filings.toolsItem 1. Business.
58K characters. Original on sec.gov · Markdown
Item 1. Business.
General
Arconic Inc. is a Delaware corporation with its principal office in Pittsburgh, Pennsylvania and the successor to Arconic Pennsylvania (as defined below) which was formed in 1888 and formerly known as Alcoa Inc. In this report, unless the context otherwise requires, “Arconic” or the “Company” means Arconic Inc., a Delaware corporation, and all subsidiaries consolidated for the purposes of its financial statements.
The Company’s Internet address is http://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 soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (SEC). The information on the Company’s Internet site is not a part of, or incorporated by reference in, this annual report on Form 10-K. The SEC maintains an Internet site that contains these reports at http://www.sec.gov.
Forward-Looking Statements
This report contains (and oral communications made by Arconic may contain) statements that relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect Arconic’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts relating to the growth of the aerospace, automotive, commercial transportation and other end markets; statements and guidance regarding future financial results or operating performance; statements about Arconic’s strategies, outlook, business and financial prospects; and statements regarding potential share gains. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Although Arconic believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
For a discussion of some of the specific factors that may cause Arconic’s actual results to differ materially from those projected in any forward-looking statements, see the following sections of this report: Part I, Item 1A. (Risk Factors), Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations), including the disclosures under Segment Information and Critical Accounting Policies and Estimates, and Note 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 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.
Overview
Arconic Inc. (“Arconic” or the “Company”) is a global leader in lightweight metals engineering and manufacturing. Arconic’s innovative, multi-material products, which include aluminum, titanium, and nickel, are used worldwide in aerospace, automotive, commercial transportation, building and construction, industrial applications, defense, and packaging.
Arconic is a global company operating in 18 countries. Based upon the country where the point of sale occurred, the United States and Europe generated 67% and 23%, respectively, of Arconic’s sales in 2019. In addition, Arconic has operating activities in numerous countries and regions outside the United States, including Europe, Canada, China, Japan, and Russia. Governmental policies, laws and regulations, and other economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations in countries with such operating activities**.**
Arconic has two reportable segments, which are organized by product on a worldwide basis: Engineered Products and Forgings (EP&F) and Global Rolled Products (GRP).
Background
Arconic Inc. Reincorporation
On December 31, 2017 (the “Effective Date”), Arconic Inc., a Pennsylvania corporation (“Arconic Pennsylvania” or, prior to the Reincorporation (as defined below), the “Company”), effected the change of the Company’s jurisdiction of incorporation from Pennsylvania to Delaware (the “Reincorporation”) by merging (the “Reincorporation Merger”) with a direct wholly owned Delaware subsidiary, Arconic (in this section, “Arconic Delaware” or, following the Reincorporation, the “Company”), pursuant to an Agreement and Plan of Merger (the “Reincorporation Merger Agreement”), dated as of October 12, 2017, by and
between Arconic Pennsylvania and Arconic Delaware. Arconic Pennsylvania shareholders approved the Reincorporation Merger to effect the Reincorporation at a Special Meeting of Shareholders held on November 30, 2017. As a result of the Reincorporation, (i) Arconic Pennsylvania has ceased to exist, (ii) Arconic Delaware automatically inherited the reporting obligations of Arconic Pennsylvania under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (iii) Arconic Delaware is deemed to be the successor issuer to Arconic Pennsylvania.
The common stock, par value $1.00 per share, of Arconic Pennsylvania (the “Arconic Pennsylvania Common Stock”) was listed for trading on the New York Stock Exchange and traded under the symbol “ARNC.” As of the Effective Date, this symbol, without interruption, represents shares of common stock, par value $1.00 per share, of Arconic Delaware (the “Arconic Delaware Common Stock”). There was no change in the Exchange Act File Number assigned by the SEC as a result of the Reincorporation.
As of the Effective Date, the rights of the Company’s stockholders began to be governed by the General Corporation Law of the State of Delaware, the Certificate of Incorporation of Arconic Delaware (the “Delaware Certificate”) and the Bylaws of Arconic Delaware (the “Delaware Bylaws”).
Other than the change in corporate domicile, the Reincorporation did not result in any change in the business, physical location, management, financial condition or number of authorized shares of the Company, nor did it result in any change in location of its current employees, including management. On the Effective Date, (i) the directors and officers of Arconic Pennsylvania prior to the Reincorporation continued as the directors and officers of Arconic Delaware after the Reincorporation, (ii) each outstanding share of Arconic Pennsylvania Common Stock was automatically converted into one share of Arconic Delaware Common Stock, (iii) each outstanding share of Serial Preferred Stock, par value $100 per share, of Arconic Pennsylvania (the “Arconic Pennsylvania Preferred Stock”) was automatically converted into one share of Serial Preferred Stock, par value $100 per share, of Arconic Delaware (the “Arconic Delaware Preferred Stock”) and (iv) all of Arconic Pennsylvania’s employee benefit and compensation plans immediately prior to the Reincorporation were continued by Arconic Delaware, and each outstanding equity award and notional share unit relating to shares of Arconic Pennsylvania Common Stock was converted into an equity award or notional share unit, as applicable, relating to an equivalent number of shares of Arconic Delaware Common Stock on the same terms and subject to the same conditions. Beginning at the effective time of the Reincorporation, each certificate representing Arconic Pennsylvania Common Stock or Arconic Pennsylvania Preferred Stock was deemed for all corporate purposes to evidence ownership of Arconic Delaware Common Stock or Arconic Delaware Preferred Stock, as applicable. The Company’s stockholders may, but are not required to, exchange their stock certificates as a result of the Reincorporation.
The foregoing descriptions of the Arconic Delaware Common Stock, the Arconic Delaware Preferred Stock, the Delaware Certificate and the Delaware Bylaws are qualified in their entirety by the full text of the Delaware Certificate and the Delaware Bylaws, which are filed as Exhibits 3(a) and 3(b), respectively, to this report.
Alcoa Corporation Separation Transaction
On November 1, 2016, Alcoa Inc. completed the separation of its business into two independent, publicly traded companies (the “Separation of Alcoa”) – Alcoa Corporation and Arconic Inc. (the new name for Alcoa Inc.). Following the Separation of Alcoa, Alcoa Corporation holds the Alumina and Primary Metals segments, the rolling mill at the Warrick, Indiana operations and the 25.1% stake in the Ma’aden Rolling Company in Saudi Arabia previously held by the Company. The Company retained the Global Rolled Products (other than the rolling mill at the Warrick, Indiana operations and the 25.1% ownership stake in the Ma’aden Rolling Company), Engineered Products and Solutions and Transportation and Construction Solutions segments.
The Separation of Alcoa was effected by a pro rata distribution of 80.1% of the outstanding shares of Alcoa Corporation common stock to the Company’s shareholders (the “Distribution of Alcoa”). The Company’s shareholders of record as of the close of business on October 20, 2016 (the “Record Date”) received one share of Alcoa Corporation common stock for every three shares of the Company’s common stock held as of the Record Date. The Company did not issue fractional shares of Alcoa Corporation common stock in the Distribution of Alcoa. Instead, each shareholder otherwise entitled to receive a fractional share of Alcoa Corporation common stock received cash in lieu of fractional shares.
The Company distributed 146,159,428 shares of common stock of Alcoa Corporation in the Distribution of Alcoa and retained 36,311,767 shares, or approximately 19.9%, of the common stock of Alcoa Corporation immediately following the Distribution of Alcoa. As a result of the Distribution of Alcoa, Alcoa Corporation became an independent public company trading under the symbol “AA” on the New York Stock Exchange, and the Company trades under the symbol “ARNC” on the New York Stock Exchange.
During 2017, the Company disposed of its retained interest in Alcoa Corporation. In February 2017, the Company sold 23,353,000 shares of Alcoa Corporation stock at $38.03 per share, which resulted in cash proceeds of $888 million and a gain of $351 million. In April and May 2017, the Company acquired a portion of its outstanding notes held by two investment banks (the “Investment Banks”) in exchange for cash and the Company’s remaining 12,958,767 shares (valued at $35.91 per share) in
Alcoa Corporation stock (the “Debt-for-Equity Exchange”) and recorded a gain of $167 million. The gains of $351 million and $167 million associated with the disposition of the Alcoa Corporation shares were recorded in Other expense (income), net in the accompanying Statement of Consolidated Operations in Part II, Item 8 (Financial Statements and Supplementary Data).
On October 31, 2016, in connection with the Separation of Alcoa and the Distribution of Alcoa, Arconic entered into several agreements with Alcoa Corporation or its subsidiaries that govern the relationship of the parties following the Distribution of Alcoa, including the following: Separation and Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, certain Patent, Know-How, Trade Secret License and Trademark License Agreements, Toll Processing and Services Agreement, Master Agreement for the Supply of Primary Aluminum, Massena Lease and Operations Agreement, Fusina Lease and Operations Agreement, and Stockholder and Registration Rights Agreement. The Toll Processing and Services Agreement expired by its terms at the end of 2018.
Recent Developments
On January 22, 2019, the Company announced that its Board of Directors (the Board) had determined to no longer pursue a potential sale of Arconic as part of its strategy and portfolio review. Management and the Board had been conducting a rigorous and comprehensive strategy and portfolio review over the past year and as part of that process had considered a sale of the Company, among other matters. However, the Company did not receive a proposal for a full-Company transaction that management and the Board believed would be in the best interest of Arconic’s shareholders and other stakeholders. Management and the Board remain confident in Arconic’s significant potential and are strongly focused on enhancing value for shareholders, through continued operational improvements and through other potential initiatives which had been previously identified in the strategy and portfolio review.
On February 8, 2019, Arconic announced, as part of its strategy and portfolio review, a separation of its portfolio into two independent, publicly-traded companies (the “Separation of Arconic”). The Engineered Products and Forgings (EP&F) businesses (engine products, fastening systems, engineered structures and forged wheels) will remain in the existing company, which will be renamed Howmet Aerospace Inc. and change its stock ticker from “ARNC” to “HWM” in connection with the separation. The Global Rolled Products (GRP) businesses (global rolled products, aluminum extrusions and building and construction systems) will be held by a new company that will be named Arconic Corporation at separation and that intends to list its common stock on the New York Stock Exchange under the symbol “ARNC.”
On February 6, 2020, the Company announced that its Board of Directors has approved the completion of the Separation of Arconic.
Timothy D. Myers will serve as Arconic Corporation Chief Executive Officer. The Arconic Inc. Board has also named new directors to the Arconic Corporation and Howmet Aerospace Boards:
| • | Joining the Arconic Corporation Board of Directors will be: Timothy Myers; William Austen; Christopher Ayers*; Margaret Billson; Austin Camporin; Jacques Croisetiere; Elmer Doty*; Carol Eicher; Fritz Henderson; E. Stanley O’Neal*; and Jeffrey Stafeil. |
** Will resign from the Arconic Inc. Board*
| • | Joining the Howmet Aerospace Board will be: Joseph Cantie; Robert Leduc; Jody Miller; and Nicole Piasecki. |
The Separation of Arconic will occur by means of a pro rata distribution by Arconic Inc. (which will be renamed Howmet Aerospace Inc.) of all of the outstanding common stock of Arconic Corporation (the “Distribution of Arconic”). The Distribution of Arconic is intended to qualify as a tax-free transaction to Arconic Inc. stockholders for U.S. federal income tax purposes.
Distribution of Arconic Information
At the time of separation, Arconic Inc. stockholders are expected to receive one share of Arconic Corporation common stock for every four shares of Arconic Inc. common stock held as of the record date. The record date will be March 19, 2020 and the time of the distribution will be 12:01 A.M. on April 1, 2020.
At the time of separation, stockholders of Arconic Inc. will retain their shares of Arconic Inc. Due to the name change of Arconic Inc. to Howmet Aerospace Inc. upon separation, these shares will become Howmet Aerospace Inc. shares.
No fractional shares of Arconic Corporation common stock will be issued in the distribution, and stockholders will receive cash in lieu of fractional shares. The separation distribution is expected to be paid on April 1, 2020 to Arconic Inc. stockholders of record as of the close of business on the record date.
The distribution remains subject to the satisfaction or waiver of the conditions described in Arconic Rolled Products Corporation’s Registration Statement on Form 10, as amended. The Form 10 has been filed by Arconic Rolled Products Corporation with the SEC and is available at www.arconic.com.
No action is required by Arconic Inc. stockholders to receive shares of Arconic Corporation common stock in the distribution. Arconic Inc. expects to make available an information statement to all stockholders entitled to receive the distribution of shares of Arconic Corporation common stock. The information statement is filed as an exhibit to Arconic Rolled Products Corporation’s Registration Statement on Form 10 and describes Arconic Corporation and certain risks of owning Arconic Corporation common stock and provides other information regarding the separation and distribution.
Trading Common Stock
Arconic Inc. stockholders who hold shares of common stock on the record date of March 19, 2020, and decide to sell any of those shares before the distribution date, should consult their stockbroker, bank or other nominee to understand whether the shares of Arconic Inc. common stock will be sold with or without entitlement to Arconic Corporation common stock pursuant to the distribution.
Beginning on or about March 18, 2020, and continuing up to and through the distribution date, two markets are expected for Arconic Inc. common stock: the “regular-way” market and the “ex-distribution” market. Shares that trade in the “regular-way” market will be entitled to shares of Arconic Corporation common stock distributed pursuant to the distribution; shares that trade in the “ex-distribution” market will trade under the symbol HWM WI and without an entitlement to shares of Arconic Corporation common stock distributed pursuant to the distribution.
Arconic Corporation anticipates “when-issued” trading of its common stock will begin on or about March 18, 2020, under the symbol ARNC WI, and will continue up to and through the distribution date. “Regular-way” trading in Arconic Corporation’s common stock is expected to begin on April 1, 2020.
The separation date may change if certain conditions are not satisfied by that date, as described in Arconic Rolled Products Corporation’s information statement filed with the Form 10.
Note Offering
On February 7, 2020, the Company announced that Arconic Rolled Products Corporation (the “Issuer”), which is currently a wholly-owned subsidiary of Arconic, closed its offering of $600,000,000 aggregate principal amount of 6.125% second-lien notes due 2028 (the “Notes”).
The Issuer intends to use the proceeds from the offering to make a payment to Arconic to fund the transfer of certain assets from Arconic to the Issuer in connection with the Separation of Arconic and for general corporate purposes. The net proceeds from the offering will be held in escrow until the completion of the Separation of Arconic and the satisfaction of certain other escrow release conditions. Prior to the separation, the Notes will not be guaranteed. Following the separation, the Notes will be guaranteed by certain of the Issuer’s wholly-owned domestic subsidiaries. Each of the Notes and the related guarantees will be secured on a second-priority basis by liens on certain assets of the Issuer and the guarantors.
The Notes and related guarantees were sold in a private placement to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-United States persons in offshore transactions in accordance with Regulation S under the Securities Act.
The Notes and related guarantees have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to, or for the benefit of, U.S. persons absent registration under, or an applicable exemption from, the registration requirements of the Securities Act.
Description of the Business
Information describing Arconic’s businesses can be found on the indicated pages of this report:
| Item | Page(s) | |
| Discussion of Recent Business Developments: | ||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations: | ||
| Overview and Results of Operations | 37 | |
| Notes to Consolidated Financial Statements: | ||
| Note C. Restructuring and Other Charges | 72 | |
| Note F. Pension and Other Postretirement Benefits | 75 | |
| Note G. Income Taxes | 82 | |
| Note S. Acquisitions and Divestitures | 98 | |
| Note T. Contingencies and Commitments | 100 | |
| Segment Information: | ||
| Business Descriptions, Principal Products, Principal Markets, Methods of Distribution, Seasonality and Dependence Upon Customers: | ||
| Engineered Products and Forgings | 41 | |
| Global Rolled Products | 42 | |
| Financial Information about Segments and Geographic Areas: | ||
| Note B. Segment and Geographic Area Information | 67 |
Major Product Sales
Products that contributed 10% or more to consolidated sales for the years ended December 31, 2019, 2018, and 2017, were:
| For the Year Ended December 31, | ||||||||
| 2019 | 2018 | 2017 | ||||||
| Innovative flat-rolled products | 39 | % | 40 | % | 39 | % | ||
| Engine products | 24 | % | 21 | % | 21 | % | ||
| Fastening systems | 11 | % | 11 | % | 11 | % | ||
| Engineered structures | 8 | % | 13 | % | 13 | % |
Arconic has no customer that accounts for 10% or more of its consolidated sales. However, certain of the Company’s businesses are dependent upon a few significant customers. The loss of any such significant customer could have a material adverse effect on such businesses.
Engineered Products and Forgings
Arconic’s Engineered Products and Forgings segment (“EP&F”) produces products that are used primarily in the aerospace (commercial and defense), industrial, commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys) and seamless rolled rings (mostly nickel superalloys); investment castings (nickel superalloys, titanium, and aluminum), including airfoils; forged jet engine components (e.g., jet engine disks); extruded, machined and forged aircraft parts (titanium and aluminum); and forged aluminum commercial vehicle wheels, all of which are sold directly to customers and through distributors. A small part of this segment also produces various forged and machined metal products (titanium and aluminum) for various end markets.
In the third quarter of 2019, the Company realigned its operations by eliminating its Transportation and Construction Solutions (TCS) segment and transferring the Forged Wheels business to its EP&F segment and the Building and Construction Systems business to its GRP segment, consistent with how the Chief Executive Officer is assessing operating performance and allocating capital in conjunction with the planned Separation of Arconic. The Latin American extrusions business, which was formerly part of the Company's TCS segment until its sale in April of 2018, was moved to Corporate. In the first quarter of 2019, the Company transferred its aluminum extrusions operations (Aluminum Extrusions) from its Engineered Structures business unit within the EP&F segment to the GRP segment, based on synergies with GRP including similar customer base, technologies, and manufacturing capabilities.
Engine Products. Engine Products produces investment cast airfoils, seamless rolled rings and closed-die (including isothermal) forged turbine disks for aero engine and industrial gas turbines, as well as other structural aero engine components. Engine Products also provides additive manufacturing technologies, superalloy ingots, open-die forging, machining, performance coatings, and hot isostatic pressing for high performance parts.
Fastening Systems. Fastening Systems produces aerospace fastening systems, as well as commercial transportation fasteners. The business’s high-tech, multi-material fastening systems are found nose to tail on aircraft and aero engines. The business’s products are also critical components of industrial gas turbines, automobiles, commercial transportation vehicles, and construction and industrial equipment.
Engineered Structures. Engineered Structures produces titanium and aluminum ingots and mill products for aerospace and defense applications and is vertically integrated to produce structural investment castings, forgings and extrusions, for airframe, wing, aero-engine, and landing gear components. Engineered Structures also provides multi-material airframe subassemblies and solutions related to advanced technologies and materials, such as 3D printing and titanium aluminides.
Forged Wheels. Forged Wheels provides forged aluminum wheels and related products for heavy-duty trucks and the commercial transportation markets.
For additional discussion of the EP&F segment's business, see “Results of Operations—Segment Information” in Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note B to the Consolidated Financial Statements in Part II, Item 8. (Financial Statements and Supplementary Data).
On May 31, 2019, Arconic sold a small additive manufacturing facility outside of Austin, TX within the EP&F segment. The sale is subject to certain post-closing adjustments.
On August 15, 2019, Arconic sold inventories and properties, plants, and equipment related to a small energy business (RTI Energy) within the EP&F segment.
In December 2019, Arconic closed the sale of its forgings business in the United Kingdom subject to working capital and other adjustments. The forgings business primarily produced steel, titanium, and nickel based forged components for aerospace, mining, and off-highway markets and its operating results and assets and liabilities were included in the EP&F segment.
Engineered Products and Forgings Principal Facilities****1
| Country | Facility | Products | ||
| Australia | Oakleigh | Fasteners | ||
| Canada | Georgetown, Ontario2 | Aerospace Castings | ||
| Laval, Québec | Aerospace Castings and Machining | |||
| China | Suzhou2 | Fasteners, Rings and Forgings | ||
| France | Dives-sur-Mer | Aerospace and Industrial Gas Turbine Castings | ||
| Evron | Aerospace and Specialty Castings | |||
| Gennevilliers | Aerospace and Industrial Gas Turbine Castings | |||
| Montbrison | Fasteners | |||
| St. Cosme-en-Vairais2 | Fasteners | |||
| Toulouse | Fasteners | |||
| Us-par-Vigny | Fasteners | |||
| Germany | Bestwig | Aerospace Castings | ||
| Erwitte | Aerospace Castings | |||
| Hildesheim-Bavenstedt2 | Fasteners | |||
| Kelkheim2 | Fasteners | |||
| Hungary | Nemesvámos | Fasteners | ||
| Székesfehérvár | Aerospace and Industrial Gas Turbine Castings and Forgings | |||
| Japan | JÔetsu City2 | Forgings | ||
| Nomi | Aerospace and Industrial Gas Turbine Castings | |||
| Mexico | Ciudad Acuña2 | Aerospace Castings/Fasteners and Rings | ||
| Monterrey | Forgings | |||
| Morocco | Casablanca2 | Fasteners | ||
| United Kingdom | Ecclesfield | Ingot Castings | ||
| Exeter2 | Aerospace and Industrial Gas Turbine Castings and Alloy | |||
| Glossop | Ingot Castings | |||
| Ickles | Ingot Castings | |||
| Leicester2 | Fasteners | |||
| Low Moor | Extrusions | |||
| Redditch2 | Fasteners | |||
| Telford | Fasteners | |||
| Welwyn Garden City | Aerospace Formed Parts |
| Country | Facility | Products | ||
| United States | Tucson, AZ2 | Fasteners | ||
| Carson, CA2 | Fasteners | |||
| City of Industry, CA2 | Fasteners | |||
| Fontana, CA | Rings | |||
| Fullerton, CA2 | Fasteners | |||
| Rancho Cucamonga, CA | Rings | |||
| Sylmar, CA | Fasteners | |||
| Torrance, CA | Fasteners | |||
| Branford, CT | Aerospace Coatings | |||
| Winsted, CT | Aerospace Machining | |||
| Savannah, GA | Forgings | |||
| La Porte, IN | Aerospace and Industrial Gas Turbine Castings | |||
| Whitehall, MI | Aerospace and Industrial Gas Turbine Castings and Coatings, Titanium Alloy and Specialty Products | |||
| Washington, MO | Aerospace Formed Parts, Titanium Mill Products | |||
| Big Lake, MN | Aerospace Machining | |||
| New Brighton, MN | Aerospace Machining | |||
| Dover, NJ | Aerospace and Industrial Gas Turbine Castings and Alloy | |||
| Verdi, NV | Rings | |||
| Kingston, NY2 | Fasteners | |||
| Rochester, NY | Rings | |||
| Barberton, OH | Forgings | |||
| Canton, OH2 | Ferro-Titanium Alloys and Titanium Mill Products | |||
| Cleveland, OH | Investment Casting Equipment, Aerospace Components, Castings, Forgings and Oil & Gas Drilling Products | |||
| Niles, OH | Titanium Mill Products | |||
| Morristown, TN2 | Aerospace and Industrial Gas Turbine Ceramic Products | |||
| Houston, TX2 | Extrusions | |||
| Waco, TX2 | Fasteners | |||
| Wichita Falls, TX | Aerospace and Industrial Gas Turbine Castings | |||
| Hampton, VA2 | Aerospace and Industrial Gas Turbine Castings | |||
| Martinsville, VA | Titanium Mill Products |
| 1 | Principal facilities are listed, and do not include 22 locations that serve as sales and administrative offices, distribution centers or warehouses. |
| 2 | Leased property or partially leased property. |
Global Rolled Products
Arconic’s Global Rolled Products segment (“GRP”) produces aluminum sheet and plate, aluminum extruded and machined parts, integrated aluminum structural systems, and architectural extrusions used in the automotive, aerospace, building and construction, industrial, packaging, and commercial transportation end markets. The following represent the business units within the Company’s GRP segment:
Rolled Products**.** Rolled products are used in the production of finished goods ranging from airframes and automotive body panels to industrial plate and brazing sheet. Sheet and plate are used extensively in the transportation industries as well as in building and construction. They are also used for industrial applications such as tooling plate for the production of plastic products.
Aluminum Extrusions**.** Aluminum Extrusions produces a range of extruded products, including aerospace shapes (wing stringer, floor beams, fuselage, cargo), automotive shapes (driveshafts, anti-lock brake housings, turbo charger), 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, the Extrusions unit serves a broad range of customers in several of core market segments.
Building and Construction Systems**.** Building and Construction Systems (BCS) manufactures differentiated products and building envelope solutions, including entrances, curtain walls, windows, composite panel and coil coated sheet. The business operates in two market segments: architectural systems, which carry the Kawneer® brand, and architectural products, which carry the Reynobond® and Reynolux® brands. The BCS business has competitive positions in both market segments, attributable to its strong brand recognition, high quality products and strong relationships through the building and construction value chain.
As noted above, in the third quarter of 2019, the Company realigned its operations by eliminating its TCS segment and transferring the Forged Wheels business to its EP&F segment and the Building and Construction Systems (BCS) business to its GRP segment, consistent with how the Chief Executive Officer is assessing operating performance and allocating capital in conjunction with the planned Separation of Arconic. In the first quarter of 2019, the Company transferred its aluminum extrusions operations (Aluminum Extrusions) from its Engineered Structures business unit within the EP&F segment to the GRP segment, based on synergies with GRP including similar customer base, technologies, and manufacturing capabilities.
For additional discussion of the Global Rolled Products segment’s business, see “Results of Operations—Segment Information” in Part II, Item 7. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note B to the Consolidated Financial Statements in Part II, Item 8. (Financial Statements and Supplementary Data).
In February 2019, the Company announced an investment of approximately $100 million to expand its hot mill capability and add downstream equipment capabilities to manufacture industrial and automotive aluminum products in its Tennessee Operations facility near Knoxville, Tennessee. The project, which is expected to create 70 new jobs, is already underway and is expected to be complete by the fourth quarter of 2020.
In August 2019, Arconic reached an agreement to sell its aluminum rolling mill in Itapissuma, Brazil for $50 million in cash, subject to working capital and other adjustments. The rolling mill produces specialty foil and sheet products and its operating results and assets and liabilities are included in the GRP segment. The sale transaction closed February 1, 2020.
On October 30, 2019, Arconic reached an agreement to sell its hard alloy extrusions plant in South Korea for $61 million in cash, subject to working capital and other adjustments. The operating results and assets and liabilities of this plant are included in the GRP segment. The sale transaction is expected to close in the first quarter of 2020, subject to regulatory approvals and customary closing conditions.
Global Rolled Products Principal Facilities****1
| Country | Location | Products | ||
| Canada | Lethbridge, Alberta | Architectural Products | ||
| China | Kunshan | Sheet and Plate | ||
| Qinhuangdao2 | Sheet and Plate | |||
| France | Merxheim2 | Architectural Products | ||
| Germany | Hannover2 | Extrusions | ||
| Hungary | Székesfehérvár | Sheet and Plate/Slabs and Billets | ||
| South Korea | Kyoungnam | Extrusions | ||
| Russia | Samara | Sheet and Plate/Extrusions and Forgings | ||
| United Kingdom | Birmingham | Plate | ||
| Runcorn | Architectural Products | |||
| United States | Chandler, AZ2 | Extrusions | ||
| Springdale, AR | Architectural Products | |||
| Visalia, CA | Architectural Products | |||
| Eastman, GA | Architectural Products | |||
| Danville, IL2 | Sheet and Plate | |||
| Lafayette, IN | Extrusions | |||
| Davenport, IA | Sheet and Plate | |||
| Hutchinson, KS3 | Sheet and Plate | |||
| Baltimore, MD2 | Extrusions | |||
| Massena, NY | Extrusions | |||
| Bloomsburg, PA | Architectural Products | |||
| Cranberry, PA | Architectural Products | |||
| Lancaster, PA | Sheet and Plate | |||
| Alcoa, TN | Sheet | |||
| Texarkana, TX2, 4 | Slabs | |||
| San Antonio, TX5 | Micromill™ |
| 1 | Principal facilities are listed, and do not include 20 locations that serve as service centers or administrative offices. These service centers perform light manufacturing, such as assembly and fabrication of certain products. |
| 2 | Leased property or partially leased property. |
| 3 | Properties are satellite locations of the Davenport, Iowa facility. |
| 4 | The aluminum slab that is cast at Texarkana is turned into aluminum sheets at Arconic’s expanded automotive facility in Davenport, Iowa and its rolling mill in Lancaster, Pennsylvania. In October 2018, the Company sold the rolling mill and cast house to Ta Chen International, Inc. and leased the cast house building and equipment for a term of 18 months. The Company’s lease expires April 30, 2020. |
| 5 | Micromill™ production facility produces sheet for automotive and industrial applications using Arconic innovative production process. The Company curtailed operations in San Antonio in late December 2019. |
Sources and Availability of Raw Materials
Important raw materials purchased in 2019 for each of the Company’s reportable segments are listed below.
| Engineered Products and Forgings | Global Rolled Products | |
| Alloying materials | Alloying materials | |
| Cobalt | Aluminum coil | |
| Electricity | Aluminum scrap | |
| Natural gas | Coatings | |
| Nickel alloys | Electricity | |
| Primary aluminum (ingot, billet, P1020, high purity) | Lube oil | |
| Stainless steel | Natural gas | |
| Steel | Packaging materials | |
| Titanium alloys | Paint/Coating | |
| Titanium sponge | Primary aluminum (ingot, slab, billet, P1020, high purity) | |
| Resin | ||
| Steam |
Generally, other materials are purchased from third-party suppliers under competitively priced supply contracts or bidding arrangements. The Company believes that the raw materials necessary to its business are and will continue to be available.
Patents, Trade Secrets and Trademarks
The Company believes that its domestic and international patent, trade secret and trademark assets provide it with a significant competitive advantage. The Company’s rights under its patents, as well as the products made and sold under them, are important to the Company as a whole and, to varying degrees, important to each business segment. The patents owned by Arconic generally concern metal alloys, particular products, manufacturing equipment or techniques. Arconic’s business as a whole is not, however, materially dependent on any single patent, trade secret or trademark. As a result of product development and technological advancement, the Company continues to pursue patent protection in jurisdictions throughout the world. As of the end of 2019, the Company’s worldwide patent portfolio consists of approximately 1,635 granted patents (1,004 EP&F patents and 631 GRP patents) and 538 pending patent applications (284 EP&F patent applications and 254 GRP patent applications).
The Company also has a significant number of trade secrets, mostly regarding manufacturing processes and material compositions that give many of its businesses important advantages in their markets. The Company continues to strive to improve those processes and generate new material compositions that provide additional benefits. With respect to domestic and international registered trademarks, the Company has many that have significant recognition within the markets that are served. Examples include the name “Arconic” and the Arconic symbol for aluminum, nickel, and titanium products, Howmet® metal castings, Huck® fasteners, Kawneer® building panels and Dura-Bright® wheels with easy-clean surface treatments. A significant trademark filing campaign for the names “Howmet” and “Howmet Aerospace” along with its “H” logo was initiated in 2019, in support of the corporate launch of Howmet Aerospace Inc. As of the end of 2019, the Company’s worldwide trademark portfolio consists of approximately 2,066 registered trademarks (1,450 EP&F trademarks and 616 GRP trademarks) and 818 pending trademark applications (361 EP&F trademark applications and 457 GRP trademark applications). The Company’s rights under its trademarks are important to the Company as a whole and, to varying degrees, important to each business segment.
Competitive Conditions
Engineered Products and Forgings (EP&F)
EP&F’s business units - Fastening Systems, Engine Products, Engineered Structures and Forged Wheels - are subject to substantial and intense competition in the markets they serve. Although Arconic believes its advanced technology, manufacturing processes and experience provide advantages to Arconic’s customers, such as high quality and superior mechanical properties that meet the Company’s customers’ most stringent requirements, many of the products Arconic makes can be produced by competitors using similar types of manufacturing processes as well as alternative forms of manufacturing. Despite intense competition, Arconic continues as a market leader in most of its principal markets. Several factors, including Arconic’s legacy of technical innovation, state-of-the-art capabilities, engaged employees and long-standing customer relationships, enable the Company to maintain its competitive position.
Principal competitors in the EP&F segment include Berkshire Hathaway Inc., through its 2016 acquisition of Precision Castparts Corporation and subsidiaries, for titanium and titanium-based alloys, precision forgings, seamless rolled rings,
investment castings and aerospace fasteners; VSMPO (Russia) for titanium and titanium-based alloys and precision forgings; the High-Performance Materials & Components segment of Allegheny Technologies, Inc. (ATI) for titanium and titanium-based alloys, precision forgings, and investment castings; Lisi Aerospace (France) for aerospace fasteners; and Aubert & Duval (part of Eramet Group in France) for precision forgings.
In the forged aluminum wheels business, Forged Wheels competes against steel and aluminum wheel suppliers in the commercial transportation industry under the product brand name Alcoa® Wheels for the major regions that it serves (Americas, Europe, Japan, China, and Australia). Its larger aluminum wheel competitors are Accuride Corporation, Speedline (member of the Ronal Group), Nippon Steel Corporation, Dicastal, Alux, and Wheels India Limited. In recent years, Forged Wheels has seen an increase in the number of aluminum wheel suppliers (both forged and cast aluminum wheels) from China, Taiwan, India and South Korea attempting to penetrate the global commercial transportation market.
Other competitors for EP&F include:
| • | Doncasters Group Ltd. (UK) - investment castings |
| • | Consolidated Precision Products Corp., owned by Warburg Pincus - investment castings |
| • | Weber Metals, part of Otto Fuchs - precision forgings |
| • | Forgital - seamless rings |
| • | Frisa (Mexico) - seamless rings |
Several of Arconic’s largest customers have captive superalloy furnaces for producing airfoil investment castings for their own use. Many other companies around the world also produce superalloy investment castings, and some of these companies currently compete with Arconic in the aerospace and other markets, while others are capable of competing with the Company should they choose to do so.
International competition in the investment castings**,** fasteners, rings and forgings markets may also increase in the future as a result of strategic alliances among engine original equipment manufacturers (OEMs), aero-structure prime contractors, and overseas companies, especially in developing markets, particularly where “offset” or “local content” requirements create purchase obligations with respect to products manufactured in or directed to a particular country.
Global Rolled Products (GRP)
Rolled Products
Arconic’s Rolled Products business unit is one of the leaders in many of the aluminum flat rolled markets in which it participates, including ground transportation (including brazing sheet), aerospace, industrial and packaging markets. While Rolled Products participates in markets where Arconic believes it has a significant competitive advantage due to customer intimacy, advanced manufacturing capability, unique technology and/or differentiated products, in certain cases, our competitors are capable of making products similar to Arconic’s products. We continuously work to maintain and enhance our competitive position through innovation: new alloys such as aluminum lithium aerospace alloys, differentiated products such as our 5-layer brazing products and break-through processes such as A951™ bonding technology.
Some of Arconic’s Rolled Products markets are global and some are more regionally focused. Participation in these segments by competitors varies. For example, Novelis is the largest flat rolled products producer competing in automotive, but it does not participate in the aerospace market. On the other hand, Kaiser participates in aerospace, but does not participate in the automotive sheet market. Other competitors include Aleris, AMAG, Constellium, Hydro, Kobe, Nanshan, and UACJ.
Additionally, there are a number of new competitors emerging, particularly in China and other developing economies. Arconic expects that this competitive pressure will continue and increase in the future as customers seek to globalize their supply bases in order to reduce costs.
List of Major Competitors for Rolled Products:
| • | Aleris |
| • | AMAG (Austria) |
| • | Constellium (Netherlands) |
| • | Granges (Sweden) |
| • | Hydro (Norway) |
| • | Kaiser Aluminum |
| • | Kobe (Japan) |
| • | Nanshan (China) |
| • | Novelis |
| • | UACJ (Japan) |
Aluminum Extrusions
The Aluminum Extrusions business unit is a leader in many of the markets in which it participates, including aerospace, automotive (including driveshafts) and industrial markets. While Aluminum Extrusions participates in markets where Arconic believes we have a significant competitive position due to customer intimacy, advanced manufacturing capability, unique technology and/or differentiated products, in certain cases, our competitors are capable of making products similar to Arconic’s products. We continuously work to maintain and enhance our competitive position through innovation: new alloys such as aluminum lithium aerospace alloys and differentiated products.
Some of Arconic’s Aluminum Extrusions markets are worldwide and some are more regionally focused. Participation in these segments by competitors varies. For example, UAC is the largest competitor in aerospace extrusions, but it does not participate in the drawn tubing market. On the other hand, Unna participates in drawn tubing, but they do not compete in extrusions. Other competitors include Kaiser, Constellium, Otto Fuchs, Taber, Ye Fong, and Impol.
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.
List of Major Competitors for Aluminum Extrusions:
| • | Constellium (France) |
| • | Impol (Poland) |
| • | Kaiser |
| • | Otto Fuchs (Germany) |
| • | Taber |
| • | UAC (USA/Romania) |
| • | Unna (Germany) |
| • | Ye Fong (Taiwan) |
BCS
In North America, Arconic’s BCS business unit primarily competes in the nonresidential building segment. In Europe, it competes in both the residential and the nonresidential building segments. Arconic’s competitive advantage is based on strong brands, innovative products, customer intimacy and technical services.
In the architectural systems market, Arconic competes with regional competitors like Apogee, YKK, and Oldcastle in North America and Schüco, Hydro/SAPA and Reynaers in Europe. 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 architectural products business is a more global market and is primarily served by subsidiaries of larger companies like Alpolic (Mitsubishi Corporation), Alucobond (Schweiter Technologies) and Novelis (Aditya Birla Group).
List of Major Competitors for Architectural Systems:
| • | North America - Apogee, Oldcastle and YKK |
| • | Europe - Schüco (Germany), Hydro/SAPA (Norway), Reynaers (Belgium) and Corialis (Belgium) |
List of Major Competitors for Architectural Products:
| • | Composite Material - Alucobond (Switzerland), Alucoil (Spain) and Alpolic (Japan) |
| • | Coil Coated Sheet - Euramax, Novelis and Hydro (Norway) |
Environmental Matters
Information relating to environmental matters is included in Note T to the Consolidated Financial Statements under the caption “Environmental Matters.” Approved capital expenditures for new or expanded facilities for environmental control are $14 million for 2020 and estimated expenditures for such purposes are $15 million for 2021.
Employees
Total worldwide employment at the end of 2019 was approximately 41,700 employees in 28 countries. Many, but less than 50%, of these employees are represented by labor unions. The Company believes that relations with its employees and any applicable union representatives generally are good.
In the United States, the largest collective bargaining agreement is the master collective bargaining agreement between Arconic and the United Steelworkers (USW). The USW master agreement covers approximately 3,000 employees at four U.S. locations; the current labor agreement expires on May 15, 2022. There are 17 other collective bargaining agreements in the United States with varying expiration dates, including those in the master agreement.
On a regional basis, collective bargaining agreements with varying expiration dates cover employees in Europe and Russia, North America, South America and Asia.
Executive Officers of the Registrant
The names, ages, positions and areas of responsibility of the executive officers of the Company as of February 26, 2020 are listed below.
Ken Giacobbe, 54, Executive Vice President and Chief Financial Officer. Mr. Giacobbe was elected Executive Vice President and Chief Financial Officer of Arconic effective November 1, 2016. Mr. Giacobbe joined Arconic in 2004 as Vice President of Finance for Global Extruded Products, part of Alcoa Forgings and Extrusions. He then served as Vice President of Finance for the Company’s Building and Construction Systems business from 2008 until 2011. In 2011, he assumed the role of Group Controller for the Engineered Products and Forgings segment. From January 2013 until October 2016, Mr. Giacobbe served as Chief Financial Officer of the Engineered Products and Forgings segment. Before joining Arconic, Mr. Giacobbe held senior finance roles at Avaya and Lucent Technologies.
Neil E. Marchuk, 62, Executive Vice President, Human Resources. Mr. Marchuk was elected to his current position effective March 1, 2019. Prior to joining Arconic, from January 2016 to February 2019, he was Executive Vice President and Chief Human Resources Officer at Adient, an automotive manufacturer. From July 2006 to May 2015, Mr. Marchuk was Executive Vice President of Human Resource at TRW Automotive, and served as TRW’s Vice President, Human Resources from September 2004 to July 2006. Prior to joining TRW, from December 2001 to August 2004, Mr. Marchuk was Director Corporate Human Resources for E.I. Du Pont De Nemours and Company (“E.I. Du Pont”). From September 1999 to November 2001, Mr. Marchuk was Director Global HR Delivery for E.I. Du Pont. From February 1999 to August 1999, Mr. Marchuk served E.I. Du Pont as its Global HR Director Global Services Division.
Timothy D. Myers, 54, Executive Vice President and Group President, Global Rolled Products. Mr. Myers has served as Executive Vice President and Group President, Global Rolled Products, which now includes Arconic's Extrusions and Building and Construction Systems businesses, since October 2017. From May 2016 to June 2019, he served as Executive Vice President and Group President of Arconic'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 Arconic in 1991 as an automotive applications engineer in the Commercial Rolled Products Division, and held a series of engineering, marketing, sales and management positions with the Company since that time.
Paul Myron, 53, Vice President and Controller. Mr. Myron was elected Vice President and Controller of Arconic effective November 1, 2016. Mr. Myron joined Arconic as a systems analyst in Pittsburgh and in 1992 relocated to the Company’s
Davenport, Iowa facility as a product accountant. He served in numerous financial management positions from 1995 until 2000 when he was named Commercial Manager and Controller for the Atlantic division of the Alcoa World Alumina and Chemicals business. In 2002, Mr. Myron was appointed Vice President of Finance, Alcoa Primary Metals and later became Vice President of Finance, Alcoa World Alumina and Chemicals. In 2005 Mr. Myron was named Director of Financial Planning and Analysis, accountable for Arconic’s financial planning, analysis, and reporting worldwide. In February 2012, he became Director of Finance Initiatives for the Engineered Products and Forgings segment, overseeing specific financial initiatives and projects within the group. From July 2012 until his most recent appointment, Mr. Myron served as Vice President, Finance and Business Excellence for the Arconic Power and Propulsion business.
John C. Plant, 66, Chairman and Chief Executive Officer. Mr. Plant was appointed Chief Executive Officer of Arconic effective February 6, 2019. He has served as Arconic's Chairman since October 2017 and as a member of the Board since February 2016. Mr. Plant previously served as Chairman of the Board, President and Chief Executive Officer of TRW Automotive from 2011 to 2015, and as its President and Chief Executive Officer from 2003 to 2011. TRW Automotive was acquired by ZF Friedrichshafen AG in May 2015. Mr. Plant was a co-member of the Chief Executive Office of TRW Inc. from 2001 to 2003 and an Executive Vice President of TRW from the company's 1999 acquisition of Lucas Varity to 2003. Prior to TRW, Mr. Plant was President of Lucas Varity Automotive and managing director of the Electrical and Electronics division from 1991 through 1997.
Katherine H. Ramundo, 52, Executive Vice President, Chief Legal Officer and Secretary. Ms. Ramundo was elected to her current position effective November 1, 2016. Prior to joining Arconic, from January 2013 through August 2015, she was Executive Vice President, General Counsel and Secretary of ANN INC., the parent company of ANN TAYLOR and LOFT brands, based in New York. Prior to ANN INC., she served as Vice President, Deputy General Counsel and Assistant Secretary at Colgate-Palmolive, where she held various legal roles from November 1997 to January 2013. She began her career as a litigator in New York, practicing at major law firms, including Cravath, Swaine & Moore and Sidley & Austin.
The Company’s executive officers are elected or appointed to serve until the next annual meeting of the Board of Directors (held in conjunction with the annual meeting of shareholders) except in the case of earlier death, retirement, resignation or removal.
Previous: Cover and table of contents · Next: Item 1A. Risk Factors.