverse categories based on 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 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.
During the 2022 annual review of goodwill for impairment, management performed the qualitative assessment for the
Building and Construction Systems reporting unit. Management concluded it was not more likely than not that the estimated
fair value of this reporting unit was less than the carrying value. As such, no further analysis was required. Management last
proceeded directly to the quantitative impairment test for the Building and Construction Systems reporting unit in 2021. At that
time, the estimated fair value of this reporting unit was substantially in excess of its carrying value, resulting in no impairment.
Under the quantitative impairment test, the evaluation of the recoverability of goodwill involves comparing the current fair
value of each reporting unit to its carrying value, including goodwill. Arconic uses a DCF model to estimate the current fair
value of its reporting units when testing for impairment, as management believes forecasted cash flows are the best indicator of
such fair value. Several significant assumptions and estimates are involved in the application of the DCF model to forecast
operating cash flows, including sales growth (volumes and pricing), production costs, capital spending, working capital levels,
and discount rate. Certain of these assumptions may vary significantly among the reporting units. Cash flow forecasts are
generally based on approved business unit five-year operating plans and a terminal value. The WACC rate for the individual
reporting units is estimated by management with the assistance of valuation experts. In the event the estimated fair value of a
reporting unit per the DCF model is less than the carrying value, the Company would recognize an impairment charge equal to
the excess of the reporting unit’s carrying value over its fair value without exceeding the total amount of goodwill applicable to
that reporting unit.
During the 2022 annual review of goodwill for impairment, management proceeded directly to the quantitative impairment
test for the Rolled Products reporting unit. The result of this review indicated the estimated fair value of this reporting unit was
substantially in excess of the carrying value, resulting in no impairment.
The respective annual review of goodwill for impairment in 2021 and 2020 indicated that goodwill was not impaired for
any of Arconic’s reporting units, except for the Extrusions segment (see below), and there were no triggering events since that
time that necessitated an interim quantitative impairment test for any of the Company’s reporting units. That said, in light of the
economic impact of the COVID-19 pandemic (i.e., stock market volatility, customer demand disruption, etc.), Arconic did
perform periodic qualitative assessments throughout 2020 in which management concluded that no impairment existed and,
therefore, no further analysis was required.
In 2021, the estimated fair value of the Extrusions reporting unit was lower than the associated carrying value by an
amount greater than the carrying value of the Extrusions reporting unit’s goodwill. Accordingly, the Company recorded an
impairment charge of $65 in the fourth quarter of 2021. As a result, there is no goodwill remaining for the Extrusions reporting
unit.
The impairment of the Extrusion reporting unit’s goodwill resulted from a combination of market-based factors, including
continued delays in aerospace market improvement, the expectation that significant cost inflation will extend beyond 2021
resulting in increasingly limited ability for management to drive margin expansion, and a longer than previously anticipated
shift in product mix to lower margin industrial products to replace most of the lost aerospace volume. Further, current market
factors also resulted in a 150-basis point increase in the WACC compared to the fourth quarter of 2020. Accordingly, given
these factors, the estimated fair value of the Extrusions reporting unit was less than the carrying value resulting in a full
impairment of its goodwill.
Environmental Matters. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures
relating to existing conditions caused by past operations, which will not contribute to future revenues, are expensed. Liabilities
are recorded when remediation costs are probable and can be reasonably estimated. The liability may include costs such as site
investigations, consultant fees, feasibility studies, outside contractors, and monitoring expenses. Estimates are generally not
reduced by potential claims for recovery, which are recognized when probable and as agreements are reached with third parties.
The estimates may also include costs related to other potentially responsible parties to the extent that Arconic has reason to
believe such parties will not fully pay their proportionate share. The liability is continuously reviewed and adjusted to reflect
current remediation progress, prospective estimates of required activity, and other factors that may be relevant, including
changes in technology or regulations. The portion of the liability associated with post-remediation operations, maintenance, and
monitoring activities are discounted using a risk-free-rate.
47
Litigation Matters. For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a
matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an unfavorable
outcome based on many factors such as, among others, the nature of the matter, available defenses and case strategy, progress
of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the
outcome of similar historical matters. Once an unfavorable outcome is deemed 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, the matter is disclosed and no liability is recorded. With respect to unasserted claims or assessments,
management must first determine the probability 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.
Pension and Other Postretirement Benefits. In all periods prior to January 1, 2020 (see below), certain employees
attributable to the Arconic Corporation Businesses participated in defined benefit pension and other postretirement benefit plans
sponsored by ParentCo (the “Shared Plans”), which also included participants attributable to non-Arconic Corporation
Businesses. Arconic accounted for the portion of the Shared Plans related to its employees as multiemployer benefit plans.
Accordingly, the Company did not record an asset or liability to recognize any portion of the funded status of the Shared Plans.
However, the related expense recorded by Arconic was based primarily on pensionable compensation and estimated interest
costs related to participants attributable to the Arconic Corporation Businesses.
In all periods prior to the Separation Date, certain other ParentCo plans that were entirely attributable to employees of the
Arconic Corporation Businesses (“Direct Plans”) were accounted for as defined benefit pension and other postretirement
benefit plans. Accordingly, the funded or unfunded position of each Direct Plan was recorded in the Consolidated Balance
Sheet. Actuarial gains and losses that have not yet been recognized in earnings were recorded in accumulated other
comprehensive income, net of taxes, until they were amortized as a component of net periodic benefit cost. The determination
of benefit obligations and recognition of expenses related to the Direct Plans is dependent on various assumptions, including,
among others, discount rates, long-term expected rates of return on plan assets, and future compensation increases. ParentCo’s
management developed each assumption using relevant company experience in conjunction with market-related data for each
individual location in which such plans exist.
In preparation for the Separation, effective January 1, 2020, certain of the Shared Plans were separated into standalone
plans for both Arconic (“New Direct Plans”) and ParentCo (see Note H to the Consolidated Financial Statements in Part II Item
8 of this Form 10-K). Additionally, effective April 1, 2020, portions of the other remaining Shared Plans were assumed by
Arconic (“Additional New Direct Plans”) (see Note H to the Consolidated Financial Statements in Part II Item 8 of this Form
10-K). Accordingly, beginning on the respective effective dates, the New Direct Plans and the Additional New Direct Plans are
accounted for as defined benefit pension and other postretirement plans. Additionally, the Direct Plans continue to be accounted
for as defined benefit pension and other postretirement plans.
Liabilities and expenses for pension and other postretirement benefits are determined using actuarial methodologies and
incorporate significant assumptions, including the interest rate used to discount the future estimated liability, the expected long-
term rate of return on plan assets, and several assumptions relating to the employee workforce (compensation increases, health
care cost trend rates, retirement age, and mortality).
The interest rate used to discount future estimated liabilities is determined using a Company-specific yield curve model
(above-median) developed with the assistance of an external actuary. The cash flows of the 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. The yield curve model parallels the projected plan cash flows, which have a
weighted average duration of 11 years, and the underlying cash flows of the bonds included in the model exceed the cash flows
needed to satisfy the plan obligations multiple times. If a deep market of high quality corporate bonds does not exist in a
country, then the yield on government bonds is used. In 2022, the weighted average discount rate used to determine benefit
obligations for pension plans was 5.49% and for other postretirement benefit plans was 5.62%. The impact on the combined
pension and other postretirement benefit liabilities of a change in the weighted average discount rate of 1/4 of 1% would be
approximately $60 and either a charge or credit of approximately $1 to pretax earnings in the following year.
The expected long-term rate of return on plan assets is generally applied to a five-year market-related value of plan assets
(the fair value at the plan measurement date is used for certain non-U.S. plans). The process used by management to develop this
assumption is one that relies on forward-looking investment returns by asset class. Management incorporates expected future
investment returns on current and planned asset allocations using information from various external investment managers and
consultants, as well as management’s own judgment. For 2022, management used 5.18% as its weighted-average expected long-
term rate of return, which was based on the prevailing and planned strategic asset allocations, as well as estimates of future
48
returns by asset class. For 2023, management anticipates that the weighted-average expected long-term rate of return will be in
the range of 5.50% to 6.50%. A change in the assumption for the weighted average expected long-term rate of return on plan
assets of 1/4 of 1% would impact pretax earnings by approximately $4 for 2023.
Stock-Based Compensation. In all periods prior to the Separation Date, eligible employees attributable to the Arconic
Corporation Businesses participated in ParentCo’s stock-based compensation plan. The compensation expense recorded by the
Company included the expense associated with these employees, as well as the expense associated with an allocation of stock-
based compensation expense for ParentCo’s corporate employees. Beginning on the Separation Date, Arconic recorded stock-
based compensation expense for all of the Company's employees eligible to participate in Arconic’s stock-based compensation
plan. The following describes the manner in which stock-based compensation expense was initially determined for both
Arconic and ParentCo.
Compensation expense for employee equity grants is recognized using the non-substantive vesting period approach, in
which the expense is recognized ratably over the requisite service period based on the grant date fair value. The fair value of
stock options is estimated on the date of grant using a lattice-pricing model. The fair value of performance stock units
containing a market condition is valued using a Monte Carlo valuation model. Determining the fair value at the grant date
requires judgment, including estimates for the average risk-free interest rate, dividend yield, volatility, and exercise behavior.
These assumptions may differ significantly between grant dates because of changes in the actual results of these inputs that
occur over time.
In 2022, 2021, and 2020, Arconic recognized stock-based compensation expense of $15 ($12 after-tax), $22 ($17 after-tax),
and $23 ($18 after-tax), respectively.
Income Taxes. The provision for income taxes is determined using the asset and liability approach of accounting for
income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or
receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future tax
consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from
differences between the financial and tax bases of Arconic’s assets and liabilities and are adjusted for changes in tax rates and
tax laws when enacted.
In all periods prior to the Separation Date, the Arconic Corporation Businesses were included in the income tax filings of
ParentCo. The provision for income taxes was determined in the same manner described above, but on a separate return
methodology as if the Company was a standalone taxpayer filing hypothetical income tax returns where applicable. Any
additional accrued tax liability or refund arising as a result of this approach was assumed to be immediately settled with
ParentCo as a component of Parent Company net investment. Deferred taxes were also determined in the same manner
described above and were reported in the Consolidated Balance Sheet for net operating losses, credits or other attributes to the
extent that such attributes were expected to transfer to Arconic upon the Separation. Any difference from attributes generated in
a hypothetical return on a separate return basis was adjusted as a component of Parent Company net investment.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax
benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of
taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections
of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive
evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward
period, including from tax planning strategies, and the Company’s experience with similar operations. Existing favorable
contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes
items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the
utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance
is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation
allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is
determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation
allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates
due to law changes and the grant and lapse of tax holidays.
Arconic applies a tax law ordering approach when considering the need for a valuation allowance on net operating losses
expected to offset Global Intangible Low Taxed Income (GILTI) income inclusions. Under this approach, reductions in cash tax
savings are not considered as part of the valuation allowance assessment. Instead, future GILTI inclusions are considered a
source of taxable income that support the realizability of deferred tax assets.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits
meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively
49
settled, which means that the statute of limitations has expired or the appropriate taxing authority has completed its examination
even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as
part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be
applicable under relevant tax law until such time that the related tax benefits are recognized.
Recently Adopted and Recently Issued Accounting Guidance
See the respective section of Note B to the Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not material.
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Item 8. Financial Statements and Supplementary Data.
Management’s Reports to Arconic Corporation Stockholders
Management’s Report on Financial Statements and Practices
The accompanying Consolidated Financial Statements of Arconic Corporation and its subsidiaries (the “Company”) were
prepared by management, which is responsible for their integrity and objectivity, in accordance with accounting principles
generally accepted in the United States of America (GAAP) and include amounts that are based on management’s best
judgments and estimates. The other financial information included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2022 is consistent with that in the Consolidated Financial Statements.
Management recognizes its responsibility for conducting the Company’s affairs according to the highest standards of personal
and corporate conduct. This responsibility is characterized and reflected in key policy statements issued from time to time
regarding, among other things, conduct of its business activities within the laws of the host countries in which the Company
operates and potentially conflicting outside business interests of its employees. The Company maintains a systematic program
to assess compliance with these policies.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) of the U.S. Securities Exchange Act of 1934 (as amended), for the Company. The Company’s
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company’s
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment to evaluate the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2022 using the criteria in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company
maintained effective internal control over financial reporting as of December 31, 2022.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2022, as stated in their report, which is included herein.
Timothy D. Myers
Chief Executive Officer
Erick R. Asmussen
Executive Vice President and
Chief Financial Officer
February 21, 2023
51
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Arconic Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Arconic Corporation and its subsidiaries (the “Company”) as
of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive (loss) income, of
changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related
notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control
over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Long-Lived Assets – Extrusions Asset Group
As described in Notes B and E to the consolidated financial statements, the long-lived assets of the Extrusions asset group
include properties, plants and equipment, and intangible assets. Management reviews the properties, plants, and equipment for
impairment whenever events or changes in circumstances indicate that the carrying value of those assets may not be
recoverable. In September 2022, due to an expected decline in the forecasted financial performance for the Extrusions segment
(and asset group), including continued forecasted losses, management evaluated the recoverability of the long-lived assets of
the Extrusions asset group by comparing the aggregate carrying value to the undiscounted future cash flows. The result was that
the long-lived assets were deemed by management to be impaired and the amount of the impairment charge was measured as
the difference between the aggregate carrying value and the aggregate fair value of the long-lived assets. Fair value was
determined by management using an orderly liquidation methodology for machinery and equipment and a sales comparison
approach for land and structures. Significant judgments and assumptions were applied in estimating the fair value of the long-
lived assets, including the use of market-based information specific to the machinery and equipment and information from
recent sales or current listings of comparable properties for the land and structures. As a result of the evaluation, management
recognized an impairment charge of $90 million for properties, plants, and equipment of the Extrusions asset group.
The principal considerations for our determination that performing procedures relating to the valuation of long-lived assets of
the Extrusions asset group is a critical audit matter are (i) the significant judgment by management when developing the fair
value estimates of the machinery, equipment, land and structures of the Extrusions asset group; (ii) a high degree of auditor
judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s valuation
methods and significant assumptions related to market based information for machinery and equipment and information from
recent sales or current listings of comparable properties for land and structures; and (iii) the audit effort involved the use of
professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
valuation of the long-lived assets of the Extrusion asset group, including controls over valuation of the machinery, equipment,
land and structures. These procedures also included, among others (i) testing management’s process for developing the fair
value estimates of the machinery, equipment, land and structures; (ii) evaluating the appropriateness of the valuation methods;
(iii) testing the completeness and accuracy of underlying data used in the valuation methods; and (iv) evaluating the
reasonableness of the significant assumptions used by management related to market based information for machinery and
equipment and information from recent sales or current listings of comparable properties for the land and structures.
Evaluating management’s significant assumptions related to market based information for machinery and equipment and
information from recent sales or current listings of comparable properties for the land and structures involved evaluating
whether the assumptions used by management were reasonable considering (i) historical cost and salvage information of assets
within the asset group; (ii) the consistency with comparable salvage values, and sales or listings of comparable properties; and
(iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized
skill and knowledge were used to assist in the evaluation of the estimates of fair value of the machinery, equipment, land and
structures of the Extrusions asset group.
Pittsburgh, Pennsylvania
February 21, 2023
We have served as the Company’s auditor since 2019.
53
Arconic Corporation and subsidiaries
Statement of Consolidated Operations
(in millions, except per-share amounts)
For the year ended December 31,
2022
2021
2020
Sales (C and D)
$
8,961
$
7,504 $
5,675
Cost of goods sold (exclusive of expenses below)
8,032
6,573
4,862
Selling, general administrative, and other expenses
246
247
258
Research and development expenses
37
34
36
Provision for depreciation and amortization
237
253
251
Impairment of goodwill (B & O)
—
65
—
Restructuring and other charges (E)
456
624
188
Operating (loss) income
(47)
(292)
80
Interest expense (F)
104
100
118
Other expenses, net (G)
41
67
70
Loss before income taxes
(192)
(459)
(108)
(Benefit) Provision for income taxes (I)
(11)
(62)
1
Net loss
(181)
(397)
(109)
Less: Net income attributable to noncontrolling interest
1
—
—
Net loss attributable to Arconic Corporation
$
(182)
$
(397) $
(109)
Earnings Per Share Attributable to Arconic Corporation
Common Stockholders (J):
Basic
$
(1.75)
$
(3.65)
$
(1.00)
Diluted
$
(1.75)
$
(3.65)
$
(1.00)
The accompanying notes are an integral part of the consolidated financial statements.
54
Arconic Corporation and subsidiaries
Statement of Consolidated Comprehensive (Loss) Income
(in millions)
Arconic Corporation
Noncontrolling interest
Total
For the year ended December 31,
2022
2021
2020
2022
2021
2020
2022
2021
2020
Net loss
$ (182) $ (397) $ (109) $
1 $ — $ — $ (181) $ (397) $ (109)
Other comprehensive income, net of tax (L):
Change in unrecognized net actuarial loss
and prior service cost/benefit related to
pension and other postretirement benefits
229
670
54
—
—
— 229
670
54
Foreign currency translation adjustments
(76)
(4)
87
—
—
—
(76)
(4)
87
Net change in unrecognized losses on cash
flow hedges
21
(16)
5
—
—
—
21
(16)
5
Total Other comprehensive income, net of
tax
174
650
146
—
—
— 174
650
146
Comprehensive (loss) income
$
(8) $ 253 $
37
$
1 $ — $ — $
(7) $ 253 $
37
The accompanying notes are an integral part of the consolidated financial statements.
55
Arconic Corporation and subsidiaries
Consolidated Balance Sheet
(in millions)
December 31,
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
261 $
335
Receivables from customers, less allowances of $1 in both 2022 and 2021 (V)
791
922
Other receivables
183
226
Inventories (M)
1,622
1,630
Fair value of hedging instruments and derivatives (U)
21
1
Prepaid expenses and other current assets (T)
124
54
Total current assets
3,002
3,168
Properties, plants, and equipment, net (N)
2,361
2,651
Goodwill (B & O)
292
322
Operating lease right-of-use assets (P)
115
122
Deferred income taxes (I)
188
229
Other noncurrent assets
57
88
Total assets
$
6,015 $
6,580
Liabilities
Current liabilities:
Accounts payable, trade
$
1,578 $
1,718
Accrued compensation and retirement costs
119
116
Taxes, including income taxes
43
61
Environmental remediation (T)
40
15
Operating lease liabilities (P)
34
35
Fair value of hedging instruments and derivatives (U)
7
23
Other current liabilities (T)
150
95
Total current liabilities
1,971
2,063
Long-term debt (Q)
1,597
1,594
Accrued pension benefits (H)
586
717
Accrued other postretirement benefits (H)
302
411
Environmental remediation (T)
45
49
Operating lease liabilities (P)
83
90
Deferred income taxes (I)
3
12
Other noncurrent liabilities
71
85
Total liabilities
4,658
5,021
Contingencies and commitments (T)
Equity
Arconic Corporation stockholders’ equity:
Common stock (K)
1
1
Additional capital
3,373
3,368
Accumulated deficit
(734)
(552)
Treasury stock (K)
(346)
(161)
Accumulated other comprehensive loss (L)
(937)
(1,111)
Total Arconic Corporation stockholders’ equity
1,357
1,545
Noncontrolling interest (S)
—
14
Total equity
1,357
1,559
Total liabilities and equity
$
6,015 $
6,580
The accompanying notes are an integral part of the consolidated financial statements.
56
Arconic Corporation and subsidiaries
Statement of Consolidated Cash Flows
(in millions)
For the year ended December 31,
2022
2021
2020
Operating Activities
Net loss
$
(181) $
(397) $
(109)
Adjustments to reconcile net loss to cash provided from (used for)
operations:
Depreciation and amortization
237
253
251
Impairment of goodwill (B & O)
—
65
—
Deferred income taxes (I)
(45)
(100)
(16)
Restructuring and other charges (E)
456
624
188
Net periodic pension benefit cost (H)
81
68
82
Stock-based compensation (K)
15
22
23
Amortization of debt issuance costs (Q)
5
5
25
Other
4
16
(1)
Changes in assets and liabilities, excluding effects of acquisitions,
divestitures, and foreign currency translation adjustments:
Decrease (Increase) in receivables (V)
34
(381)
(235)
(Increase) Decrease in inventories
(149)
(596)
65
(Increase) in prepaid expenses and other current assets
(80)
(1)
(16)
(Decrease) Increase in accounts payable, trade
(67)
581
82
Increase (Decrease) in accrued expenses
38
(129)
(217)
Increase in taxes, including income taxes
2
21
99
Pension contributions (H)
(31)
(458)
(271)
(Increase) Decrease in noncurrent assets
(6)
(8)
35
Increase in noncurrent liabilities
25
8
21
Cash provided from (used for) operations
338
(407)
6
Financing Activities
Net transfers from former parent company
—
—
216
Separation payment to former parent company (A)
—
—
(728)
Additions to debt (original maturities greater than three months) (Q)
—
319
2,400
Debt issuance costs (Q)
(1)
(5)
(57)
Payments on debt (original maturities greater than three months) (Q)
—
—
(1,100)
Repurchases of common stock (K)
(185)
(161)
—
Other
(10)
(18)
13
Cash (used for) provided from financing activities
(196)
135
744
Investing Activities
Capital expenditures
(245)
(184)
(163)
Proceeds from the sale of assets and businesses (S)
30
(1)
125
Other
1
4
—
Cash used for investing activities
(214)
(181)
(38)
Effect of exchange rate changes on cash and cash equivalents
and restricted cash
(2)
1
3
Net change in cash and cash equivalents and restricted cash
(74)
(452)
715
Cash and cash equivalents and restricted cash at beginning of year (R)
335
787
72
Cash and cash equivalents and restricted cash at end of year (R)
$
261 $
335 $
787
The accompanying notes are an integral part of the consolidated financial statements.
57
Arconic Corporation and subsidiaries
Statement of Changes in Consolidated Equity
(dollars in millions)
Common
shares
outstanding
Common
stock
Additional
capital
Accumulated
deficit
Treasury
stock
Parent
Company
net
investment
Accumulated
other
comprehensive
income (loss)
Noncontrolling
interest
Total
equity
Balance at December 31, 2019
—
$
— $
— $
— $
— $ 2,664 $
295
$
14 $ 2,973
Net (loss) income
—
—
—
(155)
—
46
—
—
(109)
Other comprehensive income (L)
—
—
—
—
—
—
146
—
146
Establishment of additional
defined benefit plans (H)
—
—
—
—
—
349
(1,752)
— (1,403)
Change in ParentCo contribution
—
—
—
—
—
217
—
—
217
Separation payment to former
parent company (A)
—
—
—
—
—
(728)
—
—
(728)
Separation-related adjustments
—
—
3,334
—
—
(2,548)
(450)
—
336
Issuance of common stock (K)
109,021,376
1
(1)
—
—
—
—
—
—
Stock-based compensation (K)
183,850
—
15
—
—
—
—
—
15
Balance at December 31, 2020 109,205,226 $
1 $ 3,348
$
(155) $
— $
—
$ (1,761) $
14 $ 1,447
Net loss
—
—
—
(397)
—
—
—
—
(397)
Other comprehensive income
(L)
—
—
—
—
—
—
650
—
650
Repurchases of common stock
(K)
(4,912,505)
—
—
—
(161)
—
—
—
(161)
Stock-based compensation (K) 1,034,164
—
22
—
—
—
—
—
22
Other
—
—
(2)
—
—
—
—
—
(2)
Balance at December 31, 2021 105,326,885 $
1 $ 3,368
$
(552)
$ (161) $
—
$ (1,111) $
14 $ 1,559
Net (loss) income
—
—
—
(182)
—
—
—
1
(181)
Other comprehensive income (L)
—
—
—
—
—
—
174
—
174
Repurchases of common stock
(K)
(6,935,507)
—
—
—
(185)
—
—
—
(185)
Stock-based compensation (K) 1,040,816
—
15
—
—
—
—
—
15
Divestiture (S)
—
—
—
—
—
—
—
(15)
(15)
Other
—
—
(10)
—
—
—
—
—
(10)
Balance at December 31, 2022 99,432,194 $
1 $ 3,373
$
(734)
$ (346) $
—
$
(937) $
— $ 1,357
The accompanying notes are an integral part of the consolidated financial statements.
58
Arconic Corporation and subsidiaries
Notes to the Consolidated Financial Statements
(dollars in millions, except per-share amounts)
A. Basis of Presentation
Arconic Corporation (“Arconic” or the “Company”) is a manufacturer of fabricated aluminum products, including sheet
and plate, extrusions, and architectural products and systems, with a primary focus on the ground transportation, aerospace,
building and construction, industrial products, and packaging end markets. The Company has 20 primary operating locations in
7 countries around the world, situated in the United States, Canada, China, France, Germany, Hungary, and the United
Kingdom. Arconic’s previous operations in Russia were divested in November 2022 (see Note S).
In the 2022 fourth quarter, Arconic recorded an adjustment of $9 in Cost of goods sold to increase its environmental
reserves to correct the accrual related to anticipated costs associated with the Company’s obligations to perform future
operations, maintenance, and monitoring (OM&M) activities, as required by federal, state, and/or local environmental agencies,
at several environmental remediation sites. The adjustment was derived from a site-by-site analysis based upon OM&M plans
submitted to respective environmental regulatory agencies, and resulted in extending the time horizon for OM&M costs.
Management has concluded that the impact was not material to any previously reported periods.
In the 2022 first quarter, the Company recorded a net gain of $3 in Cost of goods sold related to the unrealized impact
associated with the change in the estimated fair value of natural gas supply contracts now determined to be derivatives (see
Note U). This amount was comprised of an unrealized loss of $5 for the 2022 first quarter, an unrealized gain of $6 for the 2021
annual period, and an unrealized gain of $2 for the 2020 fourth quarter. The out-of-period amounts were not material to any
interim or annual period.
References in these Notes to (i) “ParentCo” refer to Arconic Inc., a Delaware corporation, and its consolidated subsidiaries
(through March 31, 2020, at which time it was renamed Howmet Aerospace Inc. (“Howmet”)), and (ii) “2016 Separation
Transaction” refer to the November 1, 2016 separation of Alcoa Inc., a Pennsylvania corporation, into two standalone, publicly-
traded companies, Arconic Inc. and Alcoa Corporation.
The Separation. On April 1, 2020 (the “Separation Date”), ParentCo separated into two standalone, publicly-traded
companies, Arconic and Howmet, effective at 12:01 a.m. Eastern Daylight Time (the “Separation”). The spin-off company,
Arconic, comprised the rolled aluminum products, aluminum extrusions, and architectural products operations of ParentCo, as
well as the Latin America extrusions operations sold in April 2018, (collectively, the “Arconic Corporation Businesses”). The
existing publicly-traded company, Howmet, continued to own the engine products, engineered structures, fastening systems,
and forged wheels operations (collectively, the “Howmet Aerospace Businesses”). ParentCo common stockholders of record as
of the close of business on March 19, 2020 (the “Record Date”) received one share of Arconic common stock for every four
shares of ParentCo common stock (the “Separation Ratio”) held as of the Record Date (ParentCo paid cash to its common
stockholders in lieu of fractional shares).
To effect the Separation, ParentCo undertook a series of transactions to separate the net assets and certain legal entities of
ParentCo, resulting in a cash payment of $728 to ParentCo by Arconic from a portion of the aggregate net proceeds of
previously executed financing arrangements (see Note Q). In connection with the Separation, 109,021,376 shares of Arconic
common stock were distributed to ParentCo stockholders. This was determined by applying the Separation Ratio to the
436,085,504 shares of ParentCo’s outstanding common stock as of the Record Date. “Regular-way” trading of Arconic’s
common stock began with the opening of the New York Stock Exchange on April 1, 2020 under the ticker symbol “ARNC.”
Arconic’s common stock has a par value of $0.01 per share.
In connection with the Separation, Arconic and Howmet entered into several agreements to implement the legal and
structural separation between the two companies; govern the relationship between Arconic and Howmet after the completion of
the Separation; and allocate between Arconic and Howmet various assets, liabilities, and obligations, including, among other
things, employee benefits, environmental liabilities, intellectual property, and tax-related assets and liabilities. These
agreements included a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, and
certain Patent, Know-How, Trade Secret License and Trademark License Agreements. The Separation and Distribution
Agreement identified the assets to be transferred, the liabilities to be assumed, and the contracts to be transferred to each of
Arconic and Howmet as part of the Separation, and provided for when and how these transfers and assumptions were to occur.
ParentCo incurred costs to evaluate, plan, and execute the Separation, and Arconic was allocated a pro rata portion of these
costs based on segment revenue (see Cost Allocations below). ParentCo recognized $38 from January 1, 2020 through March
31, 2020 (the “2020 Pre-Separation Period”) for such costs, of which $18 was allocated to Arconic. The allocated amounts were
included in Selling, general administrative, and other expenses on the accompanying Statement of Consolidated Operations.
59
Basis of Presentation. The Consolidated Financial Statements of Arconic are prepared in conformity with accounting
principles generally accepted in the United States of America (GAAP). In accordance with GAAP, certain situations require
management to make estimates based on judgments and assumptions, which may affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the
reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates upon
subsequent resolution of identified matters. These estimates are based on historical experience and, in some cases, assumptions
based on current and future market experience. Management has made its best estimates using all relevant information available
at the time.
Principles of Consolidation. The Consolidated Financial Statements of the Company include the accounts of Arconic
and companies in which Arconic has a controlling interest. Intercompany transactions have been eliminated.
Management evaluates whether an Arconic entity or interest is a variable interest entity and whether the Company is the
primary beneficiary. Consolidation is required if both of these criteria are met. Arconic does not have any variable interest
entities requiring consolidation.
Prior to the Separation Date, the Company did not operate as a separate, standalone entity. Arconic’s operations were
included in ParentCo’s financial results. Accordingly, in all periods prior to the Separation Date, the accompanying
Consolidated Financial Statements were prepared from ParentCo’s historical accounting records and were presented on a
standalone basis as if the Arconic Corporation Businesses had been conducted independently from ParentCo. Such
Consolidated Financial Statements include the historical operations that were considered to comprise the Arconic Corporation
Businesses, as well as certain assets and liabilities that were historically held at ParentCo’s corporate level but were specifically
identifiable or otherwise attributable to the Arconic Corporation Businesses. ParentCo’s net investment in these operations was
reflected as Parent Company net investment on the accompanying Consolidated Financial Statements. All significant
transactions and accounts within the Arconic Corporation Businesses were eliminated. All significant intercompany transactions
between ParentCo and the Arconic Corporation Businesses were included within Parent Company net investment on the
accompanying Consolidated Financial Statements.
Cost Allocations. The description and information on cost allocations is applicable for all periods prior to the Separation
Date presented in the accompanying Consolidated Financial Statements.
The Consolidated Financial Statements of Arconic include general corporate expenses of ParentCo that were not
historically charged to the Arconic Corporation Businesses for certain support functions that were provided on a centralized
basis, such as expenses related to finance, audit, legal, information technology, human resources, communications, compliance,
facilities, employee benefits and compensation, and research and development activities. These general corporate expenses
were reported on the accompanying Statement of Consolidated Operations within Cost of goods sold, Selling, general
administrative and other expenses, and Research and development expenses. These expenses were allocated to the Arconic
Corporation Businesses on the basis of direct usage when identifiable, with the remainder allocated based on the Arconic
Corporation Businesses’ segment revenue as a percentage of ParentCo’s total segment revenue, as reported in the respective
periods.
All external debt not directly attributable to the Arconic Corporation Businesses was excluded from the Company’s
Consolidated Balance Sheet. Financing costs related to these debt obligations were allocated to the Arconic Corporation
Businesses based on the ratio of capital invested by ParentCo in the Arconic Corporation Businesses to the total capital invested
by ParentCo in both the Arconic Corporation Businesses and the Howmet Aerospace Businesses and were included on the
accompanying Statement of Consolidated Operations within Interest expense.
The following table reflects the allocations described above:
2020
Selling, general administrative, and other expenses*
$
25
Provision for depreciation and amortization
1
Restructuring and other charges (E)
2
Interest expense (F)
28
Other (income), net
(5)
_____________________
*
In the 2020 Pre-Separation Period, amount includes an allocation of $18 for costs incurred by ParentCo associated with the
Separation (see The Separation above).
60
Management believes the assumptions regarding the allocation of ParentCo’s general corporate expenses and financing
costs were reasonable.
Nevertheless, the Company’s Consolidated Financial Statements may not include all of the actual expenses that would have
been incurred and may not reflect Arconic’s consolidated results of operations, financial position, and cash flows had it been a
standalone company during the periods prior to the Separation Date. Actual costs that would have been incurred if Arconic had
been a standalone company would depend on multiple factors, including organizational structure, capital structure, and strategic
decisions made in various areas, including information technology and infrastructure. Transactions between the Arconic
Corporation Businesses and ParentCo, including sales to the Howmet Aerospace Businesses, were considered to be effectively
settled for cash at the time the transaction was recorded. The total net effect of the settlement of these transactions was reported
on the accompanying Statement of Consolidated Cash Flows as a financing activity and on Arconic’s Consolidated Balance
Sheet as Parent Company net investment.
Cash Management. Prior to the Separation Date, cash was managed centrally with certain net earnings reinvested locally
and working capital requirements met from existing liquid funds. Accordingly, the cash and cash equivalents held by ParentCo
at the corporate level were not attributed to the Arconic Corporation Businesses in any period presented in the accompanying
Consolidated Financial Statements that was prior to the Separation Date. Only cash amounts specifically attributable to the
Arconic Corporation Businesses were reported in the accompanying Consolidated Financial Statements for any period
presented that was prior to the Separation Date. Transfers of cash, both to and from ParentCo’s centralized cash management
system, were reported as a component of Parent Company net investment on Arconic’s Consolidated Balance Sheet and as a
financing activity on the accompanying Statement of Consolidated Cash Flows.
B. Summary of Significant Accounting Policies
Cash Equivalents. Cash equivalents are highly liquid investments purchased with an original maturity of three months or
less. In all periods prior to the Separation Date, the cash and cash equivalents held by ParentCo at the corporate level were not
attributed to the Arconic Corporation Businesses. Only cash amounts specifically attributable to the Arconic Corporation
Businesses were reported on the Company’s Consolidated Financial Statements.
Inventory Valuation. Inventories are carried at the lower of cost and net realizable value, with cost for most inventories
determined under the average cost method. The cost of certain non-U.S. inventories is determined under the first in, first out
(FIFO) method.
Properties, Plants, and Equipment. Properties, plants, and equipment are recorded at cost. Also, interest related to the
construction of qualifying assets is capitalized as part of the construction costs. Depreciation is recorded on the straight-line
method at rates based on the estimated useful lives of the assets. The following table details the weighted-average useful lives
of structures and machinery and equipment by reporting segment (numbers in years):
Structures
Machinery
and
equipment
Rolled Products
32
22
Building and Construction Systems
25
18
Extrusions
32
20
Repairs and maintenance are charged to expense as incurred. Generally, gains or losses from the sale of asset groups are
recorded in Restructuring and other charges while gains and losses from the sale of individual assets are recorded in Other
expenses (income), net.
Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying value of such assets may not be recoverable. Recoverability of assets is determined by comparing the estimated
undiscounted net cash flows of the related operations (asset group) to the carrying value of the associated assets. An impairment
loss would be recognized when the carrying value of the assets exceeds the estimated undiscounted net cash flows of the asset
group. The amount of the impairment loss to be recorded is calculated as the excess of the carrying value of the assets over their
fair value, with fair value determined using the best information available, which generally is a discounted cash flow (DCF)
model. In certain circumstances, Arconic may use the services of a third-party to assist with other valuation techniques. The
determination of what constitutes an asset group, the associated estimated undiscounted net cash flows, and the estimated useful
lives of the assets also require significant judgments.
61
Goodwill. Goodwill is not amortized; it is reviewed for impairment annually (in the fourth quarter) or more frequently if
indicators of impairment exist or if a decision is made to sell, exit, or realign a business. A significant amount of judgment is
involved in determining if an indicator of impairment has occurred. Such indicators may include, among others, deterioration in
general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an
entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or
declining cash flows over multiple periods. The fair value that could be realized in an actual transaction may differ from that
used to evaluate goodwill for impairment.
Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating
segment or one level below an operating segment. Arconic has three reporting units, the Rolled Products segment, the Building
and Construction Systems segment, and the Extrusions segment (full impairment of goodwill in 2021 – see below). At the time
of the Company’s annual 2022 review of goodwill for impairment, the carrying value of goodwill for Rolled Products and
Building and Construction Systems was $232 and $67, respectively.
In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated
fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and
determines that an impairment is more likely than not, the entity is then required to perform a 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 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
quantitative impairment test.
Arconic determines annually, based on facts and circumstances, which of its reporting units will be subject to the
qualitative assessment. For those reporting units where a qualitative assessment is either not performed or for which the
conclusion is that an impairment is more likely than not, a quantitative impairment test will be performed. The Company’s
policy is that a quantitative impairment test be performed for each reporting unit at least once during every three-year period.
Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair value of
a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact
they would have on the estimated fair value using positive, neutral, and adverse categories based on 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 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.
During the 2022 annual review of goodwill for impairment, management performed the qualitative assessment for the
Building and Construction Systems reporting unit. Management concluded it was not more likely than not that the estimated
fair value of this reporting unit was less than the carrying value. As such, no further analysis was required. Management last
proceeded directly to the quantitative impairment test for the Building and Construction Systems reporting unit in 2021. At that
time, the estimated fair value of this reporting unit was substantially in excess of its carrying value, resulting in no impairment.
Under the quantitative impairment test, the evaluation of the recoverability of goodwill involves comparing the current fair
value of each reporting unit to its carrying value, including goodwill. Arconic uses a DCF model to estimate the current fair
value of its reporting units when testing for impairment, as management believes forecasted cash flows are the best indicator of
such fair value. Several significant assumptions and estimates are involved in the application of the DCF model to forecast
operating cash flows, including sales growth (volumes and pricing), production costs, capital spending, working capital levels,
and discount rate. Certain of these assumptions may vary significantly among the reporting units. Cash flow forecasts are
generally based on approved business unit five-year operating plans and a terminal value. The WACC rate for the individual
reporting units is estimated by management with the assistance of valuation experts. In the event the estimated fair value of a
reporting unit per the DCF model is less than the carrying value, the Company would recognize an impairment charge equal to
the excess of the reporting unit’s carrying value over its fair value without exceeding the total amount of goodwill applicable to
that reporting unit.
During the 2022 annual review of goodwill for impairment, management proceeded directly to the quantitative impairment
test for the Rolled Products reporting unit. The result of this review indicated the estimated fair value of this reporting unit was
substantially in excess of the carrying value, resulting in no impairment.
The respective annual review of goodwill for impairment in 2021 and 2020 indicated that goodwill was not impaired for
any of Arconic’s reporting units, except for the Extrusions segment (see below), and there were no triggering events since that
time that necessitated an interim quantitative impairment test for any of the Company’s reporting units. That said, in light of the
62
economic impact of the COVID-19 pandemic (i.e., stock market volatility, customer demand disruption, etc.), Arconic did
perform periodic qualitative assessments throughout 2020 in which management concluded that no impairment existed and,
therefore, no further analysis was required.
In 2021, the estimated fair value of the Extrusions reporting unit was lower than the associated carrying value by an
amount greater than the carrying value of the Extrusions reporting unit’s goodwill. Accordingly, the Company recorded an
impairment charge of $65 in the fourth quarter of 2021. As a result, there is no goodwill remaining for the Extrusions reporting
unit.
The impairment of the Extrusion reporting unit’s goodwill resulted from a combination of market-based factors, including
continued delays in aerospace market improvement, the expectation that significant cost inflation will extend beyond 2021
resulting in increasingly limited ability for management to drive margin expansion, and a longer than previously anticipated
shift in product mix to lower margin industrial products to replace most of the lost aerospace volume. Further, current market
factors also resulted in a 150-basis point increase in the WACC compared to the fourth quarter of 2020. Accordingly, given
these factors, the estimated fair value of the Extrusions reporting unit was less than the carrying value resulting in a full
impairment of its goodwill.
Other Intangible Assets. Intangible assets with finite useful lives are amortized on a straight-line basis over the periods
benefited. The following table details the weighted-average useful lives of software and other intangible assets by reporting
segment (numbers in years):
Software
Other
intangible
assets
Rolled Products
8
—
Building and Construction Systems
4
20
Extrusions
3
10
Leases. Arconic determines whether a contract contains a lease at inception. The Company leases certain land and
buildings, plant equipment, vehicles, and computer equipment, which have been classified as operating leases. Certain real
estate leases include one or more options to renew; the exercise of lease renewal options is at Arconic’s discretion. The
Company includes renewal option periods in the lease term when it is determined that the options are reasonably certain to be
exercised. Certain of Arconic’s real estate lease agreements include rental payments that either have fixed contractual increases
over time or adjust periodically for inflation. Also, certain of the Company’s lease agreements include variable lease payments.
The variable portion of payments is not included in the initial measurement of the right-of-use asset or lease liability due to the
uncertainty of the payment amount and is recorded as lease cost in the period incurred.
Operating lease right-of-use assets and lease liabilities with an initial term greater than 12 months are recorded on the
balance sheet at the present value of the future minimum lease payments over the lease term calculated at the lease
commencement date and are recognized as lease expense on a straight-line basis over the lease term. Arconic uses an
incremental collateralized borrowing rate based on the information available at the lease commencement date in determining
the present value of future payments, as most of the Company’s leases do not provide an implicit rate. The operating lease right-
of-use assets also include any lease prepayments made and are reduced by lease incentives and accrued exit costs.
Environmental Matters. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures
relating to existing conditions caused by past operations, which will not contribute to future revenues, are expensed. Liabilities
are recorded when remediation costs are probable and can be reasonably estimated. The liability may include costs such as site
investigations, consultant fees, feasibility studies, outside contractors, and monitoring expenses. Estimates are generally not
reduced by potential claims for recovery, which are recognized when probable and as agreements are reached with third parties.
The estimates may also include costs related to other potentially responsible parties to the extent that Arconic has reason to
believe such parties will not fully pay their proportionate share. The liability is continuously reviewed and adjusted to reflect
current remediation progress, prospective estimates of required activity, and other factors that may be relevant, including
changes in technology or regulations. The portion of the liability associated with post-remediation operations, maintenance, and
monitoring activities are discounted using a risk-free-rate.
Litigation Matters. For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a
matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an unfavorable
outcome based on many factors such as, among others, the nature of the matter, available defenses and case strategy, progress
of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the
outcome of similar historical matters. Once an unfavorable outcome is deemed probable, management weighs the probability of
63
estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is deemed to be
reasonably possible, the matter is disclosed and no liability is recorded. With respect to unasserted claims or assessments,
management must first determine the probability 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.
Revenue Recognition. The Company’s contracts with customers are generally comprised of acknowledged purchase
orders incorporating Arconic’s standard terms and conditions, or for larger customers, may also generally include terms under
negotiated multi-year agreements. These customer contracts typically consist of the manufacture of products, which represent
single performance obligations that are satisfied upon transfer of control of the product to the customer. The Company produces
aluminum sheet and plate; extruded and machined parts; integrated aluminum architectural systems; and architectural
extrusions. Transfer of control is assessed based on alternative use of the products produced and Arconic’s enforceable right to
payment for performance to date under the contract terms. Transfer of control and revenue recognition generally occur upon
shipment or delivery of the product, which is when title, ownership, and risk of loss pass to the customer and is based on the
applicable shipping terms. The shipping terms vary across all businesses and depend on the product, the country of origin, and
the type of transportation (truck, train, or vessel).
In certain circumstances, the Company receives advanced payments from its customers for product to be delivered in future
periods. These advanced payments are recorded as deferred revenue until the product is delivered and title and risk of loss have
passed to the customer in accordance with the terms of the contract. Deferred revenue is reported in Other current liabilities and
Other noncurrent liabilities on the Consolidated Balance Sheet.
Pension and Other Postretirement Benefits. In all periods prior to January 1, 2020 (see below), certain employees
attributable to the Arconic Corporation Businesses participated in defined benefit pension and other postretirement benefit plans
sponsored by ParentCo (the “Shared Plans”), which also included participants attributable to non-Arconic Corporation
Businesses. Arconic accounted for the portion of the Shared Plans related to its employees as multiemployer benefit plans.
Accordingly, the Company did not record an asset or liability to recognize any portion of the funded status of the Shared Plans.
However, the related expense recorded by Arconic was based primarily on pensionable compensation and estimated interest
costs related to participants attributable to the Arconic Corporation Businesses.
In all periods prior to the Separation Date, certain other ParentCo plans that were entirely attributable to employees of the
Arconic Corporation Businesses (“Direct Plans”) were accounted for as defined benefit pension and other postretirement
benefit plans. Accordingly, the funded or unfunded position of each Direct Plan was recorded in the Consolidated Balance
Sheet. Actuarial gains and losses that have not yet been recognized in earnings were recorded in accumulated other
comprehensive income, net of taxes, until they were amortized as a component of net periodic benefit cost. The determination
of benefit obligations and recognition of expenses related to the Direct Plans is dependent on various assumptions, including,
among others, discount rates, long-term expected rates of return on plan assets, and future compensation increases. ParentCo’s
management developed each assumption using relevant company experience in conjunction with market-related data for each
individual location in which such plans exist.
In preparation for the Separation, effective January 1, 2020, certain of the Shared Plans were separated into standalone
plans for both Arconic (“New Direct Plans”) and ParentCo (see Note H). Additionally, effective April 1, 2020, portions of the
other remaining Shared Plans were assumed by Arconic (“Additional New Direct Plans”) (see Note H). Accordingly, beginning
on the respective effective dates, the New Direct Plans and the Additional New Direct Plans are accounted for as defined
benefit pension and other postretirement plans. Additionally, the Direct Plans continue to be accounted for as defined benefit
pension and other postretirement plans.
Stock-Based Compensation. In all periods prior to the Separation Date, eligible employees attributable to the Arconic
Corporation Businesses participated in ParentCo’s stock-based compensation plan. The compensation expense recorded by the
Company included the expense associated with these employees, as well as the expense associated with an allocation of stock-
based compensation expense for ParentCo’s corporate employees (see Cost Allocations in Note A). Beginning on the Separation
Date, Arconic recorded stock-based compensation expense for all of the Company's employees eligible to participate in
Arconic’s stock-based compensation plan. The following describes the manner in which stock-based compensation expense was
initially determined for both Arconic and ParentCo.
Compensation expense for employee equity grants is recognized using the non-substantive vesting period approach, in
which the expense is recognized ratably over the requisite service period based on the grant date fair value. The fair value of
stock options is estimated on the date of grant using a lattice-pricing model. The fair value of performance stock units
containing a market condition is valued using a Monte Carlo valuation model. Determining the fair value at the grant date
64
requires judgment, including estimates for the average risk-free interest rate, dividend yield, volatility, and exercise behavior.
These assumptions may differ significantly between grant dates because of changes in the actual results of these inputs that
occur over time.
Income Taxes. The provision for income taxes is determined using the asset and liability approach of accounting for
income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or
receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future tax
consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from
differences between the financial and tax bases of Arconic’s assets and liabilities and are adjusted for changes in tax rates and
tax laws when enacted.
In all periods prior to the Separation Date, the Arconic Corporation Businesses were included in the income tax filings of
ParentCo. The provision for income taxes was determined in the same manner described above, but on a separate return
methodology as if the Company was a standalone taxpayer filing hypothetical income tax returns where applicable. Any
additional accrued tax liability or refund arising as a result of this approach was assumed to be immediately settled with
ParentCo as a component of Parent Company net investment. Deferred taxes were also determined in the same manner
described above and were reported in the Consolidated Balance Sheet for net operating losses, credits or other attributes to the
extent that such attributes were expected to transfer to Arconic upon the Separation. Any difference from attributes generated in
a hypothetical return on a separate return basis was adjusted as a component of Parent Company net investment.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax
benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of
taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections
of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive
evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward
period, including from tax planning strategies, and the Company’s experience with similar operations. Existing favorable
contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes
items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the
utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance
is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation
allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is
determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation
allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates
due to law changes and the grant and lapse of tax holidays.
Arconic applies a tax law ordering approach when considering the need for a valuation allowance on net operating losses
expected to offset Global Intangible Low Taxed Income (GILTI) income inclusions. Under this approach, reductions in cash tax
savings are not considered as part of the valuation allowance assessment. Instead, future GILTI inclusions are considered a
source of taxable income that support the realizability of deferred tax assets.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits
meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively
settled, which means that the statute of limitations has expired or the appropriate taxing authority has completed its examination
even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as
part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be
applicable under relevant tax law until such time that the related tax benefits are recognized.
Foreign Currency. The local currency is the functional currency for the Company’s operations outside the United States
with the following exception. The U.S. dollar was the functional currency for Arconic’s former operations in Russia (divested in
November 2022 - see Note S). The determination of the functional currency for the Company’s operations is made based on the
appropriate economic and management indicators.
Recently Adopted Accounting Guidance. There was no relevant guidance previously issued by the Financial
Accounting Standards Board (FASB) requiring adoption in 2022 by Arconic. FASB guidance adopted in 2021 and 2020 by the
Company related to accounting and/or reporting for income taxes, credit losses, and employee defined benefit plans did not
have a material impact as previously disclosed in Arconic’s Consolidated Financial Statements issued in the respective periods.
Recently Issued Accounting Guidance. In March 2020, the FASB issued guidance that provides optional expedients and
exceptions for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference
rate reform on financial reporting. These expedients and exceptions may be used when applying GAAP, if certain criteria are
met, to contracts, hedging relationships, and other transactions that reference London Inter-Bank Offered Rate (LIBOR) or
65
another reference rate expected to be discontinued because of such reform. The purpose of this guidance is to provide relief to
entities from experiencing unintended accounting and/or financial reporting outcomes or consequences due to reference rate
reform. This guidance became effective immediately on March 12, 2020 and may be applied prospectively to contract
modifications made and hedging relationships entered into or evaluated on or before December 31, 2022, after which time the
expedients and exceptions expire (see below). In January 2021, the FASB issued clarifying guidance to specify that certain of
the optional expedients and exceptions apply to derivatives that use an interest rate for margining, discounting, or contract price
alignment that is modified as a result of reference rate reform. This additional guidance may be applied on a full retrospective
basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively
in the manner previously described for the guidance issued on March 12, 2020. In December 2022, the FASB extended the
expiration of the optional expedients and exceptions to June 30, 2023. Through December 31, 2022, the Company has not
experienced any unintended outcomes or consequences of reference rate reform that would necessitate the adoption of this
guidance. Additionally, Arconic’s credit agreement, which previously provided a credit facility that was referenced to LIBOR in
certain borrowing situations, was amended in February 2022 to replace LIBOR with the Secured Oversight Financing Rate
(SOFR) (see Note Q). Management will continue to closely monitor all potential instances of reference rate reform to determine
if adoption of this guidance becomes necessary in the future.
In September 2022, the FASB issued guidance to enhance the transparency of supplier finance programs. Under the new
guidance, a buyer in a supplier finance program must disclose at least annually qualitative and quantitative information about its
supplier finance programs to allow a user of financial statements to understand the program’s nature, activity during the period,
changes from period to period, and potential magnitude. These changes become effective for Arconic on January 1, 2023. The
Company has an existing arrangement with a financial institution that provides for a capacity of up to $250. Other than
complying with the disclosure requirements, management has determined that the adoption of this guidance will not have an
impact on the Consolidated Financial Statements.
66
C. Revenue from Contracts with Customers
The following table disaggregates revenue by major end market served. Differences between segment totals and
consolidated Arconic are in Corporate.
For the year ended December 31,
Rolled
Products
Building and
Construction
Systems
Extrusions
Total
2022
Ground Transportation
$
3,010 $
— $
109
$
3,119
Packaging
1,603
—
—
1,603
Building and Construction
277
1,245
—
1,522
Aerospace
764
—
195
959
Industrial Products and Other
1,659
—
105
1,764
Total end-market revenue
$
7,313 $
1,245 $
409
$
8,967
2021
Ground Transportation
$
2,697 $
— $
102
$
2,799
Packaging
1,217
—
—
1,217
Building and Construction
244
1,011
—
1,255
Aerospace
512
—
119
631
Industrial Products and Other
1,517
—
85
1,602
Total end-market revenue
$
6,187 $
1,011 $
306
$
7,504
2020
Ground Transportation
$
1,761 $
— $
88
$
1,849
Packaging
773
—
—
773
Building and Construction
154
963
—
1,117
Aerospace
598
—
222
820
Industrial Products and Other
1,049
—
71
1,120
Total end-market revenue
$
4,335 $
963 $
381
$
5,679
67
D. Segment and Related Information
Segment Information
Arconic has three operating and reportable segments, which are organized by product on a global basis: Rolled Products,
Building and Construction Systems, and Extrusions (see segment descriptions below). The Company determined the chief
operating decision maker to be the CEO, who regularly reviews the financial information of these three segments to assess
performance and allocate resources.
Arconic’s profit or loss measure for its reportable segments is Segment Adjusted EBITDA (Earnings before interest, taxes,
depreciation, and amortization). The Company calculates Segment Adjusted EBITDA as Total sales (third-party and
intersegment) minus each of (i) Cost of goods sold, (ii) Selling, general administrative, and other expenses, and (iii) Research
and development expenses, plus each of (i) Stock-based compensation expense, (ii) Metal price lag, and (iii) Unrealized (gains)
losses on mark-to-market hedging instruments and derivatives (see below). Arconic’s Segment Adjusted EBITDA may not be
comparable to similarly titled measures of other companies’ reportable segments.
Effective in the first quarter of 2022, management modified the Company's definition of Segment Adjusted EBITDA to
exclude the impact of unrealized gains and losses on mark-to-market hedging instruments and derivatives. This modification
was deemed appropriate as Arconic is considering entering in additional hedging instruments in future reporting periods if
favorable conditions exist to mitigate cost inflation. Certain of these instruments may not qualify for hedge accounting
resulting in unrealized gains and losses being recorded directly to Sales or Cost of goods sold, as appropriate (i.e., mark-to-
market). Additionally, this change was also applied to derivatives that do not qualify for hedge accounting for consistency
purposes. The Company does not have a regular practice of entering into contracts that are treated as derivatives for accounting
purposes. Ultimately, this change was made to maintain the transparency and visibility of the underlying operating
performance of Arconic's reportable segments. Prior to this change, the Company had a limited number of hedging instruments
and derivatives that did not qualify for hedge accounting, the unrealized impact of which was not material to Arconic’s Segment
Adjusted EBITDA performance measure. Accordingly, prior period information presented was not recast to reflect this change.
Segment assets are comprised of customer receivables; inventories; properties, plants, and equipment, net; and goodwill.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies
(see Note B). Transactions among segments are established based on negotiation among the parties.
The following are detailed descriptions of Arconic’s reportable segments:
Rolled Products. This segment produces aluminum sheet and plate for a variety of end markets. Sheet and plate are sold
directly to customers and through distributors related to the aerospace, ground 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 produced aseptic foil for the packaging end market prior to February 1, 2020 (see
Note S). 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. Prices for these products are generally based on the price of metal plus a premium for
adding value to the aluminum to produce a semi-finished product, resulting in a business model in which the underlying price
of metal is contractually passed-through to customers.
Building and Construction Systems. This segment manufactures products that are used primarily in the non-residential
building and construction end market. These products include integrated aluminum architectural systems and architectural
extrusions, which are sold directly to customers and through distributors.
Extrusions. This segment produces a range of extruded and machined parts for the aerospace, ground transportation, and
industrial products end markets. These products are sold directly to customers and through distributors. Prices for these
products are generally based on the price of metal plus a premium for adding value to the aluminum to produce a semi-finished
product, resulting in a business model in which the underlying price of metal is contractually passed-through to customers.
68
The operating results and assets of Arconic’s reportable segments were as follows (differences between segment totals and
Arconic’s consolidated totals for line items not reconciled are in Corporate):
Rolled
Products
Building and
Construction
Systems
Extrusions
Total
2022
Sales:
Third-party sales
$
7,313 $
1,245 $
409 $
8,967
Intersegment sales
44
—
2
46
Total sales
$
7,357
$
1,245 $
411
$
9,013
Segment Adjusted EBITDA
$
581 $
195 $
(47) $
729
Provision for depreciation and amortization
$
190 $
17 $
18 $
225
2021
Sales:
Third-party sales
$
6,187 $
1,011 $
306 $
7,504
Intersegment sales
33
—
1
34
Total sales
$
6,220
$
1,011 $
307
$
7,538
Segment Adjusted EBITDA
$
655 $
130 $
(28) $
757
Provision for depreciation and amortization
$
197 $
17 $
23 $
237
2020
Sales:
Third-party sales
$
4,335 $
963 $
381 $
5,679
Intersegment sales
19
—
2
21
Total sales
$
4,354 $
963 $
383 $
5,700
Segment Adjusted EBITDA
$
527 $
137 $
(16) $
648
Provision for depreciation and amortization
$
192 $
18 $
25 $
235
2022
Assets:
Segment assets(1)
$
4,308 $
474 $
312 $
5,094
Supplemental information:
Capital expenditures
194
18
16
228
Goodwill
224
68
—
292
2021
Assets:
Segment assets(2)
$
4,766 $
416 $
381 $
5,563
Supplemental information:
Capital expenditures
147
11
14
172
Goodwill
253
69
—
322
_____________________
69
(1) In the 2022 third quarter, the Extrusions segment recorded a $92 asset impairment charge comprised of $90 for Properties,
plants, and equipment and $2 for intangible assets (included within Other noncurrent assets) (see Note E). Also, in
November 2022, Arconic completed the sale of all of its operations in Russia (see Note S), which was previously reported
in Rolled Products.
(2) In the 2021 fourth quarter, the Rolled Products segment recorded a net adjustment of $10 (approximately $7 of which
relates to prior quarters in 2021) related to write-downs of scrap inventory. The out-of-period amounts were not material to
any interim or annual period.
The following tables reconcile certain segment information to consolidated totals:
For the year ended December 31,
2022
2021
2020
Sales:
Total segment sales
$
9,013 $
7,538 $
5,700
Elimination of intersegment sales
(46)
(34)
(21)
Other
(6)
—
(4)
Consolidated sales
$
8,961 $
7,504 $
5,675
For the year ended December 31,
2022
2021
2020
Total Segment Adjusted EBITDA
$
729 $
757 $
648
Unallocated amounts:
Corporate expenses(1)
(29)
(33)
(24)
Stock-based compensation expense (K)
(15)
(22)
(23)
Metal price lag(2)
17
(16)
(27)
Unrealized gains on mark-to-market hedging instruments and
derivatives (U)
6
—
—
Provision for depreciation and amortization
(237)
(253)
(251)
Impairment of goodwill (B & O)
—
(65)
—
Restructuring and other charges(3),(4) (E)
(456)
(624)
(188)
Other(5)
(62)
(36)
(55)
Operating (loss) income
(47)
(292)
80
Interest expense (F)
(104)
(100)
(118)
Other expenses, net (G)
(41)
(67)
(70)
Benefit (Provision) for income taxes (I)
11
62
(1)
Net income attributable to noncontrolling interest
(1)
—
—
Consolidated net loss attributable to Arconic(1)
$
(182) $
(397) $
(109)
_____________________
(1) Corporate expenses are composed of general administrative and other expenses of operating the corporate headquarters and
other global administrative facilities. The amounts presented for all periods prior to second quarter 2020 include an
allocation of ParentCo’s corporate expenses, including research and development expenses, for the portion of the period
prior to the Separation Date (see Cost Allocations in Note A).
(2) Metal price lag represents the financial impact of the timing difference between when aluminum prices included in Sales
are recognized and when aluminum purchase prices included in Cost of goods sold are realized. This adjustment aims to
remove the effect of the volatility in metal prices and the calculation of this impact considers applicable metal hedging
transactions.
(3) In 2022, Restructuring and other charges includes a loss of $306 related to the sale of the Company’s operations in Russia
and a $92 asset impairment charge related to the Extrusions segment (see Note E).
(4) In 2022, 2021, and 2020, Restructuring and other charges include a $47, $584, and $199, respectively, charge for the
settlement of certain employee retirement benefits virtually all of which were within the United States and the United
Kingdom (see Note H).
70
(5) Other includes certain items that impact Cost of goods sold and Selling, general administrative, and other expenses on the
Company’s Statement of Consolidated Operations that are not included in Segment Adjusted EBITDA. In 2022, Other
includes costs related to environmental remediation charges of $27 (see Environmental Matters in Note T) and costs related
to the new labor agreement of $19 (see Note H). These charges were recorded in Cost of goods sold on the accompanying
Statement of Consolidated Operations.
December 31,
2022
2021
Assets:
Total segment assets
$
5,094 $
5,563
Unallocated amounts:
Cash and cash equivalents
261
335
Prepaid expenses and other current assets
124
54
Fair value of hedging instruments and derivatives
21
1
Corporate fixed assets, net
135
153
Operating lease right-of-use assets
115
122
Deferred income taxes (I)
188
229
Other noncurrent assets
57
88
Other
20
35
Consolidated assets
$
6,015 $
6,580
Customer Information
In 2021 and 2020 Arconic generated more than 10% of its consolidated sales from one customer, Ford Motor Company.
These sales amounted to $761 and $647 in 2021, and 2020 respectively, and were included in the Rolled Products segment.
Geographic Area Information
Geographic information for sales was as follows (based upon the country where the point of sale occurred):
For the year ended December 31,
2022
2021
2020
Sales:
United States
$
5,972 $
4,753 $
3,697
Russia*
828
793
535
China
807
696
429
Hungary*
608
625
462
France
247
260
207
United Kingdom
245
169
144
Other
254
208
201
$
8,961 $
7,504 $
5,675
_____________________
*
In all periods presented, sales of a portion of aluminum products from Arconic’s plant in Russia were completed through
the Company’s international selling company located in Hungary. Also, in November 2022, Arconic completed the sale of
all of its operations in Russia (see Note S).
Geographic information for long-lived assets was as follows (based upon the physical location of the assets):
71
December 31,
2022
2021
Long-lived assets:
United States
$
1,943 $
1,998
China
208
242
Russia*
—
200
Hungary
99
98
United Kingdom
78
79
France
18
15
Other
15
19
$
2,361 $
2,651
_____________________
*
In November 2022, Arconic completed the sale of all of its operations in Russia (see Note S).
E. Restructuring and Other Charges
Restructuring and other charges for each year in the three-year period ended December 31, 2022 were comprised of the
following:
2022
2021
2020
Net loss (gain) on divestitures of assets and businesses (S)
$
306 $
1 $
(49)
Asset impairments
92
34
15
Settlements related to employee retirement benefit plans (H)
47
584
199
Layoff costs
2
3
23
Other*
10
6
14
Reversals of previously recorded layoff and other costs
(1)
(4)
(14)
Restructuring and other charges
$
456
$
624 $
188
__________________
*
In 2020, Other includes $2 related to the allocation of ParentCo’s corporate restructuring activity to Arconic (see Cost
Allocations in Note A).
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.
2022 Actions. In 2022, Arconic recorded Restructuring and other charges of $456, which were comprised of the following
components: a $306 net loss related to the sale of the Company's operations in Russia (See Russia in Note S); a $92 asset
impairment charge related to the Extrusions segment (see below); a $46 charge for the settlement of certain employee
retirement benefits related to U.S. pension plans (see Note H); a $5 charge related to several legacy non-U.S. matters, including
$1 for an environmental remediation obligation related to Italy (see Environmental Matters in Note T) and $1 for the full
settlement of certain employee retirement benefits related to Brazil (see Note H); a $2 charge related to idling certain operations
in the Extrusions segment (actions initiated in 2021); and a net $5 charge for other items.
In September 2022, management initiated a business review of the Extrusions segment aimed at identifying alternatives to
improve financial performance of this segment in future periods. Management continues to assess alternatives and no decisions
or commitments were made as of December 31, 2022. In connection with this review, the Company updated its five-year
strategic plan, the results of which indicated that there is an expected decline in the forecasted financial performance for the
Extrusions segment (and asset group), including continued forecasted losses. As such, management evaluated the recoverability
of the long-lived assets of the Extrusions asset group by comparing the aggregate carrying value to the undiscounted future cash
flows. The result of this evaluation was that the long-lived assets were deemed to be impaired as the aggregate carrying value
exceeded the undiscounted future cash flows. The impairment charge was measured as the difference between the aggregate
carrying value and aggregate fair value of the long-lived assets. Fair value was determined using an orderly liquidation
methodology for the machinery and equipment and a sales comparison approach for the land and structures. Significant
judgments and assumptions were applied in estimating the fair value of the long-lived assets, including the use of market-based
information specific to the machinery and equipment and information from recent sales or current listings of comparable
72
properties for the land and structures. As a result, the Company recorded an impairment charge of $90 for the Properties, plants,
and equipment and $2 for the intangible assets (included within Other noncurrent assets).
2021 Actions. In 2021, Arconic recorded Restructuring and other charges of $624, which were comprised of the following
components: a $584 charge for the settlement of certain employee retirement benefits (see Note H); a $34 charge for the
impairment of several buildings and equipment due to management’s decision to abandon these assets located at the Company’s
primary research and development facility; a $7 charge related to idling certain operations in the Extrusions segment, including
layoff costs associated with approximately 115 employees; a $4 net benefit for legacy tax and legal matters related to Brazil; a
$4 charge related to several legal matters, including the assumption of a related environmental remediation obligation (see
Environmental Matters in Note T); a $4 credit for the reversal of reserves established in prior periods (see 2020 Actions below);
a $1 additional loss on the sale of an aluminum rolling mill in Brazil (see Itapissuma in Note S); and a $2 net charge for other
items.
As of September 30, 2021, the employee separations associated with 2021 restructuring programs were essentially
complete. In 2021, the Company made cash payments of $2 against layoff reserves related to the 2021 restructuring programs.
2020 Actions. In 2020, Arconic recorded a net charge of $188 in Restructuring and other charges, which were comprised
of the following components: a $199 charge for the settlement of certain employee retirement benefits, virtually all within the
United States and the United Kingdom (see Note H); a $25 benefit for contingent consideration received related to the 2018
sale of the Texarkana (Texas) rolling mill (see Note S); a $25 net gain related to the sales of an extrusions plant in South Korea
and an aluminum rolling mill in Brazil (see Note S); a $21 charge for costs, of which $5 is for layoff costs associated with
approximately 90 employees, related to the planned closure and related reorganizations of several small facilities in the
Building and Construction Systems and Extrusions segments; an $18 charge for layoff costs associated with the separation of
approximately 460 employees across the Company in response to the impact of the COVID 19 pandemic; a $14 credit for the
reversal of reserves established in prior periods, including $5 related to an environmental matter (see Note T); a $4 charge for
legacy non-income tax matters in Brazil; a $2 charge for an allocation of ParentCo’s corporate restructuring activity (see Cost
Allocations in Note A); and an $8 net charge for other items.
In 2021, the total number of employees to be separated was updated to 500 from 550 to reflect employees initially
identified for separation accepting other positions within the Company and natural attrition. As of December 31, 2021, the
employee separations associated with 2020 restructuring programs were essentially complete. In 2021 and 2020, the Company
made cash payments of $5 and $15, respectively, against layoff reserves related to the 2020 restructuring programs.
Segment Information. The Company does not include Restructuring and other charges in the results of its reportable
segments. The impact of allocating such charges to segment results would have been as follows:
For the year ended December 31,
2022
2021
2020
Rolled Products
$
302
$
1
$
(15)
Building and Construction Systems
2
(2)
5
Extrusions
90
7
(14)
Segment total
394
6
(24)
Corporate
62
618
212
$
456
$
624
$
188
Reserve Activity. Activity and reserve balances for restructuring charges were as follows:
73
Layoff costs
Other costs
Total
Reserve balances at December 31, 2019
$
20 $
1 $
21
Separation-related adjustments(1)
2
—
2
Cash payments
(24)
(3)
(27)
Restructuring charges
23
4
27
Other(2)
(8)
(1)
(9)
Reserve balances at December 31, 2020
13
1
14
Cash payments
(10)
(5)
(15)
Restructuring charges
3
6
9
Other(2)
(4)
(1)
(5)
Reserve balances at December 31, 2021
2
1
3
Cash payments
(3)
(3)
(6)
Restructuring charges
2
3
5
Other(2)
—
(1)
(1)
Reserve balances at December 31, 2022(3)
$
1 $
— $
1
_____________________
(1) Represents liabilities transferred from ParentCo on the Separation Date (see Note A).
(2) Other includes reversals of previously recorded restructuring charges and the effects of foreign currency translation.
(3) The remaining reserves are expected to be paid in cash during 2023.
F. Interest Cost Components
For the year ended December 31,
2022
2021
2020
Amount charged to expense
$
104 $
100 $
118
Amount capitalized
7
4
6
$
111
$
104 $
124
In 2020 (January through March), total interest costs include an allocation of ParentCo’s financing costs of $28 (see Cost
Allocations in Note A). Also, in 2020, total interest costs include $19 for the write-off and immediate expensing of certain debt
issuance costs related to a debt refinancing (see Note Q). Typically, such costs are deferred and amortized to interest expense
over the term of the related financing arrangement.
G. Other Expenses, Net
For the year ended December 31,
2022
2021
2020
Non-service costs — Pension and OPEB (H)
$
75
$
60
$
78
Foreign currency (gains) losses, net
(26)
5
11
Net loss from asset sales
3
—
—
Interest income
(5)
(1)
(4)
Other, net
(6)
3
(15)
$
41
$
67
$
70
In 2022, Foreign currency (gains) losses, net includes a $39 gain for the remeasurement of monetary balances, primarily
cash, related to the Company’s former operations in Russia (see Note S) from rubles to the U.S. dollar. This gain was the result
of a significant strengthening of the Russian ruble against the U.S. dollar in the period.
In 2020, Other, net includes a $20 benefit for the reversal of a liability previously established at the Separation Date related
to a potential indemnification to Howmet by Arconic for an outstanding income tax matter in Spain. Under the terms of the Tax
Matters Agreement (see Note A) related to the Separation, Arconic was responsible for 34% of the potential loss related to this
matter should Howmet receive an unfavorable ruling from Spain’s Supreme Court. At the time of Separation, Arconic
74
management believed that the likelihood of the Company performing under the indemnification was probable resulting in a
liability being established on Arconic’s opening balance sheet at the Separation Date. In November 2020, a favorable ruling was
received from Spain’s Supreme Court bringing a final conclusion to this matter as this decision may not be appealed any
further. As no further income tax payment was required of Howmet likewise Arconic no longer has a requirement to perform
under the indemnification.
H. Pension and Other Postretirement Benefits
Defined Benefit Pension and Other Postretirement Benefit Plans
Arconic sponsors several defined benefit pension and other postretirement plans covering eligible employees and retirees
in U.S. and foreign locations. Pension benefits generally depend on length of service and job grade. Substantially all benefits
are paid through pension trusts that are sufficiently funded to ensure that the related plans can pay benefits to retirees as they
become due. Most salaried and non-bargaining hourly U.S. employees hired after March 1, 2006, participate in a defined
contribution plan instead of a defined benefit plan. The Company has one health care and life insurance postretirement benefit
plan covering eligible U.S. retirees. The plan is unfunded and pays a percentage of medical expenses, reduced by deductibles
and other coverage. Life benefits are provided by insurance contracts. Arconic retains the right, subject to existing agreements,
to change or eliminate these benefits. Certain bargaining hourly U.S. employees hired on or after July 1, 2010 and all salaried
and non-bargaining hourly U.S. employees are not eligible for postretirement health care benefits. All salaried and most hourly
U.S. employees are not eligible for postretirement life insurance benefits.
United Steelworkers Labor Agreement—On May 14, 2022, the Company and the United Steelworkers reached a
tentative four-year labor agreement covering approximately 3,300 employees at four U.S. locations; the previous labor
agreement expired on May 15, 2022. The tentative agreement was ratified by the union employees on June 1, 2022. In 2022,
Arconic recognized $19 in Cost of goods sold on the accompanying Statement of Consolidated Operations primarily for a one-
time signing bonus for the covered employees. Additionally, the new labor agreement provides for, among other items,
established annual wage increases and higher multipliers used to calculate the union employees' future pension benefits.
The change to the pension benefits qualifies as a significant plan amendment to the Company's U.S. hourly defined benefit
pension plan, and, as a result, Arconic was required to complete a remeasurement of this plan (generally completed on an
annual basis as of December 31st), including an interim actuarial valuation of the plan obligations. Communication of the
benefit change to the union employees occurred on May 15, 2022, and the effective date of this amendment was May 16, 2022.
For purposes of performing an interim remeasurement of the plan, the Company applied a practical expedient to the
remeasurement date and selected May 31, 2022. Accordingly, the discount rate used in calculating the plan obligations
increased to 4.66% at May 31, 2022 from 2.96% at December 31, 2021. The remeasurement of this plan, together with the
amendment for increased benefits, resulted in a $13 net decrease to Accrued pension benefits and a $10 (after-tax) net decrease
to Accumulated other comprehensive loss (see Note L) on the accompanying Consolidated Balance Sheet. Additionally, annual
net periodic benefit cost to be recognized for this plan in 2022 increased by $8, comprised of a $2 decrease in service cost and a
$10 increase in non-service costs.
U.S. Pension Plan Interim Settlement—In September 2022, management concluded that it was probable that lump-sum
benefit payments expected to be paid in 2022 under Arconic's U.S. salary defined benefit pension plan will exceed the pre-
determined threshold (sum of annual service cost and interest cost) requiring settlement accounting. As a result, the Company
was required to complete a remeasurement of this plan (generally completed on an annual basis as of December 31st), including
an interim actuarial valuation of the plan obligations. For purposes of performing an interim remeasurement of the plan,
Arconic applied a practical expedient to the remeasurement date and selected September 30, 2022. Accordingly, the discount
rate used in calculating the plan obligations increased to 5.71% at September 30, 2022 from 2.82% at December 31, 2021. The
remeasurement of this plan, together with the settlement of benefits, resulted in a $34 net decrease to Accrued pension benefits
and a $26 (after-tax) net decrease to Accumulated other comprehensive loss (see Note L) on the accompanying Consolidated
Balance Sheet. Unfavorable plan asset performance offset most of the impact of the increase in the discount rate. Also, the
settlement resulted in the accelerated amortization of a portion of the existing net actuarial loss associated with this plan in the
amount of $15 ($12 after-tax). This amount was reclassified to earnings through Restructuring and other charges (see Note E)
from Accumulated other comprehensive loss (see Note L). Additionally, annual net periodic benefit cost to be recognized for
this plan in 2022 increased by $8, all of which relates to non-service costs.
U.S. Pension Plan Annuitizations—In April 2021, Arconic purchased a group annuity contract to transfer the obligation
to pay the remaining retirement benefits of approximately 8,400 participants in two U.S. defined benefit pension plans to an
insurance company. In connection with this transaction, the Company contributed a total of $250 to the two plans to maintain
the funding level of the remaining plan obligations not transferred. This contribution was funded with the net proceeds from a
75
March 2021 debt offering (see 2021 Activity in Note Q). Prior to this action, these two plans had an aggregate of approximately
23,000 participants.
This transaction represents a significant settlement event, and, as a result, the Company was required to complete a
remeasurement of these two plans (generally completed on an annual basis as of December 31st), including an interim actuarial
valuation of the plan obligations. Accordingly, the weighted-average discount rate used in calculating the plan obligations
increased to 3.10% as of April 30, 2021 from 2.54% as of December 31, 2020. The remeasurement resulted in a combined
projected benefit obligation and fair value of plan assets of $3,337 and $2,790, respectively, as of April 30, 2021. From these
amounts, the group annuity transaction resulted in the settlement of $995 in plan obligations and the transfer of $1,007 in plan
assets. The remeasurement of these two plans, together with the annuitization, resulted in a $152 net decrease to Accrued
pension benefits and a $117 (after-tax) net decrease to Accumulated other comprehensive loss (see Note L). Additionally, the
annuitization resulted in the accelerated amortization of a portion of the existing net actuarial loss associated with these two
plans in the amount of $549 ($423 after-tax). This amount was reclassified to earnings through Restructuring and other charges
(see Note E) from Accumulated other comprehensive loss (see Note L).
In December 2020, Arconic purchased a group annuity contract to transfer the obligation to pay the remaining retirement
benefits of approximately 7,000 participants from two U.S. defined benefit pension plans to an insurance company. On a
combined basis, this transaction resulted in the settlement of approximately $240 in plan obligations and the transfer of
approximately $245 in plan assets. Prior to this action, these two plans had approximately 30,000 participants combined. The
Company recognized a $140 ($108 after-tax) settlement charge, which represents the accelerated amortization of a portion of
the existing net actuarial loss associated with these plans. This amount was reclassified to earnings through Restructuring and
other charges (see Note E) from Accumulated other comprehensive loss (see Note L).
U.S. OPEB Plan Amendments—In August 2021, Arconic modified the medical benefit coverage offered to certain
Medicare-eligible participants under the Company's U.S. other postretirement benefit plan. Effective January 1, 2022, this
modification results in lower premiums and increased benefits to the participants. This change qualifies as a significant plan
amendment to the Company's U.S. other postretirement benefit plan. Accordingly, this plan was required to be remeasured, and
through this process, the discount rate was updated to 2.78% at August 31, 2021 from 2.61% at December 31, 2020. The
amendment, together with the remeasurement of this plan, resulted in a $34 net decrease to the Company's other postretirement
benefits liability and a $26 (after-tax) net decrease to Accumulated other comprehensive loss (see Note L) on the accompanying
Consolidated Balance Sheet. The impact of this change on the Company's annual net periodic benefit cost is not material. The
Company's estimated annual benefit payments will decrease by approximately $4 beginning in 2022.
In July 2020, Arconic and the United Steelworkers agreed to modify the medical benefit coverage offered to certain
Medicare-eligible participants under the Company's U.S. other postretirement benefit plan, as provided for in the current master
collective bargaining agreement between the parties. Effective January 1, 2021, this modification results in lower premiums and
increased benefits to the participants. This change qualifies as a significant plan amendment to the Company's U.S. other
postretirement benefit plan. Accordingly, this plan was required to be remeasured, and through this process, the discount rate
was updated to 2.54% at July 31, 2020 from 3.17% at December 31, 2019. The amendment, together with the remeasurement of
this plan, resulted in a net decrease to both the Company's other postretirement benefits liability of $7 and Accumulated other
comprehensive loss of $5 (after-tax). The impact of this change on the Company's annual net periodic benefit cost is not
material. The Company's estimated annual benefit payments decreased by approximately $20 beginning in 2021.
U.K. Pension Plan Annuitization—In June 2020, Arconic and Howmet, together, executed several liability management
actions related to approximately 1,800 participants in a U.K. defined benefit pension plan. The primary action was the purchase
of a group annuity contract to transfer the obligation to pay the remaining retirement benefits of certain plan participants to an
insurance company. On a combined basis, these actions resulted in the settlement of approximately $400 in plan obligations and
the transfer of approximately $460 in plan assets. In the 2020 second quarter, the Company contributed $10 to the plan to
facilitate these actions and maintain the funding level of the remaining plan obligations. Prior to these actions, this plan had
approximately 3,350 participants combined.
Accordingly, this plan was required to be remeasured, and through this process, the discount rate was updated to 1.55% at
June 30, 2020 from 2.05% at December 31, 2019. The settlement events, together with the remeasurement of the plan, resulted
in an approximately $250 net reduction to the Company’s remaining plan obligation and both a decrease to the Company’s
pension benefit asset and a settlement charge of $58 ($48 after-tax) in 2020. The settlement charge represents the accelerated
amortization of a portion of the existing net actuarial loss associated with this plan. This amount was reclassified to earnings
through Restructuring and other charges (see Note E) from Accumulated other comprehensive loss. Subsequent to this
remeasurement, the remaining respective plan obligations and plan assets attributable to Arconic and Howmet were transferred
into separate plans and the existing U.K. plan was terminated. Immediately following the completion of the transfer, the
76
Company’s remaining plan obligation was approximately $240 and the plan assets were approximately $260 related to 1,050
plan participants.
The Separation—The above descriptions of retirement benefits for Arconic participants also describe the retirement
benefits provided to the employees and retirees of ParentCo prior to the Separation Date.
Prior to the Separation Date for certain non-U.S. plans, eligible employees and retirees related to the Arconic Corporation
Businesses participated in ParentCo-sponsored defined benefit pension and other postretirement plans (the “Shared Plans”),
which included participants related to the Howmet Aerospace Businesses and ParentCo corporate participants, as well as
eligible retirees from previously closed or sold operations. Also, prior to the Separation Date, other eligible employees and
retirees related to the Arconic Corporation Businesses participated in certain non-U.S. defined benefit pension and other
postretirement plans (the “Direct Plans”).
The Company accounted for the portion of the Shared Plans related to its employees as multiemployer benefit plans.
Accordingly, Arconic did not record an asset or liability to recognize the funded status of the Shared Plans. However, the related
pension and other postretirement benefit expenses attributable to Arconic were based primarily on pensionable compensation of
active Arconic participants and estimated interest costs, respectively. The Company also recorded an allocation of pension and
other postretirement benefit expenses for the Shared Plans attributable to ParentCo corporate participants, as well as to
participants related to closed and sold operations (see Cost Allocations in Note A).
The Direct Plans were accounted for as defined benefit pension and other postretirement plans. Accordingly, the funded
status of each Direct Plan was recorded in the Company’s Consolidated Balance Sheet. Actuarial gains and losses that had not
yet been recognized in earnings were recorded in Accumulated other comprehensive loss until they were amortized as a
component of net periodic benefit cost. The determination of benefit obligations and recognition of expenses related to Direct
Plans were dependent on various assumptions, including, among others, discount rates, long-term expected rates of return on
plan assets, and future compensation increases. Management developed each assumption using relevant company experience in
conjunction with market-related data for each of the plans.
In preparation for the Separation, effective January 1, 2020, certain U.S. pension and other postretirement benefit plans
previously sponsored by ParentCo (the “U.S. Shared Plans” – see above) were separated into standalone plans for both Arconic
(the “New Direct Plans”) and Howmet. Accordingly, on January 1, 2020, Arconic recognized an aggregate liability of $1,920,
of which $60 was current, reflecting the combined net funded status of the New Direct Plans, comprised of a benefit obligation
of $4,255 and plan assets of $2,335, as well as $1,752 (net of tax impact) in Accumulated other comprehensive loss
representing a net actuarial loss.
Additionally, effective on the Separation Date, certain other Shared Plans (the “Additional New Direct Plans,” and,
collectively with the Direct Plans and New Direct Plans, the “Cumulative Direct Plans”) were assumed by Arconic.
Accordingly, on the Separation Date, Arconic recognized a noncurrent asset of $65 and a noncurrent liability of $15, reflecting
the combined net funded status of the Additional New Direct Plans, as well as $50 (net of tax impact) in Accumulated other
comprehensive loss representing a net actuarial loss.
77
The funded status of Arconic’s Cumulative Direct Plans is measured as of December 31 each calendar year. All the
information that follows for pension and other postretirement benefit plans is only applicable to the Cumulative Direct Plans, as
appropriate.
Obligations and Funded Status
Pension benefits
Other postretirement benefits
December 31,
2022
2021
2022
2021
Change in benefit obligation
Benefit obligation at beginning of year
$
2,817 $
4,081 $
440 $
514
Service cost
16
21
5
6
Interest cost
75
63
10
11
Amendments
23
—
—
(30)
Actuarial gains(1)
(722)
(105)
(96)
(23)
Benefits paid
(135)
(183)
(30)
(38)
Settlements
(78)
(1,051)
—
—
Foreign currency translation impact
(33)
(9)
—
—
Divestitures
(2)
—
—
—
Benefit obligation at end of year(2)
$
1,961 $
2,817 $
329 $
440
Change in plan assets
Fair value of plan assets at beginning of year
$
2,124 $
2,754 $
— $
—
Actual return on plan assets
(535)
177
—
—
Employer contributions
31
458
—
—
Benefits paid
(127)
(176)
—
—
Settlements
(78)
(1,069)
—
—
Foreign currency translation impact
(32)
(3)
—
—
Administrative expenses
—
(17)
—
—
Fair value of plan assets at end of year(2)
$
1,383 $
2,124 $
— $
—
Funded status(2)
$
(578) $
(693)
$
(329) $
(440)
Amounts recognized on the Consolidated Balance Sheet:
Noncurrent assets
$
15 $
32
$
— $
—
Current liabilities
(7)
(8)
(27)
(29)
Noncurrent liabilities
(586)
(717)
(302)
(411)
Net amount recognized
$
(578) $
(693)
$
(329) $
(440)
Amounts recognized in Accumulated Other Comprehensive Loss (pretax):
Net actuarial loss
$
1,165 $
1,389 $
62 $
166
Prior service cost (benefit)
20
—
(77)
(85)
Net amount recognized
$
1,185 $
1,389
$
(15) $
81
Other changes in plan assets and benefit obligations recognized in
Other Comprehensive Income (pretax):
Net actuarial gain
$
(103) $
(137)
$
(96) $
(23)
Amortization of net actuarial loss (includes settlements)
(121)
(678)
(8)
(8)
Prior service cost (benefit)
23
—
—
(30)
Amortization of prior service (cost) benefit
(3)
—
8
6
Total
$
(204) $
(815)
$
(96) $
(55)
_____________________
(1) At December 31, 2022 and 2021, actuarial gains for pension benefits include approximately $(725) and $(130),
respectively, and for other postretirement benefits includes approximately $(100) and $(15), respectively, attributable to the
change in the discount rate used to determine the benefit obligation (see “Assumptions” below).
(2) At December 31, 2022, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were
$1,716, $1,167, and $549, respectively. At December 31, 2021, the benefit obligation, fair value of plan assets, and funded
status for U.S. pension plans were $2,398, $1,744, and $654, respectively.
78
Pension Plan Benefit Obligations
Pension benefits
December 31,
2022
2021
The projected benefit obligation and accumulated benefit obligation for all defined benefit
pension plans was as follows:
Projected benefit obligation
$
1,961 $
2,817
Accumulated benefit obligation
1,956
2,807
The aggregate projected benefit obligation and fair value of plan assets for defined benefit
pension plans with projected benefit obligations in excess of plan assets was as follows:
Projected benefit obligation
1,759
2,472
Fair value of plan assets
1,167
1,747
The aggregate accumulated benefit obligation and fair value of plan assets for defined
benefit pension plans with accumulated benefit obligations in excess of plan assets was as
follows:
Accumulated benefit obligation
1,755
2,464
Fair value of plan assets
1,167
1,747
Components of Net Periodic Benefit Cost
Pension benefits(1)
Other postretirement benefits
For the year ended December 31,
2022
2021
2020
2022
2021
2020
Service cost
$
16 $
21 $
21 $
5 $
6 $
5
Interest cost
75
63
108
10
11
13
Expected return on plan assets
(87)
(110)
(170)
—
—
—
Amortization of net actuarial loss
74
94
123
8
8
8
Amortization of prior service benefit
3
—
—
(8)
(6)
(4)
Settlements(2)
47
584
199
—
—
—
Net periodic benefit cost(3)
$
128 $
652 $
281 $
15 $
19 $
22
_____________________
(1) In 2022 and 2021, net periodic benefit cost for U.S pension plans was $127 and $653, respectively.
(2) In 2022, Settlements were due to the payment of lump-sum benefits. In 2021, Settlements were due to the purchase of a
group annuity contract ($549 - see U.S. Pension Plan Annuitizations above) and the payment of lump-sum benefits ($35).
In 2020, Settlements were due to two separate purchases of a group annuity contract (see U.S. Pension Plan Annuitizations
and U.K. Pension Plan Annuitization above).
(3) Service cost was included within Cost of goods sold, Settlements were included within Restructuring and other charges,
and all other components were included in Other expenses (income), net on the accompanying Statement of Consolidated
Operations.
Assumptions
Weighted average assumptions used to determine benefit obligations and net periodic benefit cost for pension and other
postretirement benefit plans were as follows:
Benefit obligations
Net periodic benefit cost
December 31,
For the year ended December 31,
2022
2021
2022
2021
2020
Discount rate—pension plans
5.49 %
2.76 %
2.76 %
2.27 %
2.86 %
Discount rate—other postretirement benefit
plans
5.62
2.90
2.99
2.19
2.49
Rate of compensation increase—pension plans
2.67
2.66
2.66
2.54
3.20
Expected long-term rate of return on plan
assets—pension plans
—
—
5.18
4.91
6.09
79
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 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. The yield
curve model parallels the projected plan cash flows, which have a weighted average duration of 11 years, and the underlying
cash flows of the bonds included in the model exceed the cash flows needed to satisfy the plan obligations multiple times. If a
deep market of high quality corporate bonds does not exist in a country, then the yield on government bonds is used.
The expected long-term rate of return on plan assets is generally applied to a five-year market-related value of plan assets
(the fair value at the plan measurement date is used for certain non-U.S. plans). The process used by management to develop
this assumption is one that relies on forward-looking investment returns by asset class. Management incorporates expected
future investment returns on current and planned asset allocations using information from various external investment managers
and consultants, as well as management’s own judgment. For 2022 and 2021, 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. For 2023, management anticipates that the weighted-average expected long-term rate of return will be in the range of
5.50% to 6.50%.
Weighted-average assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows (non-
U.S. plans are not material):
2022
2021
Health care cost trend rate assumed for next year
6.3 %
4.5 %
Rate to which the cost trend rate gradually declines
4.5 %
4.7 %
Year that the rate reaches the rate at which it is assumed to remain
2029
2027
The assumed health care cost trend rate is used to measure the expected cost of gross eligible charges covered by the
Company’s other postretirement benefit plans. For 2023, a 6.3% trend rate will be used, reflecting management’s best estimate
of the change in future health care costs covered by the plans.
Plan Assets
Arconic’s pension plan investment policy and weighted average asset allocations at December 31, 2022 and 2021, by asset
class, were as follows:
Plan assets at December 31,
Asset class
Policy maximum
2022
2021
Equities
40%
22 %
31 %
Fixed income
100%
62
56
Other investments
30%
16
13
Total
100 %
100 %
The principal objectives underlying the investment of the pension plan 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. The use of derivative instruments is permitted
where appropriate and necessary for achieving diversification across the balance of the asset portfolio. Investment practices
comply with the requirements of applicable country laws and regulations.
The following section describes the valuation methodologies used by the trustees to measure the fair value of pension plan
assets. For plan assets measured at net asset value, this refers to the net asset value of the investment on a per share basis (or its
equivalent) as a practical expedient. Otherwise, an indication of the level in the fair value hierarchy in which each type of asset
is generally classified is provided (see Note U 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 net asset value; and (iii) direct investments in long/short equity hedge funds and private equity (limited
partnerships and venture capital partnerships) and are valued at net asset value.
80
Fixed income—These securities consist of: (i) U.S. government debt and are generally valued using quoted prices
(included in Level 1); and (ii) publicly traded U.S. and non-U.S. fixed interest obligations (principally corporate 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).
Other investments—These investments include, among others: (i) real estate investment trusts valued based on the closing
price reported in an active market on which the investments are traded (included in Level 1); (ii) the plans’ share of
commingled funds that are invested in real estate partnerships and are valued at net asset value; (iii) direct investments in
discretionary and systematic macro hedge funds and private real estate (includes limited partnerships) and are valued at net
asset value; and (iv) absolute return strategy funds and are valued at net asset value.
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 either the appropriate level of the fair
value hierarchy or net asset value:
December 31, 2022
Level 1
Level 2
Level 3
Net Asset
Value
Total
Equities:
Equity securities
$
1 $
— $
— $
120 $
121
Long/short equity hedge funds
—
—
—
23
23
Private equity
—
—
—
156
156
$
1 $
— $
— $
299 $
300
Fixed Income:
Intermediate and long duration government/credit
$
113 $
277 $
— $
369 $
759
Other
5
—
—
91
96
$
118 $
277 $
— $
460 $
855
Other investments:
Real estate
$
— $
— $
— $
93 $
93
Discretionary and systematic macro hedge funds
—
—
—
100
100
Other
—
—
—
29
29
$
— $
— $
— $
222 $
222
Total*
$
119 $
277 $
— $
981 $
1,377
81
December 31, 2021
Level 1
Level 2
Level 3
Net Asset
Value
Total
Equities:
Equity securities
$
12 $
— $
— $
392 $
404
Long/short equity hedge funds
—
—
—
24
24
Private equity
—
—
—
224
224
$
12 $
— $
— $
640 $
652
Fixed Income:
Intermediate and long duration government/credit
$
95 $
412 $
— $
612 $
1,119
Other
23
—
—
50
73
$
118 $
412 $
— $
662 $
1,192
Other investments:
Real estate
$
— $
— $
— $
108 $
108
Discretionary and systematic macro hedge funds
—
—
—
99
99
Other
—
—
—
77
77
$
— $
— $
— $
284 $
284
Total*
$
130 $
412 $
— $
1,586 $
2,128
______________________
*
As of December 31, 2022 and 2021, the total fair value of pension plan assets excludes a net receivable of $7 and net
payable of $4, respectively, which represents securities not yet settled plus interest and dividends earned on various
investments.
Funding and Cash Flows
It is Arconic’s policy to contribute amounts to funded defined benefit pension plans sufficient to meet the minimum
requirements set forth in applicable country employee benefit and tax regulations, including ERISA for U.S. plans. From time
to time, Arconic may contribute additional amounts as deemed appropriate. In 2022, 2021, and 2020, cash contributions to
Arconic’s funded defined benefit pension plans were $31, $458, and $271, respectively. The 2021 cash contributions include a
total of $250 made by the Company in April 2021 to its two funded U.S. defined benefit pension plans to maintain the funding
level of the remaining plan obligations not transferred under a group annuity contract (see U.S. Pension Plan Annuitizations
above). The minimum required contributions to Arconic’s funded defined benefit pension plans in 2023 are estimated to be $38,
of which $31 is for U.S. plans. Benefit payments expected to be paid to pension (funded and unfunded) and other
postretirement benefit plan participants are as follows:
For the year ended December 31,
Pension
benefits
Other
postretirement
benefits
2023
$
142 $
27
2024
142
27
2025
143
27
2026
146
27
2027
145
26
2028 through 2032
719
127
$
1,437 $
261
82
Defined Contribution Plans
Arconic sponsors savings and investment plans in the United States and certain other countries. Prior to the Separation
Date, employees attributable to the Arconic Businesses participated in ParentCo-sponsored plans. In the United States,
employees may contribute a portion of their compensation to the plans, and Arconic (ParentCo prior to the Separation Date)
matches a specified percentage of these contributions in equivalent form of the investments elected by the employee. Also,
Arconic (ParentCo prior to the Separation Date) makes contributions to a retirement savings account based on a percentage of
eligible compensation for certain U.S. employees. Arconic’s expenses (contributions) related to all defined contribution plans
were $45 in 2022, $39 in 2021, and $35 in 2020.
I. Income Taxes
(Benefit) Provision for income taxes. The components of loss before income taxes were as follows:
For the year ended December 31,
2022
2021
2020
Domestic - United States
$
(65)
$
(611) $
(126)
Foreign
(127)
152
18
$
(192) $
(459) $
(108)
(Benefit) Provision for income taxes consisted of the following:
For the year ended December 31,
2022
2021
2020
Current:
U.S. federal*
$
8 $
— $
—
Foreign
23
36
13
U.S. state and local
3
2
4
34
38
17
Deferred:
U.S. federal*
(18)
(86)
(12)
Foreign
(1)
(2)
4
U.S. state and local
(26)
(12)
(8)
(45)
(100)
(16)
Total
$
(11) $
(62) $
1
__________________
*
Includes U.S. income taxes related to foreign income. Also, in 2020, the Deferred amount includes a $21 charge related to
income generated by the Company prior to the Separation Date that was included in ParentCo’s 2020 tax return.
83
A reconciliation of the U.S. federal statutory rate to Arconic’s effective tax rate was as follows (the effective tax rate was a
benefit on loss in 2022, a benefit on loss in 2021, and a provision on loss in 2020):
For the year ended December 31,
2022
2021
2020
U.S. federal statutory rate
21.0 %
21.0 %
21.0 %
Taxes on foreign operations - rate differential
14.4
0.1
(4.8)
Other taxes related to foreign operations(1)
(2.4)
(5.0)
(9.4)
U.S. state and local taxes, including federal benefit
0.1
2.6
3.3
Statutory tax rate and law changes
(2.8)
—
(2.1)
Changes in valuation allowances
13.1
(0.9)
(7.3)
Non-taxable income - indemnification liability(2)
0.4
0.4
3.8
Subsidiary recapitalizations and reorganizations
—
(1.1)
(3.9)
Impairment of goodwill
—
(3.0)
—
Non-deductible loss related to sale of Russian operations (S)
(37.9)
—
—
Changes in uncertain tax positions
11.2
(0.1)
—
Stock-based compensation
3.1
0.8
0.9
Non-deductible costs related to the Separation (A)
—
—
(2.2)
Write-off of deferred tax assets due to remote utilization(3)
(13.0)
—
—
Non-deductible officer compensation
(1.3)
(0.2)
—
Other
(0.2)
(1.1)
(0.2)
Effective tax rate
5.7 %
13.5 %
(0.9) %
_____________________
(1) In 2021, this line item includes the impact of incremental income tax expense of $11 related to foreign operations that
generated income subject to the global intangible low-taxed income inclusion under the U.S. Internal Revenue Code.
(2) In 2020, this line item reflects the impact of the absence of income tax expense for non-taxable income generated by the
reversal of a liability previously established at the Separation Date related to a potential indemnification to Howmet by
Arconic for an outstanding income tax matter in Spain (see Note G).
(3) In 2022, this line item reflects the write-off of a foreign subsidiary’s deferred tax assets on the basis of remote likelihood of
utilization. The deferred tax assets were previously fully offset by a reserve for an uncertain tax position (see Uncertain tax
positions below) and a valuation allowance (see Deferred income taxes below). The Changes in valuation allowances and
Changes in uncertain tax positions line items include 1.8% and 11.2%, respectively, related to the foreign subsidiary
deferred tax write-off.
84
Deferred income taxes. The components of deferred tax assets and liabilities based on the underlying attributes without
regard to jurisdiction were as follows:
2022
2021
December 31,
Deferred
tax
assets
Deferred
tax
liabilities
Deferred
tax
assets
Deferred
tax
liabilities
Employee benefits
$
264
$
—
$
331
$
—
Tax loss carryforwards
181
—
206
—
Deferred income/expense*
45
—
47
—
Interest
42
—
44
—
Operating lease right-of-use assets and liabilities
25
25
30
30
Loss provisions
27
—
24
—
Inventory accounting method change*
—
63
—
97
Depreciation
13
245
13
267
Other
4
13
17
11
$
601
$
346
$
712
$
405
Valuation allowance
(70)
—
(90)
—
$
531
$
346
$
622
$
405
_____________________
*
In 2021, an accounting method change was filed to revoke the U.S. tax LIFO election. In 2022, an accounting method
change was filed related to inventory cost capitalization.
The following table details the expiration periods of the deferred tax assets presented above:
December 31, 2022
Expires
within
10 years
Expires
within
11-20 years
No expiration(1)
Other(2)
Total
Tax loss carryforwards
$
42
$
31 $
108 $
— $
181
Employee benefits
—
—
—
264
264
Other
—
1
42
113
156
Valuation allowance
(42)
—
(7)
(21)
(70)
$
—
$
32 $
143 $
356 $
531
_____________________
(1) Deferred tax assets with no expiration may still have annual limitations on utilization.
(2) Employee benefits 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 participants. Other represents deferred tax assets whose expiration is
dependent upon the reversal of the underlying temporary difference.
The total deferred tax asset (net of valuation allowance) is supported by projections of future taxable income exclusive of
reversing temporary differences (35%) and taxable temporary differences that reverse within the carryforward period (65%).
85
The following table details the changes in the valuation allowance:
December 31,
2022
2021
2020
Balance at beginning of year
$
90
$
91
$
113
Establishment of new allowances(1)
2
3
—
Net change to existing allowances(2)
11
(3)
(16)
Separation-related adjustments
—
—
22
Acquisitions and divestitures
(7)
—
(31)
Release of allowances(3)
(21)
—
—
Foreign currency translation
(5)
(1)
3
Balance at end of year
$
70
$
90 $
91
_____________________
(1) This line item reflects valuation allowances initially established as a result of a change in management’s judgement
regarding the realizability of deferred tax assets.
(2) This line item reflects movements in previously established valuation allowances, which increase or decrease as the related
deferred tax assets increase or decrease. Such movements occur as a result of remeasurement due to a tax rate change and
changes in the underlying attributes of the deferred tax assets, including expiration of the attribute and reversal of the
temporary difference that gave rise to the deferred tax assets.
(3) This line item reflects valuation allowances released as a result of a change in management’s judgement regarding the
realizability of deferred tax assets. In 2022, Arconic released a U.S. state valuation allowance ($18) after completing a legal
entity reorganization, which resulted in management concluding it is now more likely than not the Company will realize
the benefits of the tax attributes. Additionally, in 2022, the Company released a foreign valuation allowance in connection
with the write-off of the related deferred tax assets ($3 – see footnote 3 to the reconciliation of the U.S. federal statutory
rate to Arconic’s effective tax rate above).
Undistributed net earnings. Foreign undistributed net earnings that have not otherwise previously been subject to U.S.
tax are generally exempt from U.S. tax if repatriated in the future. Such future distributions, as well as distributions of
previously taxed foreign earnings, may be subject to U.S. state and/or foreign withholding taxes in certain jurisdictions. Also,
foreign currency gains/losses related to the translation of previously taxed foreign earnings from the functional currency to the
U.S. dollar may be subject to U.S. tax if such earnings were to be distributed in the future. At this time, management has no
plans to repatriate such earnings in the foreseeable future, unless it is tax efficient to do so. Management continuously evaluates
the Company’s local and global cash needs for future business operations and anticipated debt facilities, which may influence
future repatriation decisions. If such earnings were to be distributed in the future, management does not expect the potential
U.S. state and/or foreign withholding taxes to be material to the Company’s Consolidated Financial Statements.
The undistributed earnings of the Company’s Canadian subsidiary are expected to be repatriated to the U.S. in a future
period. The associated withholding tax and other costs are immaterial.
Uncertain tax positions. Arconic and its subsidiaries file income tax returns in various U.S. federal, U.S. state, and
foreign jurisdictions. For U.S. federal income tax purposes, Arconic’s U.S. operations were included in the income tax filings of
ParentCo’s U.S. consolidated tax group through March 31, 2020. ParentCo’s U.S. federal income tax filings have been
examined for all periods through 2020. In 2021, the Company’s U.S. consolidated tax group filed a nine-month U.S. federal
income tax return (April 1, 2020 through December 31, 2020). The Company’s U.S. federal income tax filings for 2020 and
2021 are subject to income tax examination. For U.S. state income tax purposes, Arconic and its subsidiaries remain open to
examination for the 2019 tax year and forward. For foreign income tax purposes, Arconic and its subsidiaries remain subject to
income tax examinations for the 2014 tax year and forward.
86
A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) was as
follows:
December 31,
2022
2021
2020
Balance at beginning of year
$
22 $
23 $
21
Additions for tax positions of prior years
—
1
—
Reductions for tax positions of prior years*
(20)
—
—
Settlements with tax authorities
(1)
—
—
Foreign currency translation
(1)
(2)
2
Balance at end of year
$
— $
22 $
23
_____________________
*
See footnote 3 to the reconciliation of the U.S. federal statutory rate to Arconic’s effective tax rate above.
Unrecognized tax benefits, if recognized, would not impact the annual effective tax rate for 2022, 2021, and 2020.
Management does not anticipate that changes in the Company's unrecognized tax benefits will have a material impact on the
Statement of Consolidated Operations during 2023.
It is Arconic’s policy to recognize interest and penalties related to income taxes as a component of the (Benefit) Provision
for income taxes on the accompanying Statement of Consolidated Operations. In 2022, 2021, and 2020, Arconic did not
recognize any interest or penalties. As of December 31, 2022 and 2021, no interest and penalties were accrued.
J. Earnings Per Share
Basic earnings per share (EPS) amounts are computed by dividing Net loss attributable to Arconic by the weighted-average
number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive
share equivalents outstanding. Specific to Arconic, such share equivalents consist of outstanding employee stock awards
(excluding out-of-the-money stock options – see below). For periods in which the Company generates net income, the diluted
weighted-average number of shares include common share equivalents associated with outstanding employee stock awards. For
periods in which the Company generates a net loss, common share equivalents are excluded from the diluted weighted-average
number of shares as their effect is anti-dilutive.
The share information used to compute basic and diluted EPS attributable to Arconic common stockholders was as follows
(shares in millions):
2022
2021
2020
Weighted-average shares outstanding – basic
103.6
108.7
109.1
Effect of dilutive share equivalents:
Stock options
—
—
—
Stock units
—
—
—
Weighted-average shares outstanding – diluted
103.6
108.7
109.1
Anti-dilutive share equivalents:
Stock units
2.6
3.3
2.6
Stock options*:
In-the-money
0.1
0.1
—
Out-of-the-money
—
—
—
2.7
3.4
2.6
_____________________
* Stock options are in-the-money when the respective exercise price of each such option is less than the average market price
of the Company’s common stock during the applicable period presented. Conversely, stock options are out-of-the-money
when the respective exercise price of each such option is more than the average market price of the Company’s common
stock during the applicable period presented. Out-of-the-money stock options never result in common share equivalents for
purposes of diluted EPS regardless of whether a company generates net income or a net loss. As of December 31, 2022 and
87
December 31, 2020 there were 0.3 million and 0.5 million out-of-the money stock options outstanding, respectively, with a
weighted average exercise price of $29.90 and $33.32, respectively.
K. Preferred and Common Stock
Preferred Stock. Arconic is authorized to issue 10,000,000 shares of preferred stock at a par value of $0.01 per share. At
December 31, 2022 and 2021, the Company had no issued preferred stock.
Common Stock. Arconic is authorized to issue 150,000,000 shares of common stock at a par value of $0.01 per share. On
the Separation Date, the Company distributed 109,021,376 shares of its common stock to ParentCo’s stockholders (see Note A).
As of December 31, 2022 and 2021, Arconic had 111,280,206 and 110,239,390, respectively, issued and 99,432,194 and
105,326,885, respectively, outstanding shares of common stock. In 2022, 2021, and from the Separation Date through
December 31, 2020, the Company issued 1,040,816, 1,034,164, and 183,850, respectively, shares of common stock under its
employee stock-based compensation plan (see below).
On May 4, 2021, Arconic announced that its Board of Directors approved a share repurchase program authorizing the
Company to repurchase shares of its outstanding common stock up to an aggregate transactional value of $300 over a two-year
period expiring April 28, 2023. In 2022 and 2021, Arconic repurchased 4,863,672 and 4,912,505 shares, respectively, of the
Company's common stock for $139 and $161, respectively, resulting in completion of the total authorization under this program
in August 2022. In connection with the establishment of a new repurchase program (see below), this repurchase program was
terminated. Repurchases under the program were made from time to time, as the Company deemed appropriate, based on a
variety of factors such as price, capital position, liquidity, financial performance, alternative uses of capital, and overall market
conditions. This program was intended to comply with Rule 10b5-1 and all purchases were made in compliance with Rule 10b-
18, including without limitation the timing, price, and volume restrictions thereof.
On November 16, 2022, Arconic announced that its Board of Directors approved a share repurchase program authorizing
the Company to repurchase shares of its outstanding common stock up to an aggregate transactional value of $200 over a two-
year period expiring November 17, 2024. Repurchases under the program may be made from time to time, as the Company
deems appropriate, solely through open market repurchases effected through a broker dealer, based on a variety of factors such
as price, capital position, liquidity, financial performance, alternative uses of capital, and overall market conditions. There can
be no assurance as to the number of shares the Company will purchase. The share repurchase program may be increased or
otherwise modified, renewed, suspended or terminated by the Company at any time, without prior notice. This program is
intended to comply with Rule 10b5-1 and all purchases shall be made in compliance with Rule 10b-18, including without
limitation, the timing, price, and volume restrictions thereof. In 2022, Arconic repurchased 2,071,835 shares of the Company's
common stock for $46 under this program.
The Company issues new shares of common stock to satisfy the exercise of stock options and the conversion of stock units
granted under its employee stock-based compensation plan. On May 20, 2021, the Company’s shareholders approved an
amendment to the plan to increase the shares of common stock authorized for issuance by 3,000,000 to 11,500,000 shares and
to eliminate the plan’s fungible share accounting, with the result that shares issued pursuant to full value stock awards, on or
after the date of amendment, will be counted against the share reserve as one share issued under each such award, rather than as
one and one-half shares. Shares returned to the plan, on or after the date of amendment, will be counted as one share, regardless
of whether such shares were counted as one and one-half shares upon grant based on the prior fungible share accounting
convention. In 2022, 2021, and from the Separation Date through December 31, 2020, there were 147,418, 251,919 and 84,959,
respectively, stock options exercised and 1,314,188, 1,125,983 and 157,230, respectively, stock units converted (see table
below). Additionally, as of December 31, 2022 and 2021, there were 413,592 and 590,906, respectively, stock options and
3,325,170 and 3,913,337, respectively, stock units outstanding (i.e., unexercised and/or unvested) under this plan (see table
below). Accordingly, as of December 31, 2022 and 2021, there were 4,051,334 and 4,749,255, respectively, shares of common
stock available for issuance under the plan.
Dividends on common stock are subject to authorization by the Company’s Board of Directors. Arconic did not declare any
dividends in 2022, 2021, and from Separation Date through December 31, 2020.
Stock-based Compensation
In 2022, 2021, and from the Separation Date through December 31, 2020, eligible Arconic employees participated in the
Company’s stock-based compensation plan. In all periods prior to the Separation Date, eligible employees attributable to the
Arconic Corporation Businesses participated in ParentCo’s stock-based compensation plan.
Effective on the Separation Date, all outstanding stock options (vested and non-vested) and non-vested stock units
originally granted under ParentCo’s stock-based compensation plan related to employees of the Arconic Corporation
88
Businesses, as well as the ParentCo corporate employees that became Arconic employees at Separation, were replaced with
similar stock options and stock units under Arconic’s stock-based compensation plan. In order to preserve the intrinsic value of
these awards, the referenced employees received replacement stock options and stock units under Arconic’s stock-based
compensation plan at a ratio of 1.07 and 2.18, respectively, compared to the number of stock options and stock units originally
granted under ParentCo’s stock-based compensation plan. The ratio for stock options was developed by dividing the March 31,
2020 closing market price ($16.06) of ParentCo’s common stock by the April 1, 2020 opening market price ($15.00) of
Arconic’s common stock (the Company’s common stock did not trade on a “when issued” basis prior to April 1, 2020).
Additionally, the exercise price of stock options was decreased by a ratio of 0.93 developed by dividing $15.00 by $16.06. The
ratio for stock units was developed by dividing the March 31, 2020 closing market price of ParentCo’s common stock by the
volume weighted average trading price ($7.37) of Arconic’s common stock during the first five trading days subsequent to
March 31, 2020. This resulted in a beginning balance of outstanding stock options and stock units under Arconic’s stock-based
compensation plan of 1,173,492 and 3,062,013, respectively, as of the Separation Date. The respective fair values of these stock
options and units were adjusted accordingly. Arconic did not recognize any immediate incremental stock-based compensation
expense as a result of this adjustment.
The following description of Arconic’s stock-based compensation plan is not materially different from the description of
ParentCo’s stock-based compensation plan prior to the Separation.
Stock awards are generally granted in the first quarter of each calendar year to eligible employees at the closing market
price of Arconic’s common stock on the date of grant. Stock options typically grade-vest over a three-year service period (1/3
each year) with a ten-year contractual term; stock units typically cliff-vest on the third anniversary of the award grant date.
Beginning in 2022, stock units either cliff-vest or grade-vest based on the award type and employee’s job level. As a condition
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. In 2022, 2021, and 2020, certain of the stock unit grants also contain both performance and market
conditions (for each year, the “performance stock units”) and were granted to a limited number of eligible employees, including
the Company’s executive officers.
For 2022 and 2021, the final number of performance stock units earned is dependent on Arconic’s achievement of certain
targets (performance condition) and a total stockholder return (“TSR”) (market condition) over a three-year measurement
period. Specifically, determination of the initial number of stock units earned is based on the Company’s achievement of
adjusted EBITDA (50%), return on invested capital (25%), and TSR (25%) targets. Beginning in 2021, TSR was added as a
stand-alone metric rather than a post-performance period multiplier (see below) to further align executive compensation with
the creation of shareholder value as compared to Arconic’s peers. For the 2022 and 2021 performance stock units, cumulative
three-year performance goals (including for the TSR) were established for the performance period.
In 2020, the final number of performance stock units earned is dependent on Arconic’s achievement of certain targets
(performance condition) modified by a TSR multiplier (market condition) over a three-year measurement period. Specifically,
determination of the initial number of stock units earned is based on the Company’s achievement of an adjusted EBITDA target
(25%), a controllable free cash flow target (25%), and a pretax return on net assets target (50%). For the 2020 performance
stock units, the Compensation Committee of the Company's Board of Directors established three one-year financial targets to
address the lack of visibility and challenge in setting long-term financial goals at the outset of the COVID-19 pandemic, while
aligning executive compensation to long-term results. This result is then scaled by the TSR multiplier, which is based on the
Company’s relative three-year (January 1 of the grant year through December 31 of the third year in the service period)
performance against the TSRs of a group of peer companies.
In 2022, 2021, and 2020, Arconic recognized stock-based compensation expense of $15 ($12 after-tax), $22 ($17 after-tax),
and $23 ($18 after-tax), respectively, of which a minimum of approximately 85% was related to stock units in each period. The
amount recognized in 2022 includes a reversal of $4 of expense previously recognized in 2021 related to the performance
condition portion of the 2021 performance stock units (see footnote 2 to table below). No stock-based compensation expense
was capitalized as an asset in 2022, 2021, or 2020. For periods prior to the Separation, the stock-based compensation expense
recorded by Arconic was comprised of two components: (i) the expense associated with employees attributable to the Arconic
Corporation Businesses, and (ii) an allocation of expense related to ParentCo corporate employees (see Cost Allocations in
Note A). In the 2020 Pre-Separation Period, this allocation was $5 of Arconic’s recognized stock-based compensation expense.
Stock-based compensation expense is based on the grant date fair value of the applicable equity grant. For stock units
granted with no market condition, the fair value is equivalent to the closing market price of Arconic’s or ParentCo’s common
stock on the date of grant in the respective periods. For stock units granted with a market condition, the fair value is estimated
on the date of grant using a Monte Carlo simulation model, which generated a result of $37.40, $46.17, and $10.02 per unit in
2022, 2021, and 2020 respectively. There were no stock options granted in 2022, 2021, or 2020.
89
To estimate the fair value of a stock unit with a market condition, the Monte Carlo simulation model uses certain
assumptions, including a risk-free interest rate and volatility, to estimate the probability of satisfying market conditions. The
risk-free interest rate (1.4% in 2022, 0.3% in 2021, and 0.2% in 2020) was based on a yield curve of interest rates at the time of
the grant based on the remaining performance period. Volatility was estimated using implied and historical volatility (60.4% in
2022, 50.1% in 2021, and 35.4% in 2020).
The activity in 2022 for stock options and stock units, including performance stock units granted to the Company's
executive officers, was as follows:
Stock options
Stock units
Number of
options
Weighted
average
exercise price
Number of
units
Weighted
average FMV
per unit
Outstanding, January 1, 2022
590,906 $
25.56
3,913,337 $
15.14
Granted
—
—
1,227,768
25.73
Exercised
(147,418)
20.61
—
—
Converted(1)
—
—
(1,314,188)
9.67
Expired or forfeited
(29,896)
32.25
(194,074)
22.18
Performance share adjustment(2)
—
—
(307,673)
30.84
Outstanding, December 31, 2022
413,592
26.84
3,325,170
19.35
_____________________
(1) The number of converted units includes 420,790 shares “withheld” to meet the Company’s statutory tax withholding
requirements related to the income earned by the employees as a result of vesting in the units.
(2) In 2022, the Company adjusted the target payout of the performance stock units granted in 2022, 2021, and 2020. Since the
respective grant date, the fair value related to the performance condition of the 2022 and 2021 performance stock units has
been expensed based on a payout at 100% of target. Additionally, the fair value related to the 2020 performance stock units
has been expensed based on a payout at 8.3% of target (previously adjusted in the second half of 2021). However, at
December 31, 2022, the estimated future payout for the 2022, 2021, and 2020 performance stock units was determined to
be at 15.9%, 27.2%, and 7.9% of target, respectively. Accordingly, the number of non-vested performance stock units
outstanding were adjusted to reflect the probable payout percentage.
As of December 31, 2022, the 413,592 outstanding stock options had a weighted average remaining contractual life of 2.3
years and a total intrinsic value of $1. Additionally, as of December 31, 2022 all of the total outstanding stock options were
fully vested and exercisable. In 2022, 2021, and from the Separation Date through December 31, 2020, cash received from
stock option exercises was $3, $6, $1, respectively, and the total intrinsic value of stock options exercised was $1, $2, and $1,
respectively.
At December 31, 2022, there was $18 (pretax) of unrecognized compensation expense related to non-vested grants of
stock units. This expense is expected to be recognized over a weighted average period of 1.8 years.
90
L. Accumulated Other Comprehensive Loss
The following table details the activity of the three components that comprise Accumulated other comprehensive loss for
Arconic (such activity for Noncontrolling interest was immaterial for all periods presented):
2022
2021
2020
Pension and other postretirement benefits (H)
Balance at beginning of period
$
(1,121) $
(1,791) $
(43)
Establishment of additional defined benefit plans
—
—
(1,752)
Separation-related adjustments (A)
—
—
(50)
Other comprehensive income:
Unrecognized net actuarial loss and prior service cost/benefit
176
190
(259)
Tax (expense) benefit
(41)
(43)
62
Total Other comprehensive income (loss) before reclassifications,
net of tax
135
147
(197)
Amortization of net actuarial loss and prior service cost/benefit(1)
124
680
326
Tax expense(2)
(30)
(157)
(75)
Total amount reclassified from Accumulated other comprehensive
loss, net of tax(5)
94
523
251
Total Other comprehensive income
229
670
54
Balance at end of period
$
(892) $
(1,121) $
(1,791)
Foreign currency translation
Balance at beginning of period
$
25 $
29 $
338
Separation-related adjustments (A)
—
—
(396)
Other comprehensive (loss) income:
Foreign currency translation(3)
(76)
(4)
65
Net amount reclassified to earnings from Accumulated other
comprehensive income(3),(5)
—
—
22
Total Other comprehensive (loss) income
(76)
(4)
87
Balance at end of period
$
(51) $
25 $
29
Cash flow hedges (U)
Balance at beginning of period
$
(15) $
1 $
—
Separation-related adjustments (A)
—
—
(4)
Other comprehensive income (loss):
Net change from periodic revaluations
95
(161)
(2)
Tax (expense) benefit
(22)
37
1
Total Other comprehensive income (loss) before reclassifications,
net of tax
73
(124)
(1)
Net amount reclassified to earnings:
Aluminum(4)
(48)
142
8
Energy(4)
(20)
—
—
Alloying materials(4)
1
(2)
—
Sub-total
(67)
140
8
Tax benefit (expense)(2)
15
(32)
(2)
Total amount reclassified from Accumulated other comprehensive
income, net of tax(5)
(52)
108
6
Total Other comprehensive income (loss)
21
(16)
5
Balance at end of period
$
6
$
(15) $
1
Accumulated other comprehensive loss
$
(937)
$
(1,111) $
(1,761)
_____________________
91
(1) These amounts were included in the non-service component of net periodic benefit cost for pension and other
postretirement benefits (see Note H). In 2022, 2021, and 2020, this amount includes $47, $584, and $199, respectively,
related to the settlement of certain employee retirement benefits (see Note H).
(2) These amounts were reported in (Benefit) 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. In 2020, the net amount reclassified to earnings
was reported in Restructuring and other charges on the accompanying Statement of Consolidated Operations related to the
sale of certain foreign subsidiaries.
(4) A portion of the amounts related to aluminum were reported in each of Sales and Cost of goods sold on the accompanying
Statement of Consolidated Operations (see Note U). The amounts related to energy and alloying materials were reported in
Cost of goods sold on the accompanying Statement of Consolidated Operations (see Note U).
(5) A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to
earnings. These amounts were reflected on the accompanying Statement of Consolidated Operations in the line items
indicated in footnotes 1 through 4.
M. Inventories
December 31,
2022
2021
Finished goods
$
343 $
350
Work-in-process
1,106
1,105
Purchased raw materials
118
109
Operating supplies
55
66
$
1,622 $
1,630
In November 2022, Arconic completed the sale of all of its operations in Russia (see Note S). As of December 31, 2021,
Inventories related to the Company’s operations in Russia were $102.
N. Properties, Plants, and Equipment, Net
December 31,
2022
2021
Land and land rights
$
19 $
22
Structures:
Rolled Products*
1,022
1,107
Building and Construction Systems
96
96
Extrusions
152
150
Other
149
152
1,419
1,505
Machinery and equipment:
Rolled Products*
4,299
4,816
Building and Construction Systems
204
203
Extrusions
523
523
Other
274
291
5,300
5,833
6,738
7,360
Less: accumulated depreciation and amortization
4,613
4,878
2,125
2,482
Construction work-in-progress
236
169
$
2,361 $
2,651
_____________________
92
*
In November 2022, Arconic completed the sale of all of its operations in Russia (see Note S).
In 2022, Arconic recognized an impairment charge of $90 for the Extrusions segment as the result of a business review
(See 2022 Actions in Note E).
O. Goodwill and Other Intangible Assets
The following table details the changes in the carrying value of Goodwill:
Rolled
Products
Building and
Construction
Systems
Extrusions
Total
Balances at December 31, 2020:
Goodwill
$
254 $
99 $
65 $
418
Accumulated impairment losses
—
(28)
—
(28)
Goodwill, net
254
71
65
390
Impairment (B)
—
—
(65)
(65)
Translation
(1)
(2)
—
(3)
Balances at December 31, 2021:
Goodwill
253
97
65
415
Accumulated impairment losses
—
(28)
(65)
(93)
Goodwill, net
253
69
—
322
Divestitures (S)
(14)
—
—
(14)
Translation
(15)
(1)
—
(16)
Balances at December 31, 2022:
Goodwill
224
96
65
385
Accumulated impairment losses
—
(28)
(65)
(93)
Goodwill, net
$
224 $
68 $
— $
292
In 2021, Arconic recognized an impairment charge of $65 for the Extrusions reporting unit based on the result of the annual
review of goodwill for impairment (see Goodwill in Note B).
Other intangible assets, which are included in Other noncurrent assets on the accompanying Consolidated Balance Sheet,
were as follows:
December 31, 2022
Gross
carrying
amount
Accumulated
amortization
Net carrying
amount
Computer software*
$
545
$
(521) $
24
Patents and licenses
27
(27)
—
Other
21
(18)
3
Total other intangible assets
$
593
$
(566) $
27
December 31, 2021
Gross
carrying
amount
Accumulated
amortization
Net carrying
amount
Computer software
$
555
$
(523) $
32
Patents and licenses
27
(27)
—
Other
21
(15)
6
Total other intangible assets
$
603
$
(565) $
38
_____________________
*
In 2022, Arconic recognized an impairment charge of $2 for the Extrusions segment as the result of a business review (See
2022 Actions in Note E).
93
Computer software consists primarily of software costs associated with an enterprise business solution within Arconic to
drive common systems among all businesses.
Amortization expense related to the intangible assets in the tables above for the years ended December 31, 2022, 2021, and
2020 was $13, $17, and $17, respectively. During the next five years, amortization expense related to these intangible assets is
expected to decrease from $9 in 2023 to $2 in 2027.
P. Leases
Arconic leases certain land and buildings, plant equipment, vehicles, and computer equipment, which have been classified
as operating leases. Operating lease cost, which includes short-term leases and variable lease payments and approximates cash
paid, was $54, $59, and $62 in 2022, 2021, and 2020, respectively.
Right-of-use assets obtained in exchange for operating lease obligations in 2022 and 2021 were $34 and $17, respectively.
Future minimum contractual operating lease obligations were as follows:
December 31,
2022
2023
$
40
2024
31
2025
24
2026
16
2027
7
Thereafter
19
Total lease payments
$
137
Less: imputed interest
20
Present value of lease liabilities
$
117
The weighted-average remaining lease term and weighted-average discount rate for Arconic's operating leases
at December 31, 2022 and 2021 was 5.2 and 6.1 years, respectively, and 6.3% and 5.8%, respectively.
Q. Debt
December 31,
2022
2021
6.00% Notes, due 2025
$
700 $
700
6.125% Notes, due 2028
900
900
Unamortized discounts and deferred financing costs
(3)
(6)
$
1,597 $
1,594
2022 Activity—On February 16, 2022, the Company amended its five-year credit agreement, dated May 13, 2020, with a
syndicate of lenders named therein and Deutsche Bank AG New York Branch as administrative agent (the “ABL Credit
Agreement”) which provides for a senior secured asset-based revolving credit facility (the “ABL Credit Facility”) to be used,
generally, for working capital or other general corporate purposes. The ABL Credit Agreement was amended to increase the
revolving commitments under the ABL Credit Facility to $1,200 from $800. Additionally, the accordion feature of the ABL
Credit Facility was revised to provide for the Company to request a further increase to the revolving commitments in an
aggregate principal amount equal to the greater of $350 and the excess of the borrowing base over the ABL Credit Facility
commitments. Furthermore, the LIBOR-based floating interest rate was replaced with a term SOFR-based interest rate, plus a
credit spread adjustment equal to 0.10%, 0.15%, or 0.25% per annum for SOFR-based borrowings with interest periods of one
month, three months, or six months, respectively, under the ABL Credit Facility. Arconic paid $1 in upfront costs associated
with these amendments.
In 2022, the Company borrowed $275 and repaid $275 under the ABL Credit Facility. These borrowings were designated
as SOFR loans with either an initial one-month or three-month interest period. In 2022, the weighted-average interest rate and
weighted-average days outstanding of the borrowings was 4.3% and 90 days, respectively.
94
2021 Activity—On March 3, 2021, the Company completed a Rule 144A (U.S. Securities Act of 1933, as amended) debt
offering for an additional $300 aggregate principal amount of 6.125% Senior Secured Second-Lien Notes due 2028 (the
“Additional 2028 Notes”). The Additional 2028 Notes were issued under the indenture governing Arconic’s existing 6.125%
Senior Secured Second-Lien Notes due 2028 (see 2020 Activity below). Other than with respect to the date of issuance and
issue price, the Additional 2028 Notes are treated as a single series with and have the same terms as the referenced existing
notes. The Additional 2028 Notes were sold at 106.25% of par (i.e., a premium) and, after reflecting a discount to the initial
purchasers of the Additional 2028 Notes, the Company received $315 in net proceeds from the debt offering. Arconic used the
net proceeds of this issuance to fund an annuitization of certain U.S. defined benefit pension plan obligations (see Note H). The
premium ($19) and costs to complete the financing ($5) were deferred and are being amortized to interest expense over the term
of the Additional 2028 Notes. The amortization of the premium is reflected as a reduction to interest expense and the
amortization of the costs to complete the financing is reflected as an addition to interest expense. Interest on the Additional
2028 Notes is paid semi-annually in February and August and commenced August 15, 2021.
2020 Activity—In connection with the capital structure to be established at the time of the Separation, Arconic secured
$1,200 in third-party indebtedness. On February 7, 2020, Arconic completed a Rule 144A (U.S. Securities Act of 1933, as
amended) debt offering for $600 of 6.125% Senior Secured Second-Lien Notes due 2028 (the “2028 Notes”). The Company
received $593 in net proceeds from the debt offering reflecting a discount to the initial purchasers of the 2028 Notes. Also, on
March 25, 2020, Arconic entered into a credit agreement, which provided a $600 Senior Secured First-Lien Term Loan B
Facility (variable rate and seven-year term) (the “Term Loan”) and a $1,000 Senior Secured First-Lien Revolving Credit
Facility (variable rate and five-year term) (the “Credit Facility”), with a syndicate of lenders and issuers named therein (the
“Credit Agreement”). The Company received $575 in net proceeds from the Term Loan reflecting upfront fees and costs to
enter into the financing arrangement.
The Company used a portion of the $1,168 in net proceeds from the aggregate indebtedness to make a $728 payment to
ParentCo on April 1, 2020 to fund the transfer of certain net assets from ParentCo to Arconic in connection with the completion
of the Separation (see Note A). The payment to ParentCo was calculated as the difference between (i) the $1,168 of net
proceeds from the aggregate indebtedness and (ii) the difference between a beginning cash balance at the Separation Date of
$500, as provided for in the Separation and Distribution Agreement, and the amount of cash held by Arconic Businesses at
March 31, 2020 ($60 – the sum of this amount and the aggregate indebtedness in (i) equals the sum of Cash and cash
equivalents and Restricted cash on the Company’s Combined Balance Sheet as of March 31, 2020).
On April 2, 2020, Arconic borrowed $500, which was subject to an interest rate equal to the sum of the three-month
LIBOR plus a 2.0% applicable margin, under the Credit Facility. This borrowing was a proactive measure taken by the
Company to bolster its liquidity and preserve financial flexibility in light of uncertainties resulting from the COVID-19
pandemic (see Note A).
On May 13, 2020, Arconic executed a refinancing of its existing Credit Agreement in order to provide improved financial
flexibility. Arconic completed a Rule 144A (U.S. Securities Act of 1933, as amended) debt offering for $700 of 6.0% Senior
Secured First-Lien Notes due 2025 (the “2025 Notes”). The Company received $691 in net proceeds from the debt offering
reflecting a discount to the initial purchasers of the 2025 Notes. Additionally, Arconic entered into the ABL Credit Agreement.
The ABL Credit Agreement provided for a senior secured asset-based revolving credit facility in an aggregate principal amount
of $800 (see 2022 Activity above for amendments to the ABL Credit Agreement), including a letter of credit sub-facility and the
ABL Credit Facility. In addition, the ABL Credit Facility includes an accordion feature allowing the Company to request one or
more increases to the revolving commitments in an aggregate principal amount up to $350 (see 2022 Activity above for
amendment to the ABL Credit Facility).
Arconic used the net proceeds from the new indebtedness, together with cash on hand, to prepay in full the obligations
outstanding under both the Term Loan ($600) and Credit Facility ($500) and to terminate in full the commitments under the
Credit Agreement.
Descriptions of the 2028 Notes, 2025 Notes, and ABL Credit Agreement are set forth below.
In connection with the issuance of the 2028 Notes and the execution of the Credit Agreement, the Company paid $42 in
discounts to the initial purchasers and/or upfront fees and costs (the “debt issuance costs”), of which $30 was attributable to the
Term Loan and the Credit Facility. The debt issuance costs were initially deferred and were being amortized to interest expense
over the respective terms of the 2028 Notes, the Term Loan, and the Credit Facility. In connection with the issuance of the 2025
Notes and the execution of the ABL Credit Agreement, the Company paid $15 in discounts to the initial purchasers and/or
upfront fees and costs (the “new debt issuance costs”). As a result of applying both debt modification and debt extinguishment
accounting, as appropriate based on the lender mix for each debt instrument, to the debt refinancing, the Company was required
to write off $16 of the $30 in debt issuance costs and immediately expense $3 of the $15 in new debt issuance costs. This $19
95
was reported within Interest expense on the Company’s Statement of Consolidated Operations. The remaining $14 in debt
issuance costs continued to be deferred and the remaining $12 in new debt issuance costs were deferred; both are being
amortized to interest expense over the respective terms of the 2025 Notes and the ABL Credit Agreement.
2028 Notes—Interest on the 2028 Notes is paid semi-annually in February and August and commenced August 15, 2020.
Arconic has the option to redeem the 2028 Notes on at least 10 days, but not more than 60 days, prior notice to the holders
of the 2028 Notes under multiple scenarios, including, in whole or in part, at any time or from time to time after February 14,
2023 at a redemption price specified in the indenture (up to 103.063% of the principal amount plus any accrued and unpaid
interest in each case). At any time prior to February 15, 2023, the Company may redeem all or a part of the notes at a
redemption price equal to 100% of the principal amount of the notes redeemed plus a “make-whole” redemption price
determined as the greater of (1) 1.0% of the principal amount of such notes and (2) the excess, if any, of (a) the present value at
the date of redemption of (i) 103.063% of the principal amount of such notes plus (ii) all required interest payments due on such
notes (excluding accrued but unpaid interest to the date of redemption) through February 15, 2023, computed using a discount
rate equal to, generally, the yield to maturity of United States Treasury securities with a constant maturity as of the date of
redemption plus 50 basis points, over (b) the principal amount of such notes, as of, and accrued and unpaid interest, if any, to,
but excluding, the date of redemption. Also, at any time prior to February 15, 2023, Arconic may, on one or more occasions,
redeem up to 40% of the aggregate principal amount of the notes at a redemption price equal to 106.125% of the principal
amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, with the
net cash proceeds of certain equity offerings, if at least 60% of the original aggregate principal amount of the notes remains
outstanding immediately after such redemption and the redemption occurs within 120 days of the date of such equity offering.
Additionally, the 2028 Notes are subject to repurchase upon the occurrence of a change in control repurchase event (as defined
in the indenture) at a repurchase price in cash equal to 101% of the aggregate principal amount of the 2028 Notes repurchased,
plus any accrued and unpaid interest on the 2028 Notes repurchased.
The 2028 Notes are senior secured obligations of Arconic and do not entitle the holders to any registration rights pursuant
to a registration rights agreement. The Company does not intend to file a registration statement with respect to resales of or an
exchange offer for the 2028 Notes. The 2028 Notes are guaranteed on a senior secured basis by Arconic and its subsidiaries that
are guarantors (the “subsidiary guarantors” and, together with Arconic, the “guarantors”) under the ABL Credit Agreement (see
below). Each of the subsidiary guarantors will be released from their 2028 Notes guarantees upon the occurrence of certain
events, including the release of such guarantor from its obligations as a guarantor under the ABL Credit Agreement.
The 2028 Notes indenture includes several customary affirmative covenants. Additionally, the 2028 Notes indenture
contains several negative covenants, that, subject to certain exceptions, limit the Company’s ability to, among other things, (i)
make investments, loans, advances, guarantees, and acquisitions, (ii) pay dividends on or make other distributions in respect of
capital stock and make other restricted payments and investments (as defined in the 2028 Notes), (iii) sell or transfer certain
assets, and (iv) create liens on assets to secure debt.
The 2028 Notes rank equally in right of payment with all of Arconic’s existing and future senior indebtedness, including
the facility under the ABL Credit Agreement (see below); rank senior in right of payment to any future subordinated obligations
of Arconic; and are effectively subordinated to Arconic’s existing and future secured indebtedness that is secured on a first
priority basis, including the 2025 Notes and the facility under the ABL Credit Agreement, to the extent of the value of property
and assets securing such indebtedness.
2025 Notes—Interest on the 2025 Notes is paid semi-annually in May and November and commenced November 15, 2020.
Arconic has the option to redeem the 2025 Notes on at least 10 days, but not more than 60 days, prior notice to the holders
of the 2025 Notes under multiple scenarios, including, in whole or in part, at any time or from time to time after May 14, 2022
at a redemption price specified in the indenture (up to 103.0% of the principal amount plus any accrued and unpaid interest in
each case). At any time prior to May 15, 2022, the Company may redeem all or a part of the notes at a redemption price equal to
100% of the principal amount of the notes redeemed plus a “make-whole” redemption price determined as the greater of (1)
1.0% of the principal amount of such notes and (2) the excess, if any, of (a) the present value at the date of redemption of (i)
103.0% of the principal amount of such notes plus (ii) all required interest payments due on such notes (excluding accrued but
unpaid interest to the date of redemption) through May 15, 2022, computed using a discount rate equal to, generally, the yield to
maturity of United States Treasury securities with a constant maturity as of the date of redemption plus 50 basis points, over (b)
the principal amount of such notes, as of, and accrued and unpaid interest, if any, to, but excluding, the date of redemption.
Also, at any time prior to May 15, 2022, Arconic may, on one or more occasions, redeem up to 40% of the aggregate principal
amount of the notes at a redemption price equal to 106.0% of the principal amount of the notes to be redeemed, plus accrued
and unpaid interest, if any, to, but excluding, the redemption date, with the net cash proceeds of certain equity offerings, if at
least 60% of the original aggregate principal amount of the notes remains outstanding immediately after such redemption and
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the redemption occurs within 120 days of the date of such equity offering. Additionally, the 2025 Notes are subject to
repurchase upon the occurrence of a change in control repurchase event (as defined in the indenture) at a repurchase price in
cash equal to 101% of the aggregate principal amount of the 2025 Notes repurchased, plus any accrued and unpaid interest on
the 2025 Notes repurchased.
The 2025 Notes are senior secured obligations of Arconic and do not entitle the holders to any registration rights pursuant
to a registration rights agreement. The Company does not intend to file a registration statement with respect to resales of or an
exchange offer for the 2025 Notes. The 2025 Notes are guaranteed on a senior secured basis by Arconic and its subsidiaries that
are guarantors (the “subsidiary guarantors” and, together with Arconic, the “guarantors”) under the ABL Credit Agreement (see
below). Each of the subsidiary guarantors will be released from their 2025 Notes guarantees upon the occurrence of certain
events, including the release of such guarantor from its obligations as a guarantor under the ABL Credit Agreement.
The 2025 Notes indenture includes several customary affirmative covenants. Additionally, the 2025 Notes indenture
contains several negative covenants, that, subject to certain exceptions, limit the Company’s ability to, among other things, (i)
pay dividends on or make other distributions in respect of capital stock and make other restricted payments and investments (as
defined in the 2025 Notes), (ii) sell or transfer certain assets, (iii) incur indebtedness, and (iv) create liens on assets to secure
debt.
The 2025 Notes are secured on a first priority basis by certain defined collateral (generally consisting of the Company’s
and the Guarantors’ equipment, material owned U.S. real property, intellectual property, certain stock, and other tangible and
intangible personal property, in each case, subject to certain exceptions) and on a second priority basis by certain other assets
(generally consisting of substantially all of the accounts receivable, inventory, deposit accounts, securities accounts,
commodities accounts, and cash assets of the Company and the Guarantors, and the proceeds thereof).
ABL Credit Agreement—Availability under the ABL Credit Facility is subject to a monthly borrowing base calculation,
which, in general, is determined by applying a predetermined percentage to the amount of eligible accounts receivable and
inventory, less customary reserves. As of December 31, 2022, the available balance was $1,189.
The ABL Credit Facility is scheduled to mature on May 13, 2025, unless extended or earlier terminated in accordance with
the ABL Credit Agreement. Under the provision of the ABL Credit Agreement, Arconic will pay a quarterly commitment fee
ranging from 0.250% to 0.375% (based on Arconic’s leverage ratio) per annum on the unused portion of the ABL Credit
Facility, which will be determined based on the Company’s average daily utilization. The ABL Credit Facility was undrawn as
of both December 31, 2022 and 2021.
As referenced above (See 2022 Actions), the ABL Credit Agreement was amended on February 16, 2022 to replace the
LIBOR-based floating interest rate with a term SOFR-based interest rate. The ABL Credit facility is now subject to an interest
rate for U.S. dollar borrowings equal to an applicable margin plus, at the Company's option, of either (a) base rate (“ABR”)
determined by reference to the highest of (1) Deutsche Bank AG New York Branch's “prime rate,” (2) the greater of the federal
funds effective rate and the overnight bank funding rate, plus 0.5%, and (3) the term SOFR-based interest rate for a one month
interest period, plus 1% per annum or (b) a term SOFR-based interest rate (which will not be less than 0.75% per annum), plus
a credit spread adjustment equal to 0.10%, 0.15%, or 0.25% per annum for SOFR-based borrowings with interest periods of one
month, three months, or six months, respectively. The applicable margin for the ABL Credit Facility is (a) 0.75% to 1.25% per
annum for ABR loans and (b) 1.75% per annum to 2.25% per annum for SOFR loans based on the average daily excess
availability (as defined under the ABL Credit Agreement). Accordingly, the interest rates for the ABL Credit Facility will
fluctuate based on changes in the ABR, SOFR, and/or futures changes in the average daily excess availability.
Prior to February 16, 2022, the ABL Credit Facility was subject to an interest rate for U.S. dollar borrowings equal to an
applicable margin plus, at the Company’s option, of either (a) base rate (“ABR”) determined by reference to the highest of (1)
Deutsche Bank AG New York Branch’s “prime rate,” (2) the greater of the federal funds effective rate and the overnight bank
funding rate, plus 0.5%, and (3) the one month adjusted LIBO Rate, plus 1% per annum or (b) an adjusted LIBO Rate (not less
than 0.75% per annum) (“LIBOR”). The applicable margin for the ABL Credit Facility through June 30, 2021 was (a) 1.25%
for ABR loans and (b) 2.25% for LIBOR loans. Thereafter, the applicable margin for the ABL Credit Facility was (a) 0.75% to
1.25% per annum for ABR loans and (b) 1.75% per annum to 2.25% per annum for LIBOR loans based on the average daily
excess availability (as defined under the ABL Credit Agreement).
All obligations under the ABL Credit Facility are unconditionally guaranteed, jointly and severally, by substantially all of
the direct and indirect wholly-owned material subsidiaries of the Company that are organized under the laws of the United
States, any state thereof or the District of Columbia, subject to certain exceptions (collectively, the “Guarantors”). The
Company and the Guarantors entered into a guarantee under the ABL Credit Agreement concurrently with the effectiveness of
the ABL Credit Agreement.
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Subject to certain limitations, the ABL Credit Facility is secured on a first priority basis by certain defined collateral
(generally consisting of substantially all of the accounts receivable, inventory, deposit accounts, securities accounts,
commodities accounts, and cash assets of the Company and the Guarantors, and the proceeds thereof) and on a second-priority
basis by certain defined collateral under the 2025 Notes (generally consisting of the Company and the Guarantors’ equipment,
material owned U.S. real property, intellectual property, certain stock, and other tangible and intangible personal property, in
each case, subject to exceptions as defined in the 2025 Notes). The Company and the Guarantors entered into collateral
agreements concurrently with the effectiveness of the ABL Credit Agreement.
The ABL Credit Facility contains certain affirmative and negative covenants customary for financings of this type that,
among other things, limit the Company’s and its subsidiaries’ ability to incur additional indebtedness or liens, to dispose of
assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances,
guarantees and acquisitions, to prepay certain indebtedness and to pay dividends, to make other distributions or
redemptions/repurchases, in respect of the Company’s and its subsidiaries’ equity interests, to engage in transactions with
affiliates and to amend certain material documents.
In addition, the ABL Credit Facility contains a financial maintenance covenant applicable to any fiscal quarter in which the
excess availability is less than the greater of (a) 10% of the lesser of (x) the aggregate amount of the commitments under the
ABL Credit Facility and (y) the borrowing base and (b) $50. In such circumstances, until such time as excess availability shall
have exceeded such threshold for at least 30 consecutive days, the Company would be required to maintain a fixed charge
coverage ratio of not less than 1.00 to 1.00. The ABL Credit Facility also requires the Company and its subsidiaries to maintain
substantially all of the Company’s cash in accounts that are subject to the control of the agent, which control becomes applicable
when (a) an event of default under the facility occurs and is continuing until the first day thereafter on which no event of default
shall exist or (b) excess availability is less than the greater of (i) 12.5% of the lesser of (x) the aggregate amount of the
commitments under the ABL Credit Facility and (y) the borrowing base or (ii) $62.5 for five consecutive business days until the
first day thereafter on which excess availability shall have exceeded such threshold for at least 30 consecutive days.
The ABL Credit Facility contains customary events of default, including with respect to a failure to make payments
thereunder, cross-default and cross-acceleration, certain bankruptcy and insolvency events, and customary change of control
events.
R. Cash Flow Information
Cash paid for interest and income taxes was as follows:
2022
2021
2020
Interest, net of amount capitalized
$
99 $
87 $
48
Income taxes, net of amount refunded
29
26
27
For all periods presented, both Cash and cash equivalents and restricted cash at beginning of year and Cash and cash
equivalents and restricted cash at end of year includes Restricted cash of less than $0.03.
S. Acquisitions and Divestitures
Divestitures
Russia. On November 15, 2022, Arconic completed the sale of all of its operations in Russia to Promishlennie Investitsii
LLC, the majority owner of VSMPO-AVISMA Corporation, for cash proceeds of $230. The transaction closed after the
Company received all required approvals, resulting in the receipt of the cash consideration in exchange for all of Arconic’s net
assets in Russia. These net assets included $203 of cash held in Russia that was not available for distribution to the parent
company because of injunctions imposed as a result of litigation initiated in March 2020 by the Federal Antimonopoly Service
of the Russian Federation (see Litigation in Note T). The legal form of the transaction was a stock sale of all of the Company’s
Russian subsidiaries. VSMPO-AVISMA Corporation owns a limited portion of one of these legal entities, which was reported
as Noncontrolling interest in the accompanying Consolidated Financial Statements prior to consummation of the sale
transaction. The decision to pursue a sale was the result of a strategic review of alternatives completed in May 2022 by
management with respect to Arconic’s Russian operations in consideration of the sanctions and other trade restrictions levied
against Russia beginning in February 2022 and preliminary injunctions imposed on the Company’s operations in Russia by the
Federal Antimonopoly Service of the Russian Federation, which included a prohibition on the ability of Arconic’s Russian
subsidiaries to pay dividends to the parent company. In connection with this transaction, the Company recognized a loss of
$306 ($304 after-tax), which was recorded in Restructuring and other charges (see Note E) on the accompanying Statement of
Consolidated Operations. The loss includes the write-off of goodwill of $14 (see Note O).
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The following table presents selected financial information related to Arconic’s former operations in Russia:
November 14, 2022
December 31, 2021
Cash and cash equivalents
$
203 $
79
Receivables from customers
100
120
Inventories
129
102
Properties, plants, and equipment, net
184
200
Accounts payable, trade
55
47
January 1, 2022 through
November 14, 2022
For the year ended
December 31, 2021
Third-party sales*
$
903 $
968
Segment Adjusted EBITDA
71
87
_____________________
*
In both periods presented, Third-party sales includes aluminum products manufactured at the Company’s plant in Russia
and sold through Arconic’s international selling company located in Hungary.
Prior to the sale transaction, the Company continued to conduct business in Russia to fulfill existing obligations in
accordance with applicable laws, regulations, and international rules. Arconic’s former operations in Russia were comprised of
one principal location in Samara, which manufactured sheet, plate, extrusions, and forgings across all of the Company’s end
markets. The Samara facility continued to operate at relatively normal levels despite the imposition of sanctions and trade
restrictions that limit a Russian entity’s ability to export goods, as Samara’s operations primarily served customer demand
within Russia. The Samara facility had approximately 2,900 employees at the time of divestiture.
Arconic’s former local Russian management team continued to operate the Samara facility through November 14, 2022
without undue influence imposed by any third-party, including the Russian government. Additionally, other than the prohibition
on dividend payments to the parent company, the Company did not encounter any other significant constraints related to its
control over the now former Russian subsidiaries. As a result, Arconic reported the financial results of its former Russian
operations through November 14, 2022 in the Company’s Consolidated Financial Statements and within Arconic’s Rolled
Products segment. Additionally, the Company did not record an impairment of long-lived or other assets in any prior financial
reporting period given the relatively normal operating levels at Samara and lack of any triggering events in such periods.
Building and Construction Systems. On June 6, 2022, the Company announced that it is evaluating strategic options for
the businesses that comprise the Building and Construction Systems segment, including exploring a sale of its architectural
systems business (Kawneer® brand). Subsequent to this announcement, Arconic initiated a sale process with respect to its
architectural systems business, which has six principal locations in the United States, Canada, and Europe. Products
manufactured under the Kawneer brand include windows, doors, and curtain walls. This business generated third-party sales of
approximately $970 in 2022 and had approximately 2,900 employees as of December 31, 2022.
On August 2, 2022, the Company announced a pause in the sale process of this business due to current economic
conditions, particularly uncertainty in the debt markets. This business will remain classified as held and in-use in Arconic's
Consolidated Financial Statements and will continue to be reported within the Building and Construction Systems segment.
Itapissuma. On February 1, 2020, Arconic completed the sale of its aluminum rolling mill (aseptic foil and sheet
products) in Itapissuma, Brazil to Companhia Brasileira de Alumínio for a net $46 in cash. In December 2020, the Company
paid $4 in cash to Companhia Brasileira de Alumínio to settle certain working capital and other post-closing adjustments.
Additionally, in June 2021, the Company paid $2 in cash to Companhia Brasileira de Alumínio to settle the remaining working
capital and other post-closing adjustments. Arconic has recognized a cumulative loss of $60 (pretax) on this transaction,
composed of the following: a charge of $53 in 2019 for the non-cash impairment of the carrying value (i.e., write-down to fair
value) of the rolling mill’s net assets, primarily properties, plants, and equipment, as a result of entering into an agreement in
August 2019 to sell this rolling mill; a charge of $6 in February 2020 for further necessary adjustments upon completion of the
divestiture; and a charge of $1 in March 2021 for a then-proposed final settlement of the remaining post-closing adjustments
and other items. Each of these amounts were recorded in Restructuring and other charges (see Note E) on the accompanying
Statement of Consolidated Operations in the respective reporting periods. This transaction is no longer subject to post-closing
adjustments. Prior to the divestiture, this rolling mill’s operating results and assets and liabilities were reported in Arconic’s
Rolled Products segment. The rolling mill generated third-party sales of $143 in 2019 and, at the time of divestiture, had
approximately 500 employees.
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Changwon. On March 1, 2020, Arconic completed the sale of its hard alloy extrusions plant in South Korea to SeAH
Besteel Corporation for a net $55 in cash, resulting in a gain of $31 (pretax), which was recorded in Restructuring and other
charges (see Note E) on the accompanying Statement of Consolidated Operations. The gain is net of a $6 write-off of related
goodwill. In May 2020, the Company received an additional $1 in cash as a result of a post-closing adjustment, which was
previously contemplated in the aforementioned gain. This transaction is no longer subject to post-closing adjustments. Prior to
the divestiture, this plant’s operating results and assets and liabilities were reported in Arconic’s Extrusions segment. The
extrusions plant generated third-party sales of $51 in 2019 and, at the time of divestiture, had approximately 160 employees.
Texarkana. In October 2018, Arconic sold its Texarkana (Texas) rolling mill and cast house, which had a combined net
book value of $63, to Ta Chen International, Inc. for $302 in cash plus additional contingent consideration of up to $50, of
which $25 was received prior to 2020. The contingent consideration related to the achievement of various milestones associated
with operationalizing the rolling mill equipment within 36 months of the transaction closing date. In 2020, Arconic received the
remaining contingent consideration of $25, which was recorded as a gain in Restructuring and other charges (see Note E) on the
accompanying Statement of Consolidated Operations. As of December 31, 2020, there was no remaining contingent
consideration associated with this transaction.
T. Contingencies and Commitments
Unless specifically described to the contrary, all matters within Note T are the full responsibility of Arconic pursuant to the
Separation and Distribution Agreement (see Note A). Additionally, the Separation and Distribution Agreement provides for
cross-indemnities between the Company and Howmet for claims subject to indemnification.
Contingencies
Environmental Matters. Arconic participates in environmental assessments and cleanups at several locations. These
include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties,
and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (CERCLA))
sites.
A liability is recorded for environmental remediation when a cleanup program becomes probable and the costs can be
reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the
extent of remedial actions and related costs. The liability can change substantially due to factors such as, among others, the
nature and extent of contamination, changes in remedial requirements, and technological changes.
The Company’s remediation reserve balance was $85 and $64 (of which $40 and $15, respectively, was classified as a
current liability) at December 31, 2022 and 2021, respectively, and reflects the most probable costs to remediate identified
environmental conditions for which costs can be reasonably estimated.
In 2022, the remediation reserve was increased by $33 due to a charge of $13 (recorded in Cost of goods sold) for the
Massena location (see below); a charge of $14 (recorded in Cost of goods sold) related to the estimated costs of future
operations, maintenance, and monitoring activities at several sites, including $9 for a correction of an accrual (see Note A); a
charge of $5 (recorded in Cost of goods sold) for the planned removal of polychlorinated biphenyls- (PCBs) contaminated soil
from certain portions of a ditch that is adjacent to the Company’s facility in Lafayette, Indiana under a previously issued
corrective action order with the Indiana Department of Environmental Management (remediation to be completed over a two-
year period beginning in 2023); and a charge of $1 (recorded in Restructuring and other charges – see Note E) to reflect an
estimate of Arconic's share of newly-identified costs for additional remediation work, which is subject to review by Italy’s
Ministry of the Environment, related to a recently completed project at a former site where the Company is one of several
responsible parties.
In 2021, the remediation reserve was reduced by $5 due to a reversal of an $11 liability (a credit was recorded in Cost of
goods sold) previously established for the Massena location (see below) and a charge of $2 (recorded in Restructuring and other
charges – see Note E) for the assumption of a remediation obligation related to a legal settlement associated with a former
operating site. Additionally, the change to the remediation reserve includes a charge of $4 (recorded in Cost of goods sold) for
other items including incremental estimated expenditures associated with active remediation systems and/or monitoring and
inspection programs at several sites.
In 2020, the remediation reserve was reduced by $2 due to the reversal of a $5 liability (a credit was recorded in
Restructuring and other charges – see Note E) previously established by ParentCo, as the underlying obligation no longer exists
based on an assessment completed by Arconic management; a charge of $1 (recorded in Restructuring and other charges – see
Note E) to establish a liability related to the divestiture of a rolling mill in Brazil (see Note S); and a charge of $2 (recorded in
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Cost of goods sold) for incremental estimated expenditures associated with active remediation systems and/or monitoring and
inspection programs at several sites.
Payments related to remediation expenses applied against the reserve were $11, $84, and $82 in 2022, 2021, and 2020,
respectively, which include expenditures currently mandated, as well as those not required by any regulatory authority or third
party. The change in the reserve in 2022 and 2021 reflects a decrease of $1 and $3 for other items, respectively, and the change
in the reserve in 2020 reflects both an increase of $13 for obligations transferred from ParentCo on the Separation Date (see
below) and a decrease of $3 for other items.
The Separation and Distribution Agreement includes provisions for the assignment or allocation of environmental liabilities
between Arconic and Howmet, including certain remediation obligations associated with environmental matters. In general, the
respective parties are responsible for the environmental matters associated with their operations, and with the properties and
other assets assigned to each. Additionally, the Separation and Distribution Agreement lists environmental matters with a shared
responsibility between the two companies with an allocation of responsibility and the lead party responsible for management of
each matter. For matters assigned to Arconic and Howmet under the Separation and Distribution Agreement, the companies
have agreed to indemnify each other in whole or in part for environmental liabilities arising from operations prior to the
Separation Date.
The following description provides details regarding the Company’s largest reserve (next largest is $6), which relates to
one of Arconic’s current operating locations.
Massena, NY — Arconic has an ongoing remediation project related to the Grasse River, which is adjacent to the
Company’s Massena plant site. Many years ago, it was determined that sediments and fish in the river contain varying levels of
PCBs. The project, which was selected by the U.S. Environmental Protection Agency (EPA) in a Record of Decision issued in
April 2013, was aimed at capping PCB contaminated sediments with concentration in excess of one part per million in the main
channel of the river and dredging PCB contaminated sediments in the near-shore areas where total PCBs exceed one part per
million. The EPA approved the final design phase of the project in March 2019. Following the EPA’s approval, the actual
remediation fieldwork commenced. In April 2020, the EPA approved an addendum to the final remedial design to address
newly-identified matters, including river navigation issues, which resulted in changing the original remedy for a specific
segment of the river to dredging from capping. The Company attained substantial completion of remedial construction activities
on the Grasse River in September 2021. As a result, along with an assessment of anticipated remaining future costs, primarily
for post-construction monitoring, the reserve was reduced by $11.
In March 2022, an ice jam event occurred in a section of the river where the cap was installed. The ice accumulation
caused a blockage in the river that restricted flow, which resulted in high forces being placed on the bottom sediments as the
river worked its way through the obstruction. Once the ice cleared and it was safe to enter the river, Arconic investigated and
analyzed the cap for any damage. It was determined that portions of the cap were damaged and there was disturbance to the
underlying sediments. As a result, over the next several months, the Company performed extensive environmental,
geotechnical, and ice modeling investigations to support the preparation of a proposed plan to repair the damaged cap and
contain the exposed sediment. These activities were completed in September 2022 and led to a completed design and estimated
cost of $22 for the proposed repair remedy, which included consideration of a temporary work stoppage due to the winter
season extending the repair work into 2023 and the impact of cost inflation for labor and materials. Arconic’s existing reserve
included consideration of potential future cap repairs given the magnitude and nature of the previously completed remediation
project. As a result, in 2022, the Company increased the reserve balance for this matter by $13 for the incremental amount
needed to cover the estimated cost of the proposed plan. On October 3, 2022, Arconic submitted an Analysis of Alternatives
report to the EPA setting forth four potential remedies, including the Company’s proposed plan. On December 22, 2022, at the
EPA’s request, Arconic submitted a revised Analysis of Alternatives report to address two additional repair remedies for a total
of six potential alternatives. Arconic is now waiting on the EPA’s response, but continues to maintain an active dialogue with
the EPA, as well as other stakeholders, all in support of the EPA making a final decision, which the Company expects over the
next several months. Arconic’s proposed remedy is consistent with the Record of Decision issued for the original remediation
project (see above). In advance of the EPA’s decision, the Company performed a portion of the work associated with its
proposed remedy in order to reduce the environmental risk associated with the exposed sediments. This work was completed by
the end of November 2022.
As the project progresses, further changes to the reserve may be required due to factors such as, among others, the EPA’s
selection of a remedy that differs from Arconic’s proposed plan, additional changes in other remedial requirements, increased
site restoration costs, and incremental ongoing operation and maintenance costs.
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At December 31, 2022 and 2021, the reserve balance associated with this matter was $38 and $30, respectively. Timing of
expenditures is contingent on the EPA’s decision with respect to the repair remedy and the subsequent mobilization of third-
party contractors.
Litigation.
All references to ParentCo in the matters described under this section Litigation refer to Arconic Inc. only and do not
include its subsidiaries, except as otherwise stated.
Federal Antimonopoly Service Of The Russian Federation Litigation—The Federal Antimonopoly Service of the
Russian Federation (“FAS”) filed a lawsuit on March 17, 2020 with the Arbitrazh (State Commercial) Court of Samara Region
against two of the Company’s now former subsidiaries, Arconic Rus Investment Holdings LLC (“LLC ARIH”) and AlTi Forge
Holding Sarl (the “Arconic Russian Holding Companies”), naming Elliott Associates L.P., Elliott International L.P., and Elliot
International Capital Advisors Inc. (“Elliott”) as third parties. Also named as interested parties are: Parent Co. and certain of its
foreign subsidiaries; and Arconic Netherland B.V., the Company’s subsidiary that previously directly and indirectly owned LLC
ARIH, Arconic SMZ JSC and JSC AlTi Forge (the “Arconic Russian Subsidiaries”). References in this disclosure to the
Arconic Russian Holding Companies and/or the Arconic Russian Subsidiaries are applicable only through November 14, 2022.
FAS alleges that Elliott indirectly acquired control over the former Arconic Russian Subsidiaries when, in May 2019, directors
who had previously been nominated by Elliott and appointed or elected to Parent Co.’s board of directors pursuant to certain
settlement agreements among Parent Co. and Elliott constituted a majority of that board as a result of a reduction in the size of
the board. FAS claims alleged non-compliance with Russian Federal Law No. 57-FZ, which governs foreign ownership of
certain Russian companies and requires certain governmental approvals for a foreign investor to acquire control over
strategically important Russian companies. On April 6, 2020, the Samara Court granted preliminary injunctions against the
Arconic Russian Holding Companies prohibiting the taking of certain corporate governance actions, including with respect to:
(i) the disposal of shares in the Arconic Russian Subsidiaries; and (ii) the making of certain decisions with respect to the
Arconic Russian Subsidiaries, including decisions regarding the payment of dividends, placement of bonds, amendment of
bylaws and internal documents, the appointment, change and compensation of the Arconic Russian Subsidiaries’ CEO, and the
election of the Arconic Russian Subsidiaries’ board of directors. On April 29, 2020, the Arconic Russian Holding Companies
simultaneously filed an appeal and motion to revoke the previously issued injunctions. Both the appeal and motion to revoke
were denied. A hearing on the merits of the claim had been postponed several times, most recently until December 22, 2022. As
a consequence of the alleged violation, FAS was seeking removal and exclusion of the Arconic Russian Holding Companies
from the affairs of the Arconic Russian Subsidiaries, resulting in the deprivation of the benefits of their ownership interests in
the Arconic Russian Subsidiaries, including the rights currently restricted in the preliminary injunctions granted on April 6,
2020. On November 15, 2022, the Company completed the sale of all of its operations in Russia to Promishlennie Investitsii
LLC, the majority owner of VSMPO-AVISMA Corporation, (see Russia in Note S). At a hearing on December 22, 2022, the
Samara Court dismissed the litigation.
Reynobond PE—On June 13, 2017, the Grenfell Tower in London, U.K. caught fire resulting in fatalities, injuries, and
damage. A French subsidiary of Arconic Corporation (of ParentCo at that time), Arconic Architectural Products SAS (AAP
SAS), supplied a product, Reynobond PE, to its customer, a cladding system fabricator, which used the product as one
component of the overall cladding system on Grenfell Tower. The fabricator supplied its portion of the cladding system to the
facade installer, who then completed and installed the system under the direction of the general contractor. Neither ParentCo
nor AAP SAS was involved in the design or installation of the system used at the Grenfell Tower, nor did it have a role in any
other aspect of the building’s refurbishment or original design. Regulatory investigations into the overall Grenfell Tower matter
are being conducted, including a criminal investigation by the London Metropolitan Police Service (the “Police”), a Public
Inquiry by the British government, and a consumer protection inquiry by a French public authority. The Public Inquiry was
announced by the U.K. Prime Minister on June 15, 2017 and subsequently was authorized to examine the circumstances leading
up to and surrounding the Grenfell Tower fire in order to make findings of fact and recommendations to the U.K. Government
on matters such as the design, construction, and modification of the building, the role of relevant public authorities and
contractors, the implications of the fire for the adequacy and enforcement of relevant regulations, arrangements in place for
handling emergencies, and the handling of concerns from residents, among other things. Hearings for Phase 1 of the Public
Inquiry began on May 21, 2018 and concluded on December 12, 2018. Phase 2 hearings of the Public Inquiry began in early
2020 and concluded in 2022, following which a final report will be written and subsequently published. As Phase 2 of the
public inquiry concluded, the testimony supported AAP SAS’s position that the choice of materials and the responsibility of
ensuring compliance of the cladding system with relevant U.K. building code and regulations was with those individuals or
entities who designed and installed the cladding system such as the architects, fabricators, contractors and building owners. The
ongoing hearings in the U.K. have revealed serious doubts about whether these third parties had the necessary qualifications or
expertise to carry out the refurbishment work at Grenfell Tower, adequately oversaw the process, conducted the required fire
safety testing or analysis, or otherwise complied with their obligations under U.K. regulations. AAP SAS is participating as a
Core Participant in the Public Inquiry and is also cooperating with the ongoing parallel investigation by the Police. Arconic
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Corporation does not sell and ParentCo previously stopped selling the PE product for architectural use on buildings. Given the
preliminary nature of these investigations and the uncertainty of potential future litigation, Arconic Corporation cannot
reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of
an unfavorable outcome.
United Kingdom Litigation. Multiple claimant groups comprised of survivors and estates of decedents of the Grenfell
Tower fire have filed claims in the U.K. arising from that fire, including as follows:
•
On June 12, 2020, four claimants represented by Birnberg Peirce Ltd filed suit against AAP SAS.
•
On June 12, 2020, two claimants represented by Howe & Co Solicitors filed suit against AAP SAS.
•
On June 26, 2020, three claimants represented by Russell-Cooke LLP filed suit against AAP SAS.
•
On December 23, 2020, several additional suits were filed by claimant groups comprised of survivors and estates of
decedents. These suits were all filed against the same group of 23 defendants: AAP SAS, Arconic Corporation,
Howmet Aerospace Inc., the Royal Borough of Kensington and Chelsea, the Royal Borough of Kensington and
Chelsea Tenant Management Organisation Ltd, the London Fire Commissioner, the UK Home Office, The Ministry of
Housing, Communities and Local Government, Rydon Maintenance Ltd, Celotex Ltd, Saint-Gobain Construction
Products UK Limited, Kingspan Insulation Limited, Kingspan Group PLC (suits have since been discontinued), Studio
E Architects Ltd (In liquidation), Harley Facades Ltd, Harley Curtain Wall Limited (In liquidation), CEP Architectural
Facades Ltd, Exova (U.K.) Ltd, CS Stokes & Associates Ltd, Artelia Projects UK Limited (suits have since been
discontinued), Whirlpool UK Appliances Limited, Whirlpool Company Polska Sp.z.o.o. and Whirlpool Corporation.
These suits include as follows (represent preliminary best estimates of claimants in each suit):
◦
Seven claimants represented by Deighton Pierce Glynn;
◦
Seven (previously six) claimants represented by SMQ Legal Services;
◦
Four (previously three) claimants represented by Scott Moncrieff;
◦
Thirty-one (previously twenty-seven) claimants represented by Saunders Law;
◦
Thirty-four (previously thirty-three) claimants represented by Russell Cooke LLP. On March 29, 2022,
Russell Cooke issued a further suit against the above-mentioned 21 Defendants on behalf of one Claimant.
The suits issued by Russell Cooke were consolidated;
◦
Forty-seven (previously forty) claimants represented by Imran Khan & Partners;
◦
Fifty-seven (previously sixty-one) claimants represented by Howe & Co.;
◦
One hundred nineteen (previously one hundred fourteen) claimants represented by Hodge Jones and Allen
Solicitor. On March 29, 2022, Hodge Jones and Allen issued a further suit against the above-mentioned 21
Defendants on behalf of four (previously five) Claimants. The suits issued by Hodge Jones and Allen were
consolidated;
◦
Twenty-three (previously nineteen) claimants represented by Hickman & Rose;
◦
Twelve (previously ten) claimants represented by Duncan Lewis Solicitors;
◦
One hundred six (previously one hundred thirteen) claimants represented by Birnberg Peirce;
◦
Three hundred forty-six (previously three hundred forty-one) claimants represented by Bindmans LLP. On
March 31, 2022, Bindmans issued a further suit against the above-mentioned 21 Defendants on behalf of five
Claimants. The suits issued by Bindmans were consolidated;
◦
Eighty (previously seventy-six) claimants represented by Bhatt Murphy Ltd; and
◦
Twenty-seven (previously twenty-six) claimants represented by Slater & Gordon.
Multiple claimant groups comprised of emergency responders who attended the Grenfell Tower fire have also filed claims
against AAP SAS arising from that fire, including as follows:
103
•
On June 11, 2020, 98 (previously 80) firefighters represented by Thompsons Solicitors filed suit against AAP SAS, as
well as the Royal Borough of Kensington and Chelsea, the Royal Borough of Kensington and Chelsea Tenant
Management Organisation Ltd, Celotex Ltd, Exova (U.K.) Ltd, Rydon Maintenance Ltd, Studio E Architects Ltd,
Harley Facades Ltd, CEP Architectural Facades Ltd, CS Stokes & Associates Ltd, and the London Fire Commissioner.
Since then, another 10 (previously 7) firefighters have sought to be added to the suit.
•
On June 12, 2020, 36 (previously 27) police officers represented by Penningtons Manches Cooper LLP filed suit
against AAP SAS, as well as the Royal Borough of Kensington and Chelsea, the Royal Borough of Kensington and
Chelsea Tenant Management Organisation Ltd, Celotex Ltd, Exova (U.K.) Ltd, Rydon Maintenance Ltd, Studio E
Architects Ltd, Harley Facades Ltd, CEP Architectural Facades Ltd, CS Stokes & Associates Ltd, London Fire
Commissioner, and the Commissioner of the Police of the Metropolis. Since then, some claimants have withdrawn and
others have sought to be added to the suit (currently 33 claimants).
•
On June 12, 2020, two firefighters represented by Pattinson and Brewer filed suit against AAP SAS, as well as the
Royal Borough of Kensington and Chelsea, the Royal Borough of Kensington and Chelsea Tenant Management
Organisation Ltd, Celotex Ltd, Exova (U.K.) Ltd, Rydon Maintenance Ltd, Studio E Architects Ltd, Harley Facades
Ltd, CEP Architectural Facades Ltd, CS Stokes & Associates Ltd, and the London Fire Commissioner. A third
firefighter, also represented by Pattinson and Brewer, brought a claim against the same defendants on June 15, 2020.
One of the original firefighter claimants has now withdrawn from the suit.
On December 17, 2020, a claim was issued by the Royal Borough of Kensington and Chelsea and the Royal Borough of
Kensington and Chelsea Tenant Management Organisation Ltd against: (1) Whirlpool Company Polska Spolka z Organiczona;
and (2) AAP SAS. The Claimants seek damages in respect of their own losses and/or a contribution to the extent that they are
found to be liable by the London High Court for any losses arising out of the Grenfell Tower fire on June 13, 2017. On March
29,2022, the Royal Borough of Kensington and Chelsea and the Royal Borough of Kensington and Chelsea Tenant
Management Organisation Ltd sought permission to join two further Defendants to these proceedings, namely: (i) Whirlpool
EMEA S.p.A.; and (ii) Whirlpool UK Appliances Limited.
All of these claims were filed in the High Court in London. On October 2, 2020, the High Court ordered that: (a) the suits
of the survivors and estates of decedents that were issued in June 2020 be stayed until a hearing scheduled by the High Court
for June 9-10, 2021; and (b) that the suits of emergency responders be stayed until a hearing scheduled by the High Court for
July 7-8, 2021. The hearing scheduled for June 9-10, 2021 was subsequently vacated by the Court.
The above-mentioned suits brought by: (1) the survivors and estates of decedents; (2) the emergency responders; and (3)
the Royal Borough of Kensington and Chelsea for contributions, were heard together at a procedural hearing on July 7-8, 2021,
before Senior Master Fontaine. At the hearing, the Senior Master made several directions for the future management of the
Grenfell Tower litigation, including staying all suits against Arconic Corporation and its affiliates until the next directions
hearing, which was held on April 26, 2022. On July 28, 2022, the Senior Master stayed the cases for another 12 months until
the next case management conference, which will be scheduled on a date after April 27, 2023.
The stay is intended to allow Arconic Corporation, along with several other co-defendants to the above-mentioned
litigations, to engage in discussions with the claimants' legal representatives in an attempt to reach a mutually agreeable
settlement. The parties have agreed to overarching terms as to the form of Alternative Dispute Resolution that they are willing
to participate in and discussions are ongoing.
These discussions have resulted in progress toward a settlement to resolve a substantial majority of the claims brought by
the survivors and estates of decedents though it is not certain that such a settlement will be concluded. In preparation for a
potential settlement, and based on anticipated contribution to a settlement offer, Arconic recorded a liability of $61 for its share
and a related receivable of $53 for costs expected to be covered by insurance proceeds if settlement is concluded. Discussions
with certain other claimant groups in the above-mentioned litigations are also ongoing though there is no certainty that such
discussions will result in any settlement.
Other than the recorded liability related to the claims brought by the survivors and estates of decedents noted above, and
given the preliminary nature of these matters and the uncertainty of litigation, Arconic cannot reasonably estimate at this time
the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of an unfavorable outcome in the
above-referenced disputes.
Behrens et al. v. Arconic Inc. et al. On June 6, 2019, 247 plaintiffs comprised of survivors and estates of decedents of the
Grenfell Tower fire filed a complaint against “Arconic Inc., Alcoa Inc., and Arconic Architectural Products, LLC” (collectively,
for purposes of the description of such proceeding, the “ParentCo Defendants”), as well as Saint-Gobain Corporation, d/b/a
Celotex and Whirlpool Corporation, in the Court of Common Pleas of Philadelphia County. The complaint alleges claims under
104
Pennsylvania state law for products liability and wrongful death related to the fire. In particular, the plaintiffs allege that the
ParentCo Defendants knowingly supplied a dangerous product (Reynobond PE) for installation on the Grenfell Tower despite
knowing that Reynobond PE was unfit for use above a certain height. The ParentCo Defendants removed the case to the United
States District Court for the Eastern District of Pennsylvania on June 19, 2019. On August 29, 2019, the ParentCo Defendants
moved to dismiss the complaint on the bases, among other things, that: (i) the case should be heard in the United Kingdom, not
the United States; (ii) there is no jurisdiction over necessary parties; and (iii) Pennsylvania product liability law does not apply
to manufacture and sale of product overseas. On December 23, 2019, the Court issued an order denying the motion to dismiss
the complaint on bases (ii) and (iii) suggesting a procedure for limited discovery followed by further briefing on those subjects.
On September 16, 2020, the Court issued an order granting Defendants’ motion to dismiss on forum non conveniens grounds,
subject to certain conditions, determining that the United Kingdom, and not the United States, is the appropriate place for
plaintiffs to bring their case. Plaintiffs subsequently filed a motion for reconsideration, which the Court denied on November
23, 2020. Plaintiffs are appealing this judgment; ParentCo Defendants are cross-appealing one of the conditions. The briefing
was completed and oral argument was held on Plaintiffs’ appeal in the Third Circuit on June 7, 2022. On July 8, 2022, the Third
Circuit decided the appeal in the Behrens matter in the defendants favor. The Third Circuit affirmed the district court’s
dismissal of plaintiffs’ case on forum non conveniens grounds. The Court also granted ParentCo Defendants’ cross-appeal,
invalidating one of the trial court’s dismissal conditions that would have left open the possibility for Plaintiffs to return to the
United States for a trial on damages if defendants were found liable in English courts and if the English court made certain
other legal and factual findings. On July 22, 2022, the Plaintiffs filed a petition seeking a panel rehearing, or en banc rehearing,
of the Third Circuit’s July 8, 2022 decision, which the Third Circuit denied on October 7, 2022. On January 5, 2023, the
plaintiffs filed a petition seeking review in the U.S. Supreme Court. The Supreme Court has not yet ruled on that petition.
Because Plaintiffs have not exhausted all appellate options and the uncertainty of litigation, Arconic Corporation cannot
reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of
an unfavorable outcome.
Howard v. Arconic Inc. et al. A purported class action complaint related to the Grenfell Tower fire was filed on August 11,
2017 in the United States District Court for the Western District of Pennsylvania against ParentCo and Klaus Kleinfeld. A
related purported class action complaint was filed in the United States District Court for the Western District of Pennsylvania
on September 15, 2017, under the caption Sullivan v. Arconic Inc. et al., against ParentCo, three former ParentCo executives,
several current and former ParentCo directors, and banks that acted as underwriters for ParentCo’s September 18, 2014
preferred stock offering (the “Preferred Offering”). The plaintiff in Sullivan had previously filed a purported class action against
the same defendants on July 18, 2017 in the Southern District of New York and, on August 25, 2017, voluntarily dismissed that
action without prejudice. On February 7, 2018, on motion from certain putative class members, the court consolidated Howard
and Sullivan, closed Sullivan, and appointed lead plaintiffs in the consolidated case. On April 9, 2018, the lead plaintiffs in the
consolidated purported class action filed a consolidated amended complaint. The consolidated amended complaint alleged that
the registration statement for the Preferred Offering contained false and misleading statements and omitted to state material
information, including by allegedly failing to disclose material uncertainties and trends resulting from sales of Reynobond PE
for unsafe uses and by allegedly expressing a belief that appropriate risk management and compliance programs had been
adopted while concealing the risks posed by Reynobond PE sales. The consolidated amended complaint also alleged that
between November 4, 2013 and June 23, 2017 ParentCo and Kleinfeld made false and misleading statements and failed to
disclose material information about ParentCo’s commitment to safety, business and financial prospects, and the risks of the
Reynobond PE product, including in ParentCo’s Form 10-Ks for the fiscal years ended December 31, 2013, 2014, 2015, and
2016, its Form 10-Qs and quarterly financial press releases from the fourth quarter of 2013 through the first quarter of 2017, its
2013, 2014, 2015, and 2016 Annual Reports, its 2016 Annual Highlights Report, and on its official website. The consolidated
amended complaint sought, among other things, unspecified compensatory damages and an award of attorney and expert fees
and expenses. On June 8, 2018, all defendants moved to dismiss the consolidated amended complaint for failure to state a
claim. On June 21, 2019, the Court granted the defendants’ motion to dismiss in full, dismissing the consolidated amended
complaint in its entirety without prejudice. On July 23, 2019, the lead plaintiffs filed a second amended complaint. The second
amended complaint alleges generally the same claims as the consolidated amended complaint with certain additional
allegations, as well as claims that the risk factors set forth in the registration statement for the Preferred Offering were
inadequate and that certain additional statements in the sources identified above were misleading. The second amended
complaint seeks, among other things, unspecified compensatory damages and an award of attorney and expert fees and
expenses. On September 11, 2019, all defendants moved to dismiss the second amended complaint. Plaintiffs’ opposition to that
motion was filed on November 1, 2019 and all defendants filed a reply brief on November 26, 2019. On June 22, 2020, counsel
for Arconic Corporation and the individual defendants filed a letter apprising the Court of a recent decision by the Third Circuit
and discussing its relevance to the pending motion to dismiss. Pursuant to an Order by the Court directing the plaintiffs to
respond to this letter, the plaintiffs filed a letter response on July 9, 2020. On June 23, 2021, the Court granted in part and
denied in part the defendants’ motion to dismiss the second amended complaint. The Court dismissed with prejudice plaintiffs’
claim against ParentCo, certain officers and directors and the underwriters based on the registration statement for the Preferred
Offering, with the exception of one statement and only as to purchases made before October 23, 2015. In addition, plaintiffs’
105
claim based on ParentCo’s statements in other SEC filings, in product brochures, and on websites was dismissed in its entirety
as to Kleinfeld and dismissed in part and allowed in part as to ParentCo. The Court also dismissed the control-person liability
claims in their entirety. On August 11, 2021, ParentCo filed a motion with the district court for certification of an interlocutory
appeal and a stay pending appeal. The motion seeks to appeal the aspect of the court’s June 23, 2021 opinion concerning the
complaint’s pleading of ParentCo’s alleged scienter. Plaintiffs filed an opposition to the motion on August 17, 2021, and
ParentCo filed a reply brief on August 24, 2021. On August 12, 2021, defendants filed an answer to the second amended
complaint. A status conference was held before the Court on January 11, 2022 during which the Court heard argument from
both parties on the pending motion for certification of an interlocutory appeal. On July 29, 2022, the Court denied the motion
for certification of an interlocutory appeal and ordered the parties to submit a proposed scheduling order, which the parties
jointly filed on August 29, 2022. The Court held a status conference on September 14, 2022, and on December 2, 2022, the
Court issued an Initial Case Management Order (“CMO”) setting forth dates for class certification briefing and discovery.
Discovery began and is ongoing. Given the preliminary nature of this matter and the uncertainty of litigation, Arconic
Corporation cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of
losses in the event of an unfavorable outcome.
Raul v. Albaugh, et al. On June 22, 2018, a derivative complaint was filed nominally on behalf of ParentCo by a purported
ParentCo stockholder against the then members of ParentCo’s Board of Directors and Klaus Kleinfeld and Ken Giacobbe,
naming ParentCo as a nominal defendant, in the United States District Court for the District of Delaware. The complaint raises
similar allegations as the consolidated amended complaint and second amended complaint in Howard, as well as allegations
that the defendants improperly authorized the sale of Reynobond PE for unsafe uses, and asserts claims under Section 14(a) of
the Securities Exchange Act of 1934, as amended, and Delaware state law. On July 13, 2018, the parties filed a stipulation
agreeing to stay this case until the final resolution of the Howard case, the Grenfell Tower Public Inquiry in London, and the
investigation by the Police and on July 23, 2018, the Court approved the stay. Given the preliminary nature of this matter and
the uncertainty of litigation, Arconic Corporation cannot reasonably estimate at this time the likelihood of an unfavorable
outcome or the possible loss or range of losses in the event of an unfavorable outcome.
General. While Arconic believes that all the above referenced Reynobond PE cases are without merit and intends to
challenge them vigorously, there can be no assurances regarding the ultimate resolution of these matters.
Tax. Under the terms of the agreements that govern the 2016 Separation Transaction, Arconic may be entitled to future
economic benefits resulting from Alcoa Corporation’s utilization of certain value-added tax credits that were generated, in part,
by the Company’s former operations in Brazil in years prior to 2015. Because Arconic is not party to the regulatory filings with
the Brazilian government and, therefore, does not have a basis to conclude on the realizability of these value-added tax credits
by Alcoa Corporation, the Company will recognize income when amounts are realized, if any.
Other. In 2018, Arconic entered into a consent order with the Iowa Department of Natural Resources (IDNR) to address
overflows of stormwater combined with untreated process water from the Company’s Davenport plant which the IDNR alleged
were unlawful bypasses prohibited by the facility’s wastewater discharge permit. These overflows occurred during periodic
storm events which Arconic timely reported to the IDNR. The consent order required the Company to submit a feasibility study
by November 1, 2022 evaluating the reasonableness, estimated cost, impact, and overall feasibility of all actions that could be
implemented to avoid unlawful bypasses from occurring in the future. After conducting extensive monitoring, analysis, and
investigative work, the Company submitted the feasibility study to the IDNR in October 2022. Arconic’s recommended
approach, as documented in the feasibility study, consists of amending its wastewater discharge permit and constructing certain
improvements to stormwater and process water systems expecting to result in estimated future capital expenditures of
approximately $25 to $30, assuming Arconic’s approach is approved. In 2022, the Company established a reserve of $0.5 to
cover future operating expenses associated with this proposed approach. Arconic is now in discussions with the IDNR
concerning the feasibility study and the Company’s proposed approach, following which Arconic is then required to submit a
final report for approval. The consent order requires the Company to implement the approved remedy by November 1, 2028.
Approval of a final remedy by the IDNR may result in additional expenditure and/or liability.
General. In addition to the matters described above, various other lawsuits, claims, and proceedings have been or may be
instituted or asserted against Arconic, including those pertaining to environmental, product liability, safety and health,
employment, tax, and antitrust matters. While the amounts claimed in these other matters may be substantial, the ultimate
liability is not readily determinable because of the considerable uncertainties that exist. Accordingly, it is possible that the
Company's liquidity or results of operations in a reporting period could be materially affected by one or more of these other
matters. However, based on facts currently available, management believes that the disposition of these other matters that are
pending or asserted will not have a material adverse effect, individually or in the aggregate, on the results of operations,
financial position or cash flows of Arconic.
106
Commitments
Purchase Obligations. Arconic has entered into purchase commitments for raw materials, energy, and other goods and
services, which total $909 in 2023, $106 in 2024, $19 in 2025, $15 in 2026, $13 in 2027, and $24 thereafter as of December 31,
2022. Subsequent to December 31, 2022, the Company entered into additional aluminum supply contracts totaling
approximately $765, of which approximately $375, $195, and $195 is expected to be purchased in 2023, 2024, and 2025,
respectively. Additionally, through February 20, 2023, Arconic is currently negotiating terms for further aluminum supply
contracts totaling approximately $2,580.
Operating Leases. See Note P for future minimum contractual obligations under long-term operating leases.
Guarantees, Letters of Credit, and Surety Bonds.
Guarantees(1)
Letters of Credit(2)
Surety Bonds(3)
Issuer
Beneficiary
Amount Expiration Date
Amount Expiration Date
Amount Expiration Date
Arconic
Third-parties $
2
2023-2029
$
11
2023
$
48
2023-2024
Howmet
Arconic
—
—
27
2023
4
2023
Alcoa Corporation
Arconic
8
Open term
—
—
2
2024
_____________________
(1) Arconic has outstanding bank guarantees related to, among others, tax matters and customs duties. Furthermore, Alcoa
Corporation has outstanding bank guarantees related to the Company. In the event Alcoa Corporation would be required to
perform under any of these instruments, Alcoa Corporation would be indemnified by Arconic in accordance with the 2016
Separation and Distribution Agreement.
(2) Arconic has outstanding letters of credit primarily related to insurance, environmental, and lease obligations. Additionally,
Howmet has outstanding letters of credit related to the Company. In the event Howmet would be required to perform under
any of these instruments, Howmet would be indemnified by Arconic in accordance with the Separation and Distribution
Agreement.
(3) Arconic has outstanding surety bonds primarily related to customs duties and environmental obligations. Additionally,
Howmet has outstanding surety bonds related to the Company. In the event Howmet would be required to perform under
any of these instruments, Howmet would be indemnified by Arconic in accordance with the Separation and Distribution
Agreement. Furthermore, Alcoa Corporation has outstanding surety bonds related to the Company. In the event Alcoa
Corporation would be required to perform under any of these instruments, Alcoa Corporation would be indemnified by
Arconic in accordance with the 2016 Separation and Distribution Agreement.
In August 2012, ParentCo and the Iowa Finance Authority entered into a loan agreement for the proceeds from the issuance
of $250 in Midwestern Disaster Area Revenue Bonds Series 2012 due 2042 (the “Bonds”). The Bonds were issued by the Iowa
Finance Authority pursuant to the Heartland Disaster Tax Relief Act of 2008 for the purpose of financing all or part of the cost
of acquiring, constructing, reconstructing, and renovating certain facilities (the “Project”) at Arconic’s rolling mill plant in
Davenport, IA. In accordance with the Separation and Distribution Agreement, as well as a Second Supplemental Tax and
Project Certificate and Agreement, dated March 31, 2020, to the Tax Exemption Certificate and Agreement, dated August 14,
2012, (collectively, the “Tax Agreement”), ParentCo remained the borrower associated with the Bonds and Arconic is the legal
owner of the Davenport facility, including the Project. The Company has no financial obligations related to the future debt
service of the Bonds but is required to continue to operate, and maintain the location of, the Project in accordance with the Tax
Agreement.
U. Financial Instruments
Amounts designated below as kmt are thousand metric tons and MMBtu are million British thermal units.
Fair Value—Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between
(i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and
(ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the
circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to
107
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value hierarchy are described below:
•
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities.
•
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable
for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
•
Level 3—Inputs that are both significant to the fair value measurement and unobservable.
The respective carrying value and fair value of Arconic’s financial instruments were as follows:
2022
2021
December 31,
Carrying value
Fair value
Carrying value
Fair value
Cash and cash equivalents
$
261 $
261 $
335 $
335
Hedging instruments and derivatives - assets
21
21
1
1
Hedging instruments and derivatives - liabilities
8
8
23
23
Long-term debt
1,597
1,539
1,594
1,692
The following methods were used to estimate the fair value of financial instruments:
Cash and cash equivalents and Short-term debt. The carrying amounts approximate fair value because of the short
maturity of the instruments. The fair value amounts for Cash and cash equivalents were classified in Level 1 of the fair value
hierarchy and Short-term debt was classified in Level 2 of the fair value hierarchy.
Hedging instruments and derivatives. Arconic is exposed to certain risks relating to its ongoing business operations,
including financial, market, political, and economic risks. Information regarding the Company's exposure to risks of changing
commodity prices is described below.
Arconic's commodity and hedging activities are subject to the management, direction, and control of the Strategic Risk
Management Committee (SRMC), which consists of at least three members, including the Company's chief executive officer
and chief financial officer. The remaining member(s) are other Arconic officers and/or employees as the chief executive officer
may designate from time to time. Currently, the only other member of the SRMC is the Company's treasurer. The SRMC meets
on a periodic basis to review hedging positions and strategy and reports to the Audit and Finance Committee of Arconic's Board
of Directors on the scope of its activities.
The Company's hedging instruments are held for purposes other than trading. They are used primarily to mitigate
uncertainty and volatility, and to cover underlying exposures. Specifically, these instruments hedge forward sale commitments
for aluminum and forward purchase commitments for aluminum, natural gas, and certain alloying materials. Arconic is not
involved in trading activities for energy, weather derivatives, or other nonexchange commodity trading activities.
The fair value of the Company's hedging instruments was based on quoted market prices (e.g., aluminum prices on the 10-
year London Metal Exchange forward curve) and were classified in Level 1 of the fair value hierarchy. Most of these
instruments are comprised of those that were designated as cash flow hedges while the remainder are marked-to-market as they
do not qualify for hedge accounting.
108
The following table presents the fair value and amount of underlying by type for all hedging instruments:
December 31, 2022
December 31, 2021
Assets
Cash flow hedges
Aluminum
$
—
17 kmt
$
—
—
Alloying materials*
(1)
1 kmt
—
—
Marked-to-market
Aluminum
6
60 kmt
1
14 kmt
$
5
$
1
Liabilities
Cash flow hedges
Aluminum*
$
(14)
368 kmt
$
18
251 kmt
Energy
5
6.3 MMBtu
2
3.3 MMBtu
Alloying materials
1
3 kmt
—
— kmt
Marked-to-market
Aluminum
12
53 kmt
3
19 kmt
Energy
4
0.6 MMBtu
—
—
$
8
$
23
_____________________
*
The hedging instruments are classified as assets or liabilities based on the overall position of all instruments held with
respective counterparties.
The following table presents the unrealized and realized gains and losses associated with those hedging instruments
designated as cash flow hedges:
2022
2021
2020
Unrealized
Other comprehensive loss
Aluminum
$
81 $
(160) $
(7)
Energy
16
(2)
—
Alloying materials
(2)
1
5
$
95 $
(161) $
(2)
Realized*
Sales
Aluminum
$
43 $
(150) $
2
Cost of goods sold
Aluminum
(5)
(8)
10
Energy
(20)
—
—
Alloying materials
1
(2)
—
$
67 $
(140) $
(8)
_____________________
*
In all periods presented, these amounts were reclassified from Accumulated other comprehensive loss (see Note L).
For hedging instruments that do not qualify for hedge accounting, in 2022, the Company recognized an unrealized loss of
$4 and a realized gain of $6 in Sales for aluminum, and an unrealized loss of $4 and a realized gain of $3 in Cost of goods sold
for energy. Unrealized and realized impacts were not material in 2021 and 2020.
109
The disclosures with respect to commodity price risk do not consider the underlying commitments or anticipated
transactions. If the underlying items were included, the gains or losses on the hedging instruments may be offset. Actual results
will be determined by several factors that are not under Arconic's control and could vary significantly from those factors
disclosed.
The Company is exposed to credit loss in the event of nonperformance by counterparties on the above instruments, as well
as credit or performance risk with respect to its hedged customers' commitments. Arconic does not anticipate nonperformance
by any of these parties. Contracts are with creditworthy counterparties and are further supported by cash or irrevocable letters
of credit issued by carefully chosen banks. In addition, master netting arrangements are in place with counterparties to facilitate
settlement of gains and losses on these contracts.
Separately, Arconic has three natural gas supply contracts that are treated as derivatives for accounting purposes as they
failed to qualify for the normal purchase normal sale exception due to net settlement provisions. These derivatives also do not
qualify for hedge accounting. The Company does not have a regular practice of entering into contracts that are treated as
derivatives for accounting purposes. As of December 31, 2022, Arconic's derivatives classified as assets consisted of $16 (12.1
MMBtu). Additionally, in 2022, the Company recognized an unrealized gain of $16, in Cost of goods sold for these derivatives
(see Note A).
Long-term debt. The fair value was based on quoted market prices for public debt and were classified in Level 2 of the
fair value hierarchy.
V. Receivables
On January 5, 2022, the Company entered into a one-year arrangement with a financial institution to sell certain customer
receivables outright without recourse on a continuous basis. All such sales are at Arconic's discretion. Under this arrangement,
the Company will serve in an administrative capacity, including collection of the receivables from the respective customers and
remittance of these cash collections to the financial institution. Accordingly, upon the sale of customer receivables to the
financial institution, Arconic removes the underlying trade receivables from the Consolidated Balance Sheet and includes the
reduction as a positive amount in the Decrease (Increase) in receivables line item within Operating Activities on the Statement
of Consolidated Cash Flows. At no time can the outstanding balance due to the financial institution exceed $225 (increased in
February from original amount of $100). In 2022, the Company sold customer receivables and remitted cash to the financial
institution both in the amount of $1,119. Of the total amount of customer receivables sold in 2022, $77 were included in
Receivables from customers on the accompanying Consolidated Balance Sheet as of December 31, 2021. In December 2022,
this arrangement was amended to provide for an automatic renewal each year unless terminated in accordance with the
provisions of the underlying purchase agreement.
W. Subsequent Events
Management 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.
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 Procedures
Arconic’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period
covered by this report, and they have concluded that these controls and procedures are effective.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Management's Report on Internal Control over Financial Reporting is included in Part II Item 8 of this Form 10-K.
(c) Attestation Report of the Registered Public Accounting Firm
The effectiveness of Arconic’s internal control over financial reporting as of December 31, 2022 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 Form 10-K.
110
(d) Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the fourth quarter of 2022 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information regarding the Company’s executive officers is included in Part I. Item 1. “Business—Information about
our Executive Officers” and is incorporated herein by reference. The other information required by this item will be included
under the caption “Corporate Governance” in the Company’s Definitive Proxy Statement for its 2023 Annual Meeting of
Stockholders (the “2023 Proxy Statement”) and is incorporated herein by reference.
Code of Ethics
The Company’s Code of Ethics, which applies to our CEO, CFO, principal accounting officer or controller, or persons
performing similar functions, is publicly available on the Company’s Internet website at http://www.arconic.com under the
section “Investors—Corporate Governance—Governance and Policies.” The Company intends to disclose any changes in, or
waivers from, this Code of Ethics by posting such information on the same website or by filing a Current Report on Form 8-K,
in each case to the extent such disclosure is required by SEC or New York Stock Exchange rules and regulations.
Item 11. Executive Compensation.
The information required by this item will be included under the captions “Corporate Governance,” “Compensation
Discussion and Analysis,” “Report of the Compensation and Benefits Committee” and “Executive Compensation” in the 2023
Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item will be included under the caption “Information Regarding Security Holders” in
the 2023 Proxy Statement and is incorporated herein by reference. Information regarding the Company’s equity compensation
plans will be included under the caption “Equity Compensation Plan Information” in the 2023 Proxy Statement and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be included under the caption “Corporate Governance” in the 2023 Proxy
Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this item will be included under the caption “Principal Accountant Fees and Services” and
“Report of the Audit and Finance Committee” in the 2023 Proxy Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statements Schedules.
(a) The consolidated financial statements and exhibits listed below are filed as part of this Annual Report on Form 10-K.
(1) The Company’s consolidated financial statements, the notes thereto and the report of the Independent Registered
Public Accounting Firm (PCAOB ID 238) are included in Part II. Item 8. “Financial Statements and
Supplementary Data.”
111
(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.
Reference is made to Item 15(b) below.
(b) Exhibits. The Exhibit Index, which immediately precedes the signature page, is incorporated by reference into this Annual
Report on Form 10-K.
(c) Financial Statement Schedules. Reference is made to Item 15(a)(2) above.
Item 16. Form 10-K Summary.
None.
Exhibit Index
Exhibit
Number
Exhibit Description
2.1
Separation and Distribution Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic
Rolled Products Corporation (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form
8-K filed on April 3, 2020)
2.2
Tax Matters Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Rolled Products
Corporation (incorporated by reference to Exhibit 2.2 to the registrant’s Current Report on Form 8-K filed on
April 3, 2020)
2.3(a)
Employee Matters Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Rolled
Products Corporation (incorporated by reference to Exhibit 2.3 to the registrant’s Current Report on Form 8-K
filed on April 3, 2020)
2.3(b)
First Amendment to Employee Matters Agreement, dated as of April 10, 2020, by and between Arconic Inc. and
Arconic Rolled Products Corporation (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report
on Form 8-K filed on April 10, 2020)
2.4
Patent Know-How and Trade Secret License Agreement, dated as of March 31, 2020, by and between Arconic
Inc. and Arconic Corporation (incorporated by reference to Exhibit 2.4 to the registrant’s Current Report on Form
8-K filed on April 3, 2020)
2.5(a)
Patent Know-How and Trade Secret License Agreement, dated as of March 31, 2020, by and between Arconic
Rolled Products Corporation and Arconic Inc. (incorporated by reference to Exhibit 2.5 to the registrant’s Current
Report on Form 8-K filed on April 3, 2020)
2.5(b)
Amendment No. 1 to Patent Know-How and Trade Secret License Agreement, dated as of August 25, 2020, by
and between Arconic Rolled Products Corporation and Arconic Inc. (incorporated by reference to Exhibit 2.5(b)
to the registrant's Annual Report on Form 10-K filed on February 22, 2022)
2.6
Trademark License Agreement, dated as of March 31, 2020, by and between Arconic Rolled Products
Corporation and Arconic Inc. (incorporated by reference to Exhibit 2.6 to the registrant’s Current Report on Form
8-K filed on April 3, 2020)
2.7
Trademark License Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Rolled
Products Corporation (incorporated by reference to Exhibit 2.7 to the registrant’s Current Report on Form 8-K
filed on April 3, 2020)
2.8
Master Agreement for Product Supply, dated as of March 31, 2020, by and between Arconic Massena LLC,
Arconic Lafayette LLC, Arconic Davenport LLC and Arconic Inc. (incorporated by reference to Exhibit 2.8 to the
registrant’s Current Report on Form 8-K filed on April 3, 2020)
2.9
Metal Supply & Tolling Agreement, dated as of January 9, 2020, by and between Arconic-Köfém Mill Products
Hungary Kft and Arconic-Köfém Kft, dated January 1, 2020 (incorporated by reference to Exhibit 2.9 to the
registrant’s Annual Report on Form 10-K filed on March 30, 2020)
2.10
Use Agreement by and between Arconic-Köfém Székesfehérvári Könnyűfémmű Korlátolt Felelősségű Társaság
and Arconic-Köfém Mill Products Hungary Korlátolt Felelősségű Társaság, dated January 6, 2020 (incorporated
by reference to Exhibit 2.10 to the registrant’s Annual Report on Form 10-K filed on March 30, 2020)
112
Exhibit
Number
Exhibit Description
2.11
Land Use Right Agreement by and between Arconic-Köfém Mill Products Hungary Korlátolt Felelősségű
Társaság and Arconic-Köfém Székesfehérvári Könnyűfémmű Korlátolt Felelősségű Társaság, dated January 6,
2020 (incorporated by reference to Exhibit 2.11 to the registrant’s Annual Report on Form 10-K filed on March
30, 2020)
2.12
Service Level Agreement for Central Engineering and Maintenance by and between Arconic-Köfém Kft and
Arconic-Köfém Mill Products Hungary Kft, dated January 9, 2020 (incorporated by reference to Exhibit 2.12 to
the registrant’s Annual Report on Form 10-K filed on March 30, 2020)
2.13
Service Level Agreement for Energy, Steam and Water by and between Arconic-Köfém Kft and Arconic-Köfém
Mill Products Hungary Kft, dated January 31, 2020 (incorporated by reference to Exhibit 2.13 to the registrant’s
Annual Report on Form 10-K filed on March 30, 2020)
2.14
Land Use Right Agreement by and between Arconic-Köfém Székesfehérvári Könnyűfémmű Korlátolt
Felelősségű Társaság and Arconic-Köfém Mill Products Hungary Korlátolt Felelősségű Társaság, dated January
6, 2020 (incorporated by reference to Exhibit 2.14 to the registrant’s Annual Report on Form 10-K filed on
March 30, 2020)
2.15(a)
Second Supplemental Tax and Project Certificate and Agreement, dated as of March 31, 2020, by and among
Arconic Inc., Arconic Davenport LLC and Arconic Rolled Products Corporation (incorporated by reference to
Exhibit 2.9 to the registrant’s Current Report on Form 8-K filed on April 3, 2020)
2.15(b)
Third Supplemental Tax and Project Certificate and Agreement, dated as of December 31, 2022, by and among
Howmet Aerospace Inc., Arconic US LLC, Arconic Davenport LLC and Arconic Corporation
2.16
Lease and Property Management Agreement, dated as of March 31, 2020, by and between Arconic Inc. and
Arconic Massena LLC (incorporated by reference to Exhibit 2.10 to the registrant’s Current Report on Form 8-K
filed on April 3, 2020)
3.1
Amended and Restated Certificate of Incorporation of Arconic Corporation (incorporated by reference to Exhibit
3.1(b) to the registrant’s Current Report on Form 8-K filed on April 3, 2020)
3.2
Amended and Restated Bylaws of Arconic Corporation (incorporated by reference to Exhibit 3.1 to the
registrant’s Current Report on Form 8-K filed on December 6, 2022)
4.1
Indenture for 6.000% First Lien Notes Due 2025, dated as of May 13, 2020, among Arconic Corporation and U.S.
Bank National Association, as trustee, notes collateral agent, registrar, paying agent and authenticating agent
(including Form of Note due 2025) (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on
Form 8-K filed on May 13, 2020)
4.2(a)
Indenture for 6.125% Second Lien Notes Due 2028, dated as of February 7, 2020, among Arconic Rolled
Products Corporation and U.S. Bank National Association, as trustee, notes collateral agent, registrar, paying
agent and authenticating agent (including Form of Note due 2028) (incorporated by reference to Exhibit 10.14 to
Amendment No. 2 to the registrant’s Registration Statement on Form 10 filed on February 7, 2020)
4.2(b)
Supplemental Indenture, dated as of March 30, 2020, among each subsidiary listed therein, U.S. Bank National
Association, as trustee, and U.S. Bank National Association, as second priority collateral agent, authenticating
agent, registrar and paying agent (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on
Form 8-K filed on April 3, 2020)
4.2(c)
Second Supplemental Indenture, dated as of March 3, 2021, among Arconic Corporation and each subsidiary
listed therein, U.S. Bank National Association, as trustee, and U.S. Bank National Association, as second priority
collateral agent, authenticating agent, registrar and paying agent (incorporated by reference to Exhibit 4.1 to the
registrant’s Current Report on Form 8-K filed on March 3, 2021)
4.3
Description of Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
10.1(a) +
Arconic Corporation 2020 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s
Current Report on Form 8-K filed on April 3, 2020)
10.1(b) +
Amended and Restated Arconic Corporation 2020 Stock Incentive Plan (incorporated by reference to Exhibit 99.1
to the registrant’s Registration Statement on Form S-8 filed on May 20, 2021)
10.1(c) +
Arconic Corporation Amended and Restated 2020 Stock Incentive Plan (incorporated by reference to Exhibit 10.4
to the registrant’s Current Report on Form 8-K filed on May 20, 2022)
10.2 +
Form of Indemnification Agreement by and between Arconic Corporation and individual directors or officers
(incorporated by reference to Exhibit 10.2 to the registrant’s registration statement on Form 10 filed on December
17, 2019)
10.3 *
United Company RUSAL – Trading House Agreement for the Supply of Aluminum Products by and between
United Company RUSAL — Trading House and Arconic SMZ, dated December 27, 2016 (incorporated by
reference to Exhibit 10.3 to the registrant’s registration statement on Form 10 filed on December 17, 2019)*
10.4(a) +
Arconic Corporation Deferred Fee Plan for Directors (incorporated by reference to Exhibit 10.6 to the registrant’s
Current Report on Form 8-K filed on April 3, 2020)
113
Exhibit
Number
Exhibit Description
10.4(b) +
Arconic Corporation Amended and Restated Deferred Fee Plan for Directors (incorporated by reference to
Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on December 21, 2020)
10.5(a) +
Arconic Corporation Annual Cash Incentive Plan (incorporated by reference to Exhibit 10.2 to the registrant’s
Current Report on Form 8-K filed on April 3, 2020)
10.5(b) +
Amended and Restated Arconic Corporation 2020 Annual Cash Incentive Plan (incorporated by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on May 21, 2021)
10.5(c) +
Amended and Restated Arconic Corporation 2020 Annual Cash Incentive Plan (incorporated by reference to
Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on May 20, 2022)
10.6(a) +
Arconic Corporation Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.7 to
the registrant’s Current Report on Form 8-K filed on April 3, 2020)
10.6(b) +
Arconic Corporation Amended and Restated Non-Employee Director Compensation Policy (incorporated by
reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on December 21, 2020)
10.6(c) +
Arconic Corporation Amended Non-Employee Director Compensation Policy, effective January 1, 2022
(incorporated by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on November 2,
2021)
10.7 +
Employment Letter Agreement between Arconic Inc. and Timothy D. Myers, dated as of January 13, 2020
(incorporated by reference to Exhibit 10.7 to Amendment No. 1 to the registrant's registration statement on Form
10 filed on January 22, 2020)
10.8 +
Employment Letter Agreement between Arconic Inc. and Erick R. Asmussen, dated as of January 29, 2020
(incorporated by reference to Exhibit 10.8 to Amendment No. 2 to the registrant’s registration statement on Form
10 filed on February 7, 2020)
10.9 +
Employment Letter Agreement between Arconic Corporation and Daniel G. Fayock, dated as of March 7, 2022
(incorporated by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q filed on May 3,
2022)
10.10(a) +
Arconic Corporation Change in Control Severance Plan (incorporated by reference to Exhibit 10.3 to the
registrant’s Current Report on Form 8-K filed on April 3, 2020)
10.10(b) +
Arconic Corporation Amended and Restated Change in Control Severance Plan (incorporated by reference to
Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on May 20, 2022)
10.11(a) +
Arconic Corporation Executive Severance Plan (incorporated by reference to Exhibit 10.4 to the registrant’s
Current Report on Form 8-K filed on April 3, 2020)
10.11(b) +
Arconic Corporation Amended and Restated Executive Severance Plan (incorporated by reference to Exhibit 10.1
to the registrant’s Current Report on Form 8-K filed on May 20, 2022)
10.12 +
Arconic Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.12 to Amendment No.
2 to the registrant’s registration statement on Form 10 filed on February 7, 2020)
10.13 +
Arconic Corporation Excess Plan C (incorporated by reference to Exhibit 10.13 to Amendment No. 2 to the
registrant’s registration statement on Form 10 filed on February 7, 2020)
10.14 +
Arconic Corporation Legal Fee Reimbursement Plan (incorporated by reference to Exhibit 10.5 to the registrant’s
Current Report on Form 8-K filed on April 3, 2020)
10.15(a) +
Terms and Conditions for Restricted Share Units for Annual Director Awards under the Arconic Corporation 2020
Stock Incentive Plan, effective April 8, 2020 (incorporated by reference to Exhibit 10.4 to the registrant’s Current
Report on Form 8-K filed on April 10, 2020)
10.15(b) +
Terms and Conditions for Restricted Share Units for Annual Director Awards under the Arconic Corporation 2020
Stock Incentive Plan, effective January 1, 2021 (incorporated by reference to Exhibit 10.3 to the registrant’s
Current Report on Form 8-K filed on December 21, 2020)
10.15(c) +
Terms and Conditions for Deferred Fee Restricted Share Units for Annual Director Awards under the Arconic
Corporation 2020 Stock Incentive Plan, effective April 8, 2020 (incorporated by reference to Exhibit 10.5 to the
registrant’s Current Report on Form 8-K filed on April 10, 2020)
10.15(d) +
Terms and Conditions for Deferred Fee Restricted Share Units for Annual Director Awards under the Arconic
Corporation 2020 Stock Incentive Plan, effective January 1, 2021 (incorporated by reference to Exhibit 10.4 to
the registrant’s Current Report on Form 8-K filed on December 21, 2020)
10.15(e) +
Form of Restricted Share Unit Award Agreement pursuant to the Arconic Corporation 2020 Stock Incentive Plan,
effective April 23, 2020 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
filed on April 23, 2020)
10.15(f) +
Form of Special Retention Award Agreement pursuant to the Arconic Corporation 2020 Stock Incentive Plan,
effective April 23, 2020 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K
filed on April 23, 2020)
10.15(g) +
Form of Restricted Share Unit Award Agreement pursuant to the Arconic Corporation 2020 Stock Incentive Plan,
effective February 3, 2021 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form
8-K filed on February 8, 2021)
114
Exhibit
Number
Exhibit Description
10.15(h) +
Form of Special Retention Award Agreement pursuant to the Arconic Corporation 2020 Stock Incentive Plan,
effective February 3, 2021 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form
8-K filed on February 8, 2021)
10.15(i) +
Form of Restricted Share Unit Award Agreement pursuant to the Arconic Corporation Amended and Restated
2020 Stock Incentive Plan, effective May 19, 2022 (incorporated by reference to Exhibit 10.5 to the registrant’s
Current Report on Form 8-K filed on May 20, 2022)
10.15(j) +
Form of Special Retention Award Agreement pursuant to the Arconic Corporation Amended and Restated 2020
Stock Incentive Plan, effective May 19, 2022 (incorporated by reference to Exhibit 10.6 to the registrant’s
Current Report on Form 8-K filed on May 20, 2022)
10.15(k) +
Form of Restricted Share Unit Award Agreement pursuant to the Arconic Corporation Amended and Restated
2020 Stock Incentive Plan, effective March 1, 2023
10.15(l) +
Form of Special Retention Award Agreement pursuant to the Arconic Corporation Amended and Restated 2020
Stock Incentive Plan, effective March 1, 2023
10.16
Credit Agreement, dated as of March 25, 2020, by and among Arconic Rolled Products Corporation, the lenders
and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by
reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on March 26, 2020)
10.17(a)
Credit Agreement, dated May 13, 2020, among Arconic Corporation, a syndicate of lenders named therein and
Deutsche Bank AG New York Branch, as administrative agent and collateral agent (incorporated by reference to
Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on May 13, 2020)
10.17(b)
Amendment No. 1 to Credit Agreement, dated as of February 16, 2022, among Arconic Corporation, the
guarantors party thereto, a syndicate of lenders named therein and Deutsche Bank AG New York Branch, as
administrative agent (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
filed on February 17, 2022)
10.17(c)
Amendment No. 2 to Credit Agreement, dated as of February 16, 2022, among Arconic Corporation, the
guarantors party thereto, a syndicate of lenders named therein and Deutsche Bank AG New York Branch, as
administrative agent (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K
filed on February 17, 2022)
10.18 +
Employment Letter Agreement between Arconic Corporation and Diana B. Perreiah, dated as of August 5, 2022
(incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q filed on November
1, 2022)
10.19 +
Employment Letter Agreement between Arconic Corporation and Robert L. Woodall, dated as of August 5, 2022
(incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q filed on November
1, 2022)
21
Subsidiaries of the Registrant
23
Consent of Independent Registered Public Accounting Firm
24
Power of Attorney of Directors of Arconic Corporation
31
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL)
____________________
*
Portions of the exhibit have been omitted to preserve confidentiality in compliance with Item 601 of Regulation S-K.
+
Management contract or compensatory plan or arrangement.
115
SIGNATURES
Pursuant 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 CORPORATION
February 21, 2023
By
Mary E. Zik
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.
Signature
Title
Date
February 21, 2023
Timothy D. Myers
Chief Executive Officer and Director
(Principal Executive Officer)
February 21, 2023
Erick R. Asmussen
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
William F. Austen, Christopher L. Ayers, Margaret S. Billson, Jacques Croisetiere, Elmer L. Doty, Carol S. Eicher,
Frederick A. Henderson, Ellis A. Jones, E. Stanley O’Neal, and Jeffrey Stafeil as Directors, on February 21, 2023, by Daniel G.
Fayock, their attorney-in-fact.
*By
Daniel G. Fayock
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name
U.S. State or
Country
of Organization
Arconic Architectural Products LLC*
Delaware
Arconic Architectural Products SAS
France
Arconic China Investment Company Ltd.
China
Arconic China Processing LLC
Delaware
Arconic Davenport LLC*
Delaware
Arconic Extrusions Hannover GmbH
Germany
Arconic France Holding SAS
France
Arconic Hungary Finance Kft
Hungary
Arconic Kofem Mill Products Kft
Hungary
Arconic Kunshan Aluminum Products Company, Ltd.
China
Arconic Lafayette LLC*
Delaware
Arconic Lancaster Corp.*
Delaware
Arconic Manufacturing GB Limited
United Kingdom
Arconic Massena LLC*
Delaware
Arconic Nederland Holding B.V.
Netherlands
Arconic Qinhuangdao Aluminum Industries Co., Ltd.
China
Arconic Technologies LLC
Delaware
Arconic Tennessee LLC*
Delaware
Arconic UK Finance
United Kingdom
Arconic UK Holdings Limited
United Kingdom
Kawneer Commercial Windows LLC*
Pennsylvania
Kawneer Company Canada Limited*
Canada
Kawneer Company, Inc.*
Delaware
Kawneer France SAS
France
Kawneer Nederland B.V.
Netherlands
Kawneer U.K. Limited
United Kingdom
Pimalco, Inc.*
Arizona
The names of particular subsidiaries have been omitted because, considered in the aggregate as a single subsidiary, they would
not constitute, as of the end of the year covered by this report, a “significant subsidiary” as defined in Regulation S-X under the
Securities Exchange Act of 1934, as amended.
*
In 2022, the Registrant established two new subsidiaries in anticipation of the completion of a legal entity
reorganization by the end of the calendar year. These two subsidiaries, Arconic US LLC and Arconic BCS Holdings
LLC did not constitute, individually or in the aggregate, a significant subsidiary as of the end of the business day on
December 31, 2022. Effective 11:59 p.m. Eastern Standard Time on December 31, 2022, the following mergers,
dissolutions, and contributions occurred:
•
Arconic Davenport LLC, Arconic Lafayette LLC, Arconic Lancaster Corp., Arconic Massena LLC, Arconic
Tennessee LLC, and Pimalco, Inc. were merged into Arconic US LLC and were dissolved;
•
Kawneer Commercial Windows LLC was merged into Kawneer Company, Inc. and was dissolved; and
•
Arconic BCS Holdings LLC became the direct parent company of Arconic Architectural Products LLC,
Kawneer Company Canada Limited, and Kawneer Company, Inc..
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-237517, 333-
237518, 333-256335, and 333-256369) of Arconic Corporation of our report dated February 21, 2023 relating to the financial
statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
Pittsburgh, Pennsylvania
February 21, 2023
Exhibit 31
Certifications
I, Timothy D. Myers, certify that:
1.
I have reviewed this annual report on Form 10-K of Arconic Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 21, 2023
Timothy D. Myers
Chief Executive Officer
I, Erick R. Asmussen, certify that:
1.
I have reviewed this annual report on Form 10-K of Arconic Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 21, 2023
Erick R. Asmussen
Executive Vice President and Chief Financial Officer
____________________________________
_
Exhibit 32
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title
18, United States Code), each of the undersigned officers of Arconic Corporation, a Delaware corporation (the “Company”),
does hereby certify that:
The Annual Report on Form 10-K for the period ended December 31, 2022 (the “Form 10-K”) of the Company fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in
the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
February 21, 2023
Timothy D. Myers
Chief Executive Officer
Date:
February 21, 2023
Erick R. Asmussen
Executive Vice President, Chief Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-
K and shall not be considered filed as part of the Form 10-K.
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Arconic Corporation and subsidiaries
Reconciliation of Non-GAAP Financial Measures (unaudited)
(dollars in millions)
Adjusted EBITDA
Quarter ended
Year ended
March 31,
2022
June 30,
2022
September 30,
2022
December 31,
2022
December 31,
2022
December 31,
2021
Net income (loss)
attributable to
Arconic Corporation $
42
$
114
$
(65)
$
(273)
$
(182) $
(397)
Add:
Net income
attributable to
noncontrolling
interest
—
1
—
—
1
—
Provision (Benefit)
for income taxes
12
38
(25)
(36)
(11)
(62)
Other expenses
(income), net(1)
17
(35)
27
32
41
67
Interest expense
25
26
27
26
104
100
Restructuring and
other charges(2)
5
2
112
337
456
624
Impairment of
goodwill(3)
—
—
—
—
—
65
Provision for
depreciation and
amortization
60
62
59
56
237
253
Stock-based
compensation
5
8
6
(4)
15
22
Metal price lag(4)
36
(30)
(15)
(8)
(17)
16
Unrealized (gains)
losses on mark-to-
market hedging
instruments and
derivatives
(2)
(21)
7
10
(6)
—
Other special items(5)
5
39
10
14
68
24
Adjusted EBITDA
$
205
$
204
$
143
$
154
$
706 $
712
Sales
$
2,191
$
2,548
$
2,280
$
1,942
$
8,961 $
7,504
Adjusted EBITDA
Margin
9.4 %
8.0 %
6.3 %
7.9 %
7.9 %
9.5 %
__________________
Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for the following
items: Provision for depreciation and amortization; Stock-based compensation; Metal price lag (see footnote 4); Unrealized (gains) losses on mark-to-market
hedging instruments and derivatives (see below); and Other special items. Net margin is equivalent to Sales minus the following items: Cost of goods sold;
Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. Special items are
composed of restructuring and other charges, discrete income tax items, and other items as deemed appropriate by management. There can be no assurances
that additional special items will not occur in future periods. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is
meaningful to investors because Adjusted EBITDA provides additional information with respect to Arconic’s operating performance and the Company’s ability
to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.
Effective in the first quarter of 2022, management modified the Company’s definition of Adjusted EBITDA to exclude the impact of unrealized gains and losses
on mark-to-market hedging instruments and derivatives. This modification was deemed appropriate as Arconic is considering entering into additional hedging
instruments in future reporting periods if favorable conditions exist to mitigate cost inflation. Certain of these instruments may not qualify for hedge accounting
resulting in unrealized gains and losses being recorded directly to Sales or Cost of goods sold, as appropriate (i.e., mark-to-market). Additionally, this change
was also applied to derivatives that do not qualify for hedge accounting for consistency purposes. The Company does not have a regular practice of entering
into contracts that are treated as derivatives for accounting purposes. Ultimately, this change was made to maintain the transparency and visibility of the
underlying operating performance of Arconic. Prior to this change, the Company had a limited number of hedging instruments and derivatives that did not
qualify for hedge accounting, the unrealized impact of which was not material to Arconic’s Adjusted EBITDA. Accordingly, periods prior to the effective date
of this change were not recast to reflect this change.
(1) In the quarters ended June 30, 2022 and September 30, 2022, Other expenses (income), net includes a $54 gain and an $11 loss, respectively, for the
remeasurement of monetary balances, primarily cash, related to the Company’s former operations in Russia (see footnote 2) from rubles to the U.S. dollar.
This gain and loss were the result of a significant strengthening and weakening, respectively, of the Russian ruble against the U.S. dollar in the respective
periods.
(2) On November 15, 2022, Arconic completed the sale of 100% of its operations in Russia to Promishlennie Investitsii LLC, the majority owner of VSMPO-
AVISMA Corporation, for cash proceeds of $230. The transaction closed after the Company received all required approvals, resulting in the receipt of the
cash consideration in exchange for all of Arconic’s net assets in Russia. These net assets included $203 of cash held in Russia that was not available for
distribution to the parent company because of injunctions imposed as a result of litigation initiated in March 2020 by the Federal Antimonopoly Service of
The Russian Federation (“FAS”). In the quarter ended December 31, 2022, the Company recorded a loss of $306 ($304 after-tax) in connection with this
transaction. At a hearing on December 22, 2022, the Samara Court dismissed the litigation.
In the quarter ended September 30, 2022, the Company updated its five-year strategic plan, the results of which indicated that there was a decline in the
forecasted financial performance for the Extrusions segment (and asset group). As such, management evaluated the recoverability of the long-lived assets
of the Extrusions asset group and, ultimately, determined that such assets were impaired. Accordingly, in the quarter ended September 30, 2022, the
Company recorded an impairment charge of $92, composed of $90 for Properties, plants, and equipment and $2 for intangible assets.
Also, in the quarters ended September 30, 2022 and December 31, 2022, Restructuring and other charges includes $15 and $31, respectively, related to the
settlement of a portion of the Company’s U.S. defined benefit pension plan obligations as a result of elections by certain plan participants to receive lump-
sum benefit payments.
(3) In the quarter ended December 31, 2021, Arconic completed its annual review of goodwill for impairment for each of its three reporting units: Rolled
Products, Building and Construction Systems, and Extrusions. The results of this review indicated that the carrying value of the Extrusions reporting
unit’s goodwill was fully impaired. Accordingly, in the quarter ended December 31, 2021, the Company recognized an impairment charge of $65. This
impairment was primarily driven by a combination of market-based factors, including delays in aerospace market improvement and significant cost
inflation, resulting in increasingly limited margin expansion. The Company had not previously identified any triggering events during 2021 prior to the
annual review.
(4) Metal price lag represents the financial impact of the timing difference between when aluminum prices included in Sales are recognized and when
aluminum purchase prices included in Cost of goods sold are realized. This adjustment aims to remove the effect of the volatility in metal prices and the
calculation of this impact considers applicable metal hedging transactions.
(5) Other special items include the following:
• for the quarter ended March 31, 2022, costs related to several legal matters ($2), costs related to the packaging restart at the Tennessee rolling mill ($2),
and other items ($1);
• for the quarter ended June 30, 2022, costs related to a new labor agreement with the United Steelworkers ($19), a charge for two environmental
remediation matters ($9), costs related to several legal matters, including Grenfell Tower ($3) and other ($4), and other items ($4);
• for the quarter ended September 30, 2022, a charge related to the Grasse River environmental remediation matter ($9), costs related to the Grenfell
Tower legal matter ($3), and other items ($(2));
• for the quarter ended December 31, 2022, a charge related to environmental remediation matters ($9), costs related to several legal matters ($1), and
other items ($4);
• for the year ended December 31, 2022, a charge related to several environmental remediation matters ($27), costs related to a new labor agreement
with the United Steelworkers ($19), costs related to several legal matters, including Grenfell ($9) and other ($4), and other items ($9); and
• for the year ended December 31, 2021, costs related to several legal matters, including Grenfell Tower ($8) and other ($13), a partial reversal of a
previously established reserve related to the Grasse River environmental remediation ($11), costs related to both the packaging restart and an
equipment fire at the Tennessee rolling mill ($7), a write-down of inventory related to the idling of both the remaining operations at the Chandler
(Arizona) extrusions facility and the casthouse operations at the Lafayette (Indiana) extrusions facility ($4), and other items ($3).
Net Debt
December 31,
2022
December 31,
2021
Total debt
$
1,597 $
1,594
Less: Cash and cash equivalents
261
335
Net debt
$
1,336 $
1,259
_________________
Net debt is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management assesses Arconic’s leverage
position after considering available cash that could be used to repay outstanding debt.
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STOCKHOLDER SERVICES
Stockholders with questions on account balances, address
changes, or other account matters may contact Arconic’s stock
transfer agent and registrar, Computershare as follows:
Telephone
1.800.522.6645 (in the United States and Canada)
1.201.680.6578 (all other callers)
1.800.231.5469 (Telecommunications Device for the Deaf: TDD)
Internet
www.computershare.com
Regular Mail
Computershare Investor Services
P.O. Box 505000
Louisville, KY
40233-5000
Overnight Correspondence
Computershare Investor Services
462 South 4th Street
Suite 1600
Louisville, KY 40202
For stockholder questions on other matters related to
Arconic, write to Corporate Secretary’s Office, Arconic
Corporation, 201 Isabella Street, Suite 400, Pittsburgh, PA 15212;
call 1.412.992.2500; or e-mail corporate.secretary@arconic.com.
STOCK LISTING
Common Stock
New York Stock Exchange | Ticker symbol: ARNC
COMPANY NEWS
Visit www.arconic.com for Securities and Exchange
Commission filings, earnings reports, information regarding our
Board of Directors and leadership team, corporate governance
policies, ethics and compliance policies, sustainability initiatives
and other Company news.
Copies of Arconic’s Annual Report to Stockholders, Proxy
Statement, annual reports on Form 10-K and quarterly reports
on Form 10-Q may be requested at no cost by visiting
www.arconic.com/request-printed-materials or by writing to
Investor Relations, Arconic Corporation, 201 Isabella Street,
Suite 400, Pittsburgh, PA 15212.
INVESTOR INFORMATION
Securities analysts and investors may write to Investor
Relations, Arconic Corporation, 201 Isabella Street, Suite 400,
Pittsburgh, PA 15212; call 1.412.315.2984; or e-mail
investor.relations@arconic.com.
OTHER PUBLICATIONS
For more information on Arconic Foundation and Arconic
community investments, visit www.arconic.com/foundation.
For Arconic’s ESG Report, visit www.arconic.com/sustainability;
write to Corporate ESG, Arconic Corporation, 201 Isabella
Street, Suite 400, Pittsburgh, PA 15212; or e-mail
sustainability@arconic.com.
Printed in USA ©2023 Arconic
Arconic I 2022 Annual Report
Stockholder Information
Arconic Corporation (NYSE: ARNC), headquartered in Pittsburgh, Pennsylvania,
is a leading provider of aluminum sheet, plate and extrusions, as well as innovative
architectural products, that advance the ground transportation, aerospace,
building and construction, industrial and packaging end markets.
For more information: www.arconic.com.