UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, ~~2017~~2018 or ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________________ to _____________________

Commission File Number: 333-185443

_________________________________________

Aleris Corporation

(Exact name of registrant as specified in its charter)

__________________________________________



Delaware			27-1539594
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

25825 Science Park Drive, Suite 400

Cleveland, Ohio 44122-7392

(Address of principal executive offices) (Zip code)

(216) 910-3400

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES 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 x

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 x 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 required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

(Note: Registrant is a voluntary filer of reports required to be filed by certain companies under Sections 13 and 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required during the preceding 12 months, had it been subject to such filing requirements.)

Indicate by check mark whether the registrant has submitted electronically ~~and posted~~ on its corporate Web site, if any, every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or ermerging 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 x Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The registrant is a privately held corporation. As of June 30, ~~2017~~2018, the last business day of the registrant’s most recently completed second fiscal quarter, there was no established public trading market for the common stock of the registrant and therefore, an aggregate market value of the registrant’s common stock is not determinable.

There were 32,~~219~~380,~~528~~867 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of February 15, ~~2018~~2019.

DOCUMENTS INCORPORATED BY REFERENCE: None

PART I		Page
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	2526
Item 2.	Properties	2527
Item 3.	Legal Proceedings	2627
Item 4.	Mine Safety Disclosures	2627
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2628
Item 6.	Selected Financial Data	2728
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2829
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	6463
Item 8.	Financial Statements and Supplementary Data	6766
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	~~120~~119
Item 9A.	Controls and Procedures	~~120~~119
Item 9B.	Other Information	~~121~~120
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~121~~120
Item 11.	Executive Compensation	~~125~~123
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~148~~144
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~153~~148
Item 14.	Principal Accounting Fees and Services	~~154~~149
PART IV
Item 15.	Exhibits and Financial Statement Schedules	~~154~~149
Item 16.	Form 10-K Summary	~~154~~149
Signatures		~~154~~149

PART I

ITEM 1. BUSINESS.

General

Aleris Corporation is a Delaware corporation with its principal executive offices located in Cleveland, Ohio. We are a holding company and currently conduct our business and operations through our direct wholly owned subsidiary, Aleris International, Inc. and its consolidated subsidiaries. As used in this annual report on Form 10-K, unless otherwise specified or the context otherwise requires, “Aleris,” “we,” “our,” “us,” and the “Company” refer to Aleris Corporation and its consolidated subsidiaries. Aleris International, Inc. is referred to herein as “Aleris International.”

The Company is majority owned by Oaktree Capital Management, L.P. (“Oaktree”) or its respective subsidiaries. The investment funds managed by Oaktree or its respective subsidiaries that are invested in the Company are referred to collectively as the “Oaktree Funds.”

On ~~August 29~~July 26, ~~2016~~2018, we announced that we entered into ana ~~Agreement~~definitive ~~and~~agreement ~~Plan~~to ofbe ~~Merger~~acquired ~~(the~~by ~~“Merger~~Novelis ~~Agreement”)~~Inc., ~~with~~a ~~Zhongwang~~subsidiary ~~USA~~of ~~LLC~~Hindalco Industries Limited, ~~Zhongwang~~for ~~Aluminum~~approximately ~~Corporation~~$2,600.0 ~~a direct~~million, ~~wholly~~including ~~owned~~the ~~subsidiary~~assumption of ~~Zhongwang~~the ~~USA~~Company’s outstanding indebtedness (the “Merger ~~Sub~~”),. ~~and~~The Merger is expected to close nine to fifteen months from the ~~stockholders~~date ~~representative~~of ~~party~~the ~~thereto~~definitive agreement, ~~pursuant~~subject to ~~which~~customary ~~Merger~~regulatory ~~Sub~~approvals ~~would~~and ~~have~~closing ~~been~~conditions. ~~merged~~There ~~with~~can ~~and~~be ~~into~~no ~~Aleris~~assurance ~~Corporation,~~that the Merger will be consummated on the ~~terms~~expected ~~and~~timing ~~subject~~or toat all. See the ~~conditions~~Company’s ~~set~~Current ~~forth~~Report inon ~~the~~Form ~~Merger~~8-K ~~Agreement,~~filed ~~with~~on ~~Aleris~~July ~~Corporation~~27, as2018 ~~the~~for ~~surviving~~a ~~entity.~~more ~~The~~detailed ~~Merger~~discussion ~~Agreement~~of ~~automatically~~the ~~terminated~~definitive byagreement ~~its~~and ~~terms~~the ontransactions ~~November 12~~contemplated thereby, ~~2017~~including the Merger.

On March 1, 2015, we finalized the sale of our Extrusions business to Sankyo Tateyama (“Sankyo”), a Japanese building products and extrusions manufacturer. This business included substantially all of the operations and assets previously reported in our Extrusions segment.

On February 27, 2015, we finalized the sale of our North American and European recycling and specification alloys businesses to Real Industry, Inc. (formerly known as Signature Group Holdings, Inc.) and certain of its affiliates. These businesses included substantially all of the operations and assets previously reported in our Recycling and Specification Alloys North America and Recycling and Specification Alloys Europe segments. The sale included 18 production facilities in North America and six in Europe.

We have reported the recycling and specification alloys and extrusions businesses as discontinued operations for all periods presented, and reclassified the results of operations of these businesses into a single caption on the accompanying Consolidated Statements of Operations as “Income (loss) from discontinued operations, net of tax.” ~~For additional information, see Note 17, “Discontinued Operations,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.~~ Except as otherwise indicated, the discussion of the Company’s business and financial information throughout this annual report on Form 10-K refers to the Company’s continuing operations and the financial position and results of operations of its continuing operations, while the presentation and discussion of our cash flows for the years ended December 31, 2015, ~~2014~~ and ~~2013~~2014 reflect the combined cash flows from our continuing and discontinued operations.

Available Information

We make available on or through our website (www.aleris.com) our reports on Forms 10-K, 10-Q and 8-K, and amendments thereto, as soon as reasonably practicable after we electronically file (or furnish, as applicable) such material with the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site that contains these reports at www.sec.gov. We use our investor website (investor.aleris.com) as a channel of distribution of Company information. The information we post through this channel may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings, and public conference calls and webcasts. None of the websites referenced in this annual report on Form 10-K or the information contained therein is incorporated herein by reference.

Company Overview

We are a global leader in the manufacture and sale of aluminum rolled products, with 13 production facilities located throughout North America, Europe and China. Our product portfolio ranges from the most technically demanding heat treated plate and sheet used in mission-critical applications to sheet produced through our low-cost continuous cast process. We possess a combination of technically advanced, flexible and low-cost manufacturing operations supported by an industry-leading research and development (“R&D”) platform. Our facilities are strategically located to serve our customers globally. Our diversified customer base includes a number of industry-leading companies such as Airbus, Audi, Boeing, Bombardier, Daimler, Embraer, Ford, General Motors and Volvo. Our technological and R&D capabilities allow us to produce the most technically demanding products, many of which require close collaboration and, in some cases, joint development with our customers. For the year ended December 31, ~~2017~~2018, we generated revenues of $23.94 billion, of which approximately 5560% were derived from North America, 3732% were derived from Europe and the remaining 8% were derived from the rest of the world.

Company History

Our predecessor was formed at the end of 2004 through the merger of Commonwealth Industries, Inc. and IMCO Recycling, Inc. The predecessor’s business grew through a combination of organic growth and strategic acquisitions, the most significant of which was the 2006 acquisition of the downstream aluminum business of Corus Group plc (“Corus Aluminum”). The Corus Aluminum acquisition doubled our predecessor’s size and significantly expanded both its presence in Europe and its ability to manufacture higher value-added products, including aerospace and ~~auto~~autobody ~~body~~ sheet (“ABS”).

The predecessor was acquired by Texas Pacific Group (“TPG”) in December 2006 and taken private. In 2007, it sold its zinc business in order to focus on its core aluminum business. In 2009, the predecessor, along with certain of its U.S. subsidiaries, filed voluntary petitions for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware. The bankruptcy filings were the result of a liquidity crisis brought on by the global recession and financial crisis. The predecessor’s ability to respond to the liquidity crisis was constrained by its highly leveraged capital structure, which at filing included $2.7 billion of debt, resulting from the 2006 leveraged buyout of the predecessor by TPG. As a result of the severe economic decline, the predecessor experienced sudden and significant value reductions across each end-use industry it served and a precipitous decline in the London Metal Exchange (“LME”) price of aluminum. These factors reduced the availability of financing under the predecessor’s revolving credit facility and required the posting of cash collateral on aluminum hedges. The predecessor sought bankruptcy protection to alleviate its liquidity constraints and restructure its operations and financial position.

The Company was formed as a Delaware corporation in 2009 to acquire the assets and operations of the predecessor upon emergence from bankruptcy, which occurred on June 1, 2010. TPG exited our business during this time and we received significant support from new equity investors, led by the Oaktree Funds, the majority owner of Aleris Corporation, as well as certain investment funds managed by affiliates of Apollo Management Holdings, L.P. (“Apollo”) and Bain Capital Credit, LP (“Bain Capital Credit” and, together with the Oaktree Funds and Apollo, the “Investors”).

Since 2010, the Company has grown through the successful combination of strategic growth initiatives involving acquisitions, such as the 2014 acquisition of Nichols Aluminum LLC (“Nichols”), and investments in our existing facilities and in China. These initiatives were targeted at broadening our product offerings and geographic presence, diversifying our end-use customer base, increasing our scale and scope, and offering a higher value-added product mix. In 2015, we sold our recycling and specification alloys and extrusions businesses in order to focus on our aluminum rolled products business.

Business Segments

We report three operating segments based on the organizational structure that we use to evaluate performance, make decisions on resource allocations and perform business reviews of financial results. The Company’s operating segments (each of which is considered a reportable segment) are North America, Europe and Asia Pacific.

In addition to these reportable segments, we disclose corporate and other unallocated amounts, including start-up costs.

See Note 1516, “Segment and Geographic Information,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K for financial and geographic information about our segments.

The following charts present the percentage of our consolidated revenue by reportable segment and by end-use for the year ended December 31, ~~2017~~2018:

North America

Our North America segment consists of nine manufacturing facilities located throughout the United States that produce rolled aluminum and coated products for the building and construction, automotive, truck trailer, ~~automotive,~~ consumer durables, and other general industrial and distribution end-uses. Substantially all of our North America segment’s products are manufactured to specific customer requirements, using continuous cast and direct-chill technologies that provide us with significant flexibility to produce a wide range of products. Specifically, those products are integrated into, among other applications, building products, automobiles, truck trailers, appliances, ~~cars~~ and recreational vehicles.

~~Our~~We ~~facility~~are incontinuing ~~Lewisport,~~to ~~Kentucky~~implement ~~uses~~our apreviously ~~direct-chill~~announced ~~cast~~project ~~process~~to ~~which~~add ~~enables~~ABS uscapabilities toat ~~meet~~our ~~more~~aluminum ~~technically~~rolling ~~demanding~~mill ~~applications~~in Lewisport, Kentucky (the “North America ABS Project”). We ~~are~~have ~~investing~~invested approximately $425.0 million to build a new wide cold mill, two continuous annealing lines with pre-treatment (each, a “CALP”) and an automotive innovation center ~~to support ABS production at our Lewisport facility (the “North America ABS Project”)~~. We have also invested in upgrades to other key non-ABS equipment at ~~the~~this facility, including upgrading our ingot scalper and pre-heating ~~furnace~~furnaces ~~capabilities~~ and widening the hot mill, to capture additional opportunities. ~~Subsequent~~The ~~to a planned third quarter 2017 outage, which included a 60-day standstill of the facility’s hot mill, the~~ Lewisport facility has ~~started~~been toshipping ~~ship~~ABS ~~autobody sheet~~ and wide non-~~autobody~~ABS ~~sheet~~ to customers using the re-engineered hot mill, the new wide cold mill and the first of the two CALPs since the fourth quarter of 2017. We have completed the construction and installation and are ~~significantly~~substantially through commissioning of the facility’s second CALP., Wewhich ~~expect~~is ~~ABS~~now ~~shipments~~producing tocommercial ~~meaningfully~~shipments. ~~ramp~~We upbelieve ~~in 2018 and over~~ the ~~next~~investments ~~several~~position ~~years~~us ~~based upon committed volumes and~~ to ~~account~~meet ~~for~~significant agrowth ~~significantly~~in ~~higher~~demand ~~percentage of our North America product mix. In particular, we have long term customer commitments~~ for ~~over 60% of our~~ ABS ~~capacity~~in ~~through 2025 with significant “take or pay” obligations. In connection with the~~ North America ~~ABS~~as ~~Project,~~ the ~~North~~automotive ~~America~~industry ~~segment~~pursues ~~has~~broader ~~been~~aluminum ~~incurring~~use ~~costs~~for ~~associated with start-up activities, including~~ the ~~design~~production ~~and development~~ of ~~new products and processes~~lighter, ~~the~~more ~~manufacture of commissioning and trial products, and the development of sales and marketing efforts necessary to enter this new end~~fuel-~~use.~~efficient ~~These start-up costs have been excluded from segment Adjusted EBITDA and segment income~~vehicles.

WeIn ~~have~~connection with the ~~largest~~North ~~footprint~~America ofABS ~~continuous~~Project, ~~cast~~the ~~operations~~segment ofhas ~~any~~been ~~aluminum~~incurring ~~rolled~~costs ~~products~~associated ~~producer~~with instart-up ~~North~~activities, ~~America.~~including ~~Our~~the ~~continuous~~design ~~cast~~and ~~operations~~development ~~have~~of ~~lower~~new ~~capital~~products ~~requirements~~and processes, the manufacture of commissioning and ~~lower~~qualification ~~operating~~products, ~~costs~~and ~~compared~~the development of sales and marketing efforts necessary to ~~our~~enter ~~direct-chill~~this ~~cast~~new ~~operations~~end-use. ~~For~~These ~~our~~start-up ~~continuous~~costs ~~cast~~have ~~operations,~~historically ~~scrap~~been ~~input~~excluded ~~typically~~from ~~comprises~~segment ~~over~~Adjusted ~~90%~~EBITDA ofand ~~our~~segment ~~overall~~income. ~~metal~~The ~~needs,~~North ~~which~~America ~~provides~~ABS ~~substantial~~Project ~~benefits,~~substantially ~~including~~exited ~~metal~~the ~~cost~~start-up ~~savings.~~phase ~~For~~for the ~~year~~first ~~ended~~CALP ~~December~~during ~~31,~~the ~~2017,~~third ~~approximately~~quarter ~~99%~~of 2018. Beginning in the third quarter of ~~our~~2018, ~~North~~the ~~America~~majority ~~revenues~~of ~~were~~the ~~derived~~costs ~~using~~previously aclassified ~~formula~~as ~~pricing~~start-up ~~model~~costs ~~which~~were ~~allows~~included usin tosegment ~~pass~~Adjusted ~~through~~EBITDA ~~risks~~and ~~from~~segment ~~the~~income. ~~volatility~~Start-up ofcosts ~~aluminum~~associated ~~price~~with ~~changes~~the bysecond ~~charging~~CALP acontinue ~~market-based~~to ~~aluminum~~be ~~price~~excluded ~~plus~~from athese ~~conversion~~performance ~~fee~~metrics.

We have the largest footprint of continuous cast operations of any aluminum rolled products producer in North America. Our continuous cast operations have lower capital requirements and lower operating costs compared to our direct-chill cast operations.

For our continuous cast operations, scrap input typically comprises over 90% of our overall metal needs, which provides substantial benefits, including metal cost savings. For the year ended December 31, 2018, approximately 99% of our North America revenues were derived using a formula pricing model which allows us to pass through risks from the volatility of aluminum price changes by charging a market-based aluminum price plus a conversion fee.

Our North America segment produces rolled aluminum products ranging from thickness (gauge) of 0.002 to 0.249 inches in widths of up to 84 inches. The following table summarizes our North America segment’s principal products, end-uses, major customers and competitors:

Principal end use/product category Major customers Competitors • Building and construction (roofing, rainware and siding) • American Construction Metals, First American, Gentek Building Products, Kaycan, Midwest Metals, Omnimax, Ply Gem Industries, Quality Edge, Rollex • Jupiter Aluminum, JW Aluminum, Arconic, Vulcan • Automotive • General Motors, Ford, Kamtek • Arconic, Novelis, Constellium, Nanshan, AMAG, Hydro. UACJ • Metal distribution • Champagne Metals, Metals USA, Reliance, Ryerson, Samuel & Son, Thyssenkrupp-KenMac • Arconic, Novelis, Constellium, Ta-Chen, Asian-American, Metal Exchange • Truck trailer • Great Dane, Hyundai Translead, Rockwell Metals, Utility Trailer • Arconic, ~~Novelis~~Constellium, ~~Vulcan~~JW ~~• Automotive • Ford~~Aluminum, ~~Kamtek • Arconic,~~ Novelis, ~~Constellium,~~Vulcan ~~Nanshan, AMAG, Hydro, Constellium UACJ JV~~ • Consumer durables, specialty coil and sheet (cookware, fuel tanks, ventilation, cooling and lamp bases) • ABB, Brunswick Boat Group, ~~Cuprum Metales Laminados,~~ Ermco Distribution Transformers, ~~John~~Generation RIII, ~~Wald~~RPR Products • Arconic, ~~Novelis~~Gränges, ~~Noranda~~JW Aluminum, Novelis, Skana Aluminum, Constellium • Converter foil, fins and tray materials • ~~D&W~~Chart ~~Fine~~Energy ~~Pack~~& Chemicals, HFA, Reynolds • JW Aluminum, Gränges, Novelis, Skana Aluminum, SAPA

Key operating and financial information for the segment is presented below:

North America	For the years ended December 31,
(Dollars in millions, volumes in thousands of tons)	~~2017~~2018		~~2016~~2017		~~2015~~2016
Metric tons of finished product shipped	~~462~~517.05		~~486~~462.30		~~492~~484.83
Revenues	$	1,~~467~~915.87	$	1,~~365~~467.18	$	1,~~532~~365.81
Segment income (1)	$	88196.0	$	8688.10	$	~~107~~86.91
Segment Adjusted EBITDA (1)(2)	$	96162.51	$	8196.45	$	~~109~~81.14
Total segment assets	$	1,~~309~~460.90	$	1,~~180~~309.29

(1) Segment income and segment Adjusted EBITDA exclude start-up operating losses and expenses incurred during the start-up period. For the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, start-up costs were $6645.63 million, $4166.56 million and $1641.05 million, respectively.


(2)	Segment Adjusted EBITDA is a non-GAAP financial measure. See Item 7. – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Segments” for a definition and discussion of segment Adjusted EBITDA and a reconciliation to segment income.

Europe

Our Europe segment consists of two world-class aluminum rolling mills, one in Koblenz, Germany and the other in Duffel, Belgium, and an aluminum cast house in Voerde, Germany. The segment produces aerospace plate and sheet, ABS, clad brazing sheet (clad aluminum material used for, among other applications, vehicle radiators and HVAC systems), ~~and~~ heat-treated plate for engineered product applications and industrial coil and sheets. Substantially all of our Europe segment’s products are manufactured to specific customer requirements using direct-chill cast technologies that allow us to use and offer a variety of alloys and products for a number of technically demanding end-uses, which command some of the highest margins in the industry.

For over a decade, we have been a leading supplier of automotive and aerospace aluminum rolled products in Europe. ~~The~~We believe the technical and quality requirements needed to participate in these end-uses provides us with a competitive advantage. WeIn ~~continue~~2018 towe ~~pursue~~qualified ~~technical~~ and ~~manufacturing~~started ~~initiatives,~~production ~~such~~of ~~as our~~ wingskin ~~project at our Koblenz~~products, ~~Germany~~a ~~facility,~~product ~~expected to be completed in the second half of 2018, which will allow us to produce aluminum~~ for commercial aircraft wings to be used in the aerospace industry, in Koblenz.

Our Europe segment produces rolled aluminum products ranging from thickness (gauge) of 0.00031 to 11.0 inches in widths of up to 138 inches. The following table summarizes our Europe segment’s principal products, end-uses, major customers and competitors:

Principal end use/product category Major customers Competitors • Aerospace plate and sheet • Airbus, Boeing, Bombardier, Dassault, Embraer • Arconic, AMAG, Constellium, Kaiser • ~~Auto~~Autobody ~~body~~ sheet (inner, outer and structural parts) • Audi, Daimler, Renault, Volvo, VW Group • AMAG, Constellium, Hydro, Novelis, Profilglass, Maaden, Nanshan • ~~Brazing~~Clad ~~clad~~brazing sheet (heat exchanger materials for automotive and general industrial) • Mahle, Dana, Denso, Hanon, Modine, Chart • Arconic, AMAG, Gränges, Hydro, UACJ • Industrial plate and sheet (tooling, molding, road & rail, shipbuilding, LNG, silos, anodizing qualities for architecture, multi-layer tubing, and general industry) • Amari Group, Amco, Euramax, Gilette, Henco, Linde, Multivac, RemiClaeys, SAG, Thyssenkrupp • Arconic, AMAG, Constellium, Hydro, Novelis, Elval. Aludium, Zhongwang, Nanshan

Key operating and financial information for the segment is presented below:

Europe

For the years ended December 31,

(Dollars in millions, volumes in thousands of tons)

~~2017~~2018

~~2016~~2017

~~2015~~2016

Metric tons of finished product shipped

~~317~~330.34

~~326~~317.73

~~313~~326.67

Revenues

1,~~300~~407.74

1,~~222~~300.67

1,~~335~~222.36

Segment income

~~127~~129.48

~~149~~127.4

~~131~~149.84

Segment Adjusted EBITDA (1)

~~127~~128.7

~~151~~127.37

~~149~~151.3

Total segment assets

~~738~~736.4

~~645~~738.34


(1)	Segment Adjusted EBITDA is a non-GAAP financial measure. See Item 7. – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Segments” for a definition and discussion of segment Adjusted EBITDA and a reconciliation to segment income.

Asia Pacific

Our Asia Pacific segment consists of ~~the~~a ~~Zhenjiang~~ rolling mill in Zhenjiang, Peoples Republic of China (PRC) that produces technically demanding and value-added plate products for aerospace, semiconductor equipment, general engineering, distribution and other end-uses worldwide. Substantially all of our Asia Pacific segment’s products are manufactured to specific customer requirements using direct-chill cast technologies that allow us to use and offer a variety of alloys and products principally for aerospace and also for a number of other technically demanding end-uses.

The Zhenjiang rolling mill commenced operations in the first quarter of 2013 and achieved Nadcap certification, an industry standard for the production of aerospace aluminum, in 2014. Since then, the Zhenjiang rolling mill has received qualifications from several industry-leading aircraft manufacturers, including Airbus, Boeing, Bombardier and COMAC, and is the only facility in Asia capable of meeting the exacting standards of the global aerospace industry.

We expect demand for aluminum plate in Asia to grow, driven by the development and expansion of industries serving aerospace, semiconductor, rail and other technically demanding applications. In anticipation of this demand, we built the Zhenjiang rolling mill with 250,000 tons of hot mill capacity and the capability to both expand into other high growth and high value-added products, including ABS, clad brazing sheet and other technically demanding products, as well as produce additional aerospace and heat treated plate with modest incremental investment. Currently, we are expanding our aerospace offerings by investing in ~~technical~~machining equipment, and ~~manufacturing~~are ~~initiatives~~introducing advanced alloys to allow for the production of ~~aluminum~~pre-machined plates for commercial aircraft wings to be used in the aerospace industry, commercial shipments of which isare expected to bebegin ~~completed~~ in ~~early~~the second half of 2019.

The following table summarizes our Asia Pacific segment’s principal products, end-uses, major customers and competitors:

Principal end use/product category Major customers Competitors • Aerospace plate • Airbus, Bombardier, Boeing, All Metal Services, ~~AVIC, Boeing, Bombardier,~~ Castle Metals, AVIC, Comac, Korean Aerospace Industries, ~~TKA~~Thyssenkrupp Aeropsace • Arconic, Constellium, Kaiser, Nanshan, Chinalco, ~~Kaiser~~Kumz, ~~AMAG~~SWA, ~~Nanshan~~NELA • Heat treated plate • Clinton Aluminum, Hengtai, Jusung, Thyssenkrupp, Huahang • Arconic, AMAG, Alro, Constellium, Kaiser, Kumz, Nanshan. UACJ • Non-heat treated plate • Kobelco Precision Parts, Korean Non Ferrous, Tozzhin • UACJ, Alnan, SWA, NELA, Zhongwang, Nanshan, Kobelco

Key operating and financial information for the segment is presented below:

Asia Pacific	For the years ended December 31,
(Dollars in millions, volumes in thousands of tons)	~~2017~~2018		~~2016~~2017		~~2015~~2016
Metric tons of finished product shipped	2629.94		2226.29		2122.82
Revenues	$	~~122~~148.38	$	~~100~~122.53	$	96100.45
Segment income	$	1523.06	$	1015.80	$	—10.8
Segment Adjusted EBITDA (1)	$	1222.62	$	1012.46	$	—10.4
Total segment assets	$	~~371~~340.42	$	~~358~~371.64


(1)	Segment Adjusted EBITDA is non-GAAP financial measure. See Item 7. – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Segments” for a definition and discussion of segment Adjusted EBITDA and a reconciliation to segment income.

Industry Overview

Aluminum is a widely-used, attractive industrial material. Compared to several alternative metals such as steel and copper, aluminum is lightweight, has a high strength-to-weight ratio and is resistant to corrosion. Aluminum can be recycled repeatedly without any material decline in performance or quality. The recycling of aluminum delivers energy and capital investment savings relative to both the cost of producing primary aluminum and many other competing materials. The penetration of aluminum into a wide variety of applications continues to grow. We believe several factors support fundamental long-term growth in aluminum consumption in the end-uses we serve.

The global aluminum industry consists of primary aluminum producers with bauxite mining, alumina refining and aluminum smelting capabilities; aluminum semi-fabricated products manufacturers, including aluminum casters, recyclers, extruders and flat rolled products producers; and integrated companies that are present across multiple stages of the aluminum production chain. The industry is cyclical and is affected by global economic conditions, industry competition and product development.

Primary aluminum prices are determined by worldwide forces of supply and demand and, as a result, are volatile. This volatility has a significant impact on the profitability of primary aluminum producers whose selling prices are typically based upon prevailing LME prices while their costs to manufacture are not highly correlated to LME prices. We participate in select segments of the aluminum fabricated products industry, focusing on aluminum rolled products. We do not smelt aluminum, nor do we participate in other upstream activities, including mining bauxite or refining alumina. Since the majority of our products are sold on a market-based aluminum price plus conversion fee basis, we are less exposed to aluminum price volatility.

Sales and Marketing

We sell our products to end-users and distributors, principally for use in the aerospace, automotive, building and construction, truck trailer, consumer durables, other general industrial and distribution industries. Backlog as of December 31, ~~2017~~2018 and ~~2016~~2017 was approximately $~~114~~88.31 million and $~~109~~114.23 million, respectively, for North America, $~~244~~251.52 million and $~~202~~244.25 million, respectively, for Europe, and $3986.10 million and $2839.1 million, respectively, for Asia Pacific.

Sales of products are made through each segment’s own sales force, which are strategically located to provide international coverage, and through a broad network of sales offices and agents in North America and major European countries, as well as in Asia and Australia. The majority of our customer sales agreements in our segments are for a term of one year or less.

Competition

The worldwide aluminum industry is highly competitive. Aluminum also competes with other materials such as steel, plastic, composite materials and glass for various applications.

We compete in the production and sale of rolled aluminum sheet and plate. In the sectors in which we compete, other industry leaders include Arconic, Constellium, Novelis, Kaiser, Hydro, JW Aluminum and Jupiter Aluminum. We compete with other rolled products suppliers on the basis of quality, price, timeliness of delivery and customer service.

Raw Materials and Supplies

A significant portion of the aluminum metal used by our North America segment is purchased aluminum scrap that is acquired from aluminum scrap dealers or brokers. We believe that this segment is one of the largest users of aluminum scrap (other than beverage can scrap) in North America. The remaining requirements of this segment are met with purchased primary metal and rolling slab, including metal produced in the U.S. and internationally.

Our Europe segment relies on a number of European smelters for primary aluminum and rolling slab. Due to a shortage of internal slab casting capacity, we contract with smelters and other third parties to provide slab that meets our specifications.

Our Asia Pacific segment relies primarily on domestic smelters for primary aluminum. A portion of the raw material used by this segment is imported in order to meet quality requirements.

We believe that the raw materials necessary to our business are and will continue to be available. In an effort to manage our exposure to commodity price fluctuations, we use a formula pricing model which allows us to pass through risks from the volatility of aluminum price changes by charging a market-based aluminum price plus a conversion fee for the substantial majority of our contracts, and we strive to manage the remaining key commodity risks through our hedging programs.

Energy Supplies

Our operations are fueled by natural gas and electricity, which represent the third largest component of our cost of sales, after metal and labor costs. We purchase the majority of our natural gas and electricity on a spot-market basis. However, in an effort to acquire the most favorable energy costs, we have secured some of our natural gas and electricity at fixed price commitments. We use forward contracts and options, as well as contractual price escalators, to reduce the risks associated with our natural gas requirements.

Research and Development

Our research and development organization includes three ~~locations~~centers in Europe, one in North America and one in Asia, with a support staff focused on new product and alloy offerings and process performance technology. Research and development expenses were $1618.04 million, $1016.90 million and $1110.29 million for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively.

Patents and Other Intellectual Property

We hold patents registered in the United States and other countries relating to our business. In addition to patents, we also possess other intellectual property, including trademarks, tradenames, know-how, developed technology and trade secrets. Although we believe these intellectual property rights are important to the operations of our specific businesses, we do not consider any single patent, trademark, tradename, know-how, developed technology, trade secret or any group of patents, trademarks, tradenames, know-how, developed technology or trade secrets to be material to our business as a whole.

Seasonality

Certain of our products are seasonal. Demand in the rolled products business is generally stronger in the spring and summer seasons due to higher demand in the building and construction industry. This typically results in higher operating income in our second and third quarters, followed by our first and fourth quarters.

Employees

As of December 31, ~~2017~~2018, we had a total of approximately 5,~~400~~500 employees, which included approximately 1,900 employees engaged in administrative and supervisory activities and approximately 3,~~500~~600 employees engaged in manufacturing, production and maintenance functions. In addition, collectively, approximately 64% of our U.S. employees and substantially all of our non-U.S. employees were covered by collective bargaining agreements. We believe our labor relations with employees have been satisfactory.

Environmental

Our operations are subject to federal, state, local and foreign environmental, health and safety laws and regulations, which govern, among other things, air emissions, wastewater discharges, the handling, storage, and disposal of hazardous substances and wastes, the investigation or remediation of contaminated sites and employee health and safety. These laws can impose joint and several liability for releases or threatened releases of hazardous substances upon statutorily defined parties, including us, regardless of fault or the lawfulness of the original activity or disposal. Given the changing nature of environmental, health and safety legal requirements, we may be required, from time to time, to incur substantial costs in order to achieve and maintain compliance with these laws and regulations. For example, we may be required to install additional pollution control equipment, make process changes, or take other environmental control measures at some of our facilities to meet future requirements.

We have been named as a potentially responsible party in certain proceedings initiated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (“Superfund”) and similar state statutes and may be named a potentially responsible party in other similar proceedings in the future. We are performing operations and maintenance at two Superfund sites for matters arising out of past waste disposal activity associated with closed facilities. We are also under orders to perform environmental remediation by agencies in four states and one non-U.S. country at seven sites. It is not anticipated that the costs incurred in connection with the presently pending proceedings will, individually or in the aggregate, have a material adverse effect on our financial condition or results of operations. Currently, and from time to time, we are a party to notices of violation brought by governmental agencies concerning the laws governing environmental, health and safety matters, such as air emissions.

Our aggregate accrual for environmental matters was $2225.16 million and $2322.81 million at December 31, ~~2017~~2018 and ~~2016~~2017, respectively. Of these amounts, approximately $1011.29 million and $1110.52 million are indemnified at December 31, ~~2017~~2018 and ~~2016~~2017, respectively. Although the outcome of any such matters, to the extent they exceed any applicable accrual, could have a material adverse effect on our financial condition, results of operations or cash flows for the applicable period, we currently believe that any such outcome would not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

In addition, we have asset retirement obligations of $6.18 million and $46.71 million for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, for costs related to the future removal of asbestos and costs to remove underground storage tanks. The related asset retirement costs are capitalized as long-lived assets (asset retirement cost), and are being amortized over the remaining useful life of the related asset. See Note 2, “Summary of Significant Accounting Policies,” and Note 89, “Asset Retirement Obligations,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.

The processing of scrap generates solid waste in the form of salt cake and baghouse dust. This material is disposed of at off-site landfills. If salt cake was ever classified as a hazardous waste in the U.S., the costs to manage and dispose of it would increase, which could result in significant increased expenditures.

Financial Information About Geographic Areas

See Note 1516, “Segment and Geographic Information,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.

ITEM 1A. RISK FACTORS.

Risks Related to Our Business

If we fail to implement our business strategy, our financial condition and results of operations could be adversely affected.

Our future financial performance and success depend in large part on our ability to successfully implement our business strategy. We cannot assure you that we will be able to successfully implement our business strategy or be able to continue improving our operating results. In particular, we cannot assure you that we will be able to successfully execute our significant ongoing, or any future, strategic investments, achieve all operating cost savings targeted through focused productivity improvements and capacity optimization, further enhance our business and product mix, manage key commodity exposures and opportunistically pursue strategic transactions, some of which may be material. Implementation of our business strategy may be impacted by factors outside of our control, including competition, commodity price fluctuations, industry, legal and regulatory changes or developments and general economic and political conditions. Any failure to successfully implement our business strategy could adversely affect our financial condition and results of operations. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

Although we have undertaken and expect to continue to undertake productivity and manufacturing system and process transformation initiatives to improve performance, we cannot assure you that all of these initiatives will be completed or that any estimated cost savings from such activities will be fully realized. Even when we are able to generate new efficiencies in the short- to medium-term, we may not be able to continue to reduce costs and increase productivity over the long-term.

While the Merger is pending, we are subject to business uncertainties and contractual restrictions that could materially adversely affect our business or result in a loss of customers or employees.

The agreement governing the Merger includes restrictions on how we conduct our business while the Merger is pending, generally requiring us to conduct our business in the ordinary course in all material respects, as well as imposing more specific limits with respect to certain matters absent our Merger counterparty’s consent. These and other restrictions in the agreement governing the Merger may prevent us from responding effectively to business developments and opportunities. The pendency of the Merger may also divert our management’s attention and our other resources from ongoing business and operations. In addition, customers may have uncertainties about the Merger, and delay or defer business decisions or seek to terminate or change their relationships because of the Merger. Similarly, the Merger may materially adversely affect our ability to attract, retain or motivate employees. If any of these effects were to occur, it could materially and adversely impact our financial performance while the Merger is pending.

The closing of the Merger is subject to customary closing conditions as well as other uncertainties, and the Merger may not be completed.

The consummation of the Merger is subject to the satisfaction of certain closing conditions, including, but not limited to, (i) the representations and warranties of the parties being true and correct, except as permitted by the agreement governing the Merger, (ii) the parties’ performance in all material respects of their respective covenants and other obligations, and (iii) the expiration or termination of the applicable Hart-Scott-Rodino waiting period and the receipt of certain foreign regulatory approvals. The Merger is not subject to a financing condition. If these conditions to the closing of the Merger are not fulfilled, then the Merger may not be consummated. Several of the closing conditions are not within our control, and it is not known whether and when any of the required closing conditions will be satisfied or if another uncertainty may arise. If the closing conditions are not timely satisfied, or if another event occurs that delays or prevents the Merger, our business, financial condition and results of operations may be materially and adversely affected.

We may undertake acquisitions or divestitures, or be the target of a strategic acquisition, which may not be successful, and which could adversely affect our business, financial condition and results of operations.

As part of our strategy, from time to time, we may consider acquisitions or strategic alliances, which may not be completed or, if completed, may not be ultimately beneficial to us. We also consider potential divestitures of businesses from time to time. We prudently evaluate these opportunities as potential enhancements to our existing operating platforms and continue to consider strategic alternatives on an ongoing basis, including having discussions concerning potential acquisitions, strategic alliances and divestitures that may be material.

There are numerous risks commonly encountered in business combinations, including the following:


▪	our ability to identify appropriate acquisition targets and to negotiate acceptable terms for their acquisition;


▪	our ability to obtain all necessary regulatory approvals on the terms expected and/or to complete any acquisition in a timely manner or at all;


▪	our ability to integrate new businesses into our operations;


▪	the availability of capital on acceptable terms to finance acquisitions;


▪	the ability to generate the cost savings or synergies anticipated;


▪	the inaccurate assessment of undisclosed liabilities;


▪	increasing demands on our operational systems; and


▪	the amortization of acquired intangible assets.

In addition, the process of integrating new businesses could cause the interruption of, or loss of momentum in, the activities of our existing businesses, the diversion of management’s attention or the loss of key employees, customers, suppliers or other business partners. Any delays or difficulties encountered in connection with the integration of new businesses or divestiture of existing assets or businesses could negatively impact our business, financial condition and results of operations. Furthermore, any acquisition we may make could result in significant increases in our outstanding indebtedness and debt service requirements. The terms of our indebtedness may limit the acquisitions, strategic alliances and divestitures that we can pursue.

There are numerous risks commonly encountered in divestitures, including the following:


▪	our ability to identify appropriate assets or businesses for divestiture and buyers, and to negotiate favorable terms for the divestiture of such assets or businesses;


▪	diversion of resources and management’s attention from the operation of our business, including providing on-going services to the divested business;


▪	loss of key employees following such a transaction;


▪	difficulties in the separation of operations, services, products and personnel;


▪	retention of future liabilities as a result of contractual indemnity obligations; and


▪	loss of, or damage to our relationships with, our existing customers, suppliers or other business relationships.

In addition, sellers typically retain certain liabilities or indemnify buyers for certain matters such as lawsuits, tax liabilities, product liability claims and environmental matters. The magnitude of any such retained liability or indemnification obligation may be difficult to quantify at the time of the transaction, may involve conditions outside our control and ultimately may be material. Also, as is typical in divestiture transactions, third parties may be unwilling to release us from guarantees or other credit support provided prior to the sale of the divested assets. As a result, after a divestiture, we may remain secondarily liable for the obligations guaranteed or supported to the extent that the buyer of the assets fails to perform these obligations.

We cannot readily predict the timing or size of any future acquisition, strategic alliance or divestiture, and there can be no assurance that we will realize any anticipated benefits from any such acquisition, strategic alliance or divestiture. If we do not realize any such anticipated benefits, our business, financial condition and results of operations could be materially adversely affected.

In addition, we may receive inquiries relating to potential strategic transactions, including from third parties who may seek to merge with or acquire us. We will continue to consider and discuss such transactions as we deem appropriate. Such potential transactions may divert management’s attention, may cause us to incur various costs and expenses in evaluating and pursuing such transactions, whether or not they are completed, and are subject to numerous risks, including the risk that we may not be able to complete a transaction that has been announced.

The cyclical nature of the metals industry, our end-uses and our customers’ industries could negatively affect our financial condition and results of operations.

The metals industry in general is cyclical in nature. It tends to reflect and be amplified by changes in general and local economic conditions. These conditions include the level of economic growth, financing availability, the availability of affordable raw materials and energy sources, employment levels, interest rates, consumer confidence and housing demand. Historically, in periods of recession or periods of minimal economic growth, metals companies have often tended to underperform other sectors. We are particularly sensitive to trends in the key end-uses we serve, such as the automotive, aerospace, heat exchanger, building and construction and truck trailer industries. During recessions or periods of low growth, these industries typically experience major cutbacks in production, resulting in decreased demand for aluminum, which can lead to significant fluctuations in demand and pricing for our products and services.

Demand for our automotive and heat exchanger products is dependent on the production of cars, light trucks and heavy duty vehicles and trailers. The automotive industry is highly cyclical, as new vehicle demand is dependent on consumer spending and is tied closely to the strength of the overall economy, including credit markets and interest rates. In addition, the automotive industry is sensitive to consumer preferences regarding vehicle ownership and usage and vehicle size, fuel prices, regulatory requirements and levels of competition. Production cuts by manufacturers may adversely affect the demand for our products. Many automotive-related manufacturers and first tier suppliers are burdened with substantial structural costs, including pension, healthcare and labor costs that have resulted in severe financial difficulty, including bankruptcy, for several of them. A worsening of these companies’ financial condition or their bankruptcy could have further serious effects on the conditions of the automotive industry, which directly affects the demand for our products. In addition, sensitivity to fuel prices and consumer preferences can influence consumer demand for vehicles that have a higher content of aluminum. The loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which we are a significant supplier could have a materially adverse impact on our financial condition and results of operations.

We derive a portion of our revenues from products sold to the aerospace industry, which is highly cyclical and tends to decline in response to overall declines in the general economy. The commercial aerospace industry is historically driven by demand from commercial airlines for new aircraft. Demand for commercial aircraft is influenced by airline industry profitability, trends in airline passenger traffic, the state of the U.S. and global economies and numerous other factors, including the availability of financing, regulatory requirements, the retirement of older aircraft and the effects of terrorism. A number of major airlines have consolidated, undergone bankruptcy or comparable insolvency proceedings and experienced financial strain from competitive pressures and volatile fuel prices. Despite existing backlogs, continued financial uncertainty in the industry, inadequate liquidity of certain airline companies, production issues and delays in the launch of new aircraft programs at major aircraft manufacturers, stock variations in the supply chain, terrorist acts or the increased threat of terrorism may lead to reduced demand for new aircraft that utilize our products, which could materially adversely affect our financial condition and results of operations.

Because we generally have high fixed costs, our near-term profitability is significantly affected by decreased processing volume. Accordingly, reduced demand and pricing pressures may significantly reduce our profitability and adversely affect our financial condition. Economic downturns in regional and global economies or a prolonged recession in our principal industry end-uses have had a negative impact on our operations in the past and could have a negative impact on our future financial condition or results of operations. Although we continue to seek to diversify our business on a geographic and industry end-use basis, we cannot assure you that diversification will significantly mitigate the effect of cyclical downturns.

end-uses have had a negative impact on our operations in the past and could have a negative impact on our future financial condition or results of operations. Although we continue to seek to diversify our business on a geographic and industry end-use basis, we cannot assure you that diversification will significantly mitigate the effect of cyclical downturns.

In addition, the market price of aluminum has historically been subject to significant cyclical price fluctuations. Although in recent years global economic and commodity trends have been increasingly correlated, the timing of changes in the market price of aluminum is largely unpredictable. Changes in the market price of aluminum impact the selling prices of our products and the benefit we gain from using scrap in our manufacturing process. Market prices of aluminum are dependent upon supply and demand and a variety of factors over which we have minimal or no control, including:

▪ regional, ~~and~~ global economic and political conditions;


▪	availability and relative pricing of metal substitutes;


▪	labor costs;


▪	energy prices;


▪	governmental regulations;


▪	seasonal factors and weather; and

▪ tariffs, import and export levels and/or other trade restrictions.

Furthermore, we depend upon third-party transportation providers for delivery of products to us and to our customers, and we are sensitive to cyclical and other trends that impact such providers. Transportation disruptions or other conditions in the transportation industry, including, but not limited to, increases in fuel prices, disruptions in rail service, port congestion or shortages of truck drivers, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis.

shortages of truck drivers, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis.

We may encounter increases in the cost, or limited availability, of raw materials and energy, which could cause our cost of sales to increase thereby reducing our operating results and limiting our operating flexibility.

We require substantial amounts of raw materials and energy in our business, consisting principally of primary aluminum, aluminum scrap, alloys and other materials and energy, including natural gas. Any substantial increases in the cost of raw materials or energy could cause our operating costs to increase and negatively affect our financial condition and results of operations.

Primary aluminum, aluminum scrap, rolling slab and alloy prices are subject to significant cyclical price fluctuations. Metallics (primary aluminum and aluminum scrap) represent the largest component of our costs of sales. We purchase aluminum primarily from aluminum producers, aluminum scrap dealers and other intermediaries. We have limited control over the price or availability of these supplies.

In particular, the availability and price of aluminum scrap and rolling slab depend on a number of factors outside our control, including general economic conditions, international demand for metallics and internal recycling activities by primary aluminum producers and other consumers of aluminum. Increased regional and global demand for aluminum scrap can have the effect of increasing the prices that we pay for these raw materials thereby increasing our cost of sales. We may not be able to adjust the selling prices for our products to recover the increases in scrap prices. If scrap prices were to increase significantly without a commensurate increase in the traded value of the primary metals, our future financial condition and results of operations could be affected by higher costs and lower profitability.

After raw material and labor costs, energy costs represent the third largest component of our cost of sales. The price of natural gas, and therefore the costs, can be particularly volatile. Price and volatility can differ by global region based on supply and demand, political issues, government regulation and the imposition of further taxes on energy, among other things. As a result, our natural gas costs may fluctuate dramatically, and we may not be able to reduce the effect of higher natural gas costs on our cost of sales. If natural gas costs increase, our financial condition and results of operations may be adversely affected. Although we attempt to mitigate volatility in natural gas costs through the use of hedging and the inclusion of price escalators in certain of our long-term supply contracts, we may not be able to eliminate or reduce the effects of such cost volatility. Furthermore, in an effort to offset the effect of increasing costs, we may also limit our potential benefit from declining costs.

We may be unable to manage effectively our exposure to commodity price fluctuations, and our hedging activities may affect profitability in a changing metals price environment and subject our earnings to greater volatility from period-to-period.

Significant increases in the price of primary aluminum, aluminum scrap, alloys, hardeners, or energy would cause our cost of sales to increase significantly and, if not offset by product price increases, would negatively affect our financial condition and results of operations. We are substantial consumers of raw materials, and by far the largest input cost in producing our goods is the cost of aluminum. The cost of energy used by us is also substantial. Customers pay for our products based on the price of the aluminum contained in the products, plus a “rolling margin” or “conversion margin” fee (the “Price Margin”), or based on a fixed price. Although we generally use this pricing mechanism to pass changes in the price of aluminum through to our customers, we may not be able to pass on the entire cost of the increases to our customers. In most end-uses and by industry convention, however, we offer our products at times on a fixed price basis as a service to the customer. This commitment to supply an aluminum-based product to a customer at a fixed price often extends months, but sometimes years, into the future. Such commitments require us to purchase raw materials in the future, exposing us to the risk that increased aluminum or energy prices will increase the cost of our products, thereby reducing or eliminating the Price Margin we receive when we deliver the product. These risks may be exacerbated by the failure of our customers to pay for products on a timely basis, or at all.

~~premium~~Margin”), ~~the~~or ~~variability~~based inon ~~our~~a ~~earnings~~fixed ~~can~~price. ~~also~~Although ~~increase.~~we Ingenerally ~~addition~~use tothis ~~impacting~~pricing ~~the~~mechanism ~~price~~to wepass ~~pay~~changes ~~for~~in the ~~raw~~price ~~materials~~of wealuminum ~~purchase,~~through ~~changing~~to ~~premium differentials impact~~ our customers, ~~who~~we may ~~delay~~not ~~purchases~~be ~~from~~able usto ~~during~~pass ~~times~~on ofthe ~~uncertainty~~entire ~~with~~cost ~~respect~~of to the ~~premium~~increases ~~differential or seek~~ to ~~purchase~~our ~~alternative~~customers. ~~materials~~In ormost ~~lower~~end-uses ~~priced~~and ~~imported~~by ~~products~~industry ~~which~~convention, ~~are~~however, ~~not~~we ~~susceptible~~offer toour ~~the~~products ~~changes~~at intimes ~~these~~on ~~premium~~a ~~differentials.~~fixed ~~The~~price ~~North~~basis ~~America~~as ~~and Europe segments follow~~ a ~~pattern~~service ofto ~~increasing~~the orcustomer. ~~decreasing~~This ~~their~~commitment ~~selling prices~~ to ~~customers~~supply inan ~~response~~aluminum-based product to ~~changes~~a incustomer ~~the~~at ~~Midwest~~a ~~Premium~~fixed ~~and~~price ~~the~~often ~~Rotterdam~~extends ~~Premium. In addition~~months, ~~aluminum~~but ~~prices~~sometimes ~~could~~years, ~~fluctuate~~into asthe ~~a result of LME warehousing rules~~future. ~~Warehousing~~Such ~~rules~~commitments ~~could~~require ~~also~~us ~~cause~~to anpurchase ~~increase~~raw materials in the ~~supply~~future, ofexposing ~~aluminum~~us ~~which~~to ~~may~~the ~~cause~~risk ~~regional~~that ~~delivery~~increased ~~premiums~~aluminum ~~and~~or ~~LME~~energy ~~aluminum~~ prices towill ~~fall.~~increase Athe ~~sustained~~cost ~~weak~~of ~~LME~~our ~~aluminum~~products, ~~pricing~~thereby ~~environment~~reducing or ~~adverse~~eliminating ~~changes~~the inPrice ~~LME~~Margin ~~aluminum~~we ~~prices~~receive orwhen ~~regional~~we ~~premiums,~~deliver or the ~~inability~~product. toThese ~~pass~~risks ~~through~~may ~~any~~be ~~fluctuation~~exacerbated inby ~~aluminum~~the ~~prices~~failure orof ~~regional premiums to~~ our customers, ~~could~~to ~~have~~pay afor ~~material~~products ~~adverse effect~~ on ~~our~~a ~~business,~~timely ~~financial condition~~basis, ~~results~~or ofat ~~operations and cash flow~~all.

The overall price of primary aluminum consists of several components, including the underlying base metal component, which is typically based on quoted prices from the London Metal Exchange (LME) and the regional premium, which comprises the incremental price over the base LME component that is associated with the delivery of metal to a particular region as further described below. The LME price is typically driven by macroeconomic factors, global supply and demand of aluminum (including expectations for growth and contraction and the level of global inventories) and financial investors, and may be impacted by political conditions and changes in laws, regulations and policies, such as those related to international trade. Speculative trading in aluminum and the influence of hedge funds and other financial institutions participating in commodity markets have contributed to higher levels of price volatility. Furthermore, the North America and Europe segments are exposed to variability in the market price of a regional premium differential (referred to as “Midwest Premium” in the U.S. and “Rotterdam Premium” in Europe) charged by industry participants to deliver aluminum from the smelter to the manufacturing facility. This premium differential also fluctuates in relation to several conditions, including based on the supply of and demand for metal in a particular region, associated transportation costs and the extent of warehouse financing transactions, which limit the amount of physical metal flowing to consumers and increases the price differential as a result. During times of greater volatility in the premium, the variability in our earnings can also increase. In addition to impacting the price we pay for the raw materials we purchase, changing premium differentials impact our customers, who may delay purchases from us during times of uncertainty with respect to the premium differential or seek to purchase alternative materials or lower priced imported products which are not susceptible to the changes in these premium differentials. The North America and Europe segments follow a pattern of increasing or decreasing their selling prices to customers in response to changes in the Midwest Premium and the Rotterdam Premium. In addition, aluminum prices could fluctuate as a result of LME warehousing rules. Warehousing rules could also cause an increase in the supply of aluminum which may cause regional delivery premiums and LME aluminum prices to fall. A sustained weak LME aluminum pricing environment or adverse changes in LME aluminum prices or regional premiums, or the inability to pass through any fluctuation in aluminum prices or regional premiums to our customers, could have a material adverse effect on our business, financial condition, results of operations and cash flow.

As we maintain large quantities of base inventory, significant and rapid decreases in the price of primary aluminum would reduce the realizable value of our inventory, negatively affecting our financial condition and results of operations. In addition, a decrease in aluminum prices between the date of purchase and the final settlement date on derivative contracts used to mitigate the risk of price fluctuations may require us to post additional margin, which, in turn, could place a significant demand on our liquidity.

We purchase and sell LME forwards, futures and options contracts to reduce our exposure to changes in aluminum, copper and zinc prices. While exchanges have recently begun to offer derivative financial instruments to hedge premium differentials, we are only beginning to use these markets in our risk management practices. Despite the use of LME forwards, futures and options contracts, we remain exposed to the variability in prices of aluminum scrap and premium differentials. We depend on scrap for our operations, and seek to take advantage of the lower price of scrap metals compared to primary aluminum to provide a cost-competitive product. While aluminum scrap is typically priced in relation to prevailing LME prices, it may also be priced at a discount to LME aluminum (depending upon the quality of the material supplied). This discount is referred to in the industry as the “scrap spread” and fluctuates depending upon industry conditions. At this time, financial instruments are not readily available to effectively hedge against the scrap spread, and to the extent this spread narrows, our competitive advantage may be reduced. In addition, we purchase forwards, futures or options contracts to reduce our exposure to changes in natural gas and fuel prices, currency risks and ~~currency~~interest rate risks. To the extent our hedging contracts fix prices or exchange rates, if prices or exchange rates are below the fixed prices or rates established by such contracts, then our income and cash flows will be lower than they otherwise would have been.

The ability to realize the benefit of our hedging program is dependent upon factors beyond our control, such as counterparty risk as well as our customers making timely payment to us for products. In addition, at certain times, hedging options may be unavailable or not available on terms acceptable to us. In certain scenarios when market price movements result in a decline in value of our current derivatives position, our mark-to-market expense may exceed our credit line and counterparties may request the posting of cash collateral. We do not account for our forwards, futures, or options contracts as hedges of the underlying risks. As a result, unrealized gains and losses on our derivative financial instruments must be reported in our consolidated results of operations. The inclusion of such unrealized gains and losses in earnings may produce significant ~~period to period earnings volatility that is not necessarily reflective of our underlying operating performance. See Item 7A. - “Quantitative and Qualitative Disclosures about Market Risk.”~~

period to period earnings volatility that is not necessarily reflective of our underlying operating performance. See Item 7A. - “Quantitative and Qualitative Disclosures about Market Risk.”

A deterioration of our financial position or a downgrade of our ratings by a credit rating agency could impair our business, financial condition and results of operations, and our business relationships could be adversely affected.

A deterioration of our financial position or a downgrade of our credit ratings could adversely affect our financing, limit our access to the capital or credit markets or our liquidity facilities, or otherwise adversely affect our ability to obtain new financing on favorable terms or at all, result in more restrictive covenants in agreements governing the terms of any future indebtedness that we incur, or otherwise impair our business, financial condition and results of operations. Moreover, it could also increase our borrowing costs, trigger the posting of cash collateral and have an adverse effect on our business relationships with customers, suppliers and hedging counterparties. As discussed above, we enter into various forms of hedging arrangements against commodity, energy, currency and ~~currency~~interest rate risks. Financial strength and credit ratings are important to the availability and terms of these hedging and financing activities. As a result, any downgrade of our credit ratings may make it more costly for us to engage in these activities.

The profitability of our operations depends, in part, on the availability of an adequate source of supplies.

The availability and price of aluminum could impact our margins and our ability to meet customer volumes. We rely on third parties for the supply of aluminum. There can be no assurance that we will be able to maintain or renew, or obtain replacements for, any of our supply arrangements on terms that are as favorable as our existing agreements or at all. In the future, we may face an increased risk of supply to meet our demand due to issues affecting suppliers, including their rising costs of production, their ability to extend short-term credit to us and their ability to sustain their business, and we may be required to purchase aluminum from alternative sources, which may not be available in sufficient quantities or on favorable terms. Our inability to satisfy our future supply needs may impact our profitability and expose us to penalties as a result of contractual commitments with some of our customers.

purchase aluminum from alternative sources, which may not be available in sufficient quantities or on favorable terms. Our inability to satisfy our future supply needs may impact our profitability and expose us to penalties as a result of contractual commitments with some of our customers.

In addition, the price and availability of aluminum may be influenced by factors beyond our control, such as weak or deteriorating economic conditions, changes in world politics or regulatory requirements, trade restrictions and forces of supply and demand, which may cause regional supply constraints or may cause rapid aluminum price fluctuations. In particular, we depend on scrap 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 industry prices, suppliers may elect to hold scrap and wait for higher prices, which may cause periodic supply interruptions. In addition, the slowdown in industrial production and consumer consumption in the U.S. during the previous economic crisis reduced the supply of scrap metal available to us. Furthermore, exports of scrap out of North America and Europe can negatively impact scrap availability and scrap spreads. If an adequate supply of scrap metal is not available to us, we would be unable to use recycled metals in our products at desired volumes and our results of operations and financial condition would be materially and adversely affected.

Our operating segments also depend on external suppliers for rolling slab for certain products. The availability of rolling slab is dependent upon a number of factors, including general economic conditions, which can impact the supply of available rolling slab and LME pricing, where lower LME prices may cause certain rolling slab producers to curtail production. If rolling slab is less available, our margins could be impacted by higher premiums that we may not be able to pass along to our customers or we may not be able to meet the volume requirements of our customers, which may cause sales losses or result in damage claims from our customers. We maintain long-term contracts for certain volumes of our rolling slab requirements, for the remainder we depend on annual and spot purchases. If we enter into a period of persistent short supply, we could incur significant capital expenditures to internally produce 100% of our rolling slab requirements.

Our business requires substantial amounts of capital to operate; failure to maintain sufficient liquidity will have a material adverse effect on our financial condition and results of operations.

Our business requires substantial amounts of cash to operate and our liquidity and ability to access capital can be adversely affected by a number of factors, including many factors outside our control. For example, fluctuations in the LME prices for aluminum may result in increased cash costs for metal or scrap. In addition, if aluminum price movements result in a negative valuation of our current financial derivative positions, our counterparties may require posting of cash collateral. Furthermore, in an environment of falling LME prices, the borrowing base under Aleris International’s asset backed multi-currency revolving credit facility (the “ABL Facility”) may shrink, which would constrain our liquidity. The borrowing base may also fluctuate due to, in part, seasonal working capital increases. As a result of these factors, both our borrowing base and ABL Facility utilization may fluctuate on a monthly basis. In addition, even if the borrowing base would provide sufficient liquidity to fund our operations, capital expenditures and debt service obligations, the indentures governing the Senior Notes may restrict our ability to borrow under the ABL Facility. We cannot assure you that we will be able to draw under the ABL Facility in an amount sufficient to fund our liquidity needs.

We may not be able to compete successfully in the industry end-uses we serve and aluminum may become less competitive with alternative materials, which could reduce our share of industry sales, sales volumes and selling prices.

Aluminum competes with other materials such as steel, plastic, composite materials and glass for various applications. Higher aluminum prices relative to substitute materials tend to make aluminum products less competitive with these alternative materials. In addition, environmental, trade and other laws and regulations may also increase our costs, which we may seek to pass on to our customers. These regulations may make our products less competitive as compared to materials that are subject to fewer regulations. The willingness of customers to accept substitutions for aluminum could reduce demand or prices for our products, either of which could materially and adversely affect our business, financial condition, results of operations and cash flows.

Our aerospace and automotive customers use and continue to evaluate the further use of alternative materials to aluminum in order to reduce the weight and increase the efficiency of their products. Although trends in “light-weighting” have generally increased rates of using aluminum as a substitute for another material, the willingness of customers to accept substitutions for aluminum, or the ability of large customers to exert leverage in the marketplace to reduce the pricing for fabricated aluminum products, could adversely affect the demand for our products, and thus materially adversely affect our financial position, results of operations and cash flows. In addition, the automotive industry, while motivated to reduce vehicle weight through the use of aluminum, may revert to steel or other materials for certain applications.

We compete in the production and sale of rolled aluminum products with a number of other aluminum rolling mills, including large, single-purpose sheet mills, continuous casters and other multi-purpose mills, some of which are larger and have greater financial and technical resources than we do. We compete on the basis of quality, price, timeliness of delivery, technological innovation and customer service. Producers with a different cost basis may, in certain circumstances, have a competitive pricing advantage. Our competitors may be better able to withstand reductions in price or other adverse industry or economic conditions. In addition, a current or new competitor may also add or build new capacity, which could diminish our profitability by decreasing the equilibrium prices in our marketplace. Our competitive position may also be adversely affected by industry consolidation and economies of scale in purchasing, production and sales, which accrue to the benefit of some of our competitors. In addition, technological innovation is important to our customers who require us to lead or keep pace with new innovations to address their needs, and new product offerings or new technologies in the marketplace may compete with or replace our products. If we do not compete successfully, our share of industry sales, sales volumes and selling prices may be negatively impacted.

economic conditions. In addition, a current or new competitor may also add or build new capacity, which could diminish our profitability by decreasing the equilibrium prices in our marketplace. Our competitive position may also be adversely affected by industry consolidation and economies of scale in purchasing, production and sales, which accrue to the benefit of some of our competitors. In addition, technological innovation is important to our customers who require us to lead or keep pace with new innovations to address their needs, and new product offerings or new technologies in the marketplace may compete with or replace our products. If we do not compete successfully, our share of industry sales, sales volumes and selling prices may be negatively impacted.

As we increase our international business, we encounter the risk that governments could take actions to enhance local production or local ownership at our expense. In addition, new competitors could emerge globally in emerging or transitioning markets with abundant natural resources, low-cost labor and energy, and lower environmental and other standards. This may pose a significant competitive threat to our business. Our competitive position may also be affected by exchange rate fluctuations that may make our products less competitive. Changes in regulation that have a disproportionately negative effect on us or our methods of production may also diminish our competitive advantage and industry position.

Additional competition could result in a reduced share of industry sales, reduced prices for our products and services, or increased expenditures, which could decrease revenues, reduce volumes or increase costs, all of which could have a negative effect on our financial condition and results of operations.

If our products fail to meet customer requirements, we could incur losses which could adversely affect our reputation, business and results of operations.

Product manufacturing in our business is a highly complex process. Our customers specify quality, performance and reliability standards that we must meet. If our products do not meet these standards or are defective, we may be required to replace or rework the products. In some cases, our products may contain undetected defects or flaws that only become evident at a later time, including after shipment. Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, supply chain interruptions, natural disasters, labor unrest and environmental factors. We have experienced product quality, performance or reliability problems and defects from time to time, and similar defects or failures may occur in the future. If these failures or defects occur, they could result in losses or product recalls, customer penalties, contract cancellation and product liability exposure. A significant product recall could adversely affect product demand, result in negative publicity, damage to our reputation and could lead to a loss of customer confidence in our products. Any of such consequences could have a material adverse effect on our reputation, business and results of operations.

The qualification process for our products can be lengthy and unpredictable, possibly delaying adoption of our products and causing us to incur expense possibly without recovery.

Qualification of our products by many of our customers can be lengthy and unpredictable and many of these customers have extensive sourcing and qualification processes. The qualification process requires substantial time and financial resources, with no certainty of success or recovery of our related expenses. In addition, even after an extensive qualification process, our products may fail to meet the standards sought by our customers and may not be qualified for use by such customers. Further, our continued process improvements and cost-reduction efforts may require us or our customers to re-qualify our products. Failure to qualify or re-qualify our products may result in us losing such customers or customer contracts, which could materially adversely affect our business and results of operations.

The loss of certain members of our management may have an adverse effect on our operating results.

Our success will depend, in part, on the efforts of our senior management and other key employees. These individuals possess sales, marketing, engineering, manufacturing, financial and administrative skills that are critical to the operation of our business. The continuity of key personnel and the preservation of institutional knowledge are vital to the success of our growth and business strategy. If we lose or suffer an extended interruption in the services of one or more of our senior management or other key employees or fail to develop adequate succession plans for key positions, our financial condition and results of operations may be negatively affected. Moreover, competition for the pool of qualified individuals may be high, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees, should the need arise.

If we were to lose order volumes from any of our largest customers, our sales volumes, revenues and cash flows could be reduced.

Our business is exposed to risks related to customer concentration. Our ten largest customers were responsible for less than 3335% of our consolidated revenues for the year ended December 31, ~~2017~~2018. No one customer accounted for more than 10% of those revenues. A loss of order volumes from, a loss of industry share by, or a significant downturn or deterioration in the business or financial condition of, any major customer could negatively affect our financial condition and results of operations by lowering sales volumes, increasing costs and lowering profitability. If we fail to successfully maintain, renew, renegotiate or re-price our long-term agreements or related arrangements with our largest customers, or if we fail to successfully replace business lost from any such customers, our results of operations, financial condition and cash flows could be materially adversely affected.

Our strategy of having dedicated facilities and arrangements with customers subjects us to the inherent risk of increased dependence on a single or a few customers with respect to these facilities. In such cases, our failure to renew such arrangements on terms as favorable as our existing contracts, the loss of such a customer, or the reduction of that customer’s business at one or more of our facilities, could negatively affect our financial condition and results of operations, and we may be unable to timely replace, or replace at all, lost order volumes. In addition, several of our customers have become involved in bankruptcy or insolvency proceedings and have defaulted on their obligations to us in recent years. Similar incidents in the future would adversely impact our financial condition and results of operations.

Customers in our end-uses, including aerospace and automotive, may consolidate and grow in a manner that could affect their relationships with us. For example, if one of our competitors’ customers acquires any of our customers, we may lose that acquired customer’s business. Additionally, if our customers become larger and more concentrated, they could exert pricing pressure on all suppliers, including us. Accordingly, our ability to maintain or raise prices in the future may be limited, including during periods of raw material and other cost increases. If we are forced to reduce prices or to maintain prices during periods of increased costs, or if we lose customers because of consolidation, pricing or other methods of competition, our financial position, results of operations and cash flows may be adversely affected.

We do not have long-term contractual arrangements with a substantial number of our customers, and our sales volumes and revenues could be reduced if our customers switch their suppliers.

Approximately 6370% of our consolidated revenues for the year ended December 31, ~~2017~~2018 were generated from customers who do not have long-term contractual arrangements with us. These customers purchase products and services from us on a purchase order basis and may choose not to continue to purchase our products and services. Any significant loss of these customers or a significant reduction in their purchase orders could have a material negative impact on our sales volume and business.

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customers or a significant reduction in their purchase orders could have a material negative impact on our sales volume and business.

Our business requires substantial capital investments that we may be unable to fulfill, and we may be unable to timely complete our expected capital investments or may be unable to achieve the anticipated benefits of such investments.

Our operations are capital intensive. Our capital expenditures were $~~207~~108.72 million, $~~358~~207.17 million and $~~313~~358.61 million for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively. Capital expenditures over the past three years include spending related to maintenance and our strategic investments, including investments of approximately $425.0 million to build a new wide cold mill, two CALPs and an automotive innovation center in Lewisport, Kentucky in connection with our North America ABS Project. We ~~have~~ also invested in upgrades to other key non-ABS equipment at the facility, including upgrading our ingot scalper and pre-heating furnace capabilities and widening the hot mill, to capture additional opportunities. We began shipping ABS from this facility in the fourth quarter of 2017.

There can be no assurance that we will be able to complete our capital expenditure projects, which includes spending related to maintenance and strategic investments, on schedule or at all, or that we will be able to execute such projects quickly enough to respond to changing industry conditions or that we will be able to achieve the anticipated benefits of such capital expenditures. In particular, our capital expenditure projects may not result in the improvements in our business that we anticipate and the realization of any return on these projects is dependent on a number of factors, including general economic conditions, customer preferences and other events beyond our control, whether our assumptions in making the investment were correct and changes in the factors underlying our investment decision. In addition, if we are unable to, or determine not to, complete any capital expenditure project, or such projects are delayed, we will not realize the anticipated benefits of such investments, which may adversely affect our business, financial condition and results of operations.

In recent periods, we have not generated sufficient cash flows from operations to fund our capital expenditure requirements. In the future, we may not generate sufficient operating cash flows and our external financing sources may not be available in an amount sufficient to enable us to make anticipated capital expenditures, service or refinance our indebtedness or fund other liquidity needs. If we are not able to reduce our high leverage and fund capital expenditures through the generation of cash flows from our business, we would have to do one or more of the following: raise additional capital through debt or equity issuances or both; cancel, delay or reduce current and future business initiatives; or sell properties or assets. If the cost of our capital expenditures exceed budgeted amounts, and/or the time period for completion is longer than initially anticipated, our business, financial condition and results of operations could be materially adversely affected. In addition, capital expenditure projects may require planned outages at existing facilities and/or cause production inefficiencies. Such outages, production inefficiencies and other operational difficulties have resulted, and may in the future result, in significant production downtime at facilities undergoing capital expenditure projects, which has negatively impacted, and may in the future negatively impact, our business, results of operations and financial condition. For example, our 2017 results of operations were negatively impacted by an extended planned hot mill outage at our Lewisport facility in connection with the North America ABS Project.

Our production capacity might not be able to meet end-use demand or changing industry conditions.

We may be unable to meet end-use demand or changing industry conditions due to production capacity constraints or operational challenges. Meeting such demand may require us to make substantial capital investments to repair, maintain, upgrade and expand our facilities and equipment. Notwithstanding our ongoing plans and investments to increase our capacity, we may not be able to expand our production capacity quickly enough in response to changing industry conditions, and there can be no assurance that our production capacity will be able to meet our existing obligations and the growing end-use demand for our products. In addition, if we are unable to expand our production capacity, make upgrades or repairs or purchase new plants and equipment, we may be unable to take advantage of improved industry conditions or increased demand for our products and our financial condition and results of operations could be adversely affected by operational difficulties, higher maintenance costs, lower sales volumes due to the impact of reduced product quality, penalties for late deliveries, reputational harm and other competitive influences.

Reductions in demand for our products may be more severe than, and may occur prior to, reductions in demand for our customers’ products.

Customers purchasing our products, such as those in the cyclical aerospace industry, generally require significant lead time in production of their own products. Therefore, demand for our products may increase prior to demand for our customers’ products. Conversely, demand for our products may decrease as our customers anticipate a downturn in their respective businesses. As demand for our customers’ products begins to soften, our customers could meet the reduced demand for their products using their existing inventory without replenishing the inventory, which would result in a reduction in demand for our products greater than the reduction in demand for their products. Further, the reduction in demand for our products can be exacerbated if inventory levels held by our customers exceed normal levels and our customers can use existing inventory for their own production requirements. This amplified reduction in demand for our products while our customers consume their inventory to meet their business needs, or “destocking,” may adversely affect our financial condition, results of operations and cash flows.

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inventory to meet their business needs, or “destocking,” may adversely affect our financial condition, results of operations and cash flows.

We may not be able to successfully develop and implement new technology initiatives.

We have invested in, and are involved with, a number of technology and process initiatives, including those related to the production of more technologically advanced aluminum for commercial aircraft wings to be used in the aerospace industry. Several technical aspects of these initiatives are still unproven and the eventual commercial outcomes cannot be assessed with any certainty. Even if we are successful with these initiatives, we may not be able to deploy them in a timely fashion or at all. Accordingly, the costs and benefits from our investments in new technologies and the consequent effects on our financial results may vary from present expectations.

Our Asia Pacific operations may require significant funding support that we may be unable to fulfill and expose us to certain risks inherent with operating a facility in China.

The Zhenjiang rolling mill began limited production in the beginning of 2013. ~~We continued the start-up phase of that operation through 2014, growing our sales as the year progressed,~~ and exited the start-up phase of operations in the first quarter of 2015. The mill required funding for residual capital expenditures, working capital, and principal and interest on third party debt, reaching an aggregate of $2830.50 million in ~~2017~~2018. This funding was obtained from capital provided by us.

Significant investment in the Zhenjiang rolling mill is needed to fund our anticipated future sales growth. Working capital requirements are anticipated to be funded with cash generated from the Zhenjiang rolling mill operations and capital provided by us. We also have an RMB 410.0 million (or equivalent to approximately $6359.06 million as of December 31, ~~2017~~2018) revolving credit facility (the “Zhenjiang Revolver”) provided by the People’s Bank of China. As of December 31, ~~2017~~2018, we had no amounts outstanding under the Zhenjiang Revolver. The Chinese government exercises significant control over economic growth in China through the allocation of resources, including imposing policies that impact particular industries or companies in different ways, so we may experience future disruptions to our access to capital in the Chinese region. In addition, we have to meet certain conditions to be able to draw on the Zhenjiang Revolver. We cannot be certain that we will be able to draw any amounts committed under the Zhenjiang Revolver in the future. We also may not generate sufficient operating cash flows and our external financing sources may not be available in an amount sufficient to enable us to fund the anticipated working capital needs of the Zhenjiang rolling mill. To the extent that funding is not available under the Zhenjiang Revolver, we may need to further increase the amount of capital necessary to fund the Zhenjiang rolling mill from our own or other sources of capital. The availability of financing, as well as future actions or policies of the Chinese government, could materially affect the funding of our working capital needs in China, which may diminish or delay our ability to produce and sell material from the Zhenjiang rolling mill.

Our operations in China may be materially adversely affected by economic, political, legal, regulatory, competitive and other factors in China. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement and control over economic growth. Our operations in China are governed by Chinese laws, rules and regulations, some of which are relatively new and/or vague and uncertain. The Chinese legal system continues to rapidly evolve, which may result in uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations that could have a material adverse effect on our business. China also experiences high turnover of direct labor due to the intensely competitive and fluid market for labor, and the retention of adequate labor may be a challenge for our operations in China. If our labor turnover rates are higher than we expect, or we otherwise fail to adequately manage our labor needs, then our business and results of operations could be adversely affected. In addition, any political or trade controversies between the United State and China could adversely affect our operations in China, which in turn could affect our business, financial condition and results of operations.

Our business involves significant activity in Europe, and adverse conditions and disruptions in European economies could have a material adverse effect on our operations or financial performance.

A material portion of our sales are generated by customers located in Europe and the euro is the functional currency of substantially all of our European-based operations. The financial markets remain concerned about the ability of certain European countries to finance their deficits and service growing debt burdens amidst difficult economic conditions. This loss of confidence led to rescue measures by Eurozone countries and the International Monetary Fund. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations, the overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. The interdependencies among European economies and financial institutions have also exacerbated concern regarding the stability of European financial markets generally. These concerns could lead to the re-introduction of individual currencies in one or more Eurozone countries, or, in more extreme circumstances, the possible dissolution of the euro currency entirely. Should the euro dissolve entirely, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws in effect at such time. These potential developments, or market perceptions concerning these and related issues, could materially adversely affect the value of our euro-denominated assets and obligations. In addition, concerns over financial institutions in Europe and globally could have a material adverse impact on the capital markets generally. Persistent disruptions in the European financial markets, the overall stability of the euro and the suitability of the euro as a single currency, the failure of a significant European financial institution or additional political and regulatory developments, could have a material adverse impact on our operations or financial performance.

capital markets generally. Persistent disruptions in the European financial markets, the overall stability of the euro and the suitability of the euro as a single currency, the failure of a significant European financial institution or additional political and regulatory developments, could have a material adverse impact on our operations or financial performance.

In addition, the outcome of the United Kingdom referendum where voters elected for the United Kingdom to leave the European Union (Brexit) could have implications on economic conditions globally as a result of changes in policy direction which may in turn influence the economic outlook for the European Union and its key trading partners. There can be no assurance that the actions we have taken or may take in response to global economic conditions more generally may be sufficient to counter any continuation or recurrence of the downturn or disruptions. A significant global economic downturn or disruptions in the financial markets would have a material adverse effect on our operations or financial performance.

Our international operations expose us to certain risks inherent in doing business abroad.

We have operations in the United States, Germany, Belgium and China. We continue to explore opportunities to expand our international operations. Our international operations generally are subject to risks, including:


▪	changes in U.S. and international governmental regulations, trade policy and laws, including tax laws and regulations;


▪	compliance with U.S. and foreign anti-corruption and trade control laws, such as the Foreign Corrupt Practices Act, export controls and economic sanction programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control;


▪	currency exchange rate fluctuations;


▪	tariffs and other trade barriers;


▪	the potential for nationalization of enterprises or government policies favoring local production;


▪	renegotiation or nullification of existing agreements;


▪	interest rate fluctuations;


▪	high rates of inflation;


▪	currency restrictions and limitations on repatriation of funds;


▪	compliance with privacy and data security laws, such as the European Union’s General Data Protection Regulation;


▪	differing protections for intellectual property and enforcement thereof;


▪	differing and, in some cases, more stringent labor regulations;


▪	divergent environmental laws and regulations; and


▪	political, economic and social instability.

The occurrence of, or uncertainty related to, any of these events (or the perception that such events may occur) could cause our costs to rise, limit growth opportunities, have a negative effect on our operations and our ability to plan for future periods or cause our customers to delay or reduce their spending or result in market volatility or currency exchange fluctuations. In certain regions, the degree of these risks may be higher due to more volatile economic conditions, less developed and predictable legal and regulatory regimes and increased potential for various types of adverse governmental action. In particular, while it is too early to predict how the recently enacted 10% tariff on imported aluminum will impact our business, the tariff may cause customers to delay or reduce their spending or seek substitute materials as a result of increased costs or may cause foreign countries to impose tariffs on certain of our products.

In particular, global uncertainty about the direction of U.S. trade policy and the rising threat of changes in tariffs and trade barriers in countries where we do business could cause our customers to delay or reduce their spending or seek substitute materials as a result of increased costs. Also, other countries may retaliate against the U.S. by imposing tariffs on U.S. exports which could reduce demand for our customers’ products outside the U.S. The current U.S. administration has also indicated its intention to withdraw from or substantially modify various international trade agreements. Depending on the nature of these changes, our business could be adversely impacted.

The financial condition and results of operations of some of our operating entities are reported in various currencies and then translated into U.S. dollars at the applicable exchange rate for inclusion in our consolidated financial statements. As a result, appreciation of the U.S. dollar against these currencies may have a negative impact on reported revenues and operating profit while depreciation of the U.S. dollar against these currencies may generally have a positive effect on reported revenues and operating profit. In addition, a portion of the revenues generated by our international operations are denominated in U.S. dollars, while the majority of costs incurred are denominated in local currencies. As a result, appreciation in the U.S. dollar may have a positive impact on margins at the time of sale and on the subsequent translation of the resulting accounts receivable until collection, while depreciation of the U.S. dollar may have the opposite effect. While we engage in hedging activity to attempt to mitigate currency risk, this may not fully protect our business, financial condition or results of operations from adverse effects due to currency fluctuations.

Current environmental liabilities as well as the cost of compliance with, and liabilities under, environmental, health and safety laws could increase our operating costs and negatively affect our financial condition and results of operations.

Our operations are subject to federal, state, local and foreign laws and regulations, which govern, among other things, air emissions, wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the investigation and remediation of contaminated sites and employee health and safety. Future environmental, health and safety regulations could impose stricter compliance requirements on the industries in which we operate. We could incur substantial costs in order to achieve and maintain compliance with these laws and regulations. For example, additional pollution control equipment, process changes, or other environmental control measures may be needed at some of our facilities to meet future requirements. Additionally, evolving regulatory standards and expectations can result in increased litigation and/or increased costs, all of which can have a material and adverse effect on earnings and cash flows.

Financial responsibility for contaminated property can be imposed on us where current or past operations have had an environmental impact. Such liability can include the cost of investigating and remediating contaminated soil or ground water, fines and penalties sought by environmental authorities, and damages arising out of personal injury, contaminated property and other toxic tort claims, as well as lost or impaired natural resources. Certain environmental laws impose strict, and in certain circumstances joint and several, liability for certain kinds of matters, such that a person can be held liable without regard to fault for all of the costs of a matter even though others were also involved or responsible. The costs of all such matters have not been material to net income (loss) for any accounting period since January 1, 2013. However, future remedial requirements at currently or formerly owned or operated properties or adjacent areas, or at properties to which we have disposed of hazardous substances, could result in significant liabilities. We are subject to or a party to certain environmental claims and matters and there can be no assurance that those matters will be resolved favorably or that such matters will not adversely affect our business, results of operations or financial condition. See Item 1. – “Business – Environmental.” We have accrued costs relating to these matters that are reasonably expected to be incurred based on available information. However, it is possible that actual costs may differ, perhaps significantly, from the amounts expected or accrued. Similarly, the timing of those expenditures may occur faster than anticipated. These differences could negatively affect our financial position, results of operations and cash flows.

substances, could result in significant liabilities. We are subject to or a party to certain environmental claims and matters and there can be no assurance that those matters will be resolved favorably or that such matters will not adversely affect our business, results of operations or financial condition. See Item 1. – “Business – Environmental.” We have accrued costs relating to these matters that are reasonably expected to be incurred based on available information. However, it is possible that actual costs may differ, perhaps significantly, from the amounts expected or accrued. Similarly, the timing of those expenditures may occur faster than anticipated. These differences could negatively affect our financial position, results of operations and cash flows.

Changes in environmental, health and safety requirements or changes in their enforcement could materially increase our costs. For example, if salt cake, a by-product from some of our operations, were to become classified as a hazardous waste in the U.S., the costs to manage and dispose of it would increase and could result in significant increased expenditures.

New governmental regulation relating to greenhouse gas emissions may subject us to significant new costs and restrictions on our operations.

Climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. New laws enacted could directly and indirectly affect our customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) or our business (through an impact on the availability or raw materials, our operations or demand for our products), any of which could have a material adverse effect on our business, financial condition and results of operations. There are legislative and regulatory initiatives in various jurisdictions that would regulate greenhouse gas emissions through a cap-and-trade system under which emitters would be required to buy allowances to offset emissions of greenhouse gas. In addition, several states, including states where we have manufacturing facilities, are considering various greenhouse gas registration and reduction programs. Certain of our manufacturing facilities use significant amounts of energy, including electricity and natural gas, and certain of our facilities emit amounts of greenhouse gas above certain minimum thresholds that are likely to be affected by existing proposals. Greenhouse gas regulation could increase the price of the electricity we purchase, increase costs for our use of natural gas, potentially restrict access to or the use of natural gas, require us to purchase allowances to offset our own emissions or result in an overall increase in our costs of raw materials, capital expenditures and insurance premiums or deductibles, any one of which could significantly increase our costs, reduce our competitiveness in a global economy or otherwise negatively affect our business, operations or financial results. While future global emission regulation appears likely, it is too early to predict how this regulation may affect our business, operations or financial results.

We could experience labor disputes and work stoppages that could disrupt our business.

Approximately 64% of our U.S. employees and substantially all of our non-U.S. employees, located primarily in Europe where union membership is common, are represented by unions or equivalent bodies and are covered by collective bargaining or similar agreements which are subject to periodic renegotiation. Although we believe that we will successfully negotiate new collective bargaining agreements when the current agreements expire, these negotiations may not prove successful, may result in a significant increase in the cost of labor, or may break down and result in the disruption or cessation of our operations.

Labor negotiations may not conclude successfully, and, in that case or any other, work stoppages or labor disturbances may occur. Existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities. Any such stoppages or disturbances may have a negative impact on our financial condition and results of operations by limiting plant production, sales volumes and profitability.

Further aluminum industry consolidation could impact our business.

The aluminum industry has experienced consolidation over the past several years, and there may be further industry consolidation in the future. Although current industry consolidation has not yet had a significant negative impact on our business, if we do not have sufficient industry end-use presence or are unable to differentiate ourselves from our competitors, we may not be able to compete successfully against other companies. If as a result of consolidation, our competitors are able to obtain more favorable terms from suppliers or otherwise take actions that could increase their competitive strengths, our competitive position and therefore our business, results of operations and financial condition may be materially adversely affected.

Our operations present significant risk of injury or death. We may be subject to claims that are not covered by or exceed our insurance.

Because of the heavy industrial activities conducted at our facilities, there exists a risk of injury or death to our employees or other visitors, notwithstanding the safety precautions we take. Our operations are subject to regulation by various federal, state and local agencies responsible for employee health and safety, including the Occupational Safety and Health Administration, which has from time to time levied fines against us for certain isolated incidents. While we have in place policies to minimize such risks, we may nevertheless be unable to avoid material liabilities for any employee death or injury that may occur in the future. These types of incidents may not be covered by or may exceed our insurance coverage and may have a material adverse effect on our results of operations and financial condition.

Administration, which has from time to time levied fines against us for certain isolated incidents. While we have in place policies to minimize such risks, we may nevertheless be unable to avoid material liabilities for any employee death or injury that may occur in the future. These types of incidents may not be covered by or may exceed our insurance coverage and may have a material adverse effect on our results of operations and financial condition.

We are subject to unplanned business interruptions that may materially adversely affect our business.

Our operations may be materially adversely affected by unplanned business interruptions caused by events such as explosions, fires, war or terrorism, inclement weather, natural disasters, accidents, equipment failures, information technology systems and process failures, electrical blackouts or outages, transportation interruptions and supply interruptions. Our suppliers and customers may also experience unplanned interruptions, which may cause our cost of sales to increase, if we are required to make alternate supply arrangements, or our sales to decrease, if customers are required to delay their purchases. Operational interruptions at one or more of our production facilities could cause substantial losses and delays in our production capacity or increase our operating costs. In addition, replacement of assets damaged by such events could be difficult or expensive, and to the extent these losses are not covered by insurance or if our insurance policies have significant deductibles, our financial position, results of operations and cash flows may be materially adversely affected by such events. Furthermore, because customers may be dependent on planned deliveries from us, customers that have to reschedule or cancel their own production due to our delivery delays or operational challenges 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. Interruptions may also harm our reputation among actual and potential customers, potentially resulting in a loss of business.

Derivatives legislation could have an adverse impact on our ability to hedge risks associated with our business and on the cost of our hedging activities.

We use over-the-counter (“OTC”) derivatives products to hedge our metal commodity, energy, ~~and~~ currency ~~risks~~ and, ~~historically, our~~ interest rate ~~risk~~risks. Legislation has been adopted to increase the regulatory oversight of the OTC derivatives markets and ~~impose restrictions on certain derivatives transactions and~~ participants in these markets, ~~which could affect the use of derivatives in hedging transactions. In the U.S.~~including, for example, the Dodd-Frank Wall Street Reform and Consumer Protection Act (~~the~~ “Dodd-Frank ~~Act~~” ~~or “Dodd-Frank”~~) includes extensive provisions regulating the derivatives market, and many of the regulations implementing the derivatives provisions have become effective and additional requirements may become effective in the future. As such, we have become and could continue to become subject to additional regulatory costs, both directly and indirectly, through increased costs of doing business with ~~more~~ market intermediaries that are ~~now~~ subject to extensive regulation ~~pursuant to the Dodd-Frank Act~~. For example, derivatives dealers may seek to pass to us the cost of any increased margin, capital or other regulatory requirements that they are subject to under Dodd-Frank, which could have an adverse effect on our ability to hedge risks associated with our business and on the cost of our hedging activities. In addition, if major financial institutions are forced to operate under more restrictive capital constraints and regulations, there could be less liquidity in the derivative markets, which could have a negative effect on our ability to hedge and transact with creditworthy counterparties. As ~~the~~ regulatory ~~regime~~regimes iscontinue ~~still~~to ~~developing~~develop and additional regulations ~~have~~may ~~not~~be ~~been finalized or fully~~ implemented, the ultimate costs of ~~Dodd-Frank,~~derivatives ~~especially~~legislation in ~~light of a recent executive order calling for a full review, and legislation currently being considered by congress seeking to roll back or eliminate parts, of Dodd-Frank and~~ the ~~regulations~~U.S. ~~promulgated under it,~~ and ~~similar legislation in~~ other jurisdictions, including the European Union ~~member states~~, on our business remain uncertain. However, any such costs could be significant and have an adverse effect on our results of operations and financial condition. Additional derivatives regulations or changes to existing regulations ~~in the U.S. or internationally that impact the derivatives market and market participants~~ could also add significant cost or operational constraints that might have an adverse effect on our results of operations and financial condition or could require us to change certain of our business practices or develop a new compliance infrastructure.

Our pension obligations are currently underfunded. We may have to make significant cash payments to our pension plans, which would reduce the cash available for our business and have an adverse effect on our financial condition, results of operations and ability to satisfy our obligations under our indebtedness.

Our U.S. defined benefit pension plans cover certain salaried and non-salaried employees at our corporate headquarters and within our North America segment. The plan benefits are based on age, years of service and employees’ eligible compensation during employment for all employees not covered under a collective bargaining agreement and on stated amounts based on job grade and years of service prior to retirement for non-salaried employees covered under a collective bargaining agreement. Our funding policy for the U.S. defined benefit pension plans is to make annual contributions based on advice from our actuaries and the evaluation of our cash position, but not less than minimum statutory requirements. All of the minimum funding requirements of the U.S. Internal Revenue Code (“Code”) and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), for these plans have been met as of December 31, ~~2017~~2018, at which time, the U.S. defined benefit pension plans, in the aggregate, were underfunded (on a Generally Accepted Accounting Principles in the United States of America (“GAAP”) basis) by approximately $4544.29 million. The liabilities could increase or decrease, depending on a number of factors, including future changes in benefits, investment returns, and the assumptions used to calculate the liability. The current underfunded status of the U.S. defined benefit plans requires us to notify the Pension Benefit Guaranty Corporation (“PBGC”) of certain “reportable events” (within the meaning of ERISA), including if we pay certain extraordinary dividends. Under Title IV of ERISA, the PBGC has the authority under certain circumstances or upon the occurrence of certain events to terminate an underfunded pension plan. One such circumstance is the occurrence of an event that unreasonably increases the risk of unreasonably large losses to the PBGC. We believe it is unlikely that the PBGC would terminate any of our plans, which would result in our incurring a liability to the PBGC that could be equal to the entire amount of the underfunding. However, in the event we increase our indebtedness and/or pay an extraordinary dividend, the PBGC could enter into a negotiation with us that could cause us to materially increase or accelerate our funding obligations under our U.S. defined benefit pension plans. The occurrence of either of those actions could have an adverse effect on our financial condition, results of operations and ability to satisfy our obligations under our indebtedness.

factors, including future changes in benefits, investment returns, and the assumptions used to calculate the liability. The current underfunded status of the U.S. defined benefit plans requires us to notify the Pension Benefit Guaranty Corporation (“PBGC”) of certain “reportable events” (within the meaning of ERISA), including if we pay certain extraordinary dividends. Under Title IV of ERISA, the PBGC has the authority under certain circumstances or upon the occurrence of certain events to terminate an underfunded pension plan. One such circumstance is the occurrence of an event that unreasonably increases the risk of unreasonably large losses to the PBGC. We believe it is unlikely that the PBGC would terminate any of our plans, which would result in our incurring a liability to the PBGC that could be equal to the entire amount of the underfunding. However, in the event we increase our indebtedness and/or pay an extraordinary dividend, the PBGC could enter into a negotiation with us that could cause us to materially increase or accelerate our funding obligations under our U.S. defined benefit pension plans. The occurrence of either of those actions could have an adverse effect on our financial condition, results of operations and ability to satisfy our obligations under our indebtedness.

We are subject to risks relating to our information technology systems.

Our global operations are managed through numerous information technology systems, some of which are managed by third parties, which we rely on to effectively manage our business, data, accounting, financial reporting, communications, supply chain, order entry and fulfillment and other business processes. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information, as well as personally identifiable information of our employees, in data centers and on information technology networks. If these systems or networks are damaged or cease to function properly, we may suffer an interruption in our ability to manage and operate the business which may have a material adverse effect on our financial condition and results of operations. Cyber security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks.

Despite security measures and business continuity plans, our information systems and networks may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers or breaches due to errors or malfeasance by employees and others who have access to our systems and networks or other disruptions, including as a result of natural disasters or other catastrophic events. The occurrence of any of these events could compromise our systems or networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or loss of information could result in legal claims or proceedings, liability or regulatory penalties under privacy laws, or could disrupt our operations, cause us to lose business and reduce the competitive advantage we hope to derive from our investment in new or proprietary business initiatives.

We are continually modifying and enhancing our information systems and technology to increase safety, productivity and efficiency, and to ensure that we are protected against and are able to remediate evolving cyber-threats. As new systems and technologies are implemented, we could experience unanticipated difficulties resulting in unexpected costs and adverse impacts to our manufacturing and other business processes. When implemented, the information systems and technology may not provide the benefits anticipated and could add costs and complications to ongoing operations, which may have a material adverse effect on our reputation, financial condition and results of operations.

Changes in applicable domestic or foreign tax laws and regulations or disputes with taxing authorities could adversely affect our business, financial condition and profitability by increasing our tax liabilities and tax compliance costs.

The Company is subject to income taxes in the United States and various foreign jurisdictions. Changes in applicable domestic or foreign tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect the Company’s business, financial condition and profitability by increasing our tax liabilities and tax compliance costs. The Company’s future results of operations could be adversely affected by changes in its effective tax rate as a result of a change in the mix of earnings in jurisdictions with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation and rates, changes in generally accepted accounting principles and changes in the valuation of deferred tax assets and liabilities. In particular, on December 22, 2017, H.R. 1 (commonly referred to as the “Tax Cuts and Jobs Act”) was signed into law. The Tax Cuts and Jobs Act makes extensive changes to the U.S. tax laws and, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. In particular, the Tax Cuts and Jobs Act limits our annual deduction for business interest expense to an amount equal to 30% of our “adjusted taxable income” (as defined in the Code) for the taxable year. We expect to be significantly impacted by the limitation on the deductibility of business interest expense, though we expect to offset this impact through utilization of our net operating losses. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Cuts and Jobs Act is uncertain, and our business and financial condition could be adversely affected. Our net deferred tax assets and liabilities have been revalued at the newly enacted U.S. corporate rate, and the impact has been recognized in our tax provision for the year ended December 31, 2017. The impact on the year ended December 31, 2017 and

2223

of the Company, changes in tax legislation and rates, changes in generally accepted accounting principles and changes in the valuation of deferred tax assets and liabilities. In particular, on December 22, 2017, H.R. 1 (commonly referred to as the “Tax Cuts and Jobs Act”) was signed into law. The Tax Cuts and Jobs Act makes extensive changes to the U.S. tax laws and, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. In particular, the Tax Cuts and Jobs Act limits our annual deduction for business interest expense to an amount equal to 30% of our “adjusted taxable income” (as defined in the Code) for the taxable year. We expect to be significantly impacted by the limitation on the deductibility of business interest expense, though we expect to offset this impact through utilization of our net operating losses. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Cuts and Jobs Act is uncertain, and our business and financial condition could be adversely affected. Our net deferred tax assets and liabilities have been revalued at the newly enacted U.S. corporate rate, and the impact was recognized in our tax provision for the year ended December 31, 2017. The impact on the year ended December 31, 2018 and on future years may be material to the consolidated financial statements. We continue to examine the impact the Tax Cuts and Jobs Act may have on our business.

Our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur.

Each quarter, our chief executive officer and chief financial officer evaluate our internal controls over financial reporting and our disclosure controls and procedures, which includes a review of the objectives, design, implementation and effect of the controls relating to the information generated for use in our financial reports. In the course of our controls evaluation, we seek to identify data errors or control problems and to confirm that appropriate corrective action, including process improvements, are being undertaken. The overall goals of these various evaluation activities are to monitor our internal controls over financial reporting and our disclosure controls and procedures and to make modifications as necessary. Our intent in this regard is that our internal controls over financial reporting and our disclosure controls and procedures will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be satisfied. These inherent limitations include the possibility that judgments in our decision-making could be faulty, and that isolated breakdowns could occur because of simple human error or mistake. We cannot provide absolute assurance that all possible control issues within our company have been detected. The design of our system of controls is based in part upon certain assumptions about the likelihood of events, and there can be no assurance that any design will succeed absolutely in achieving our stated goals. Because of the inherent limitations in any control system, misstatements could occur and not be detected. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business.

Risks Related to Our Indebtedness

Our substantial leverage and debt service obligations could adversely affect our financial condition and restrict our operating flexibility.

We have substantial consolidated debt and, as a result, significant debt service obligations. As of December 31, ~~2017~~2018, our total consolidated indebtedness was $1.89 billion, excluding $4025.34 million of outstanding letters of credit. We also would have had the ability to borrow up to $~~123~~353.43 million under the ABL Facility. Aleris Zhenjiang has a $6359.06 million (on a U.S. dollar equivalent subject to exchange rate fluctuations) revolving credit facility, none of which was borrowed at December 31, ~~2017~~2018. Aleris Zhenjiang is an unrestricted subsidiary and non-guarantor under the ~~indentures~~indenture governing the $~~500~~400.0 million aggregate ~~original~~ principal amount of ~~7 7/8~~the newly issued 10.75% ~~Senior~~senior ~~Notes~~secured junior priority notes due ~~2020~~2023 (the “~~7 7/8%~~2023 ~~Senior~~Junior Priority Notes”) and the ~~$800.0~~credit ~~million~~agreement ~~aggregate~~governing ~~principal~~the ~~amount~~senior ofsecured ~~91/2%~~first-lien ~~Senior~~term ~~Secured~~loan ~~Notes~~in ~~due~~an ~~2021~~aggregate ~~(the~~principal ~~“91/2%~~amount ~~Senior Secured~~of ~~Notes” and~~$1,100 ~~together~~million ~~with~~ (the ~~7 7/8% Senior Notes, the~~ “~~Senior~~Term ~~Notes~~Loan Facility”).

Our substantial level of debt and debt service obligations could have important consequences, including the following:

▪ making it more difficult for us to satisfy our obligations with respect to our indebtedness, which could result in an event of default under the ~~indentures~~indenture governing the ~~Senior~~2023 Junior Priority Notes and the agreements governing our other indebtedness;


▪	limiting our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, acquisitions, investments, debt service requirements and other general corporate requirements;


▪	increasing our vulnerability to general economic downturns, competition and industry conditions, which could place us at a competitive disadvantage compared to our competitors that are less leveraged and therefore we may be unable to take advantage of opportunities that our leverage prevents us from exploiting;


▪	exposing us to the risk of increased interest rates because certain of our borrowings, including borrowings under the ABL Facility and the Term Loan Facility, are at variable rates of interest;


▪	exposing our cash flows to changes in floating rates of interest such that an increase in floating rates could negatively impact our cash flows;


▪	imposing additional restrictions on the manner in which we conduct our business under financing documents, including restrictions on our ability to pay dividends, make investments, incur additional debt and sell assets; and


▪	reducing the availability of our cash flows to fund our working capital requirements, capital expenditures, acquisitions, investments, other debt obligations and other general corporate requirements, because we will be required to use a substantial portion of our cash flows to service debt obligations.

The occurrence of any one of these events could have an adverse effect on our business, financial condition, results of operations, cash flows and ability to satisfy our obligations under our indebtedness.

23The ABL Facility matures on the earliest of (x) June 25, 2023, (y) the date that is 60 days prior to the scheduled maturity date of the term loans under the Term Loan Facility or (z) the date that is 60 days prior to the scheduled maturity date of the 2023 Junior Priority Notes, the 2023 Junior Priority Notes mature on July 15, 2023 and the Term Loan Facility matures on February 27, 2023. On or before the applicable maturity dates, we will need to refinance such indebtedness, which we may seek to refinance at any time. We cannot assure you the timing of any potential refinancing, that we will be able to access the capital or credit markets or refinance any of our indebtedness on attractive terms on or before maturity or on commercially reasonable terms or at all.

The ABL Facility matures on June 15, 2020, the 7 7/8% Senior Notes mature on November 1, 2020 and the 91/2% Senior Notes mature on April 1, 2021. On or before the applicable maturity dates, we will need to refinance such indebtedness, which we may seek to refinance at any time. We cannot assure you the timing of any potential refinancing, that we will be able to access the capital or credit markets or refinance any of our indebtedness on attractive terms on or before maturity or on commercially reasonable terms or at all.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness, including secured indebtedness, in the future. Although the credit agreement governing the ABL Facility and the ~~indentures~~indenture governing the ~~Senior~~2023 Junior Priority Notes and the credit agreement governing the Term Loan Facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and any indebtedness incurred in compliance with these restrictions could be substantial. Aleris International’s ability to borrow under the ABL Facility will remain limited by the amount of the borrowing base. ~~and~~In ~~may~~addition, ~~be restricted by~~ the ~~indentures~~credit agreement governing the ~~Senior~~ABL ~~Notes. In addition~~Facility, the ~~credit~~indenture ~~agreement~~ governing the ~~ABL~~Junior ~~Facility~~Priority Notes and the ~~indentures~~credit agreement governing the ~~Senior~~Term ~~Notes~~Loan Facility allow Aleris International to incur a significant amount of indebtedness in connection with acquisitions and a significant amount of purchase money debt and foreign subsidiary debt. If new debt is added to our and/or our subsidiaries’ current debt levels, the related risks that we and they face would be increased.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt obligations could harm our business, financial condition and results of operations.

Our ability to satisfy our debt obligations will primarily depend upon our future operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments to satisfy our debt obligations. Included in such factors are the requirements, under certain scenarios, of our counterparties that we post cash collateral to maintain our hedging positions and the timing and costs of current and future capital expenditure projects. In addition, LME price declines, by reducing the borrowing base, could limit availability under the ABL Facility and further constrain our liquidity. Even if the borrowing base would provide sufficient liquidity to fund our operations, capital expenditures and debt service obligations, the indentures governing the Senior Notes may restrict our ability to borrow under the ABL Facility.

If we do not generate sufficient cash flow from operations to satisfy our debt obligations, ~~including payments on the Senior Notes,~~ we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness, selling assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to restructure or refinance our debt will depend on the condition of the capital and credit markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including the credit agreement governing the ABL Facility and the ~~indentures~~indenture governing the ~~Senior~~2023 Junior Priority Notes and the credit agreement governing the Term Loan Facility, may restrict us from adopting some of these alternatives, which in turn could exacerbate the effects of any failure to generate sufficient cash flow to satisfy our debt obligations. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms.

Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations at all or on commercially reasonable terms, would have an adverse effect, which could be material, on our business, financial condition and results of operations, may restrict our current and future operations, particularly our ability to respond to business changes or to take certain actions, and would have an adverse effect on our ability to satisfy our debt service obligations.

The terms of the ABL Facility and the indentures governing the Senior Notes may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions. 25

~~The~~results ~~credit agreement governing the ABL Facility and the indentures governing the Senior Notes contain, and the terms~~ of ~~any future indebtedness of ours would likely contain~~operations, amay ~~number~~restrict ofour ~~restrictive~~current ~~covenants that impose significant operating~~ and ~~financial~~future ~~restrictions~~operations, ~~including~~particularly ~~restrictions on~~ our ability to ~~engage~~respond into ~~acts~~business ~~that~~changes ~~may~~or beto intake ~~our~~certain ~~best~~actions, ~~long-term interests. The credit agreement governing the ABL Facility~~ and ~~the~~would ~~indentures~~have ~~governing~~an ~~the~~adverse ~~Senior~~effect ~~Notes~~on ~~include~~our ~~covenants that, among other things, restrict the~~ ability ofto ~~Aleris~~satisfy ~~International~~our ~~and~~debt ~~certain~~service ~~of its subsidiaries’ to:~~ obligations.

The terms of the ABL Facility, the indenture governing the 2023 Junior Priority Notes and the credit agreement governing the Term Loan Facility may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions.

The credit agreement governing the ABL Facility, the indenture governing the 2023 Junior Priority Notes and the credit agreement governing the Term Loan Facility contain, and the terms of any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interests. The credit agreement governing the ABL Facility, the indenture governing the 2023 Junior Priority Notes and the credit agreement governing the Term Loan Facility include covenants that, among other things, restrict the ability of Aleris International and certain of its subsidiaries’ to:


▪	incur additional indebtedness;


▪	pay dividends on capital stock and make other restricted payments;


▪	make investments and acquisitions;


▪	engage in transactions with our affiliates;


▪	sell assets;


▪	merge or consolidate with other entities; and


▪	create liens.

In addition, Aleris International’s ability to borrow under the ABL Facility is limited by a borrowing base ~~and may be restricted by the indentures governing the Senior Notes~~. Under certain circumstances, the ABL Facility requires Aleris International to comply with a minimum fixed charge coverage ratio and may require Aleris International to reduce its debt or take other actions in order to comply with this ratio. See Note 910, “Long-Term Debt,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K for further details. Moreover, the ABL Facility provides discretion to the agent bank acting on behalf of the lenders to impose additional availability and other reserves, which could materially impair the amount of borrowings that would otherwise be available to Aleris International. There can be no assurance that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair our liquidity.

A breach of any of these provisions could result in a default under the ABL Facility, orthe ~~either~~indenture ofgoverning the ~~indentures~~2023 Junior Priority Notes or the credit agreement governing the ~~Senior~~Term ~~Notes~~Loan Facility, as the case may be, that would allow lenders or noteholders, as applicable, to declare the applicable outstanding debt immediately due and payable. If we are unable to pay those amounts because we do not have sufficient cash on hand or are unable to obtain alternative financing on acceptable terms, the lenders or noteholders, as applicable, could initiate a bankruptcy proceeding or, ~~in the case of the ABL Facility and the 9½% Senior Secured Notes,~~ proceed against any assets that serve as collateral to secure such debt. The lenders under the ABL Facility will also have the right in these circumstances to terminate any commitments they have to provide further borrowings.

These restrictions could limit our ability to obtain future financings, make needed capital expenditures, withstand future downturns in our business or the economy in general or otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of business opportunities that arise because of limitations imposed on Aleris International and its subsidiaries by the restrictive covenants under the ABL Facility the 2023 Junior Priority Notes and the ~~Senior~~Term ~~Notes~~Loan Facility.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our production and manufacturing facilities are listed below by reportable segment.



Reportable Segment	Location	Owned / Leased

North America	Clayton, New Jersey	Owned
	Buckhannon, West Virginia	Owned
	Ashville, Ohio	Owned
	Richmond, Virginia	Owned
	Uhrichsville, Ohio	Owned
	Lewisport, Kentucky	Owned
	Davenport, Iowa (1)	Owned
	Lincolnshire, Illinois	Owned

Europe	Duffel, Belgium	Owned
	Koblenz, Germany	Owned
	Voerde, Germany	Owned

Asia Pacific	Zhenjiang, PRC	Granted Land Rights

(1)Two facilities at this location.

25 The following table presents the average operating rates for each of our three operating segments’ facilities for the years ended December 31, 2018, 2017 and 2016:

The following table presents the average operating rates for each of our three operating segments’ facilities for the years ended December 31, 2017, 2016 and 2015:



	For the years ended December 31,
Segment	2018	2017	2016
North America	80%	70%	73%
Europe	89	86	90
Asia Pacific	97	84	78

	For the years ended December 31,
Segment	2017	2016	2015
North America	70%	73%	75%
Europe	86	90	90
Asia Pacific	84	78	89

The Zhenjiang rolling mill is located in Zhenjiang City, Jiangsu Province in China and has been granted a 50 year right to occupy the land on which the factory resides.

Our Cleveland, Ohio corporate facility houses our principal executive offices, as well as our offices for North America, and we currently lease approximately 57,419 square feet for those purposes.

We believe that our facilities are suitable and adequate for our operations.

ITEM 3. LEGAL PROCEEDINGS.

We are a party from time to time to what we believe are routine litigation and proceedings considered part of the ordinary course of our business. We believe that the outcome of such existing proceedings would not have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is privately held. There is no established public trading market for our common stock.

Holders

As of February 15, ~~2018~~2019, there were ~~222~~216 holders of our common stock.

Dividends

In connection with the 2015 sale of our former recycling and specification alloys business, we received shares of Real Industry Inc.’s Series B non-participating preferred stock. In 2017, Real Industry, Inc. filed for Chapter 11 bankruptcy protection. In the second quarter of 2018, the bankruptcy reorganization was finalized, and we received shares of Elah Holdings, Inc.’s (the reorganized company) common stock in exchange for the Series B non-participating preferred stock, with an estimated fair value of $11.1 million. Upon receipt of such common stock, on May 22, 2018, we declared a special property dividend and these shares were distributed pro rata to our stockholders. In addition, dividend equivalent right payments of approximately $0.2 million were paid in cash to holders of unvested restricted stock units.

We do not intend to pay any cash dividends on our common stock for the foreseeable future and instead may retain earnings, if any, for future operation and expansion and debt repayment. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant.

We depend on our subsidiaries for cash and unless we receive dividends, distributions, advances, transfers of funds or other cash payments from our subsidiaries, we will be unable to pay any cash dividends on our common stock in the future. However, none of our subsidiaries are obligated to make funds available to us for payment of dividends. Further, the Term Loan Facility, the ABL Facility, the indentures governing the ~~Senior~~2023 Junior Priority Notes and the China Loan Facility (as defined in Item 7 below) contain a number of covenants that, among other things and subject to certain exceptions, restrict the ability of our subsidiaries to pay dividends on their capital stock and make other restricted payments. See Item 7. – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for further details of the Term Loan Facility, the ABL Facility, the ~~Senior~~2023 Junior Priority Notes and the China Loan Facility.

Securities Authorized for Issuance Under Equity Compensation Plans

For information on the Aleris Corporation 2010 Equity Compensation Plan, see Item 11. – “Executive Compensation – Equity compensation plan information.”

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 6. SELECTED FINANCIAL DATA.

The following table presents the selected historical financial and other operating data of the Company derived from our consolidated financial statements. The audited consolidated statements of operations, consolidated statements of comprehensive (loss~~) income~~, consolidated statements of cash flows and consolidated statements of changes in stockholders’ equity and redeemable noncontrolling interest for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016 and the audited consolidated balance sheet as of December 31, ~~2017~~2018 and ~~2016~~2017 are included elsewhere in this annual report on Form 10-K. See Item 8. – “Financial Statements and Supplementary Data.”

We have reported the recycling and specification alloys and extrusions businesses as discontinued operations for all periods presented, and reclassified the results of operations of these businesses into a single caption on the accompanying Consolidated Statements of Operations as “Income (loss) from discontinued operations, net of tax.” ~~For additional information, see Note 17, “Discontinued Operations,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.~~ Except as otherwise indicated, the discussion of the Company’s business and financial information throughout this annual report on Form 10-K refers to the Company’s continuing operations and the financial position and results of operations of its continuing operations, ~~while the presentation and discussion of our cash flows for the years ended December 31, 2015, 2014 and 2013 reflect the combined cash flows from our continuing and discontinued operations.~~

while the presentation and discussion of our cash flows for the years ended December 31, 2015 and 2014 reflect the combined cash flows from our continuing and discontinued operations.

The following information should be read in conjunction with, and is qualified by reference to, our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated audited financial statements and the notes included elsewhere in this annual report on Form 10-K, as well as other financial information included in this annual report on Form 10-K.



(Dollars in millions, metric tons in thousands)	For the years ended December 31,
	2018			2017			2016			2015			2014
Statement of Operations Data (a):
Revenues	$	3,445.9		$	2,857.3		$	2,663.9		$	2,917.8		$	2,882.4
Operating income (loss)	110.2			(11.1		)	54.7			(8.3		)	11.7
Loss from continuing operations before income taxes	(73.1		)	(174.0		)	(32.3		)	(95.0		)	(75.7		)
Net (loss) income attributable to Aleris Corporation	(91.6		)	(210.6		)	(75.6		)	48.7			87.1
Balance Sheet Data (at end of period) (a):
Cash and cash equivalents	$	108.6		$	102.4		$	55.6		$	62.2		$	28.6
Total assets (b)	2,779.4			2,644.4			2,389.9			2,160.5			2,853.0
Total debt (b)	1,928.3			1,780.5			1,466.2			1,118.3			1,478.2
Redeemable noncontrolling interest	—			—			—			—			5.7
Total Aleris Corporation stockholders’ equity (c)	(27.1		)	92.7			216.6			327.2			292.6

Other Financial Data:
Net cash provided (used) by:
Operating activities	$	22.3		$	(31.4	)	$	12.0		$	119.5		$	—
Investing activities	(110.2		)	(210.7		)	(354.6		)	273.7			(265.3		)
Financing activities	97.7			290.5			338.1			(359.9		)	246.1
Depreciation and amortization	139.7			115.7			104.9			123.8			157.6
Capital expenditures	(108.2		)	(207.7		)	(358.1		)	(313.6		)	(164.8		)

Other Data (a):
Metric tons of finished product shipped:
North America	517.5			462.0			484.3			492.8			482.0
Europe	330.4			317.3			326.7			313.6			301.6
Asia Pacific	29.4			26.9			22.2			21.8			12.8
Intra-entity shipments	(4.7		)	(6.6		)	(6.1		)	(5.8		)	(2.6		)
Total	872.6			799.6			827.1			822.4			793.8

(Dollars in millions, metric tons in thousands)	For the years ended December 31,
	2017			2016			2015			2014			2013
Statement of Operations Data (a):
Revenues	$	2,857.3		$	2,663.9		$	2,917.8		$	2,882.4		$	2,520.8
Operating (loss) income	(14.7		)	51.9			(8.3		)	11.7			26.2
(Loss) income from continuing operations before income taxes	(174.0		)	(32.3		)	(95.0		)	(75.7		)	(77.2		)
Net (loss) income attributable to Aleris Corporation	(210.6		)	(75.6		)	48.7			87.1			(37.1		)
Balance Sheet Data (at end of period) (a):
Cash and cash equivalents	$	102.4		$	55.6		$	62.2		$	28.6		$	51.3
Total assets (b)	2,644.4			2,389.9			2,160.5			2,853.0			2,468.9
Total debt (b)	1,780.5			1,466.2			1,118.3			1,478.2			1,229.3
Redeemable noncontrolling interest	—			—			—			5.7			5.7
Total Aleris Corporation stockholders’ equity (c)	92.7			216.6			327.2			292.6			368.4
Other Financial Data:
Net cash (used) provided by:
Operating activities	$	(31.4	)	$	12.0		$	119.5		$	—		$	31.9
Investing activities	(210.7		)	(354.6		)	273.7			(265.3		)	(235.4		)
Financing activities	290.5			338.1			(359.9		)	246.1			(331.6		)
Depreciation and amortization	115.7			104.9			123.8			157.6			129.5
Capital expenditures	(207.7		)	(358.1		)	(313.6		)	(164.8		)	(238.3		)
Other Data (a):
Metric tons of finished product shipped:
North America	462.0			486.3			492.8			482.0			372.3
Europe	317.3			326.7			313.6			301.6			297.7
Asia Pacific	26.9			22.2			21.8			12.8			4.8
Intra-entity shipments	(6.6		)	(6.2		)	(5.8		)	(2.6		)	(1.5		)
Total	799.6			829.0			822.4			793.8			673.3


(a)	As a result of the divestitures of the recycling and specification alloys and extrusions businesses in 2015, the Company has presented the results of operations and financial position of these former businesses as discontinued operations for all periods presented.

(b) Total assets and total debt at December 31, 2014 ~~and 2013~~ were not restated upon the adoption of Accounting Standards Update No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.”

(c) We paid $~~313~~11.03 million ~~($10.00 per share)~~ in ~~cash~~ dividends to our stockholders during the year ended December 31, ~~2013~~2018, $11.1 million of which was in the form of a special property dividend.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our operations as well as the industry in which we operate. This discussion should be read in conjunction with our audited consolidated financial statements and notes and other financial information appearing elsewhere in this annual report on Form 10-K. Our discussions of our financial condition and results of operations also include various forward-looking statements about our industry, the demand for our products and services and our projected results. These statements are based on certain assumptions that we consider reasonable. For more information about these assumptions and other risks relating to our businesses and our Company, you should refer to Item 1A. – “Risk Factors.”

Forward-Looking Statements

This annual report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us and the industry in which we operate and beliefs and assumptions made by our management. Statements contained in this annual report that are not historical in nature are considered to be forward-looking statements. They include statements regarding our expectations, hopes, beliefs, estimates, intentions or strategies regarding the future. Statements regarding future costs and prices of commodities, production volumes, industry trends, anticipated cost savings, anticipated benefits from new products, facilities, acquisitions or divestitures, projected results of operations, achievement of production efficiencies, capacity expansions, future prices and demand for our products and estimated cash flows and sufficiency of cash flows to fund operations, capital expenditures and debt obligations are forward-looking statements. The words “may,” “could,” “would,” “should,” “will,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “look forward to,” “intend” and similar expressions are intended to identify forward-looking statements.

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They include statements regarding the Merger and our expectations, hopes, beliefs, estimates, intentions or strategies regarding the future. Statements regarding future costs and prices of commodities, production volumes, industry trends, anticipated cost savings, anticipated benefits from new products, facilities, acquisitions or divestitures, projected results of operations, achievement of production efficiencies, capacity expansions, future prices and demand for our products and estimated cash flows and sufficiency of cash flows to fund operations, capital expenditures and debt obligations, as well as statements regarding trade cases, tariffs and other future governmental actions, are forward-looking statements. The words “may,” “could,” “would,” “should,” “will,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “look forward to,” “intend” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements should be read in conjunction with the cautionary statements and other important factors included in this annual report under “Business,” “Risk Factors,” and this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which include descriptions of important factors which could cause actual results to differ materially from those contained in the forward-looking statements. Our expectations, beliefs and projections are expressed in good faith, and we believe we have a reasonable basis to make these statements through our management’s examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that our management’s expectations, beliefs or projections will result or be achieved.

Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in or implied by any forward-looking statement. Important factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to:


▪	our ability to successfully implement our business strategy;


▪	the success of past and future acquisitions or divestitures;


▪	the cyclical nature of the aluminum industry, material adverse changes in the aluminum industry or our end-uses, such as global and regional supply and demand conditions for aluminum and aluminum products, and changes in our customers’ industries;


▪	increases in the cost, or limited availability, of raw materials and energy;


▪	our ability to enter into effective metal, energy and other commodity derivatives or arrangements with customers to manage effectively our exposure to commodity price fluctuations and changes in the pricing of metals, especially LME-based aluminum prices;

▪ our ability to generate sufficient cash flows to fund our operations, and capital expenditure requirements and to meet our debt obligations;


▪	competitor pricing activity, competition of aluminum with alternative materials and the general impact of competition in the industry end-uses we serve;


▪	our ability to retain the services of certain members of our management;


▪	the loss of order volumes from any of our largest customers;


▪	our ability to retain customers, a substantial number of whom do not have long-term contractual arrangements with us;


▪	risks of investing in and conducting operations on a global basis, including political, social, economic, currency and regulatory factors;


▪	variability in general economic and political conditions on a global or regional basis;


▪	current environmental liabilities and the cost of compliance with and liabilities under health and safety laws;


▪	labor relations (i.e., disruptions, strikes or work stoppages) and labor costs;


▪	our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur;


▪	our levels of indebtedness and debt service obligations, including changes in our credit ratings, material increases in our cost of borrowing or the failure of financial institutions to fulfill their commitments to us under committed facilities;


▪	our ability to access credit or capital markets;

▪ the possibility that we may incur additional indebtedness in the future; ~~and~~

▪ limitations on operating our business and incurring additional indebtedness as a result of covenant restrictions under our indebtedness, and our ability to pay amounts due under our outstanding indebtedness.; and


▪	risks related to the Merger, including the possibility that the Merger may not be consummated.

The above list is not exhaustive. Some of these factors and additional risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found under “Risk Factors” contained in this annual report.

These factors and other risk factors disclosed in this annual report and elsewhere are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also harm our results. Consequently, there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.

Other unknown or unpredictable factors could also harm our results. Consequently, there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.

The forward-looking statements contained in this annual report are made only as of the date of this annual report. Except to the extent required by law, we do not undertake, and specifically decline any obligation, to update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.

Basis of Presentation

The financial information included in this annual report on Form 10-K represents our consolidated financial position as of December 31, ~~2017~~2018 and ~~2016~~2017 and our consolidated results of operations and cash flows for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016. We completed the sale of our former recycling and specification alloys and extrusions businesses in 2015. Accordingly, we have reported these businesses as discontinued operations for all periods presented, and reclassified the results of operations of these businesses as discontinued operations. For additional information, see Note 17, “Discontinued Operations” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K. Except as otherwise indicated, the discussion of the Company’s business and financial information throughout this MD&A refers to the Company’s continuing operations and the financial position and results of operations of its continuing operations, while the presentation and discussion of our combined cash flows reflect the cash flows of our continuing and discontinued operations.

Overview

This overview summarizes our MD&A, which includes the following sections:


▪	Our Business – a general description of our operations, recent strategic initiatives, the aluminum industry, our critical measures of financial performance and our operating segments;

▪ Fiscal ~~2017~~2018 Summary and Outlook – a discussion of the key financial highlights for ~~2017~~2018, as well as material trends and uncertainties that may impact our business in the future;


▪	Results of Operations – an analysis of our consolidated and segment operating results and production for the years presented in our consolidated financial statements;


▪	Liquidity and Capital Resources – an analysis and discussion of our cash flows and current sources of capital;


▪	Non-GAAP Financial Measures – an analysis and discussion of key financial performance measures, including EBITDA, Adjusted EBITDA and commercial margin, as well as reconciliations to the applicable generally accepted accounting principles in the United States of America (“GAAP”) performance measures;


▪	Exchange Rates – a discussion of our subsidiaries’ functional currencies and the related currency translation adjustments;

▪ Contractual Obligations – a summary of our estimated significant contractual cash obligations and other commercial commitments at December 31, ~~2017~~2018;

▪ Environmental Contingencies -– a summary of environmental laws and regulations that govern our operations; and


▪	Critical Accounting Policies and Estimates – a discussion of the accounting policies that require us to make estimates and judgments.

Potential Acquisition of Aleris Corporation

On July 26, 2018, we announced that we entered into a definitive agreement to be acquired by Novelis Inc., a subsidiary of Hindalco Industries Limited, for approximately $2,600.0 million, including the assumption of the Company’s outstanding indebtedness (the “Merger”). The Merger is expected to close nine to fifteen months from the date of the definitive agreement, subject to customary regulatory approvals and closing conditions. There can be no assurance that the Merger will be consummated on the expected timing or at all. See the Company’s Current Report on Form 8-K filed on July 27, 2018 for a more detailed discussion of the definitive agreement and the transactions contemplated thereby, including the Merger.

Our Business

We are a global leader in the manufacture and sale of aluminum rolled products, with 13 production facilities located throughout North America, Europe and China. Our product portfolio ranges from the most technically demanding heat treated plate and sheet used in mission-critical applications to sheet produced through our low-cost continuous cast process. We possess a combination of technically advanced, flexible and low-cost manufacturing operations supported by an industry-leading research and development (“R&D”) platform. Our facilities are strategically located to serve our customers globally. Our diversified customer base includes a number of industry-leading companies in the aerospace, automotive, truck trailer and building and construction end-uses. Our technological and R&D capabilities allow us to produce the most technically demanding products, many of which require close collaboration and, in some cases, joint development with our customers.

London Metal Exchange (“LME”) aluminum prices and regional premium differentials (referred to as “Midwest Premium” in the U.S. and “Rotterdam Premium” in Europe) serve as the pricing mechanisms for both the aluminum we purchase and the products we sell. In addition, we depend on scrap for our operations, which is typically priced in relation to prevailing LME prices, but may also be priced at a discount to LME aluminum (depending upon the quality of the material supplied). Aluminum and other metal costs represented in excess of 69% of our costs of sales for the year ended December 31, 2017. Aluminum prices are determined by worldwide forces of supply and demand, and, as a result, aluminum prices are volatile. Average LME aluminum prices per ton for the years ended December 31, 2017, 2016 and 2015 were $1,968, $1,604 and $1,663, respectively. For the full year, average LME aluminum prices per ton were approximately 23% higher than 2016. As our invoiced prices are, in most cases, established months prior to physical delivery, the impact of aluminum price changes on our revenues may not correspond to LME and regional premium price changes for the applicable period.

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prevailing LME prices, but may also be priced at a discount to LME aluminum (depending upon the quality of the material supplied). Aluminum and other metal costs represented approximately 69% of our costs of sales for the year ended December 31, 2018. Aluminum prices are determined by worldwide forces of supply and demand, and, as a result, aluminum prices are volatile. Average LME aluminum prices per ton for the years ended December 31, 2018, 2017 and 2016 were $2,110, $1,968 and $1,604, respectively. For the full year, average LME aluminum prices per ton were approximately 7% higher than 2017. As our invoiced prices are, in most cases, established months prior to physical delivery, the impact of aluminum price changes on our revenues may not correspond to LME and regional premium price changes for the applicable period.

Our business model strives to reduce the impact of aluminum price fluctuations on our financial results and protect and stabilize our margins, principally through pass-through pricing (market-based aluminum price plus a conversion fee) and derivative financial instruments.

As a result of using LME aluminum prices and regional premium differentials to both buy our raw materials and to sell our products, we are able to pass through aluminum price changes in the majority of our commercial transactions. Consequently, while our revenues can fluctuate significantly as aluminum prices change, we would expect the impact of these price changes on our profitability to be less significant. Approximately 93% of our sales for the year ended December 31, ~~2017~~2018 were generated from aluminum pass-through arrangements. In addition to using LME prices and regional premiums to establish our invoice prices to customers, we use derivative financial instruments to further reduce the impacts of changing aluminum prices. Derivative financial instruments are entered into at the time fixed prices are established for aluminum purchases or sales, on a net basis, and allow us to fix the margin to be realized on our long-term contracts and on short-term contracts where selling prices are not established at the same time as the physical purchase price of aluminum. However, as we have elected not to account for our derivative financial instruments as hedges for accounting purposes, changes in the fair value of our derivative financial instruments are included in our results of operations immediately. These changes in fair value (referred to as “unrealized gains and losses”) can have a significant impact on our pre-tax income in the same way LME aluminum and regional premium prices can have a significant impact on our revenues. In assessing the performance of our operating segments, we exclude these unrealized gains and losses, electing to include them only at the time of settlement to better match the period in which the underlying physical purchases and sales affect earnings.

Although our business model strives to reduce the impact of aluminum price fluctuations on our financial results, it cannot eliminate the impact completely. For example, as discussed in further detail below, at times the profitability of our North America segment is impacted by changes in scrap aluminum prices whose movement may not be correlated to movements in LME prices. Furthermore, certain segments are exposed to variability in the previously mentioned regional premium differentials charged by industry participants to deliver aluminum from the smelter to the manufacturing facility. This premium differential fluctuates in relation to several conditions, including the extent of warehouse financing transactions, which limit the amount of physical metal flowing to consumers and increase the price differential as a result. In addition to impacting the price we pay for the raw materials we purchase, our customers may be reluctant to place orders with us during times of uncertainty in the pricing of the Midwest Premium or Rotterdam Premium.

For additional information on the key factors impacting our profitability, see “– Critical Measures of Our Financial Performance” and “– Our Segments,” below.

Recent Strategic Initiatives

We are continuing to implement our previously announced project to add autobody sheet (“ABS”) capabilities at our aluminum rolling mill in Lewisport, Kentucky (the “North America ABS Project”). We are investing approximately $425.0 million to build a new wide cold mill, two continuous annealing lines with pre-treatment (each, a “CALP”) and an automotive innovation center at this facility. We have completed the construction and installation and are significantly through commissioning of the facility’s second CALP. We have also invested in upgrades to other key non-ABS equipment at the facility, including upgrading our ingot scalper and pre-heating furnace and widening the hot mill, to capture additional opportunities. Subsequent to a planned third quarter 2017 outage, which included a 60-day standstill of the facility’s hot mill, the Lewisport facility has started to ship autobody sheet and wide non-autobody sheet to customers using the re-engineered hot mill, the new wide cold mill and the first of the two CALPs. The investments position us to meet significant growth in demand for ABS in North America as the automotive industry pursues broader aluminum use for the production of lighter, more fuel-efficient vehicles.

The Aluminum Industry

Critical Measures of Our Financial Performance

The financial performance of our operating segments is the result of several factors, the most critical of which are as follows:


▪	volumes;


▪	commercial margins; and


▪	cash conversion costs.

The financial performance of our business is determined, in part, by the volume of metric tons shipped and processed. Increased production volume will result in lower per unit costs, while higher shipped volumes will result in additional revenue and associated margins. As a significant component of our revenue is derived from aluminum prices that we generally pass through to our customers, we measure the performance of our segments based upon a percentage of commercial margin and commercial margin per ton in addition to a percentage of revenue and revenue per ton. Commercial margin removes the hedged cost of the metal we purchase and metal price lag (as defined below) from our revenue. Commercial margins capture the value-added components of our business and are impacted by factors, including rolling margins (the fee we charge to convert aluminum), product yields from our manufacturing process, the value-added mix of products sold and scrap spreads, which management are able to influence more readily than aluminum prices and, therefore, provide another basis upon which certain elements of our segments’ performance can be measured.

Although our conversion fee-based pricing model is designed to reduce the impact of changing primary aluminum prices, we remain susceptible to the impact of these changes and changes in regional premium differentials on our operating results. This exposure exists because of changes in metal prices during the period of time between the pricing of our metal purchases, the holding and processing of the metal, and the pricing of the finished product for sale to our customer. As we typically purchase metal prior to having a fixed selling price, and value our inventories under the first-in, first-out method, this lag will, generally, increase our earnings in times of rising aluminum prices and decrease our earnings in times of declining aluminum prices.

Our exposure to changing primary aluminum prices and premium differentials, both in terms of liquidity and operating results, is greater for fixed price sales contracts and other sales contracts where aluminum price changes are not able to be passed along to our customers. In addition, our operations require that a significant amount of inventory be kept on hand to meet future production requirements. This base level of inventory is also susceptible to changing primary aluminum prices and regional premium differentials to the extent it is not committed to fixed price sales orders.

In order to reduce these exposures, we focus on reducing working capital and offsetting future physical purchases and sales. We also ~~utilize~~use various derivative financial instruments designed to reduce the impact of changing primary aluminum prices on these net physical purchases and sales and on inventory for which a fixed sale price has not yet been determined. Our risk management practices reduce but do not eliminate our exposure to changing primary aluminum prices. In addition, exchanges have only recently begun to offer derivative financial instruments to hedge premium differentials. These markets are becoming more liquid and we are beginning to ~~utilize~~use these markets in our risk management practices. At this time, however, derivative financial instruments are not available to effectively hedge against changing scrap prices. While we have limited our exposure to unfavorable ~~primary~~ aluminum price changes, we have also limited our ability to benefit from favorable price changes. Further, our counterparties may require that we post cash collateral if the fair value of our derivative liabilities exceed the amount of credit granted by each counterparty, thereby reducing our liquidity. AsAt of December 31, ~~2017~~2018, ~~and~~$0.2 ~~2016,~~million noof cash collateral was posted. No cash collateral was posted at December 31, 2017.

We refer to the estimated difference between the price of ~~primary~~ aluminum included in our revenues and the price of aluminum impacting our cost of sales, net of realized gains and losses from our hedging activities, as “metal price lag.” The aluminum price used in the metal price lag calculation for all segments includes the regional premium. Metal price lag will, generally, increase our earnings and net income and loss ~~attributable to Aleris Corporation~~ before interest, taxes, depreciation and amortization and income from discontinued operations, net of tax (“EBITDA”) in times of rising ~~primary~~ aluminum prices and decrease our earnings and EBITDA in times of declining ~~primary~~ aluminum prices. We seek to reduce this impact through the use of derivative financial instruments. We exclude metal price lag from our determination of Adjusted EBITDA because it is not an indicator of the performance of our underlying operations. We also exclude the impact of metal price lag from our measurement of commercial margin to more closely align the metal prices inherent in our sales prices to those included in our cost of sales.

32In addition to rolling margins and product mix, commercial margins are impacted by the differences between changes in the prices of primary and scrap aluminum, as well as the availability of scrap aluminum, particularly in our North America segment where aluminum scrap is used more frequently than in our European and Asia Pacific operations. As we price our product using the prevailing price of primary aluminum but purchase large amounts of scrap aluminum to produce our products, we benefit when primary aluminum price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminum price increases, our commercial margin will be negatively impacted. The difference

In addition to rolling margins and product mix, commercial margins are impacted by the differences between changes in the prices of primary and scrap aluminum, as well as the availability of scrap aluminum, particularly in our North America segment where aluminum scrap is used more frequently than in our European and Asia Pacific operations. As we price our product using the prevailing price of primary aluminum but purchase large amounts of scrap aluminum to produce our products, we benefit when primary aluminum price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminum price increases, our commercial margin will be negatively impacted. The difference between the price of primary aluminum and scrap prices is referred to as the “scrap spread” and is impacted by the effectiveness of our scrap purchasing activities, the supply of scrap available and movements in the terminal commodity markets, such as the price of aluminum. 33

between the price of primary aluminum and scrap prices is referred to as the “scrap spread” and is impacted by the effectiveness of our scrap purchasing activities, the supply of scrap available and movements in the terminal commodity markets, such as the price of aluminum.

Our operations are labor intensive and also require a significant amount of energy (primarily natural gas and electricity) be consumed to melt scrap or primary aluminum and to re-heat and roll aluminum slabs into rolled products. As a result, we incur a significant amount of fixed and variable labor and overhead costs which we refer to as conversion costs. Conversion costs excluding depreciation expense, or cash conversion costs, on a per ton basis are a critical measure of the effectiveness of our operations.

Commercial margin, EBITDA and Adjusted EBITDA are non-GAAP financial measures that have limitations as analytical tools and should be considered in addition to, and not in isolation, or as a substitute for, or as superior to, our measures of financial performance prepared in accordance with GAAP. For additional information regarding non-GAAP financial measures, see “-Non-GAAP Financial Measures.”

Our Segments

In addition to analyzing our consolidated operating performance based upon revenues and Adjusted EBITDA, we measure the performance of our operating segments using segment income ~~and loss~~, segment Adjusted EBITDA and commercial margin. Segment income ~~and loss~~ includes gross profits, segment specific realized gains and losses on derivative financial instruments, segment specific other income and expense, segment specific selling, general and administrative (“SG&A”) expenses and an allocation of certain functional SG&A expenses. Segment income ~~and loss~~ excludes provisions for and benefits from income taxes, restructuring items, interest, depreciation and amortization, unrealized and certain realized gains and losses on derivative financial instruments, corporate general and administrative costs, start-up costs, gains and losses on asset sales, currency exchange gains and losses on debt and certain other gains and losses. Intra-entity sales and transfers are recorded at market value. Consolidated cash, restricted cash, net capitalized debt costs, deferred tax assets and assets related to our headquarters offices are not allocated to the segments.

Segment Adjusted EBITDA eliminates from segment income ~~and loss~~ the impact of metal price lag. Commercial margin represents revenues less the hedged cost of metal, or the raw material costs included in our cost of sales, net of the impact of our hedging activities and the effects of metal price lag. Segment Adjusted EBITDA and commercial margin are non-GAAP financial measures that have limitations as analytical tools and should be considered in addition to, and not in isolation, or as a substitute for, or as superior to, our measures of financial performance prepared in accordance with GAAP. Management uses segment Adjusted EBITDA in managing and assessing the performance of our business segments and overall business and believes that segment Adjusted EBITDA provides investors and other users of our financial information with additional useful information regarding the ongoing performance of the underlying business activities of our segments, as well as comparisons between our current results and results in prior periods. Management also uses commercial margin as a performance metric and believes that it provides useful information regarding the performance of our segments because it measures the estimated price at which we sell our aluminum products above the hedged cost of the metal and the effects of metal price lag, thereby reflecting the value-added components of our commercial activities independent of aluminum prices which we cannot control.

For additional information regarding non-GAAP financial measures, see “—Non-GAAP Financial Measures.”

North America

Our North America segment consists of nine manufacturing facilities located throughout the United States that produce rolled aluminum and coated products for the building and construction, automotive, truck trailer, ~~automotive,~~ consumer durables, other general industrial and distribution end-uses. Substantially all of our North America segment’s products are manufactured to specific customer requirements, using continuous cast and direct-chill technologies that provide us with significant flexibility to produce a wide range of products. Specifically, those products are integrated into, among other applications, building products, automobiles, truck trailers, gutters, appliances, ~~cars~~ and recreational vehicles. ~~In connection with the North America ABS Project, the segment has been incurring costs associated with start-up activities, including the design and development of new products and~~

33We are continuing to implement our previously announced project to add autobody sheet (“ABS”) capabilities at our aluminum rolling mill in Lewisport, Kentucky (the “North America ABS Project”). We have invested approximately $425.0 million to build a new wide cold mill, two continuous annealing lines with pre-treatment (each, a “CALP”) and an automotive innovation center. We have also invested in upgrades to other key non-ABS equipment at this facility, including upgrading our ingot scalper and pre-heating furnaces and widening the hot mill, to capture additional opportunities. The Lewisport facility has been shipping ABS and wide non-ABS to customers using the re-engineered hot mill, the new wide cold mill and the first of the two CALPs since the fourth quarter of 2017. We have completed the construction and installation and are substantially

processes, the manufacture of commissioning and trial products, and the development of sales and marketing efforts necessary to enter this new end-use. These start-up costs have been excluded from segment Adjusted EBITDA and segment income.34

through commissioning of the facility’s second CALP, which is now producing commercial shipments. We believe the investments position us to meet significant growth in demand for ABS in North America as the automotive industry pursues broader aluminum use for the production of lighter, more fuel-efficient vehicles.

In connection with the North America ABS Project, the segment has been incurring costs associated with start-up activities, including the design and development of new products and processes, the manufacture of commissioning and qualification products, and the development of sales and marketing efforts necessary to enter this new end-use. These start-up costs have historically been excluded from segment Adjusted EBITDA and segment income. The North America ABS Project substantially exited the start-up phase for the first CALP during the third quarter of 2018. Beginning in the third quarter of 2018, the majority of the costs previously classified as start-up costs were included in segment Adjusted EBITDA and segment income. Start-up costs associated with the second CALP continue to be excluded from these performance metrics.

Key operating and financial information for the segment is presented below:

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
North America	(dollars in millions, except per ton measures, volume in thousands of tons)
Metric tons of finished product shipped	~~462~~517.05			~~486~~462.30			~~492~~484.83
Revenues	$	1,~~467~~915.87		$	1,~~365~~467.18		$	1,~~532~~365.81
Hedged cost of metal	(~~895~~1,127.78		)	(~~792~~895.37		)	(~~936~~792.53		)
Unfavorable (favorable) metal price lag	8.5			(4.7		)	1.1
(Favorable) unfavorable metal price lag	(33.9		)	8.5			(4.7		)
Commercial margin	$	~~580~~754.60		$	~~568~~580.16		$	~~597~~568.41
Commercial margin per ton shipped	$	1,~~256~~457.60		$	1,~~168~~256.56		$	1,~~212~~173.10
Segment income	$	88196.0		$	8688.10		$	~~107~~86.91
Unfavorable (favorable) metal price lag	8.5			(4.7		)	1.1
(Favorable) unfavorable metal price lag	(33.9		)	8.5			(4.7		)
Segment Adjusted EBITDA (1)	$	96162.51		$	8196.45		$	~~109~~81.14
Segment Adjusted EBITDA per ton shipped	$	~~208~~313.82		$	~~167~~208.38		$	~~221~~168.0
Start-up costs	$	6645.63		$	4166.56		$	1641.05


(1)	Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table.

Europe

Our Europe segment consists of two world-class aluminum rolling mills, one in Germany and the other in Belgium, and an aluminum cast house in Germany. The segment produces aerospace plate and sheet, ABS, clad brazing sheet (clad aluminum material used for, among other applications, vehicle radiators and HVAC systems), ~~and~~ heat-treated plate for engineered product applications and industrial coil and sheets. Substantially all of our Europe segment’s products are manufactured to specific customer requirements using direct-chill ingot cast technologies that allow us to use and offer a variety of alloys and products for a number of technically demanding end-uses.

Key operating and financial information for the segment is presented below:

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
Europe	(dollars in millions, except per ton measures, volume in thousands of tons)
Metric tons of finished product shipped	~~317~~330.34			~~326~~317.73			~~313~~326.67
Revenues	$	1,~~300~~407.74		$	1,~~222~~300.67		$	1,~~335~~222.36
Hedged cost of metal	(~~739~~810.17		)	(~~650~~739.31		)	(~~783~~650.93		)
Unfavorable metal price lag	0.3			1.9			17.4
(Favorable) unfavorable metal price lag	(1.0		)	0.3			1.9
Commercial margin	$	~~561~~595.97		$	~~574~~561.29		$	~~568~~574.82
Commercial margin per ton shipped	$	1,~~771~~803.03		$	1,~~757~~771.40		$	1,~~813~~757.94
Segment income	$	~~127~~129.48		$	~~149~~127.4		$	~~131~~149.84
Unfavorable metal price lag	0.3			1.9			17.4
(Favorable) unfavorable metal price lag	(1.0		)	0.3			1.9
Segment Adjusted EBITDA (1)	$	~~127~~128.7		$	~~151~~127.37		$	~~149~~151.3
Segment Adjusted EBITDA per ton shipped	$	~~402~~389.47		$	~~463~~402.04		$	~~476~~463.0


(1)	Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table.

Asia Pacific

Our Asia Pacific segment consists of the Zhenjiang rolling mill that produces technically demanding and value-added plate products for aerospace, semiconductor equipment, general engineering, distribution and other end-uses worldwide. Substantially all of our Asia Pacific segment’s products are manufactured to specific customer requirements using direct-chill ingot cast technologies that allow us to use and offer a variety of alloys and products principally for aerospace and also for a number of other technically demanding end-uses.

Key operating and financial information for the segment is presented below:

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
Asia Pacific	(dollars in millions, except per ton measures, volume in thousands of tons)
Metric tons of finished product shipped	2629.94			2226.29			2122.82
Revenues	$	~~122~~148.38		$	~~100~~122.53		$	96100.45
Hedged cost of metal	(6378.59		)	(4963.45		)	(5849.24		)
Favorable metal price lag	(21.4		)	(02.4		)	—(0.4		)
Commercial margin	$	5668.45		$	5056.74		$	3850.27
Commercial margin per ton shipped	$	2,~~101~~326.07		$	2,~~278~~101.30		$	12,~~748~~278.63
Segment income	$	1523.06		$	1015.80		$	—10.8
Favorable metal price lag	(21.4		)	(02.4		)	—(0.4		)
Segment Adjusted EBITDA (1)	$	1222.62		$	1012.46		$	—10.4
Segment Adjusted EBITDA per ton shipped	$	~~469~~753.79		$	~~468~~469.17		*$	468.1

* Result is not meaningful.

(1) Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table.

Fiscal ~~2017~~2018 Summary

Listed below are key financial highlights for the year ended December 31, ~~2017~~2018 as compared to ~~2016~~2017:

▪ Our ~~2017~~2018 revenues increased $~~193~~588.46 million, or 721%, from the prior year ~~primarily~~ due in part to ~~the~~a ~~higher~~9% ~~average~~increase ~~price~~in ofvolumes. ~~aluminum~~The ~~included~~increase in ~~our~~volumes ~~invoiced~~included ~~prices,~~a ~~the~~significant ~~favorable~~increase ~~impact~~in ofNorth aAmerica ~~weaker~~automotive ~~U.S.~~volumes ~~dollar~~as production on the ~~translation~~first ofLewisport ~~our~~CALP ~~euro~~ramped-~~denominated~~up, ~~revenues~~increased North America building and construction volumes on strong demand and improved ~~rolling~~operating ~~margins.~~performance ~~These~~and ~~increases~~improved ~~were~~North ~~partially~~America ~~offset~~distribution byvolume ~~lower~~as ~~volumes~~prior ~~that~~year ~~resulted~~sales ~~from~~were ~~the~~impacted by an extended planned outage at ~~the~~our Lewisport ~~hot~~facility. ~~mill~~In inaddition, ~~the~~European ~~third~~automotive ~~quarter~~volumes ~~undertaken~~improved inas ~~connection~~a ~~with~~result ~~the~~of ~~North~~recent ~~America~~multi-year ~~ABS~~supply ~~Project~~agreements, ~~uneven~~improved ~~demand~~operating ~~impacting~~performance ~~our~~and ~~North~~customer ~~America~~model ~~building~~launches, ~~and~~while ~~construction~~Asia ~~volumes,~~Pacific ~~and~~shipped ~~lower~~record ~~European~~aerospace volumes. ~~resulting~~Revenues ~~from~~were ~~aerospace~~also ~~supply~~favorably ~~chain~~impacted ~~destocking~~by ~~and~~the ahigher ~~shift~~average price of aluminum included in ~~automotive~~our ~~program~~invoiced ~~timing~~prices, the favorable impact of a weaker average U.S. dollar on the translation of our euro-denominated revenues and improved rolling margins.

▪ Losses from continuing operations were $~~214~~91.46 million in ~~2017~~2018 compared to $72214.34 million in ~~2016~~2017. Contributing to the ~~increased~~decreased loss in the current year were:

▪ ~~interest~~a ~~expense increased~~ $4175.64 million increase in ~~the~~Adjusted ~~current year resulting from increased debt and decreased capitalized interest~~EBITDA;

▪ ~~the~~a ~~extended~~$42.6 ~~planned~~million ~~outage~~favorable atchange ~~the~~in ~~Lewisport~~metal ~~hot~~lag, ~~mill~~net ~~resulted~~of inrealized ~~lost~~derivative ~~shipments~~gains and ~~an increase to our loss from continuing operations~~losses;

▪ ~~start-up~~a ~~costs,~~favorable ~~primarily~~change ~~related~~of to$19.8 ~~labor~~million ~~and~~in ~~other~~unrealized ~~expenses~~gains ~~associated~~on ~~with~~derivative ~~the~~financial ~~North~~instruments ~~America~~(a ~~ABS~~gain ~~Project,~~of ~~increased~~ $273.60 million in 2017 compared to a gain of $22.7 million in 2018);

▪ a $22.80 million ~~expense~~decrease ~~was recorded~~ in ~~2017 related to~~ the ~~impairment~~tax of amounts held in escrow from the sale of our former recycling business to Real Industry, Inc. The amounts in escrow were preferred shares of Real Industry, Inc., which filed for bankruptcy protection in November 2017 (see Note 12, “Derivative and Other Financial Instruments,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K)provision;

▪ an ~~unfavorable change of~~ $1618.05 million reduction in ~~unrealized~~start-up ~~gains~~costs, onprimarily ~~derivative~~related ~~financial~~to ~~instruments~~labor (aand ~~gain~~other ofexpenses ~~$19~~associated with the North America ABS Project.0 ~~million~~Beginning in ~~2016~~the ~~compared~~third toquarter aof ~~gain~~2018, substantially all of ~~$3.0~~the ~~million~~costs inpreviously ~~2017)~~considered start-up expense have been absorbed within Adjusted EBITDA, as discussed below; and

▪ ~~the~~a ~~net~~prior ~~effect~~year expense of ~~income~~$22.8 ~~tax~~million ~~rate~~related ~~changes~~to ~~resulting~~the impairment of amounts held in escrow from Uthe sale of our former recycling business to Real Industry, Inc.S The amounts in escrow were Series B non-participating preferred stock of Real Industry, Inc., which filed for bankruptcy protection in November 2017. The value of the preferred shares was fully impaired upon the bankruptcy filing. In the second quarter of 2018, the bankruptcy reorganization was finalized, and ~~international~~we ~~tax~~received ~~reform~~shares ~~resulted~~of Elah Holding, Inc.’s (the reorganized company) common stock as well as net cash consideration, resulting in ~~additional~~a ~~income~~current ~~tax~~year ~~expense~~gain of $12.32 million;.

▪ depreciation expense increased $10.8 million as assets related to the North America ABS Project were placed in service; and

▪ a $9.6 million unfavorable change in metal lag, net of realized derivative gains and losses.

In addition, Adjusted EBITDA decreased approximately $4.5 million. These unfavorable impacts to our results from continuing operations were partially offset by a $12.6 million decrease in debt extinguishment costs.

▪ Adjusted EBITDA was $200.6 million in 2017 compared to $205.1 million in the prior year. Lower volumes, largely driven by the extended planned Lewisport hot mill outage, decreased Adjusted EBITDA approximately $9.0 million. Wage inflation, higher natural gas and repair and maintenance costs, and increased investments in research and development were partially offset with productivity gains, decreasing Adjusted EBITDA approximately $9.0 million. In addition, unfavorable currency exchange rates decreased Adjusted EBITDA approximately $7.0 million. These decreases were partially offset by favorable metal spreads, resulting from rising aluminum prices and improved scrap availability, that increased Adjusted EBITDA approximately $18.0 million and improved rolling margins that increased Adjusted EBITDA approximately $2.0 million;

▪ Liquidity at December 31, 2017 was approximately $231.3 million, which consisted of $123.4 million of availability under Aleris International’s ABL Facility (as defined below), $102.4 million of cash and $5.6 million of cash restricted for payments of the China Loan Facility (as defined below). Liquidity does not include $80.0 million of benefits from customer capacity reservation fees expected to be fully realized early in the second quarter of 2018, $40.0 million of which have been realized in the first quarter of 2018. All milestones for the capacity reservation fees have been met. During the year, we completed the issuance of an additional $250.0 million of 9½% Senior Secured Notes (as defined below); and

▪ Capital expenditures decreased to $207.7 million in 2017 from $358.1 million in the prior year, as the North America ABS Project nears completion.

These favorable changes were partially offset by the following:


▪	debt issuance costs of $48.9 million resulting from the current year debt refinancing;


▪	a $24.1 million increase in depreciation expense, as substantially all of the assets related to the North America ABS Project were placed in service; and


▪	a $20.6 million increase in interest expense resulting from increased debt and decreased capitalized interest.

▪

Adjusted EBITDA was $276.0 million in 2018 compared to $200.6 million in the prior year. Improved rolling margins and favorable metal spreads increased Adjusted EBITDA approximately $71.0 million and improved volumes increased Adjusted EBITDA approximately $30.0 million. These increases were partially offset by an unfavorable impact of approximately $26.0 million related to inflation and net productivity. Favorable productivity in Europe and the North America continuous cast business was more than offset by the impact of the ramp-up of automotive production and the higher cost structure of the Lewisport facility as we absorb costs previously considered start-up expense, as well as labor cost inflation, energy price increases and significantly higher North America freight costs.


▪	Liquidity at December 31, 2018 was approximately $468.9 million, which consisted of $353.3 million of availability under Aleris International’s ABL Facility (as defined below), $108.6 million of cash and $7.0 million of cash restricted for payments of the China Loan Facility (as defined below).


▪	Capital expenditures decreased to $108.2 million in 2018 from $207.7 million in the prior year, as the North America ABS Project has been substantially completed.

Outlook

~~This~~The ~~“Outlook”~~following ~~section~~discusses ~~contains~~trends ~~various~~impacting ~~forward-looking statements about our industry,~~ the ~~demand~~major ~~for~~end ~~our~~uses products and services and our projected results. See “Forward-Looking Statements.” In particular, statements contained in this “Outlook” section regarding the future financial impact of customer purchase commitments and capital expenditure projects, including our North America ABS Project and certain aerospace projects, are forward-looking statements (the “outlook statements”). These outlook statements are subject to various risks and uncertainties, many of which are beyond our control. For example, we ~~have~~serve ~~estimated~~as ~~the~~well ~~future financial impact of certain customer purchase commitments net of their expected costs. Actual costs may exceed our projections, including~~ as athe ~~result of increased aluminum, energy, labor or other operating costs or other~~ factors, ~~which~~anticipated ~~could limit the benefits we expect~~ to ~~realize from these customer purchase commitments. We~~ have ~~also~~a ~~made~~significant ~~certain~~impact ~~assumptions regarding customer purchase commitments based~~ on our ~~historical~~2019 experience with such customers and industry practice. Some of these commitments are not subject to contractual arrangements, and to the extent these customers seek to reduce or delay their commitments, we will not realize the benefits expected from these commitments. In addition, certain of the anticipated benefits contained in or implied by the outlook statements are not expected to be realized until the successful ramp-up of ABS production at our Lewisport facility and of certain aerospace production at our Koblenz and Zhenjiang facilities. As a result, we expect to realize only a portion of the anticipated benefits contained in or implied by these outlook statements during the year ending December 31, 2018, as ramp-up at these facilities is expected to occur over the next several years. See “Risk Factors” for a discussion of additional risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed in our outlook statements. performance:

The following discusses trends impacting the major end uses we serve as well as the factors anticipated to have a significant impact on our future performance.

Automotive

Aluminum usage in automotive applications ~~has~~continues ~~been~~to ~~growing~~grow steadily. ~~This~~as ~~growth~~a isresult ~~due~~of toefforts ~~government regulations targeted at reducing carbon emissions and increasing fuel efficiency. Efforts~~ by original equipment manufacturers (“OEMs”) to reduce vehicle weight in order to meet ~~these~~government regulations ~~has~~targeted ~~increased~~at ~~the~~reducing ~~demand~~carbon ~~for~~emissions ~~aluminum~~and ~~ABS~~increasing infuel ~~applications such as automobile hoods, roofs and doors~~efficiency. Ducker Worldwide estimates ~~the~~that ~~demand~~aluminum ~~for~~content ~~aluminum~~per light vehicle in North America will increase from ~~1.2~~397 ~~billion~~ pounds in ~~2016~~2015 to ~~3.4~~565 ~~billion~~ pounds by ~~2025~~2028 ~~and~~as ~~the~~shown ~~aluminum~~below. ~~content~~We ~~per~~saw ~~light~~a ~~vehicle~~51% ~~will~~year-over-year increase ~~from~~in ~~397~~global ~~pounds~~automotive involumes ~~2015~~as toa ~~565~~result ~~pounds~~of byour ~~2028,~~new ~~with~~North ~~ABS~~America ~~per~~assets ~~light~~beginning ~~vehicle~~to ~~increasing~~supply ~~from~~our 14primary ~~pounds~~OEM tocustomer 61under ~~pounds~~a ~~per~~multi-year ~~vehicle~~agreement ~~over~~and ~~the~~strong ~~same~~demand ~~time~~and ~~frame~~improved operating performance in Europe. ~~The~~In ~~expected~~2019, ~~increase~~we expect continued growth in ~~aluminum~~global ~~content~~automotive ~~per~~volumes ~~light~~as ~~vehicle~~commercial inshipments from North America isautomotive ~~shown~~assets ~~below:~~are expected to continue to increase based on committed volumes.

* Source: July 2017 Ducker Worldwide

In anticipation of the increase in demand for aluminum for ABS, we have completed the installation, commissioning and qualification of certain alloys at our new wide cold mill and first CALP at the Lewisport facility. We have completed the construction and installation and are significantly through commissioning of the facility’s second CALP. These investments are expected to total approximately $425.0 million and are targeted at enhancing our product offering in North America to enable us to participate in the growing demand for aluminum ABS.

Aluminum ABS products are expected to generate more than twice the commercial margin per ton of the standard distribution sheet currently produced at the Lewisport facility. Over the next several years, this is expected to have a meaningful impact on our profitability. Based on existing long-term customer commitments, which account for over 60% of our ABS capacity through 2025 and include significant “take or pay” obligations, we believe the segment income and Adjusted EBITDA impact of the North America ABS Project could range from $65 million to $75 million in 2019. We expect the full ramp up of ABS shipments from our combined CALP capacity to occur over the next four years as the current strong demand from the automotive sector is expected to enable us to fill the balance of our open capacity in this time frame.

In preparation for us to begin the ramp-up of our ABS production, we have also significantly upgraded the existing asset base at Lewisport. In particular, in 2017 we initiated and successfully completed a major planned hot mill outage. The outage targeted upgrading our ingot scalper, pre-heating furnace capabilities, widening our hot mill and installing state-of-the-art mill controls. This necessary outage took approximately 60 days (together with the commissioning of the hot mill after the outage, effectively 75 days) to complete and impacted our ability to produce and ship products to customers. In preparing for and executing this outage, we estimate that we missed 100 million pounds (45 kilotons) of customer shipments, which, in turn, we estimate reduced our North America segment income and Adjusted EBITDA by approximately $30 million in 2017. Additionally, in Europe we blocked capacity of the CALP at our Duffel facility to supply ABS to North America for customer qualification purposes. We estimate that this lost volume could have increased Europe segment income and Adjusted EBITDA by approximately $4 million in 2017.

In 2018, we expect global automotive volumes to increase as shipments from Lewisport begin to ramp up and as customers launch new models. In addition, customer model launch delays and the blocked capacity discussed above, which negatively impacted Europe automotive volumes in 2017, are not anticipated to impact 2018. However, the impact of the expected increased volume on our North America segment income and Adjusted EBITDA will be limited in the first half of 2018 as the North America ABS volumes are not expected to contribute meaningfully until the first CALP is producing at near run rate volumes, which is expected to be achieved in the second half of 2018.

Aerospace

Despite aerospace demand softness in ~~2017~~the first half of 2018, due to continued supply chain destocking, aircraft order backlogs for Airbus and Boeing increased and were over 13,~~000~~400 planes in December ~~2017~~2018, an all-time high for the industry. ~~Several~~(see the aircraft ~~OEMs~~backlog ~~are~~chart ~~increasing~~below). ~~build~~We ~~rates~~believe onthe ~~many~~significant ~~single~~order ~~aisle~~backlog ~~and~~at ~~regional~~these ~~jets~~key OEMs will translate into growth in the future, ~~which~~and we ~~expect~~believe toour ~~more~~multi-year ~~than~~supply ~~offset~~agreements ~~the~~have ~~impact~~positioned ofus ~~lower~~to ~~build~~benefit ~~rates~~from onfuture ~~larger~~expected ~~aircraft~~demand. In ~~Aircraft~~2019, ~~backlog~~we ~~trends~~expect athigher ~~Airbus~~year-over-year ~~and~~volumes ~~Boeing~~ as ~~well~~the asOEM ~~historical~~inventory ~~and~~destocking ~~estimated~~has ~~future~~ended and higher aircraft ~~deliveries~~production rates are ~~shown~~expected ~~below:~~to improve demand.

* Source: Airbus and Boeing websites and build rate estimates (data as of December 31, 2018)

*Building ~~Source: Airbus~~ and ~~Boeing websites and build rate estimates (data as of December 31, 2017)~~Construction

*We ~~Source:~~are ~~Airbus~~the largest supplier of aluminum sheet to the building and ~~Boeing~~construction ~~websites~~industry ~~for~~in ~~actual~~North ~~data;~~America ~~Aleris~~and housing starts are expected to see another year of growth in 2019. According to the National Association of Home Builders (“NAHB”), single family housing starts in the United States are projected to grow from 876,000 in 2018 to 894,000 in 2019, representing growth of approximately 2%. In addition, the NAHB estimates ~~for~~that total housing starts in the U.S. will increase from approximately 1,262,000 in 2018~~-2020~~ ~~data~~to 1,272,000 in 2019, representing growth of approximately 1%. This potential growth in housing starts may increase demand for our products in 2019.

During 2016 and 2017, several of our long-term contracts with major aircraft OEMs were successfully renewed. Each contract was renewed with a higher share of the OEM’s aerospace business and with a higher value-added mix of products and alloys. Based upon expected aircraft build rates, these new contracts and products are expected to increase segment income and Adjusted EBITDA by $20 million to $30 million annually, beginning in 2019. The full annual benefit of these contracts is not expected to be realized until 2022; however, we expect to begin to realize some of these benefits after the first half of 2018, when the current inventory destocking is expected to end.Outlook

~~Additionally~~ For 2019, ~~both~~we ~~our~~expect ~~Koblenz~~that ~~and~~segment ~~Zhenjiang~~income ~~facilities~~and ~~allocated~~Adjusted ~~equipment~~EBITDA ~~run~~will ~~time~~be inhigher ~~2017~~than 2018, ~~and~~as ~~will~~North ~~allocate~~America ~~additional~~volumes ~~equipment~~continue ~~run~~to ~~time~~benefit infrom ~~2018,~~the ~~for~~mix ~~the~~shift ~~development~~to higher value-added ABS products and ~~qualification~~stable ofU.S. ~~new~~housing ~~wingskin~~industry ~~products~~conditions, ~~which~~while ~~limits~~global ~~capacity~~aerospace ~~available~~volumes ~~for~~are ~~customer~~expected ~~production~~to ~~and~~benefit ~~shipments.~~from Wea ~~believe~~return ~~this~~to ~~impacted~~growth ~~segment~~and ~~income~~higher ~~and~~volumes ~~Adjusted~~from ~~EBITDA~~our bynew ~~approximately~~multi-year $4contracts. In ~~million~~addition, beginning in ~~2017~~2019, ~~and~~common ~~will~~alloy ~~impact~~products made by our North America segment ~~income~~are ~~and~~expected ~~Adjusted~~to ~~EBITDA~~benefit byfrom ~~approximately~~recent $4duties ~~million~~imposed inon ~~2018.~~imported common alloy products. We expect tofull ~~introduce~~year ~~wingskin~~capital ~~production~~expenditures atof ~~Koblenz~~approximately in$120.0 ~~the~~million ~~second~~to ~~half~~$140.0 million. As a result of ~~2018~~these ~~and~~factors, atwe ~~Zhenjiang~~expect into ~~early~~generate positive cash flow in 2019.

In We ~~2018,~~estimate wethat ~~expect~~first ~~improving~~quarter ~~demand~~2019 assegment ~~the~~income ~~OEM~~and ~~inventory~~Adjusted ~~destocking~~EBITDA ~~ends~~will ~~and~~be ~~benefits from~~ higher ~~aircraft~~than ~~production~~the ~~rates~~fourth ~~and~~quarter ~~our~~of ~~new~~2018 ~~long-term~~due ~~contracts begin~~ to benormal ~~realized~~seasonality. ~~However~~In addition, ~~the~~we ~~impact~~estimate ofthat afirst ~~significantly~~quarter ~~weaker~~2019 ~~U.S.~~segment ~~dollar~~income and ~~lower~~Adjusted ~~rolling~~EBITDA ~~margins~~will ~~are~~be ~~expected~~higher tosequentially ~~offset~~and ~~much~~higher ofthan the ~~positive~~first ~~year-over-year~~quarter ~~impact~~of ~~from~~2018. ~~the~~Factors influencing anticipated ~~volume~~first ~~growth~~quarter ~~and~~2019 ~~product~~performance ~~mix improvement.~~include:

~~Building~~▪ ~~and~~commercial ~~Construction~~shipments ~~and~~from ~~Scrap~~North ~~Spreads~~America automotive assets are expected to continue to grow based on committed volumes;

~~Housing~~▪ ~~starts~~European ~~are~~automotive ~~expected~~demand to see another year of growth in 2018, with experts estimating that total housing starts in the U.S will increase from 1,203,000 in 2017 to 1,271,000 in 2018. Importantly, the mix between single-family and multi-family construction is expected to continue to ~~trend~~benefit ~~favorably~~from ~~for~~healthy us. Additionally, the demographic trends in the U.S. around population growth and family formation rates continue to suggest strength in this important end use. With growth in housing starts, we expect demand ~~for our building~~ and ~~construction~~productivity ~~products to increase in 2018.~~ improvements;

~~Many~~▪ ofglobal ~~our~~aerospace ~~building~~volumes ~~and construction products~~ are ~~able~~expected to becontinue ~~produced~~to ~~with~~benefit ~~aluminum~~from ~~scrap~~a ~~rather~~return ~~than~~to ~~primary~~growth ~~aluminum.~~and Ifhigher ~~the~~volumes ~~recent~~from ~~trend~~our ofnew ~~increased aluminum prices continues, year~~multi-~~over-~~year scrap spreads in North America may be favorably impacted, particularly in the first half of 2018. Additionally, past experience suggests that there will likely be increased demand this year coming from the regions that experienced hurricane damage in 2017, as rebuilding efforts continue.contracts;

~~The~~▪ ~~segment~~favorable ~~income~~year-over-year ~~and~~metal ~~Adjusted~~spreads ~~EBITDA impacts discussed above in “ – Automotive”~~ and “rolling –margins ~~Aerospace” have been provided for illustrative purposes only. These impacts~~ are ~~presented,~~expected in ~~part,~~North toAmerica; ~~demonstrate the potential incremental improvements to 2017 Adjusted EBITDA we believe we would have realized if the planned outage at our Lewisport facility~~ and the allocation of equipment run time at our Duffel, Koblenz and Zhenjiang facilities as discussed above did not occur in 2017, and to demonstrate the benefits we expect to receive from certain existing customer commitments in future years. Estimates of the segment income and Adjusted EBITDA impact from certain existing commitments have been determined using a range of


▪	continued inflationary cost pressure is expected.

expected customer nominated volumes based on existing customer commitments and applying an appropriate estimate of average profitability per ton. To determine an estimate of average North America segment income and Adjusted EBITDA per ton we used the range of rolling margins per ton included in the pricing terms of our existing customer arrangements. These rolling margins were then compared to Lewisport’s average rolling margin per ton in 2017. Profitability per ton also reflects an estimate of incremental cash conversion costs. The estimate of average Europe and Asia Pacific segment income and Adjusted EBITDA per ton was determined using the 2017 Company-wide average Adjusted EBITDA per ton for aerospace products plus an estimate of profitability benefits from fixed cost leverage, which was based on our 2017 aerospace fixed cost absorption and adjusted for the higher production volumes expected to be realized in the future under certain aerospace contracts.

2018 Outlook

For 2018, we expect that segment income and Adjusted EBITDA will be substantially higher than 2017, as North America volumes not only recover from the 2017 Lewisport hot mill outage but also begin to benefit from the mix shift to higher value-added ABS products and a favorable U.S. housing market, while European demand from automotive and aerospace customers is expected to improve. In addition, beginning in 2018, common alloys used in products made by our North America segment may potentially benefit from trade case activity. We expect the year-over-year improvements to accelerate beginning in the second quarter and continue throughout the year. Pre-tax income will be impacted by these factors and the other factors described above in this “– Outlook” as well as the absence of several large, one-time charges recorded in 2017 (as described in the “– Fiscal 2017 Summary” above and “– Results of Operations” below) and substantially lower start-up costs associated with the North America ABS Project. We expect full year capital expenditures of approximately $125.0 million to $140.0 million.

Results of Operations

Review of Consolidated Results

Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017

Revenues were approximately $3.4 billion for the year ended December 31, 2018 compared to approximately $2.9 billion for the year ended December 31, 2017. The increase in revenues was primarily due to the following:

▪

a 9% increase in volumes increased revenues approximately $255.0 million. In North America, automotive volumes increased more than 200% as production on the first Lewisport CALP ramped-up. In addition, North America distribution volumes increased 11% as prior year sales were affected by both an extended planned outage at our Lewisport facility and the strategic build of inventory in advance of that outage, while building and construction volumes increased 7% as a result of favorable demand and improved operating performance. In Europe, automotive volumes increased 18% as demand improved and we benefited from recent multi-year supply agreements, customer model launches and improved operating performance. European aerospace volumes increased 2% as we saw the impact of customer destocking subside in the second half of the year. In Asia Pacific, increased shipments and an improved mix of products sold resulted from a 50% increase in aerospace volumes;


▪	the higher average price of aluminum included in our invoiced prices increased revenues approximately $262.0 million;


▪	the weaker average U.S. dollar favorably impacted the translation of our Europe and Asia-Pacific based revenues, increasing revenues approximately $46.0 million; and


▪	improved rolling margins increased revenues approximately $13.0 million.

The following table presents the estimated impact of key factors that resulted in the 21% increase in our consolidated revenues from 2017:



	North America				Europe					Asia Pacific					Consolidated
	$		%		$			%		$			%		$		%
	(dollars in millions)
LME / aluminum pass-through	$	206.0	14	%	$	49.0		4	%	$	7.0		6	%	$	262.0	9	%
Commercial price	18.0		1		(5.0		)	—		—			—		13.0		—
Volume/mix	218.0		15		17.0			1		20.0			16		255.0		9
Currency	—		—		46.0			4		—			—		46.0		2
Other	5.9		—		(0.3		)	—		(0.5		)	—		5.1		—
Total	$	447.9	30	%	$	106.7		9	%	$	26.5		22	%	$	581.1	20	%
Intra-entity revenues															7.5		—
Total															$	588.6	21	%

Gross profit for the year ended December 31, 2018 was $285.2 million compared to $261.4 million for the year ended December 31, 2017. The increase in gross profit was primarily due to the following:


▪	improved rolling margins and favorable metal spreads increased gross profit approximately $71.0 million, and


▪	higher volumes and an improved mix of products sold increased gross profit approximately $30.0 million.

These favorable impacts were partially offset by the following:


▪	metal price lag had an estimated $28.2 million unfavorable impact on gross profit for the year ended December 31, 2018 when compared to the year ended December 31, 2017. This unfavorable impact from metal price lag excludes the realized gains and losses on metal derivative financial instruments, which are classified separately in the Consolidated Statements of Operations (see table below);


▪	depreciation expense increased approximately $22.8 million as substantially all of the assets related to the North America ABS Project were placed in service;

▪

an unfavorable $20.0 million impact related to inflation and net productivity, as favorable productivity in Europe and the North America continuous cast business was more than offset by the impact of the ramp-up of automotive production and the higher cost structure of the Lewisport facility, as well as labor cost inflation, energy price increases and significantly higher North America freight costs; and


▪	start-up costs, primarily attributable to the North America ABS Project, increased $3.2 million.

The following table presents the estimated impact of metal price lag on our Consolidated Statements of Operations for the years ended December 31, 2018 and 2017:



		For the years ended December 31,
		2018		2017			Change
Location in Consolidated Statements of Operations		(dollars in millions)
Gross profit	Favorable metal price lag	$	12.8	$	41.0		$	(28.2	)
(Gains) losses on derivative financial instruments	Realized gains (losses) on metal derivatives	23.5		(47.3		)	70.8
	Favorable (unfavorable) metal price lag net of realized derivative gains/losses	$	36.3	$	(6.3	)	$	42.6

Selling, General and Administrative Expenses

SG&A expenses were $213.7 million for the year ended December 31, 2018 compared to $219.2 million for the year ended December 31, 2017. The $5.5 million decrease was primarily due to the following:


▪	a $21.8 million decrease in start-up costs, primarily related to labor, consulting and other expenses associated with the North America ABS Project. The majority of these costs continued to be incurred but were either recorded within “Cost of sales” as production began or contributed to the increase in SG&A labor costs discussed below; and


▪	a $2.0 million decrease in stock-based compensation expense.

These decreases were partially offset by the following:


▪	an $8.1 million increase in professional fees and business development expenses, primarily related to the Merger; and


▪	a $7.8 million increase in labor costs, primarily due to the costs previously considered start-up expenses being recorded within segment SG&A expense in the second half of 2018, as well as wage inflation.

Gains and Losses on Derivative Financial Instruments

During the years ended December 31, 2018 and 2017, we recorded realized (gains) losses on derivative financial instruments of $(24.3) million and $47.7 million, respectively, and unrealized gains of $22.7 million and $3.0 million, respectively. Generally, our realized gains or losses represent the cash paid or received upon settlement of our derivative financial instruments. Unrealized gains or losses reflect the change in the fair value of derivative financial instruments from the later of the end of the prior period or our entering into the derivative instrument as well as the reversal of previously recorded unrealized gains or losses for derivatives that settled during the period. Derivative financial instruments are used to reduce our exposure to fluctuations in commodity prices, including metal and natural gas prices, and currency fluctuations. See “– Critical Measures of Our Financial Performance,” above, and Item 7A. “– Quantitative and Qualitative Disclosures about Market Risk,” below, for additional information regarding our use of derivative financial instruments.

Interest Expense, Net

Net interest expense increased $20.6 million for the year ended December 31, 2018 compared to the year ended December 31, 2017 resulting primarily from increased debt as a result of refinancing activities completed in the second quarter of 2018 and the first quarter of 2017, additional average borrowings on the ABL Facility and a decrease in capitalized interest as a result of lower capital expenditures for the North America ABS Project.

Debt Extinguishment Costs

We recorded debt extinguishment costs of $48.9 million during 2018 related to the debt refinancing transactions described further below. These costs consisted primarily of the redemption costs for the Prior Notes (as defined below) and expensing the net unamortized discounts and debt issuance costs associated with the Prior Notes.

Other Income / Expense

A favorable $49.1 million change in other (income) expense included:


▪	a prior year expense of $22.8 million related to the impairment of amounts held in escrow from the sale of our former recycling business to Real Industry, Inc. The amounts in escrow were shares of Series B non-participating preferred stock of Real Industry, Inc., which filed for bankruptcy protection in November 2017. The value of the preferred stock was fully impaired upon the bankruptcy filing;


▪	a $12.2 million gain recorded in the second quarter of 2018 as the Real Industry, Inc. bankruptcy reorganization was finalized and we received shares of Elah Holdings, Inc.’s (the reorganized company) common stock (which shares were distributed to our stockholders through a special property dividend) and cash considerations;


▪	a $7.9 million favorable change in currency exchange rate gains and losses (a $0.3 million loss in 2018 compared to an $8.2 million loss in 2017), primarily related to the remeasurement of U.S. dollar working capital and debt balances in Europe; and


▪	a prior year expense of $6.5 million from recording a liability for taxes related to prior acquisitions.

Income Taxes

The provision for income taxes was $18.5 million for the year ended December 31, 2018, compared to a provision for income taxes of $40.4 million for the year ended December 31, 2017. The income tax provision for the year ended December 31, 2018 consisted of income tax expense of $20.1 million from international jurisdictions and an income tax benefit of $1.6 million in the U.S. The income tax provision for the year ended December 31, 2017 consisted of income tax expense of $43.8 million from international jurisdictions and an income tax benefit of $3.4 million in the U.S.

At December 31, 2018 and 2017, we had valuation allowances from continuing operations of $257.1 million and $257.6 million, respectively, to reduce certain deferred tax assets to amounts that are more likely than not to be realized. Of the total December 31, 2018 and 2017 valuation allowances, $65.7 million and $83.9 million, respectively, relate primarily to net operating losses in non-U.S. tax jurisdictions, $154.1 million and $141.0 million, respectively, relate primarily to the U.S. federal effects of net operating losses, interest expense carryforwards and amortization in 2018 and net operating losses and amortization in 2017, and $37.3 million and $32.7 million, respectively, relate primarily to the state effects of net operating losses, interest expense carryforwards and amortization in 2018 and net operating losses and amortization in 2017.

The net decrease in the valuation allowance in 2018 is mainly comprised of an $18.2 million decrease in non-U.S. tax jurisdictions resulting from the reduction of net operating loss carryforwards with offsetting valuation allowances due to expiration and an audit adjustment offset by a $17.7 million increase in the U.S. resulting from a $25.5 million increase resulting from interest expense carryforwards arising from the recent U.S. tax legislation and a $7.8 million decrease from net reversals of other deductible temporary differences and net increases in taxable temporary differences.

During the fourth quarter of 2013, a non-U.S. taxing jurisdiction commenced an examination of our tax returns for tax years ended December 31, 2012, 2011, 2010 and 2009. Subsequent to December 31, 2018, the non-U.S. taxing jurisdiction proposed certain significant adjustments to the Company’s transfer pricing tax position. Management is currently evaluating those proposed adjustments, but if accepted, the Company does not anticipate the adjustments would result in a material change to its financial position. However, the Company anticipates that it is reasonably possible that an additional expense in the range of €3.0 million to €4.7 million (or equivalent to approximately $3.4 million to $5.4 million at December 31, 2018) will be recorded in the first quarter of 2019.

Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

Revenues were approximately $2.9 billion for the year ended December 31, 2017 compared to approximately $2.7 billion for the year ended December 31, 2016. The increase in revenues was primarily due to the following:


▪	the higher average price of aluminum included in our invoiced prices increased revenues approximately $261.0 million;


▪	the weaker U.S. dollar’s impact on the translation of euro-based revenues increased revenues approximately $17.0 million; and


▪	improved rolling margins increased revenues approximately $2.0 million.

These increases were partially offset by lower volumes that decreased revenues approximately $84.0 million. In Europe, aerospace, automotive and regional plate and sheet volume decreases of 9%, 3%, and 5%, respectively, were partially offset by an improved mix of regional plate and sheet products sold. Supply chain destocking resulted in lower aerospace volumes, a shift in automotive program timing resulted in lower automotive volumes and uncertainty due to rising aluminum prices resulted in lower regional plate and sheet volumes. In North America, distribution and building and construction volume decreases of 8% and 3%, respectively, were partially offset by an improved mix of painted products sold. North America distribution volumes were significantly impacted by the extended planned outage at the Lewisport hot mill in the third quarter of 2017 undertaken in connection with the North America ABS Project, while building and construction demand was uneven during the year.

The following table presents the estimated impact of key factors that resulted in the 7% increase in our consolidated revenues from 2016:

	North America					Europe					Asia Pacific					Consolidated
	$			%		$			%		$			%		$			%
	(dollars in millions)
LME / aluminum pass-through	$	149.0		11	%	$	105.0		9	%	$	7.0		7	%	$	261.0		10	%
Commercial price	9.0			1		(1.0		)	—		(6.0		)	(6	)	2.0			—
Volume/mix	(60.0		)	(4	)	(43.0		)	(4	)	19.0			19		(84.0		)	(3	)
Currency	—			—		17.0			1—		—			—		17.0			1
Other	4.7			*—		0.1			*—		1.8			*—		6.6			*—
Total	$	102.7		8	%	$	78.1		6	%	$	21.8		22	%	$	202.6		8	%
Intra-entity revenues																(9.2		)	—	%
Total																$	193.4		7	%

* Result is not meaningful.

Gross profit for the year ended December 31, 2017 was $259.4 million compared to $287.9 million for the year ended December 31, 2016. The decrease in gross profit was primarily due to the following:


▪	start-up costs, primarily attributable to the North America ABS Project, increased $32.2 million;


▪	depreciation expense increased approximately $12.1 million, as assets related to the North America ABS Project were placed in service;


▪	lower volumes, including lost volumes related to the extended planned outage at the Lewisport hot mill, and unfavorable cost absorption, resulting from successful working capital optimization efforts and a related reduction in inventory levels, decreased gross profit approximately $9.0 million; and


▪	wage inflation, higher natural gas and repair and maintenance costs, and increased investments in research and development were partially offset by project-specific productivity improvements, resulting in a $7.0 million decrease to gross profit.

These unfavorable impacts were partially offset by the following:

41▪ favorable metal spreads in North America, resulting from higher aluminum prices, improved scrap availability and strategic metal buying, increased gross profit approximately $18.0 million;

▪ favorable scrap spreads in North America, resulting from higher aluminum prices, improved scrap availability and strategic metal buying, increased gross profit approximately $18.0 million;


▪	metal price lag had an estimated $7.7 million favorable impact on gross profit for the year ended December 31, 2017 when compared to the year ended December 31, 2016. This favorable impact from metal price lag excludes the realized gains and losses on metal derivative financial instruments, which are classified separately in the Consolidated Statements of Operations (see table below); and


▪	higher rolling margins increased gross profit approximately $2.0 million.

The following table presents the estimated impact of metal price lag on our Consolidated Statements of Operations for the years ended December 31, 2017 and 2016:

		For the years ended December 31,
		2017			2016			Change
Location in Consolidated Statements of Operations		(dollars in millions)
Gross profit	Favorable metal price lag	$	41.0		$	33.3		$	7.7
Losses on derivative financial instruments	Realized losses on metal derivatives	(47.3		)	(30.0		)	(17.3		)
(Gains) losses on derivative financial instruments	Realized losses on metal derivatives	(47.3		)	(30.0		)	(17.3		)
	(Unfavorable) favorable metal price lag net of realized derivative gains/losses	$	(6.3	)	$	3.3		$	(9.6	)

Selling, General and Administrative Expenses

SG&A expenses were $220.8 million for the year ended December 31, 2017 compared to $218.5 million for the year ended December 31, 2016. The $2.3 million increase was primarily due to the following:


▪	a $9.4 million increase in labor costs related to increased incentive compensation expense and wage inflation; and


▪	a $4.3 million increase in stock-based compensation expense resulting from the grant of stock options and restricted stock units in the fourth quarter of 2017.

These increases were partially offset by the following:


▪	a $4.7 million decrease in start-up costs, primarily related to labor, consulting and other expenses associated with the North America ABS Project;


▪	a $3.1 million decrease in professional fees and travel expenses; and


▪	a $1.4 million decrease in depreciation and amortization expense resulting from certain assets becoming fully depreciated.

Gains and Losses on Derivative Financial Instruments

During the years ended December 31, 2017 and 2016, we recorded realized losses on derivative financial instruments of $47.7 million and $31.0 million, respectively, and unrealized gains of $3.0 million and $18.9 million, respectively. Generally, our realized gains or losses represent the cash paid or received upon settlement of our derivative financial instruments. Unrealized gains or losses reflect the change in the fair value of derivative financial instruments from the later of the end of the prior period or our entering into the derivative instrument as well as the reversal of previously recorded unrealized gains or losses for derivatives that settled during the period. Derivative financial instruments are used to reduce our exposure to fluctuations in commodity prices, including metal and natural gas prices, and currency fluctuations. See “– Critical Measures of Our Financial Performance,” above, and Item 7A. “– Quantitative and Qualitative Disclosures about Market Risk,” below, for additional information regarding our use of derivative financial instruments.

Interest Expense, Net

Net interest expense increased $41.6 million for the year ended December 31, 2017 compared to the year ended December 31, 2016 primarily due to the issuance of $550.0 million of ~~9½%~~2021 ~~Senior~~Notes ~~Secured~~(as ~~Notes~~defined below) in the second quarter of 2016, and the issuance of $250.0 million of ~~9½%~~2021 ~~Senior Secured~~ Notes in the first quarter of 2017 and a decrease in capitalized interest.

Other Income / Expense

An unfavorable $3346.59 million change in other ~~expense~~ (income) expense included:

42▪ a $22.8 million expense recorded in 2017 related to the impairment of amounts held in escrow from the sale of our former recycling business to Real Industry, Inc. The amounts in escrow were shares of preferred stock of Real Industry, Inc., which filed for bankruptcy protection in November 2017;

▪ a $22.8 million expense recorded in 2017 related to the impairment of amounts held in escrow from the sale of our former recycling business to Real Industry, Inc. The amounts in escrow were preferred shares of Real Industry, Inc., which filed for bankruptcy protection in November 2017;


▪	a $9.0 million unfavorable change in currency exchange rate gains and losses (an $8.2 million loss in 2017 compared to a $0.8 million gain in 2016), primarily related to the remeasurement of U.S. dollar working capital and debt balances in Europe;


▪	gains of $8.7 million recorded in 2016 related to the favorable resolution of vendor disputes; and


▪	a $6.5 million expense from recording a liability for taxes related to prior acquisitions.

These unfavorable changes were partially offset by a $12.6 million loss on extinguishment of debt in 2016 that did not recur in 2017.

Income Taxes

The provision for income taxes was $40.4 million for the year ended December 31, 2017, compared to a provision for income taxes of $40.0 million for the year ended December 31, 2016. The income tax provision for the year ended December 31, 2017 consisted of income tax expense of $43.8 million from international jurisdictions and an income tax benefit of $3.4 million in the U.S. The income tax provision for the year ended December 31, 2016 consisted of income tax expense of $39.5 million from international jurisdictions and an income tax expense of $0.5 million in the U.S.

At December 31, 2017 and 2016, we had valuation allowances of $257.6 million and $244.9 million, respectively, to reduce certain deferred tax assets to amounts that are more likely than not to be realized. Of the total December 31, 2017 and 2016 valuation allowances, $83.9 million and $72.7 million, respectively, relate primarily to net operating losses in non-U.S. tax jurisdictions, $141.0 million and $154.5 million, respectively, relate primarily to the U.S. federal effects of net operating losses and amortization and $32.7 million and $17.7 million, respectively, relate primarily to the state effects of net operating losses and amortization.

The net increase in the valuation allowance in 2017 is mainly comprised of a $11.2 million increase in non-U.S. tax jurisdictions resulting from additional tax net operating losses. The net increase in the U.S. of $1.5 million is mainly comprised of a $88.3 million increase resulting from additional tax net operating losses, net reversals of other deductible temporary differences and net increases in taxable temporary differences, and a $86.8 million decrease resulting from the remeasurement of U.S. federal net deferred tax assets with valuation allowances against them as a result of the reduction to the federal income tax rate from 35% to 21% enacted by the recent U.S. tax legislation.

WeThe dofollowing ~~not~~table ~~expect~~presents akey ~~cash~~financial ~~tax~~and ~~impact~~operating indata ~~the~~on ~~near~~a ~~future~~consolidated asbasis afor ~~result~~the ofyears ~~the~~ended ~~recent~~December 31, ~~U.S.~~2018, ~~tax~~2017 ~~legislation.~~and 2016:

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

Revenues for the year ended December 31, 2016 were approximately $2.7 billion compared to approximately $2.9 billion for the year ended December 31, 2015. The decrease in revenues was primarily due to the following:

▪ the lower average price of aluminum included in our invoiced prices decreased revenues approximately $242.0 million;

▪ an unfavorable mix of products sold decreased revenues approximately $37.0 million. The unfavorable mix resulted from decreases of 16% and 9% in North America truck trailer and distribution volumes, respectively, as well as weakness in our European aerospace business in the second half of 2016. These decreases were partially offset by a 7% increase in North America building and construction volumes, as well as increased Asia Pacific aerospace volumes. Production issues, planned outages and bottlenecks prevented the North America segment from realizing the benefits of a strong demand environment; and

▪ the stronger U.S. dollar’s impact on the translation of renminbi and euro-based revenues decreased revenues approximately $6.0 million.

These decreases were partially offset by improved rolling margins that increased revenues approximately $9.0 million.

The following table presents the estimated impact of key factors that resulted in the 9% decrease in our consolidated revenues from 2015:

	North America					Europe					Asia Pacific					Consolidated
	$			%		$			%		$			%		$			%
	(dollars in millions)
LME / aluminum pass-through	$	(139.0	)	(9	)%	$	(101.0	)	(8	)%	$	(2.0	)	(2	)%	$	(242.0	)	(8	)%
Commercial price	5.0			—		5.0			—		(1.0		)	(1	)	9.0			—
Volume/mix	(30.0		)	(2	)	(16.0		)	(1	)	9.0			9		(37.0		)	(1	)
Currency	—			—		(3.0		)	—		(3.0		)	(3	)	(6.0		)	—
Other	(3.7		)	*		2.3			*		1.1			*		(0.3		)	*
Total	$	(167.7	)	(11	)%	$	(112.7	)	(9	)%	$	4.1		4	%	$	(276.3	)	(9	)%
Intra-entity revenues																22.4			1
Total																$	(253.9	)	(9	)%

* Result is not meaningful.

Gross profit for the year ended December 31, 2016 was $287.9 million compared to $214.9 million for the year ended December 31, 2015. The increase in gross profit was primarily due to the following:

▪ metal price lag had an estimated $78.5 million favorable impact on gross profit for the year ended December 31, 2016 when compared to the year ended December 31, 2015. This favorable impact from metal price lag excludes the realized gains and losses on metal derivative financial instruments, which are classified separately in the Consolidated Statements of Operations (see table below);

▪ higher rolling margins increased gross profit approximately $9.0 million; and

▪ a decrease in depreciation expense, due in part to the closure of the Decatur, Alabama facility in 2015, increased gross profit approximately $9.0 million.

These favorable impacts were partially offset by the following:

▪ unfavorable scrap spreads, resulting from lower aluminum prices and reduced scrap availability, reduced gross profit approximately $17.0 million;

▪ the impact of operational issues as well as inflation in employee, freight and other costs was partially offset by project specific productivity gains and lower natural gas costs, resulting in an $6.0 million decrease to gross profit; and

▪ an unfavorable mix of products sold, partially offset by favorable cost absorption, decreased gross profit by approximately $3.0 million.

The following table presents the estimated impact of metal price lag on our Consolidated Statements of Operations for the years ended December 31, 2016 and 2015:

		For the years ended December 31,
		2016			2015			Change
Location in Consolidated Statements of Operations		(dollars in millions)
Gross profit	Favorable (unfavorable) metal price lag	$	33.3		$	(45.2	)	$	78.5
Losses on derivative financial instruments	Realized (losses) gains on metal derivatives	(30.0		)	26.6			(56.6		)
	Favorable (unfavorable) metal price lag net of realized derivative gains/losses	$	3.3		$	(18.6	)	$	21.9

Selling, General and Administrative Expenses

SG&A expenses were $218.5 million for the year ended December 31, 2016 compared to $203.5 million for the year ended December 31, 2015. The $15.0 million increase was primarily due to the following:

▪ a $26.2 million increase in start-up costs primarily related to labor, consulting and other expenses associated with the North America ABS Project; and

▪ a $2.1 million increase in stock-based compensation expense.



	For the years ended December 31,
	2018			2017			2016
	(in millions, except percentages)
Revenues	$	3,445.9		$	2,857.3		$	2,663.9
Cost of sales	3,160.7			2,595.9			2,374.2
Gross profit	285.2			261.4			289.7
Gross profit as a percentage of revenues	8.3		%	9.1		%	10.9		%
Selling, general and administrative expenses	213.7			219.2			217.5
Restructuring charges	4.8			2.9			1.5
(Gains) losses on derivative financial instruments	(47.0		)	44.7			12.1
Other operating expense, net	3.5			5.7			3.9
Operating income (loss)	110.2			(11.1		)	54.7
Interest expense, net	144.7			124.1			82.5
Debt extinguishment costs	48.9			—			12.6
Other (income) expense, net	(10.3		)	38.8			(8.1		)
Loss from continuing operations before income taxes	(73.1		)	(174.0		)	(32.3		)
Provision for income taxes	18.5			40.4			40.0
Loss from continuing operations	(91.6		)	(214.4		)	(72.3		)
Income (loss) from discontinued operations, net of tax	—			3.8			(3.3		)
Net loss	$	(91.6	)	$	(210.6	)	$	(75.6	)

Total segment income	$	349.4		$	230.4		$	246.3
Depreciation and amortization of continuing operations	(139.7		)	(115.7		)	(104.9		)
Corporate general and administrative expenses, excluding depreciation, amortization and start-up costs	(58.1		)	(56.3		)	(51.8		)
Restructuring charges	(4.8		)	(2.9		)	(1.5		)
Interest expense, net	(144.7		)	(124.1		)	(82.5		)
Unallocated gains on derivative financial instruments	22.6			3.1			19.1
Unallocated currency exchange losses	(2.3		)	(2.5		)	(0.5		)
Start-up costs	(55.0		)	(73.6		)	(46.0		)
Loss on extinguishment of debt	(48.9		)	—			(12.6		)
Impairment of amounts held in escrow related to the sale of the recycling business	—			(22.8		)	—
Other income (expense), net	8.4			(9.6		)	2.1
Loss from continuing operations before income taxes	$	(73.1	)	$	(174.0	)	$	(32.3	)

These increases were partially offset by the following:

▪ a $9.9 million decrease in depreciation and amortization expense resulting from the closure and sale of certain North America segment facilities in 2015, and certain assets becoming fully depreciated in 2015; and

▪ a $5.5 million decrease in professional fees, business development costs and other expenses, as the prior year period includes expenses associated with the sale of our recycling and specification alloys and extrusions businesses.

Gains and Losses on Derivative Financial Instruments

During the years ended December 31, 2016 and 2015, we recorded realized losses (gains) on derivative financial instruments of $31.0 million and $(23.2) million, respectively, and unrealized (gains) losses of $(18.9) million and $30.1 million, respectively. Generally, our realized gains or losses represent the cash paid or received upon settlement of our derivative financial instruments. Unrealized gains or losses reflect the change in the fair value of derivative financial instruments from the later of the end of the prior period or our entering into the derivative instrument as well as the reversal of previously recorded unrealized gains or losses for derivatives that settled during the period.

Interest Expense, Net

Net interest expense decreased $11.6 million for the year ended December 31, 2016 compared to the year ended December 31, 2015 primarily due to a $17.2 million increase in capitalized interest as a result of the capital expenditures for the North America ABS Project, partially offset by an increase in interest expense due to the issuance of $550.0 million of 9½% Senior Secured Notes in 2016 and additional borrowings under the ABL Facility in 2016.

Other Income / Expense

An unfavorable $9.1 million change in other expense (income) included a $10.5 million increase in losses on the extinguishment of debt, due primarily to the extinguishment of the 7 5/8% Senior Notes in the second quarter of 2016. In addition, currency exchange rate changes resulted in $7.5 million of gains in the prior year compared to $0.8 million of gains in the current year, primarily related to the remeasurement of U.S. dollar working capital and intercompany debt balances in Europe. These unfavorable changes were partially offset by $8.7 million of gains related to the favorable resolution of certain vendor disputes.

Income Taxes

The provision for income taxes was $40.0 million for the year ended December 31, 2016, compared to a benefit from income taxes of $22.7 million for the year ended December 31, 2015. The income tax provision for the year ended December 31, 2016 consisted of income tax expense of $39.5 million from international jurisdictions and income tax expense of $0.5 million in the U.S. The income tax benefit for the year ended December 31, 2015 consisted of an income tax expense of $18.9 million from international jurisdictions and an income tax benefit of $41.6 million in the U.S.

At December 31, 2016 and 2015, we had valuation allowances of $244.9 million and $218.5 million, respectively, to reduce certain deferred tax assets to amounts that are more likely than not to be realized. Of the total December 31, 2016 and 2015 valuation allowances, $72.7 million and $68.9 million, respectively, relate primarily to net operating losses and future tax deductions for pension benefits in non-U.S. tax jurisdictions, $154.5 million and $135.0 million, respectively, relate primarily to the U.S. federal effects of net operating losses and amortization and $17.7 million and $14.6 million, respectively, relate primarily to the state effects of net operating losses and amortization.

The net increase in the valuation allowance in 2016 is mainly comprised of a $22.7 million increase in the U.S. resulting from additional tax net operating losses, net reversals of other deductible temporary differences and net increases in taxable temporary differences.

Gains / Losses from Discontinued Operations, Net of Tax

Loss from discontinued operations, net of tax was $3.3 million for the year ended December 31, 2016 compared to income from discontinued operations, net of tax of $121.1 million for the year ended December 31, 2015. The discontinued operations include the results of our divested recycling and specification alloys and extrusions businesses. The prior year period included two months of operations and the gain on sale of our divested recycling and specification alloys and extrusions businesses. The 2016 loss from discontinued operations includes an incremental loss on sale of $4.6 million related to our estimate of costs related to the indemnification of the buyer of the recycling and specification alloys business for certain potential future damages.

The following table presents key financial and operating data on a consolidated basis for the years ended December 31, 2017, 2016 and 2015:

	For the years ended December 31,
	2017			2016			2015
	(in millions, except percentages)
Revenues	$	2,857.3		$	2,663.9		$	2,917.8
Cost of sales	2,597.9			2,376.0			2,702.9
Gross profit	259.4			287.9			214.9
Gross profit as a percentage of revenues	9.1		%	10.8		%	7.4		%
Selling, general and administrative expenses	220.8			218.5			203.5
Restructuring charges	2.9			1.5			10.3
Losses on derivative financial instruments	44.7			12.1			6.9
Other operating expense, net	5.7			3.9			2.5
Operating (loss) income	(14.7		)	51.9			(8.3		)
Interest expense, net	124.1			82.5			94.1
Other expense (income), net	35.2			1.7			(7.4		)
Loss from continuing operations before income taxes	(174.0		)	(32.3		)	(95.0		)
Provision for (benefit from) income taxes	40.4			40.0			(22.7		)
Loss from continuing operations	(214.4		)	(72.3		)	(72.3		)
Income (loss) from discontinued operations, net of tax	3.8			(3.3		)	121.1
Net (loss) income	(210.6		)	(75.6		)	48.8
Net income from discontinued operations attributable to noncontrolling interest	—			—			0.1
Net (loss) income attributable to Aleris Corporation	$	(210.6	)	$	(75.6	)	$	48.7
Total segment income	$	230.4		$	246.3		$	239.7
Depreciation and amortization of continuing operations	(115.7		)	(104.9		)	(123.8		)
Corporate general and administrative expenses, excluding depreciation, amortization and start-up costs	(56.3		)	(51.8		)	(48.4		)
Restructuring charges	(2.9		)	(1.5		)	(10.3		)
Interest expense, net	(124.1		)	(82.5		)	(94.1		)
Unallocated gains (losses) on derivative financial instruments	3.1			19.1			(30.2		)
Unallocated currency exchange (losses) gains	(2.5		)	(0.5		)	1.2
Start-up costs	(73.6		)	(46.0		)	(21.1		)
Loss on extinguishment of debt	—			(12.6		)	(2.0		)
Impairment of amounts held in escrow related to the sale of the recycling business	(22.8		)	—			—
Other (expense) income, net	(9.6		)	2.1			(6.0		)
Loss from continuing operations before income taxes	$	(174.0	)	$	(32.3	)	$	(95.0	)

Review of Segment Revenues and Shipments

The following tables present revenues and metric tons of finished product shipped by segment:

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
	(dollars in millions, metric tons in thousands)
Revenues:
North America	$	1,~~467~~915.87		$	1,~~365~~467.18		$	1,~~532~~365.81
Europe	1,~~300~~407.74			1,~~222~~300.67			1,~~335~~222.36
Asia Pacific	~~122~~148.38			~~100~~122.53			96100.45
Intra-entity revenues	(3326.50		)	(2433.35		)	(4624.73		)
Consolidated revenues	$	23,~~857~~445.39		$	2,~~663~~857.93		$	2,~~917~~663.89
Metric tons of finished product shipped:
North America	~~462~~517.05			~~486~~462.30			~~492~~484.83
Europe	~~317~~330.34			~~326~~317.73			~~313~~326.67
Asia Pacific	2629.94			2226.29			2122.82
Intra-entity	(64.67		)	(6.26		)	(56.81		)
Total metric tons of finished product shipped	~~799~~872.6			~~829~~799.06			~~822~~827.41

4645

North America Revenues

North America revenues for the year ended December 31, 2018 increased $447.9 million compared to the year ended December 31, 2017. This increase was primarily due to the following:

▪

a 12% increase in volumes and an improved mix of products sold increased revenues approximately $218.0 million. Automotive volumes were up over 200%, as commercial shipments from the first CALP in Lewisport ramped-up during the period. Distribution volumes increased 11% as prior year sales were affected by an extended planned outage at our Lewisport facility as well as the strategic build of inventory in advance of that outage. Building and construction volumes increased 7% as a result of favorable demand and improved operating performance;


▪	higher aluminum prices included in the invoiced prices of products sold increased revenues approximately $206.0 million; and


▪	improved rolling margins increased revenues approximately $18.0 million.

North America revenues for the year ended December 31, 2017 increased $102.7 million compared to the year ended December 31, 2016. This increase was primarily due to the following:


▪	higher aluminum prices included in the invoiced prices of products sold increased revenues approximately $149.0 million; and


▪	improved rolling margins increased revenues approximately $9.0 million.

These increases were partially offset by lower volumes that decreased revenues approximately $60.0 million. Distribution volumes decreased 8% as a result of the extended planned outage at the Lewisport hot mill. In addition, the impact of a 3% decrease in building and construction volumes resulting from uneven demand was partially offset by an improved mix of painted products sold.

North America revenues for the year ended December 31, 2016 decreased $167.7 million compared to the year ended December 31, 2015. This decrease was primarily due to the following:

▪ lower aluminum prices included in our invoiced prices decreased revenues approximately $139.0 million; and

▪ lower volumes and an unfavorable mix of products sold decreased revenues approximately $30.0 million. Truck trailer volumes decreased 16% following strong demand in 2015 and distribution volumes decreased 9%. These decreases more than offset a 7% increase in building and construction volumes. Planned outages on the Lewisport hot mill related to the North America ABS Project resulted in significant production down time in the third quarter. In addition, production issues and bottlenecks prevented the segment from realizing the benefits of stronger demand.

These decreases were partially offset by improved rolling margins that increased revenues approximately $5.0 million.

Europe Revenues

~~Revenues from our~~ Europe ~~segment~~revenues for the year ended December 31, ~~2017~~2018 increased $78106.17 million compared to the year ended December 31, ~~2016~~2017. This increase was primarily due to the following:


▪	higher aluminum prices included in the invoiced prices of products sold increased revenues approximately $49.0 million;


▪	a weaker average U.S. dollar favorably impacted the translation of euro-based revenues by approximately $46.0 million; and

▪

a 4% increase in volumes increased revenues approximately $17.0 million. Recent multi-year supply agreements as well as customer model launches resulted in a 18% increase in automotive volumes. The impact of aerospace supply chain destocking in the first half of the year was more than offset by both a return to normal demand patterns in the third quarter of 2018 and the benefits from our multi-year supply agreements, resulting in a 2% increase in aerospace volumes.

These increases were partially offset by lower rolling margins that decreased revenues approximately $5.0 million.

Europe revenues for the year ended December 31, 2017 increased $78.1 million compared to the year ended December 31, 2016. This increase was primarily due to the following:


▪	higher aluminum prices included in the invoiced prices of products sold increased revenues approximately $105.0 million; and


▪	foreign currency fluctuations increased revenues approximately $17.0 million.

These increases were partially offset by:


▪	lower volumes decreased revenues approximately $43.0 million. Supply chain destocking resulted in a 9% decrease in aerospace volumes, a shift in automotive program timing led to a 3% decrease in automotive volumes and uncertainty due to rising aluminum prices led to a 5% decrease in regional plate and sheet volumes; and


▪	lower rolling margins decreased revenues approximately $1.0 million.

Revenues from our Europe segment for the year ended December 31, 2016 decreased $112.7 million compared to the year ended December 31, 2015. This decrease was primarily due to the following:

▪ lower aluminum prices included in our invoiced prices decreased revenues approximately $101.0 million;

▪ an unfavorable mix of products sold, primarily resulting from a 1% decrease in aerospace volumes and a 6% decrease in heat exchanger volumes, decreased revenues approximately $16.0 million. Automotive volumes increased 7% and regional plate and sheet volumes increased 11%, partially offsetting the impact of the weaker aerospace and heat exchanger volumes; and

▪ a slightly stronger U.S. dollar decreased revenues approximately $3.0 million.

These decreases were partially offset by improved rolling margins that increased revenues approximately $5.0 million.

Asia Pacific Revenues

Asia Pacific revenues for the year ended December 31, 2018 increased $26.5 million compared to the year ended December 31, 2017. This increase was primarily due to the following:


▪	an increase in aerospace volumes increased revenues approximately $20.0 million; and


▪	higher aluminum prices included in the invoiced prices of products sold increased revenues approximately $7.0 million.

Asia Pacific revenues for the year ended December 31, 2017 increased $21.8 million compared to the year ended December 31, 2016. This increase was primarily due to the following:


▪	an increase in volumes increased revenues approximately $19.0 million; and


▪	higher aluminum prices included in the invoiced prices of products sold increased revenues approximately $7.0 million.

These increases were partially offset by lower rolling margins that decreased revenues approximately $6.0 million.

Asia Pacific revenues for the year ended December 31, 2016 increased $4.1 million compared to the year ended December 31, 2015 as the mix of products sold continued to shift to higher value aerospace volumes, which more than offset the impacts of a temporary shut-down to upgrade and expand capacity at the facility’s horizontal heat treat (“HHT”) furnace in the first quarter of 2016 and a stronger U.S. dollar.

Review of Segment Income and Gross Profit

For the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, segment income and our reconciliation of segment income to gross profit are presented below:

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
	(in millions)
Segment income:
North America	$	88196.0		$	8688.10		$	~~107~~86.91
Europe	~~127~~129.48			~~149~~127.4			~~131~~149.84
Asia Pacific	1523.06			1015.80			—10.8
Total segment income	~~230~~349.4			~~246~~230.34			~~239~~246.73
Items excluded from segment income and included in gross profit:
Depreciation	(~~105~~128.41		)	(93105.24		)	(~~102~~93.2		)
Start-up costs	(3336.03		)	—(33.0		)	~~(2.1~~—		)
Other	(0.91)			—0.9			~~(4.4~~—		)
Items included in segment income and excluded from gross profit:
Segment selling, general and administrative expenses	~~113~~125.63			~~108~~112.82			~~114~~107.68
Realized losses on derivative financial instruments	47.8			31.2			(23.3		)
Realized (gains) losses on derivative financial instruments	(24.5		)	47.8			31.2
Other expense (income), net	5.1			(5.2		)	(7.4		)
Other (income) expense, net	(0.5		)	8.5			(2.4		)
Gross profit	$	~~259~~285.42		$	~~287~~261.94		$	~~214~~289.97

North America Segment Income

North America segment income for the year ended December 31, 2018 increased $108.0 million compared to the year ended December 31, 2017. This increase was primarily due to the following:


▪	improved rolling margins and favorable metal spreads, which resulted from rising aluminum prices, improved scrap availability and strategic metal purchasing decisions, increased segment income approximately $79.0 million;


▪	a favorable change in metal price lag compared to the prior year period, resulting from a substantially higher Midwest Premium, increased segment income approximately $42.4 million; and


▪	an increase in volumes increased segment income approximately $20.0 million.

These increases were partially offset by inflation and negative net productivity that decreased segment income approximately $32.0 million. Our continuous cast operations delivered solid productivity gains and improved operational performance. However, these improvements were more than offset by wage inflation, significantly higher freight costs and unfavorable productivity at our Lewisport facility. Productivity at the Lewisport facility was affected by the automotive ramp-up, the absorption of costs previously considered start-up expense and a cost structure designed for a manufacturing rate at which the facility is not yet producing. We believe these factors are transitory.

North America segment income for the year ended December 31, 2017 increased $1.9 million compared to the year ended December 31, 2016. This increase was primarily due to the following:

▪ favorable ~~scrap~~metal spreads resulting from rising aluminum prices, improved scrap availability and strategic metal purchasing increased segment income approximately $24.0 million; and


▪	improved rolling margins increased segment income approximately $9.0 million.

These increases were partially offset by the following:


▪	an unfavorable change in metal price lag compared to the prior year decreased segment income approximately $13.2 million;


▪	lower volumes, primarily due to the extended planned outage at the Lewisport hot mill, partially offset by favorable cost absorption, decreased segment income approximately $9.0 million; and


▪	increased labor, natural gas and repair and maintenance costs, partially offset by favorable productivity gains, decreased segment income approximately $9.0 million.

North America segment income for the year ended December 31, 2016 decreased $21.8 million compared to the year ended December 31, 2015. This decrease was primarily due to the following:

▪ unfavorable scrap spreads resulting from declining aluminum prices and the related tightening of supply decreased segment income approximately $19.0 million;

▪ lower volumes and an unfavorable mix of products sold, partially offset by favorable cost absorption resulting from increased fourth quarter production, decreased segment income approximately $7.0 million; and

▪ operational issues and inflation more than offset project specific productivity gains and lower natural gas prices, decreasing segment income approximately $7.0 million.

These decreases were partially offset by the following:

▪ favorable metal price lag compared to the prior year increased segment income approximately $5.8 million; and

▪ improved rolling margins increased segment income approximately $5.0 million.

Europe Segment Income

Europe segment income for the year ended December 31, 2018 increased $2.4 million compared to the year ended December 31, 2017. This increase was primarily due to the following:


▪	productivity gains from improved operational stability and cost optimization more than offset inflation, resulting in increased segment income of approximately $6.0 million


▪	higher volumes increased segment income approximately $2.0 million;


▪	the net impact of currency changes increased segment income approximately $2.0 million; and


▪	favorable metal price lag compared to the prior year increased segment income approximately $1.3 million.

These increases were partially offset by lower rolling margins, higher hardener costs and increased third-party slab costs, as the Rusal sanctions resulted in sourcing purchases from other suppliers. These factors decreased segment income approximately $9.0 million.

Europe segment income for the year ended December 31, 2017 decreased $22.0 million compared to the year ended December 31, 2016. This decrease was primarily due to the following:


▪	lower volumes and unfavorable cost absorption, resulting from successful working capital optimization initiatives, decreased segment income approximately $7.0 million;

▪ higher costs for hardeners and an increase in ~~externally~~third-party ~~purchased~~ slab purchases decreased segment income approximately $6.0 million;


▪	the weaker U.S. dollar negatively impacted the revaluation of U.S. dollar working capital balances and margins on U.S. dollar sales, while positively impacting the translation of euro-denominated results. Currency changes decreased segment income approximately $6.0 million;


▪	increased labor and natural gas costs as well as additional investments in research and development activities, partially offset by favorable productivity, decreased segment income approximately $2.0 million; and


▪	lower rolling margins decreased segment income approximately $1.0 million.

These decreases were partially offset by favorable metal price lag compared to the prior year that increased segment income approximately $1.6 million.

Europe segment income for the year ended December 31, 2016 increased $17.6 million compared to the year ended December 31, 2015. This increase was primarily due to the following:

▪ favorable metal price lag compared to the prior year increased segment income approximately $15.5 million;

▪ improved rolling margins increased segment income approximately $6.0 million; and

▪ productivity savings and lower natural gas costs were partially offset by inflation in employee and other conversion costs, increasing segment income approximately $3.0 million.

These increases were partially offset by the following:

▪ an unfavorable mix of products sold, resulting from a decrease in aerospace and heat exchanger volumes, partially offset by favorable cost absorption resulting from higher fourth quarter production, decreased segment income approximately $5.0 million; and

▪ a more stable U.S. dollar in 2016 resulted in smaller gains from the revaluation of U.S. dollar working capital balances and reduced segment income approximately $4.0 million.

Asia Pacific Segment Income

Asia Pacific segment income for the year ended December 31, 2018 increased $8.6 million compared to the year ended December 31, 2017. This increase was primarily due to higher volumes and an improved mix of aerospace shipments that increased segment income approximately $8.0 million.

Asia Pacific segment income for the year ended December 31, 2017 increased $4.2 million compared to the year ended December 31, 2016. This increase was primarily due to increased volumes, the ongoing improvement in the mix of products sold toward higher aerospace volumes and productivity improvements. In addition, favorable metal price lag compared to the prior year increased segment income approximately $2.0 million. These increases were partially offset by lower rolling margins.

Asia Pacific segment income for the year ended December 31, 2016 increased $10.8 million compared to the year ended December 31, 2015. This increase was primarily due to a favorable change in the mix of products sold, including increased aerospace volume, in 2016, partially offset by the temporary shut-down of the HHT furnace.

Liquidity and Capital Resources

Summary

We ended ~~2017~~2018 with $~~102~~108.46 million of cash and cash equivalents, compared with $55102.64 million at the end of ~~2016~~2017. Liquidity at December 31, ~~2017~~2018 was $~~231~~468.39 million, which consisted of $~~123~~353.43 million of availability under the ABL Facility, $~~102~~108.46 million of cash and $57.60 million of cash restricted for payments of the China Loan Facility. Liquidity does not include $80.0 million of benefits from customer capacity reservation fees expected to be fully realized early in the second quarter of 2018, $40.0 million of which have been realized in the first quarter of 2018. All milestones for the capacity reservation fees have been met. Both our borrowing base and ABL Facility utilization may fluctuate on a monthly basis due, in part, to changes in seasonal working capital and aluminum prices. ~~In addition, our ability to borrow under the ABL Facility may be restricted by the indentures governing the Senior Notes (as defined below).~~

4948

Based on our current and anticipated levels of operations and the condition in the industries we serve, we believe that our cash on hand, cash flows from operations and availability under the ABL Facility, will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for the foreseeable future. However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with the covenants under our indebtedness, including borrowing base limitations under the ABL Facility and debt incurrence restrictions in our debt agreements, depends on our future operating performance and cash flows and many factors outside of our control, including the costs of raw materials, our ability to access the capital and credit markets, the state of the overall industry and financial and economic conditions and other factors, including those described under Item 1A. – “Risk Factors.” Any future investments, acquisitions, joint ventures or other similar transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all.

We will need to refinance all or a portion of our indebtedness on or before maturity~~, which principally occurs in 2020 and 2021~~. We cannot assure you that we will be able to refinance any of our indebtedness on attractive terms on or before maturity or on commercially reasonable terms or at all.

At December 31, ~~2017~~2018, approximately $6275.74 million of our cash and cash equivalents were held by our non-U.S. subsidiaries.

On ~~February~~June 25, 142018, ~~2017~~Aleris International, Inc. (“Aleris International”) ~~issued~~completed andebt ~~additional~~refinancing transactions, pursuant to which Aleris International (i) raised $~~250~~1,500.0 million in new debt financing (the “New Financing”), consisting of (A) a new senior secured first lien term loan in an aggregate principal amount of ~~its~~$1,100.0 ~~9½% Senior~~million ~~Secured~~(the ~~Notes~~“Term Loan Facility”) and (B) $400.0 ~~The~~million ~~additional~~aggregate ~~notes~~principal ~~were~~amount of newly issued ~~under~~10.75% senior secured junior priority notes due 2023 (the ~~9½%~~“2023 ~~Senior~~Junior ~~Secured~~Priority Notes”), ~~indenture~~(ii) amended the ABL Facility (asthe ~~defined~~“ABL ~~below~~Amendment”)., ~~The~~and ~~proceeds~~(iii) used ~~from~~ the ~~issuance~~net proceeds of the ~~additional~~New ~~notes~~Financing ~~were~~to ~~$263.8~~(A) ~~million,~~redeem ~~net~~all of ~~underwriter~~its ~~fees~~Prior Notes, ~~and~~(B) werepay ~~used~~a ~~these~~portion ~~proceeds~~of ~~for~~its ~~general~~outstanding ~~corporate~~borrowings ~~purposes,~~under ~~including~~the ~~working~~ABL ~~capital~~Facility (as defined below) and ~~capital~~(C) ~~expenditures~~pay related fees and expenses.

The following discussion provides a summary description of the significant components of our sources of liquidity and long-term debt.

Cash Flows

The following table summarizes our net cash provided (used) ~~provided~~ by operating, investing and financing activities for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and 2015. The following presentation and discussion of cash flows reflects the combined cash flows from our continuing operations and discontinued operations, as permitted by GAAP. For a summary of depreciation, capital expenditures and significant operating noncash items of discontinued operations for the years ended December 31, 2016 ~~and 2015, see Note 17, “Discontinued Operations,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K~~.

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
	(in millions)
Net cash (used) provided by:
Net cash provided (used) by:
Operating activities	$	~~(31~~22.43	)	$	12(31.04	)	$	~~119~~12.50
Investing activities	(~~210~~110.72		)	(~~354~~210.67		)	~~273~~(354.76		)
Financing activities	~~290~~97.57			~~338~~290.15			~~(359~~338.91		)

Cash Flows From Operating Activities

Operating activities ~~used~~provided $3122.43 million of cash for the year ended December 31, ~~2017~~2018, which was the result of $2386.14 million of cash ~~used~~from toearnings ~~fund~~partially ~~operating~~offset ~~losses~~by ~~and~~ a $864.31 million increase in net operating assets. The significant components of the change in net operating assets included increases of $545.7 million, $58183.45 million, $3384.7 million and $1870.25 million in accounts receivable, inventory, accounts payable and accrued liabilities, respectively. The average days sales outstanding (“DSO”) for the year ended December 31, ~~2017~~2018 ~~remained~~increased ~~consistent~~three ~~with~~days from the average DSO for the year ended December 31, ~~2016~~2017, in part due to increased sales to OEMs that generally have longer payment terms and the adoption of Accounting Standard Update No. 2014-09, “Revenue from Contracts with Customers” (“ASC 606”) on January 1, 2018, which accelerated the recognition by revenue of approximately $26.0 million at December 31, 2018, but did not impact invoicing or payment terms. In addition, revenues in the month of December 2018 increased $16.2 million over revenues in the month of December 2017, leading to an increase in accounts receivable at December 31, 2018. The increase in inventory was primarily due to an increase in aluminum prices ~~that~~and ~~more~~increased ~~than~~inventory ~~offset~~in ~~the~~North ~~favorable~~America ~~impacts~~related to the ramp-up of automotive production, partially offset by working capital optimization efforts in Europe. Our average days inventory outstanding (“DIO”) for the year ended December 31, ~~2017~~2018 ~~increased~~decreased two days from the average DIO for the year ended December 31, ~~2016~~2017 ~~due~~as toa ~~rising~~result ~~aluminum~~of ~~prices~~the Europe optimization efforts as well as ~~lower shipment volumes and~~ the ~~strategic~~reduction ~~build~~ of inventory inassociated ~~North~~with ~~America in preparation for~~ the ~~planned~~adoption ~~production~~of ~~outage~~ASC at606, ~~the~~partially ~~Lewisport~~offset ~~hot~~by ~~mill~~higher ~~during~~North ~~the~~America ~~third~~inventory ~~quarter of 2017~~levels. The increase in accounts payable was also due in part to the increase in inventories and in aluminum prices as well as the lingering impact from the Rusal sanctions in Europe. Our average days payable outstanding (“DPO”) for the year ended December 31, ~~2017~~2018 remained consistent with the average DPO for the year ended December 31, ~~2016. The increase in accrued liabilities was primarily due to increased accrued interest resulting from the additional 9½% Senior Secured Notes issued in the first quarter of 2017.~~

Operating activities provided $12.0 million of cash for the year ended December 31, 2016, which was the result of $65.3 million of cash from earnings partially offset by a $53.3 million increase in net operating assets. The significant components of the change in net operating assets included increases of $9.4 million, $70.2 million and $41.7 million in accounts receivable, inventory and accounts payable, respectively, and a decrease of $14.0 million in accrued liabilities. Excluding the impact of our 49

502017. The increase in accrued liabilities was primarily due to deferred revenue associated with $60.0 million of capacity reservation fees received in the first half of 2018 as well as an increase in accrued interest.

~~discontinued~~Operating ~~operations,~~activities ~~the~~used ~~average~~$31.4 ~~DSO~~million of cash for the year ended December 31, ~~2016~~2017, ~~decreased~~which ~~from~~was the ~~average~~result ~~DSO~~of ~~for~~$23.1 ~~the~~million ~~year~~of ~~ended~~cash ~~December~~used ~~31,~~to ~~2015~~fund operating losses and a $8.3 ~~The~~million increase in ~~inventory~~net ~~was~~operating ~~due~~assets. inThe ~~part~~significant tocomponents anof ~~increase~~the change in ~~aluminum~~net ~~prices~~operating assets included increases of $5.7 Inmillion, ~~addition~~$58.4 million, ~~inventory~~$33.7 ~~increased~~million and $18.2 million in ~~the~~accounts ~~North~~receivable, ~~America~~inventory, ~~segment~~accounts ~~due~~payable toand ~~preparation~~accrued liabilities, respectively. The average DSO for ~~planned~~the ~~production~~year ~~outages~~ended inDecember 31, 2017 ~~associated~~remained consistent with the ~~North~~average ~~America~~DSO ~~ABS~~for ~~Project,~~the ~~quantities~~year toended beDecember ~~used~~31, ~~for~~2016. ~~automotive~~The ~~commissioning~~increase ~~and~~in ~~qualification,~~inventory ~~and~~was ~~higher~~primarily ~~scrap~~due ~~purchases~~to inan ~~anticipation~~increase ofin ~~first~~aluminum ~~quarter~~prices ~~building~~that ~~and~~more ~~construction~~than ~~demand.~~offset ~~Excluding~~ the ~~impact~~favorable impacts of ~~our~~working ~~discontinued~~capital ~~operations,~~optimization ~~our~~efforts. Our average DIO for the year ended December 31, ~~2016~~2017 ~~was~~increased ~~consistent~~from ~~with~~ the average DIO for the year ended December 31, ~~2015~~2016 due to rising aluminum prices as well as lower shipment volumes and the strategic build of inventory in North America in preparation for the planned production outage at the Lewisport hot mill during the third quarter of 2017. The increase in accounts payable was also due in part to the increase in aluminum prices,. asOur ~~well as an increase in~~ average DPO, ~~when excluding discontinued operations,~~ for the year ended December 31, ~~2016~~2017 asremained ~~compared~~consistent towith the average DPO for the year ended December 31, ~~2015~~2016. The ~~decrease~~increase in accrued liabilities was ~~due~~ primarily due to aincreased ~~decrease~~accrued interest resulting from the additional 2021 Notes issued in ~~accrued~~the ~~income~~first ~~taxes~~quarter of 2017.

Operating activities provided $~~119~~12.50 million of cash for the year ended December 31, ~~2015~~2016, which was the result of $4665.73 million of cash from earnings ~~and~~partially offset by a $7253.83 million ~~decrease~~increase in net operating assets. The significant components of the change in net operating assets included increases of $319.34 million, $70.2 million and $1841.47 million in accounts receivable, inventory and ~~other~~accounts ~~long-term liabilities~~payable, respectively, and ~~decreases~~a decrease of $~~128~~14.0 million, ~~$18~~in accrued liabilities.6 ~~million~~Excluding ~~and~~the ~~$9.1~~impact ~~million~~of inour ~~inventories~~discontinued operations, ~~accounts~~the ~~payable~~average ~~and~~DSO ~~accrued~~for ~~liabilities,~~the ~~respectively.~~year ~~The~~ended ~~increase~~December in31, ~~accounts~~2016 ~~receivable~~decreased ~~was~~from ~~primarily~~the ~~due~~average toDSO for the ~~increase~~year inended ~~the~~December ~~accounts~~31, ~~receivable~~2015. ~~balance~~The ofincrease ~~the~~in ~~recycling~~inventory ~~and~~was ~~specification~~due ~~alloys~~in ~~businesses~~part ~~that~~to ~~were~~an ~~sold~~increase in aluminum prices. AsIn aaddition, ~~result~~inventory ofincreased ~~this~~in ~~increase,~~the weNorth ~~received~~America asegment ~~cash~~due ~~payment~~to ofpreparation ~~$60.3~~for ~~million~~planned inproduction ~~connection~~outages ~~with~~in ~~the~~2017 ~~adjustment~~associated towith the ~~sale~~North ~~price.~~America ~~This~~ABS ~~payment~~Project, ~~has~~quantities ~~been~~to ~~reported~~be inused ~~investing~~for ~~activities.~~automotive ~~The~~commissioning ~~change~~and inqualification, ~~inventories~~and ~~was~~higher ~~due~~scrap ~~primarily~~purchases toin ~~the~~anticipation ~~decreased~~of ~~aluminum~~first ~~prices~~quarter inbuilding ~~inventory~~and asconstruction ~~compared~~demand. toExcluding the ~~end~~impact of ~~2014~~our asdiscontinued ~~well~~operations, asour ~~lower~~average ~~inventory~~DIO ~~levels~~for inthe ~~North~~year ~~America.~~ended InDecember ~~2015~~31, 2016 was consistent with the average ~~days~~DIO offor ~~working~~the ~~capital~~year ~~from~~ended ~~continuing~~December ~~operations~~31, ~~decreased~~2015. byThe ~~approximately~~increase ~~two~~in ~~days~~accounts ~~versus~~payable ~~the~~was ~~prior~~also ~~year~~ due in part to ~~declining~~the increase in aluminum prices, as well as ~~improved~~an ~~working~~increase ~~capital management~~ in ~~North~~average ~~America~~DPO, ~~and~~when ~~increased~~excluding ~~sales~~discontinued ~~from~~operations, ~~Asia~~for ~~Pacific.~~the ~~The~~year ~~increase~~ended inDecember ~~other~~31, ~~long-term~~2016 ~~liabilities~~as ~~was~~compared ~~due~~ to the ~~receipt~~year ofended ~~pre-payments~~December ~~for~~31, ~~future production~~2015. The decrease in accrued liabilities iswas ~~driven~~due byprimarily ~~lower~~to ~~toll liabilities and~~ a decrease in accrued ~~interest~~income ~~resulting from a reduction in long-term debt~~taxes.

Cash Flows from Investing Activities

Cash flows used by investing activities were $110.2 million for the year ended December 31, 2018 and included $108.2 million of capital expenditures.

Cash flows used by investing activities were $210.7 million for the year ended December 31, 2017 and included $207.7 million of capital expenditures, primarily resulting from the North America ABS Project and related non-ABS equipment upgrades at the Lewisport facility.

Cash flows used by investing activities were $354.6 million for the year ended December 31, 2016 and included $358.1 million of capital expenditures, primarily resulting from the North America ABS Project and related non-ABS equipment upgrades at the Lewisport facility.

Cash flows provided by investing activities were $273.7 million for the year ended December 31, 2015 and included $587.4 million of cash proceeds, net of cash transferred, from the sales of our former recycling and specification alloys and extrusions businesses. These cash proceeds were partially offset by $313.6 million of capital expenditures, primarily resulting from the North America ABS Project and related non-ABS equipment upgrades at the Lewisport facility.

Cash Flows From Financing Activities

Cash flows provided by financing activities were $~~290~~97.57 million for the year ended December 31, ~~2017~~2018, ~~and~~which ~~included~~resulted from net cash proceeds of $~~263~~1,483.80 million offrom ~~net~~the New Financing. These proceeds ~~from~~were partially offset by the ~~issuance~~redemption of anthe ~~additional~~Prior Notes, which totaled $~~250~~1,286.07 million ~~aggregate~~including ~~principal~~the ~~amount~~prepayment ofpremiums, ~~9½%~~net ~~Senior~~cash ~~Secured~~repayments ~~Notes~~of ~~in February 2017 and~~ $6159.78 million ofon ~~net~~outstanding borrowings under the ABL Facility, $21.0 ~~These~~million ~~sources~~ of ~~cash~~debt ~~were~~issuance ~~partially~~costs ~~offset~~related byto the New Financing, $265.35 million of ~~net~~payments ~~repayments~~on ~~under~~ the ~~China~~Term Loan Facility and $25.85 million of ~~debt~~payments ~~issuance~~on ~~costs, primarily related to~~ the ~~issuance~~China ofLoan ~~the additional 9½% Senior Secured Notes~~Facility.

Cash flows provided by financing activities were $~~338~~290.15 million for the year ended December 31, ~~2016~~2017, and included $~~540~~263.48 million of net proceeds from the issuance of an additional $~~550~~250.0 million aggregate principal amount of ~~9½%~~2021 ~~Senior Secured~~ Notes in ~~April~~February ~~2016~~2017 and $~~255~~61.47 million of net borrowings under the ABL Facility. These sources of cash were partially offset by ~~the completion of the tender offer and redemption for the former 7 5/8% Senior Notes due 2018, which totaled~~ $~~443~~26.83 million, ~~including the payment~~ of ~~accrued interest, applicable premiums and related fees and expenses, $6.4 million of~~ net repayments under the China Loan Facility and $42.08 million of debt issuance costs, primarily related to the issuance of the ~~9½%~~additional ~~Senior~~2021 ~~Secured~~ Notes.

Cash flows ~~used~~provided by financing activities were $~~359~~338.91 million for the year ended December 31, ~~2015~~2016, and included $~~224~~540.04 million of net ~~repayments~~proceeds onfrom the ~~former~~issuance ~~ABL~~of ~~facility,~~ $~~125~~550.0 million ofaggregate ~~the~~principal ~~former~~amount 7of ~~5/8%~~2021 ~~Senior~~ Notes ~~due~~in ~~2018~~April 2016 and ~~7 7/8%~~$255.4 ~~Senior~~million ~~Notes~~of ~~(as~~net ~~defined~~borrowings ~~below)~~under ~~purchased~~the inABL ~~the~~Facility. ~~third~~These ~~quarter~~sources of ~~2015~~cash ~~pursuant~~were topartially anoffset ~~asset~~by ~~sale~~the ~~offer,~~completion ~~$4.6~~of ~~million~~the oftender ~~debt~~offer ~~issuance~~and ~~costs~~redemption for the ~~ABL~~former ~~Facility~~7 ~~and~~5/8% Senior Notes due 2018, which totaled $2443.8 million, ofincluding ~~net payments on~~ the ~~China~~payment ~~Loan Facility.~~

5150

of accrued interest, applicable premiums and related fees and expenses, $6.4 million of net repayments under the China Loan Facility and $4.0 million of debt issuance costs related to the issuance of the 2021 Notes.

Description of Indebtedness

Term Loan Facility

The Term Loan Facility consists of a $1,100.0 million first lien senior secured term loan facility, which will mature on February 27, 2023. Aleris International’s obligations under the Term Loan Facility are guaranteed by Aleris Corporation and Aleris International’s domestic restricted subsidiaries that guarantee Aleris International’s existing obligations under the ABL Facility and the 2023 Junior Priority Notes (the “Guarantor Subsidiaries” and, together with Aleris Corporation, the “Guarantors”).

The Term Loan Facility also includes an uncommitted incremental facility, which, subject to certain conditions, provides for additional term loan facilities in an aggregate principal amount not to exceed the sum of (i) $75.0 million, plus (ii) an amount equal to all voluntary prepayments and loan buybacks of the Term Loan Facility and any other indebtedness that is secured on a pari passu basis with the Term Loan Facility (other than prepayments and buybacks financed with long-term indebtedness (other than revolving indebtedness)), plus (iii) an additional unlimited amount subject to a First Lien Net Leverage Ratio (as defined in the Term Loan Facility) of 3.75 to 1.00.

The Term Loan Facility bears interest on the unpaid principal amount at a rate equal to, at Aleris International’s option, either:


▪	a base rate determined by reference to the highest of (i) the rate which Deutsche Bank AG New York Branch announces as its prime lending rate, (ii) the overnight federal funds rate plus 0.50% and (iii) one-month LIBOR plus 1.00%, in each case plus 3.75%; or


▪	a LIBOR rate determined by reference to the London interbank offered rate for dollars for the relevant interest period, adjusted for statutory reserve requirements, plus 4.75%. The LIBOR rate will be subject to a 0.00% rate floor.

Amounts borrowed under the Term Loan Facility amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of the Term Loan Facility, with the balance payable on the maturity date of the Term Loan Facility.

The Term Loan Facility requires certain mandatory prepayments of outstanding loans under the Term Loan Facility, subject to certain exceptions, based on (i) a percentage of net cash proceeds of certain asset sales and casualty and condemnation events in excess of certain thresholds (subject to certain reinvestment rights), (ii) net cash proceeds of any issuance of debt, excluding permitted debt issuances and (iii) a percentage of Excess Cash Flow (as defined in the Term Loan Facility) in excess of certain thresholds during a fiscal year.

Aleris International may voluntarily prepay loans outstanding under the Term Loan Facility, in whole or in part, without premium or penalty (except as described below) in minimum amounts, at any time, subject to customary “breakage” costs with respect to LIBOR rate loans. If Aleris International prepays loans in connection with a repricing transaction prior to the date that is twelve months after the closing of the Term Loan Facility, subject to certain exceptions, such prepayment will be subject to a 1.00% prepayment fee.

The Term Loan Facility is secured by (i) a first-priority lien on substantially all of Aleris International’s and the Guarantors’ assets (excluding the ABL Collateral (as defined below)), including, without limitation, all owned and material U.S. real property, equipment, intellectual property and stock of Aleris International and the Guarantors (other than Aleris Corporation) and other subsidiaries (including 100% of the outstanding non-voting stock (if any) and 65% of the outstanding voting stock of certain “first tier” foreign subsidiaries and certain “first tier” foreign subsidiary holding companies), which assets secure the 2023 Junior Priority Notes on a second priority basis and secure the ABL Facility on a third priority basis (the “Term Loan Collateral”) and (ii) a second-priority lien on all of Aleris International’s and the Guarantors’ (other than Aleris Corporation) inventory, accounts receivable, deposit accounts and related assets (subject to certain exceptions), which assets secure the ABL Facility on a first priority basis and secure the 2023 Junior Priority Notes on a third priority basis (the “ABL Collateral” and, together with the Term Loan Collateral, the “Collateral”), in each case excluding certain assets and subject to permitted liens.

The Term Loan Facility contains a number of covenants that, subject to certain exceptions, impose restrictions on Aleris International and certain of its subsidiaries, including, without limitation, restrictions on the ability to, among other things, incur additional debt, grant liens or security interests on assets, merge, consolidate or sell assets, make investments, loans and acquisitions, pay dividends and make restricted payments, modify terms of junior indebtedness or enter into affiliate

transactions. The Term Loan Facility also contains certain customary affirmative covenants and events of default. Aleris International was in compliance with all covenants set forth in the Term Loan Facility as of December 31, 2018.

2023 Junior Priority Notes

On June 25, 2018, Aleris International completed the issuance of $400.0 million aggregate principal amount of 2023 Junior Priority Notes and related guarantees in a private offering under Rule 144A and Regulation S of the Securities Act of 1933, as amended. The 2023 Junior Priority Notes were issued under an indenture (as amended and supplemented from time to time, the “2023 Junior Priority Notes Indenture”), dated as of June 25, 2018, among Aleris International, the guarantors named therein and U.S. Bank National Association, as trustee and collateral agent. The 2023 Junior Priority Notes are jointly and severally, irrevocably and unconditionally guaranteed on a senior secured basis, by each of the Guarantors, as primary obligor and not merely as surety.

The 2023 Junior Priority Notes bear interest at an annual rate of 10.75%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2019. The 2023 Junior Priority Notes will mature on July 15, 2023.

The 2023 Junior Priority Notes are secured by (i) a second-priority lien on the Term Loan Collateral and (ii) a third-priority lien on the ABL Collateral, in each case excluding certain assets and subject to permitted liens.

Aleris International is not required to make any mandatory redemption or sinking fund payments with respect to the 2023 Junior Priority Notes, but under certain circumstances, it may be required to offer to purchase the 2023 Junior Priority Notes as described below. Aleris International may from time to time acquire 2023 Junior Priority Notes by means other than redemption, whether by tender offer, in open market purchases, through negotiated transactions or otherwise, in accordance with applicable securities laws.

From and after July 15, 2020, Aleris International may redeem the 2023 Junior Priority Notes, in whole or in part, at a redemption price of 104.00% of the principal amount, thereof plus accrued and unpaid interest, declining ratably to 100.00% of the principal amount thereof, plus accrued and unpaid interest, on or after July 15, 2022. Prior to July 15, 2020, Aleris International may redeem up to 40.00% of the aggregate principal amount of the 2023 Junior Priority Notes with funds in an amount equal to all or a portion of the net cash proceeds from certain equity offerings at a redemption price of 110.75%, plus accrued and unpaid interest. Aleris International may make such redemption so long as, immediately after the occurrence of any such redemption, at least 60.00% of the aggregate principal amount of the 2023 Junior Priority Notes remains outstanding and such redemption occurs within 180 days of the closing of the applicable equity offering. Additionally, at any time prior to July 15, 2020, Aleris International may redeem the 2023 Junior Priority Notes, in whole or in part, at a redemption price equal to 100.00% of the principal amount thereof, plus the applicable premium as provided in the 2023 Junior Priority Notes Indenture and accrued and unpaid interest.

If Aleris International or any restricted subsidiary consummates one or more asset sales generating net proceeds in excess of $35.0 million in the aggregate at any time (x) on or prior to July 15, 2019, Aleris International may, at its option, redeem all or a portion of the 2023 Junior Priority Notes in an aggregate principal amount not to exceed such net proceeds at a redemption price equal to 102.00% of the principal amount thereof and (y) after July 15, 2019 but on or prior to July 15, 2020, Aleris International may, at its option, redeem all or a portion of the 2023 Junior Priority Notes in an aggregate principal amount not to exceed such net proceeds at a redemption price equal to 103.00% of the principal amount thereof, in each case, plus accrued and unpaid interest.

If Aleris International experiences a “change of control” as specified in the 2023 Junior Priority Notes Indenture (x) on or prior to July 15, 2019, Aleris International may, at its option, redeem all, but not less than all, of the 2023 Junior Priority Notes at a redemption price equal to 102.00% of the principal amount thereof and (y) at any time after July 15, 2019 but on or prior to July 15, 2020, Aleris International may, at its option, redeem all, but not less than all, of the 2023 Junior Priority Notes at a redemption price equal to 103.00% of the principal amount thereof, in each case, plus accrued and unpaid interest.

In addition, if Aleris International experiences a change of control and does not elect to redeem the notes as provided above, Aleris International must offer to purchase all of the 2023 Junior Priority Notes at a price equal to 101.00% of the principal amount thereof, plus accrued and unpaid interest. If Aleris International or its restricted subsidiaries engage in certain asset sales, Aleris International will be required to use 80.00% of the consideration received from such asset sales to permanently reduce certain debt within a specified period of time. Aleris International will be required to use a portion of the remaining proceeds of such asset sales, as well as the proceeds of certain events of loss with respect to the Collateral, as the case may be, to make an offer to purchase a principal amount of the 2023 Junior Priority Notes at a price of 100.00% of the principal amount thereof, plus accrued and unpaid interest, to the extent such proceeds are not invested or used to permanently reduce certain debt within a specified period of time.

The 2023 Junior Priority Notes Indenture contains covenants, subject to certain limitations and exceptions, limiting the ability of Aleris International and its restricted subsidiaries to, among other things: incur additional debt; pay dividends or distributions on Aleris International’s capital stock or redeem, repurchase or retire Aleris International’s capital stock or subordinated debt; issue preferred stock of restricted subsidiaries; make certain investments; create liens on Aleris International’s or its Guarantor Subsidiaries’ assets to secure debt; enter into sale and leaseback transactions; create restrictions on the payment of dividends or other amounts to Aleris International from the restricted subsidiaries that are not guarantors of the 2023 Junior Priority Notes; enter into transactions with affiliates; merge or consolidate with another company; and sell assets, including capital stock of Aleris International’s subsidiaries. The 2023 Junior Priority Notes Indenture also contains customary events of default. Aleris International was in compliance with all covenants set forth in the 2023 Junior Priority Notes Indenture as of December 31, 2018.

ABL Facility

On June 15 25, ~~2015~~2018, Aleris International entered into athe ~~credit~~ABL ~~agreement~~Amendment, aswhich amended ~~and~~the ~~supplemented~~credit ~~from~~agreement ~~time~~governing toits ~~time,~~existing ~~providing for a $600.0 million~~ asset-based revolving credit facility ~~(the “ABL Facility”) which permits multi-currency borrowings up to $600.0 million by Aleris International and its U.S. subsidiaries and up to a combined $300.0 million by Aleris Switzerland GmbH~~, adated ~~wholly~~as ~~owned~~of ~~Swiss subsidiary~~June 15, ~~Aleris~~2015 ~~Aluminum~~(as ~~Duffel BVBA~~amended, athe ~~wholly~~“ABL ~~owned Belgian subsidiary~~Facility”), among Aleris ~~Rolled Products Germany GmbH~~International, athe ~~wholly~~other ~~owned~~borrowers ~~German~~party ~~subsidiary and~~thereto, ~~upon its accession to~~ the ~~credit~~lenders ~~agreement~~party thereto, ~~Aleris~~JPMorgan ~~Casthouse~~Chase ~~Germany GmbH~~Bank, ~~a wholly owned German subsidiary (but limited to $600~~N.~~0 million in total)~~A., ~~The~~as ~~availability~~administrative ofagent ~~funds~~for to the ~~borrowers~~lenders ~~located in each jurisdiction is subject to a borrowing base for that jurisdiction and~~ (the ~~jurisdictions in which certain subsidiaries of such borrowers are located. Both our borrowing base and~~ “ABL ~~Facility~~Administrative ~~utilization may fluctuate on a monthly basis due to~~Agent”), ~~in part, changes in seasonal working capital~~ and ~~aluminum prices~~J.P. ~~The~~Morgan ~~ABL~~Europe ~~Facility contains~~Limited, inas the ~~aggregate,~~European aagent ~~$45.0 million sublimit~~ for ~~swingline loans and also provides for~~ the ~~issuance of up to $125~~lenders.~~0 million of letters of credit. The credit agreement provides that commitments under the ABL Facility may be increased at any time by an additional $300.0 million, subject to certain conditions.~~

WeThe ~~estimate~~terms ~~that~~of the ABL Amendment increased the size of the ABL Facility by $150.0 million. As amended, the ABL Facility permits multi-currency borrowings up to $750.0 million by Aleris International ~~had~~and its U.S. subsidiaries and up to a combined $~~123~~375.40 million ~~available~~by Aleris Switzerland GmbH, a wholly owned Swiss subsidiary, Aleris Aluminum Duffel BVBA, a wholly owned Belgian subsidiary, Aleris Rolled Products Germany GmbH, a wholly owned German subsidiary and, upon its accession to the credit agreement, Aleris Casthouse Germany GmbH, a wholly owned German subsidiary (but limited to $750.0 million in total). The availability of funds to the borrowers located in each jurisdiction is subject to a borrowing base for that jurisdiction and the jurisdictions in which certain subsidiaries of such borrowers are located. Both the borrowing ~~under~~base and the ABL Facility asutilization ofmay ~~December 31~~fluctuate on a monthly basis. Our borrowing base may also fluctuate due to, ~~2017~~in part, seasonal working capital increases and increased aluminum prices. WeThe ~~had~~ABL ~~outstanding~~Facility ~~borrowings~~provides for the issuance of up to $~~319~~125.30 million of letters of credit. The credit agreement provides that commitments under the ABL Facility asmay ofbe ~~December 31,~~increased ~~2017~~at any time by an additional $300.0 million, subject to certain conditions.

As of December 31, 2018, we estimate that the borrowing base would have supported borrowings of up to $632.4 million. We had outstanding borrowings of $253.7 million under the ABL Facility as of December 31, 2018. After giving effect to outstanding borrowings and letters of credit, Aleris International had $353.3 million available for borrowing under the ABL Facility.

Borrowings under the ABL Facility bear interest at rates equal to the following:

▪

in the case of borrowings in U.S. dollars, (a) a LIBOR determined by reference to the offered rate for deposits in dollars for the interest period relevant to such borrowing (the “Eurodollar Rate”), plus an applicable margin ranging from 1.50% to 2.00% based on availability under the ABL Facility or (b) a base rate determined by reference to the higher of (1) JPMorgan Chase Bank, N.A.’s prime lending rate and (2) the one month Eurodollar Rate, plus an applicable margin ranging from 0.50% to 1.00% based on excess availability under the ABL Facility;


▪	in the case of borrowings in euros, a EURIBOR determined by the administrative agent plus an applicable margin ranging from 1.50% to 2.00% based on excess availability under the ABL Facility; and


▪	in the case of borrowings in Sterling, a LIBOR determined by reference to the offered rate for deposits in Sterling for the interest period relevant to such borrowing, plus an applicable margin ranging from 1.50% to 2.00% based on excess availability under the ABL Facility.

In addition to paying interest on any outstanding principal under the ABL Facility, Aleris International is required to pay a commitment fee in respect of unutilized commitments ranging from 0.250% to 0.375% based on average utilization for the applicable period. Aleris International must also pay customary letter of credit fees and agency fees.

The ABL Facility is subject to mandatory prepayment with (i) 100% of the net cash proceeds of certain asset sales and casualty proceeds relating to the collateral for the ABL Facility under certain circumstances, and (ii) 100% of the net cash proceeds from issuance of debt, other than debt permitted under the ABL Facility.

In addition, if at any time outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL Facility exceed the applicable borrowing base in effect at such time, Aleris International is required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.

There is no scheduled amortization under the ABL Facility. The principal amount outstanding will be due and payable in full on June 15, 2020. However, an early maturity provision would be triggered 60 days prior to the stated maturity of Aleris International’s 7 7/8% Senior Notes unless less than $10.0 million of the 7 7/8% Senior Notes remain outstanding and more than $100.0 million is available under the ABL Facility.

Aleris International may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time upon three business days’ prior written notice without premium or penalty other than customary “breakage” costs with respect to Eurodollar Rate loans, Sterling LIBOR loans and EURIBOR loans.

The credit agreement governing the ABL Facility contains a number of covenants that, subject to certain exceptions, impose restrictions on Aleris International and certain of its subsidiaries, including without limitation restrictions on its ability to, among other things, incur additional debt, create liens, merge, consolidate or sell assets, make investments, loans and acquisitions, pay dividends and make certain payments, or enter into affiliate transactions.

Although the credit agreement governing the ABL Facility generally does not require us to comply with any financial ratio maintenance covenants, if combined availability is less than the greater of (a) 10% of the lesser of the combined borrowing base and the combined commitments and (b) $40.0 million, a minimum fixed charge coverage ratio (as defined in

the credit agreement) of at least 1.0 to 1.0 will apply. The credit agreement also contains certain customary affirmative covenants and events of default. Aleris International was in compliance with all of the covenants set forth in the credit agreement as of December 31, 2017.

The ABL Facility is secured, subject to certain exceptions, by a first-priority security interest in substantially all of Aleris International’s current assets and related intangible assets located in the U.S. and substantially all of the current assets and related intangible assets of substantially all of its wholly owned U.S. subsidiaries under a pledge and security agreement, in each case, excluding Notes Collateral (as defined below). The obligations of the Swiss borrower, the Belgian borrower and the German borrowers are secured by their respective current assets and related intangible assets, if any.

9½% Senior Secured Notes due 2021

On April 4, 2016, Aleris International issued $550.0 million aggregate principal amount of its 9½% Senior Secured Notes due 2021 (together with the $250.0 million of additional notes described below, the “9½% Senior Secured Notes”) and related guarantees in a private offering under Rule 144A and Regulation S of the Securities Act of 1933, as amended. The 9½% Senior Secured Notes were issued under an indenture (as amended and supplemented from time to time, the “9½% Senior Secured Notes Indenture”), dated as of April 4, 2016, among Aleris International, the guarantors named therein and U.S. Bank National Association, as trustee and collateral agent. The 9½% Senior Secured Notes are unconditionally guaranteed on a senior secured basis by us and each of our restricted subsidiaries that are domestic subsidiaries and that guarantees Aleris International’s obligations under the ABL Facility.

On February 14, 2017, Aleris International issued an additional $250.0 million aggregate principal amount of the 9½% Senior Secured Notes, pursuant to the 9½% Senior Secured Notes Indenture. These additional notes, together with the initial notes, are treated as a single series of debt securities for all purposes under the 9½% Senior Secured Notes Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase.

As of December 31, 2017, Aleris International had $800.0 million aggregate principal amount of 9½% Senior Secured Notes outstanding.

Interest on the 9½% Senior Secured Notes is payable semi-annually in arrears on April 1 and October 1 of each year. The 9½% Senior Secured Notes mature on April 1, 2021. Aleris International used the net proceeds from the original issuance of the 9½% Senior Secured Notes to complete a tender offer and redemption for the former 75/8% Senior Notes due 2018. In addition, a portion of the net proceeds from the original issuance and from the additional $250.0 million issuance were used for general corporate purposes, including for working capital and capital expenditures.

The 9½% Senior Secured Notes are secured by a first-priority lien on substantially all of Aleris International’s and the guarantors’ owned and material U.S. real property, equipment and intellectual property and stock of Aleris International and the guarantors (other than Aleris Corporation) and other subsidiaries (including 100% of the outstanding non-voting stock (if any) and 65% of the outstanding voting stock of certain “first-tier” foreign subsidiaries and certain “first-tier” foreign subsidiary holding companies) (the “Notes Collateral”), but subject to permitted liens and excluding (i) inventory, accounts receivable, deposit accounts and related assets, which assets secure the ABL Facility on a first-priority basis, (ii) the assets associated with our Lewisport, Kentucky facility and (iii) certain other excluded assets.

From and after April 1, 2018, Aleris International may redeem the 9½% Senior Secured Notes, in whole or in part, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 104.8% of the principal amount, declining ratably to 100.0% of the principal amount on April 1, 2020, plus accrued and unpaid interest, if any, to the applicable redemption date. Prior to April 1, 2018, Aleris International may redeem up to 40% of the aggregate principal amount with funds in an amount equal to all or a portion of the net cash proceeds from certain equity offerings at a redemption price of 109.5%, plus accrued and unpaid interest, if any, to the redemption date. Aleris International may make such redemption so long as, immediately after the occurrence of any such redemption, at least 60% of the aggregate principal amount of the 9½% Senior Secured Notes remains outstanding and such redemption occurs within 180 days of the closing of the applicable equity offering. Additionally, at any time prior to April 1, 2018, Aleris International may redeem some or all of the 9½% Senior Secured Notes at a redemption price equal to 100.0% of the principal amount of the 9½% Senior Secured Notes, plus the applicable premium as provided in the 9½% Senior Secured Notes Indenture and accrued and unpaid interest, if any, to the redemption date.

If Aleris International experiences a “change of control” as specified in the 9½% Senior Secured Notes Indenture, Aleris International must offer to purchase all of the 9½% Senior Secured Notes at a price equal to 101.0% of the principal amount of the 9½% Senior Secured Notes, plus accrued and unpaid interest, if any, to the date of purchase. In addition, if Aleris International or its restricted subsidiaries engage in certain asset sales or experience certain events of loss with respect to the Notes Collateral and do not invest the cash proceeds from such sales or events of loss or permanently reduce certain debt within a specified period of time, subject to certain exceptions, Aleris International will be required to use a portion of the proceeds of such asset sales or events of loss, as the case may be, to make an offer to purchase a principal amount of the 9½% Senior

~~Secured~~There ~~Notes~~is atno ascheduled ~~price~~amortization ofunder ~~100~~the ABL Facility.0% In addition to increasing the size of the ~~principal~~ABL ~~amount~~Facility, the terms of the ~~9½%~~ABL ~~Senior~~Amendment, ~~Secured~~among ~~Notes~~other things, ~~plus~~(i) extended ~~accrued~~the ~~and~~maturity ~~unpaid~~date ~~interest~~of the ABL Facility from June 15, if2020 ~~any~~to the earliest of (x) June 25, 2023, (y) the date that is 60 days prior to the scheduled maturity date of ~~purchase~~the term loans under the Term Loan Facility (currently February 27, 2023) and (z) the date that is 60 days prior to the scheduled maturity date of the 2023 Junior Priority Notes (currently July 15, 2023), (ii) removed a previous borrowing base reserve on Belgian finished goods inventory, (iii) permitted the incurrence of the Term Loan Facility and the 2023 Junior Priority Notes and (iv) amended certain covenants and other provisions consistent with the corresponding terms of the Term Loan Facility and the 2023 Junior Priority Notes.

~~Subject~~Aleris toInternational ~~certain~~may ~~limitations~~voluntarily ~~and~~reduce ~~exceptions,~~ the ~~9½%~~unutilized ~~Senior~~portion ~~Secured~~of ~~Notes Indenture contains covenants limiting~~ the ~~ability~~commitment ofamount ~~Aleris International~~ and ~~its~~repay ~~restricted~~outstanding ~~subsidiaries~~loans ~~to,~~at ~~among~~any ~~other~~time ~~things:~~upon ~~incur~~three ~~additional~~business ~~debt; pay dividends or distributions on Aleris International~~days’s ~~capital~~prior ~~stock~~written ornotice ~~redeem,~~without ~~repurchase~~premium or ~~retire~~penalty Aleris International’s capital stock or subordinated debt; issue preferred stock of restricted subsidiaries; make certain investments; create liens on Aleris International’s or its subsidiary guarantors’ assets to secure debt; enter into sale and leaseback transactions; create restrictions on the payment of dividends or other ~~amounts~~than tocustomary ~~Aleris~~“breakage” ~~International~~costs ~~from Aleris International’s restricted subsidiaries that are not guarantors of the 9½% Senior Secured Notes; enter into transactions~~ with ~~affiliates;~~respect ~~merge~~to orEurodollar ~~consolidate~~Rate ~~with another company; and sell assets~~loans, ~~including~~Sterling ~~capital~~LIBOR ~~stock~~loans ofand ~~Aleris~~EURIBOR ~~International’s subsidiaries~~loans. The 9½% Senior Secured Notes Indenture also contains customary events of default. Aleris International was in compliance with all covenants set forth in the 9½% Senior Secured Notes Indenture as of December 31, 2017.

~~7 7/8%~~Concurrently ~~Senior~~with the effectiveness of the ABL Amendment, the ABL Facility continues to be secured by a first-priority lien over the ABL Collateral and is also secured by a third-priority lien (ranking junior to the lien therein in favor of the Term Loan Facility and the 2023 Junior Priority Notes) ~~due~~over ~~2020~~the Term Loan Collateral, in each case excluding certain assets and subject to permitted liens. The obligations of the Swiss borrower, the Belgian borrower and the German borrowers are secured by their respective current assets and related intangible assets, if any.

OnThe ~~October~~credit ~~23,~~agreement ~~2012,~~governing ~~Aleris International issued $500.0 million of its 7 7/8% Senior Notes and related guarantees under an indenture (as amended and supplemented from time to time,~~ the ~~“7 7/8%~~ABL ~~Senior~~Facility ~~Notes~~contains ~~Indenture”),~~a ~~dated~~number as of ~~October~~covenants 23that, ~~2012,~~subject ~~among~~to ~~Aleris~~certain ~~International~~exceptions, ~~the~~impose ~~guarantors~~restrictions ~~named therein and U.S. Bank National Association, as trustee, and~~ on ~~January 31, 2013,~~ Aleris International ~~exchanged~~and ~~the~~certain ~~$500.0 million aggregate original principal amount~~ of its ~~7 7/8%~~subsidiaries, ~~Senior~~including, ~~Notes~~without ~~for~~limitation, ~~$500.0~~restrictions ~~million~~on of its ~~new~~ability ~~7 7/8% Senior Notes that have been registered under the Securities Act of 1933~~to, asamong ~~amended~~other ~~(the “7 7/8% Senior Notes” and~~things, ~~together~~incur ~~with~~additional ~~the 9½% Senior Secured Notes~~debt, ~~the~~create “Senior Notes”). The 7 7/8% Senior Notes are unconditionally guaranteed on a senior unsecured basis by us and each of our restricted subsidiaries that are domestic subsidiaries and that guarantees Aleris International’s obligations under the ABL Facility. On September 8liens, ~~2015~~merge, ~~Aleris~~consolidate ~~International~~or ~~purchased~~sell ~~$59.9~~assets, ~~million~~make ~~aggregate~~investments, ~~principal~~loans ~~amount~~and ~~of the 7 7/8% Senior Notes pursuant to as asset sale offer. As of December 31~~acquisitions, ~~2017,~~pay ~~Aleris~~dividends ~~International~~and ~~had~~make ~~$440.1~~certain ~~million~~payments ~~aggregate~~or ~~principal~~enter ~~amount~~into ~~outstanding~~affiliate ~~on the 7 7/8% Senior Notes~~transactions.

~~Interest~~Although on the ~~7 7/8%~~credit ~~Senior~~agreement ~~Notes~~governing isthe ~~payable~~ABL inFacility ~~cash~~generally ~~semi-annually~~does innot ~~arrears~~require onAleris ~~May~~International ~~1st~~to ~~and~~comply ~~November~~with ~~1st~~any offinancial ~~each~~ratio ~~year.~~maintenance ~~The~~covenants, ~~7 7/8%~~if ~~Senior~~combined ~~Notes~~availability ~~mature~~is onless ~~November~~than 1,the ~~2020.~~greater ~~Aleris~~of ~~International~~(a) ~~used~~10% aof ~~portion~~the lesser of the ~~net~~combined ~~proceeds~~borrowing ~~from~~base and the ~~sale~~combined ofcommitments ~~the~~and ~~7 7/8%~~(b) ~~Senior~~$40.0 ~~Notes~~million, toa ~~pay~~minimum usfixed ~~cash~~charge ~~dividends~~coverage ratio (as defined in the credit agreement) of ~~approximately~~at ~~$313~~least 1.0 ~~million~~to ~~during~~1.0 ~~the~~will ~~year~~apply. ~~ended~~The ~~December~~credit ~~31,~~agreement ~~2013,~~also ~~which~~contains wecertain ~~then~~customary ~~paid~~affirmative ascovenants ~~dividends~~and ~~pro~~events ~~rata~~of todefault. ~~our~~Aleris ~~stockholders~~International was in compliance with all of the covenants set forth in the credit agreement as of December 31, 2018.

~~Aleris~~Redemption ~~International may redeem the 7 7/8% Senior Notes, in whole or in part, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 102.0%~~ of ~~the~~Prior ~~principal amount, declining annually to 100.0% of the principal amount on November 1, 2018, plus accrued and unpaid interest, if any, to the applicable redemption date.~~Notes

IfAs ~~Aleris~~part ~~International experiences a “change~~ of ~~control” as specified in~~ the ~~7 7/8%~~debt ~~Senior~~refinancing ~~Notes~~transactions ~~Indenture~~discussed above, Aleris International ~~must~~redeemed ~~offer~~in tofull ~~purchase all of~~ the ~~7 7/8%~~aggregate ~~Senior Notes at a price equal to 101.0% of the~~ principal amount of ~~the~~its ~~7 7~~former 77/8% ~~Senior~~senior ~~Notes,~~notes ~~plus~~due ~~accrued~~2020 ~~and unpaid interest, if any, to~~ (the ~~date~~“2020 ofNotes”) ~~purchase.~~and In9½% ~~addition,~~senior ifsecured ~~Aleris~~notes ~~International~~due or2021 ~~its~~(the ~~restricted~~“2021 ~~subsidiaries~~Notes” ~~engage in certain asset sales~~ and, dotogether ~~not~~with ~~invest~~ the ~~cash~~2020 ~~proceeds~~Notes, ~~from~~the ~~such~~“Prior ~~sales~~Notes”). orThe ~~permanently~~2020 ~~reduce~~Notes ~~certain~~were ~~debt~~redeemed ~~within~~at a ~~specified~~redemption ~~period~~price ofequal ~~time, subject~~ to ~~certain~~101.969% ~~exceptions, Aleris International will be required to use a portion~~ of the ~~proceeds~~principal ofamount ~~such~~thereof, ~~asset~~plus ~~sales~~accrued toand ~~make~~unpaid aninterest ~~offer~~ to ~~purchase~~June 25, a2018, ~~principal~~and ~~amount of~~ the ~~7 7/8%~~2021 ~~Senior~~ Notes were redeemed at a redemption price ofequal ~~100~~to 104.0750% of the principal amount ~~of the 7 7/8% Senior Notes~~thereof, plus accrued and unpaid interest, ifto ~~any~~June 25, ~~to the date of purchase~~2018.

Subject to certain limitations and exceptions, the 7 7/8% Senior Notes Indenture contains covenants limiting the ability of Aleris International and its restricted subsidiaries to, among other things: incur additional debt; pay dividends or distributions on Aleris International’s capital stock or redeem, repurchase or retire Aleris International’s capital stock or subordinated debt; issue preferred stock of restricted subsidiaries; make certain investments; create liens on Aleris International’s or its subsidiary guarantors’ assets to secure debt; enter into sale and leaseback transactions; create restrictions on the payment of dividends or other amounts to Aleris International from Aleris International’s restricted subsidiaries that are not guarantors of the 7 7/8% Senior Notes; enter into transactions with affiliates; merge or consolidate with another company; and sell assets, including capital stock of Aleris International’s subsidiaries. The 7 7/8% Senior Notes Indenture also contains customary events of default. Aleris International was in compliance with all covenants set forth in the 7 7/8% Senior Notes Indenture as of December 31, 2017.

Exchangeable Notes

Aleris International issued $45.0 million aggregate principal amount of 6% senior subordinated exchangeable notes (the “Exchangeable Notes”) in June 2010. The Exchangeable Notes are scheduled to mature on June 1, 2020. The Exchangeable Notes have exchange rights at the holder’s option and are exchangeable at any time for our common stock at a rate equivalent to 5960.6358 shares of our common stock per $1,000 principal amount of the Exchangeable Notes (after adjustment for the payments of certain cash dividends), subject to further adjustment. The Exchangeable Notes may currently be redeemed at Aleris International’s option at specified redemption prices.

54The Exchangeable Notes are the unsecured, senior subordinated obligations of Aleris International and rank (i) junior to all of its existing and future senior indebtedness, including the Term Loan Facility, the ABL Facility and the 2023 Junior Priority Notes; (ii) equally to all of its existing and future senior subordinated indebtedness; and (iii) senior to all of its existing and future subordinated indebtedness.

payments of dividends in 2011 and 2013), subject to further adjustment. The Exchangeable Notes may currently be redeemed at Aleris International’s option at specified redemption prices.

The Exchangeable Notes are the unsecured, senior subordinated obligations of Aleris International and rank (i) junior to all of its existing and future senior indebtedness, including the ABL Facility and the Senior Notes; (ii) equally to all of its existing and future senior subordinated indebtedness; and (iii) senior to all of its existing and future subordinated indebtedness.

China Loan Facility

Our wholly owned subsidiary, Aleris Aluminum (Zhenjiang) Co., Ltd (“Aleris Zhenjiang”), maintains a loan agreement comprised of non-recourse multi-currency secured term loan facilities and a revolving facility (collectively, as amended and supplemented from time to time, the “China Loan Facility”). The China Loan Facility consists of a $30.6 million U.S. dollar term loan facility, an RMB 873.8 million (or equivalent to approximately $~~134~~127.21 million as of December 31, ~~2017~~2018) term loan facility (collectively referred to as the “Zhenjiang Term Loans”) and an RMB 410.0 million (or equivalent to approximately $6359.06 million as of December 31, ~~2017~~2018) revolving facility (referred to as the “Zhenjiang Revolver”). The Zhenjiang Revolver has certain restrictions that have limited our ability to borrow funds on the Zhenjiang Revolver and will continue to limit our ability to borrow funds in the future. Although the final maturity date for all borrowings under the Zhenjiang Revolver is May 18, 2021, all amounts outstanding under the Zhenjiang Revolver were repaid in 2017. The interest rate on the U.S. dollar term facility is six month U.S. dollar LIBOR plus 5.0% and the interest rate on the RMB term facility and the Zhenjiang Revolver is 110% of the base rate applicable to any loan denominated in RMB of the same tenor, as announced by the People’s Bank of China. As of December 31, 2017, $170.3 million was outstanding on the Zhenjiang Term Loans. Aleris Zhenjiang and the lenders under the China Facility entered into agreements in December 2016 to, among other things, extend the maturity date, amend the repayment terms under the Zhenjiang Term Loans and secure obligations under the Zhenjiang Term Loans. The lenders agreed to extend the final maturity date for all borrowings under the Zhenjiang Term Loans from May 18, 2021 to May 16, 2024. The repayment of borrowings under the Zhenjiang Term Loans is due semi-annually. The initial repayment period began in 2016. According to the amended repayment schedule, the semi-annual repayment in 2018 will be RMB 18.0 million (or equivalent to approximately $2.8 million as of December 31, 2017) and will increase to RMB 247.3 million (or equivalent to approximately $38.0 million as of December 31, 2017) by 2024.

ability to borrow funds in the future. Although the final maturity date for all borrowings under the Zhenjiang Revolver is May 18, 2021, all amounts outstanding under the Zhenjiang Revolver were repaid in 2017. The interest rate on the U.S. dollar term facility is six month U.S. dollar LIBOR plus 5.0% and the interest rate on the RMB term facility and the Zhenjiang Revolver is 110% of the base rate applicable to any loan denominated in RMB of the same tenor, as announced by the People’s Bank of China. As of December 31, 2018, $157.6 million was outstanding on the Zhenjiang Term Loans and the final maturity date for all borrowings under the Zhenjiang Term Loans is May 16, 2024. The repayment of borrowings under the Zhenjiang Term Loans is due semi-annually. The initial repayment period began in 2016. According to the amended repayment schedule, the semi-annual repayment in 2019 will be RMB 23.9 million (or equivalent to approximately $3.5 million as of December 31, 2018) and will increase to RMB 247.3 million (or equivalent to approximately $36.0 million as of December 31, 2018) by 2024.

The China Loan Facility contains certain customary covenants and events of default. The China Loan Facility requires Aleris Zhenjiang to, among other things, maintain a certain ratio of outstanding term loans to invested equity capital. In addition, Aleris Zhenjiang is restricted from, subject to certain exceptions, repaying loans or distributing dividends to stockholders, disposing of assets, providing third party guarantees, or entering into additional financing to expand the capacity of the project, among other things.

Aleris Zhenjiang was in compliance with all of the covenants set forth in the China Loan Facility as of December 31, ~~2017~~2018. Aleris Zhenjiang has had delays in its ability to make timely draws of amounts committed under the China Loan Facility in the past and we cannot be certain that Aleris Zhenjiang will be able to draw any amounts committed under the Zhenjiang Revolver in the future or as to the timing or cost of any such draws.

Non-GAAP Financial Measures

We report our financial results in accordance with GAAP. However, our management believes that certain non-GAAP performance measures, which we use in managing the business, may provide investors with additional meaningful comparisons between current results and results in prior periods. EBITDA, Adjusted EBITDA, segment Adjusted EBITDA and commercial margin are examples of non-GAAP financial measures that we believe provide investors and other users of our financial information with useful information.

Management uses EBITDA, Adjusted EBITDA, segment Adjusted EBITDA and commercial margin as performance metrics and believes these measures provide additional information commonly used by holders of the ~~Senior~~2023 Junior Priority Notes and parties to the Term Loan Facility and the ABL Facility with respect to the ongoing performance of our underlying business activities, as well as our ability to meet our future debt service, capital expenditures and working capital needs. In addition, EBITDA with certain adjustments is a component of certain covenants under the ~~indentures~~credit agreement governing the ~~Senior~~Term Loan Facility and the indenture governing the 2023 Junior Priority Notes. Adjusted EBITDA, including the impacts of metal price lag, is a component of certain financial covenants under the credit agreement governing the ABL Facility. Management also uses commercial margin as a performance metric and believes that it provides useful information regarding the performance of our segments because it measures the price at which we sell our aluminum products above the hedged cost of the metal and the effects of metal price lag, thereby reflecting the value-added components of our commercial activities independent of aluminum prices which we cannot control.

Our EBITDA calculations represent net income and loss ~~attributable to Aleris Corporation~~ before interest income and expense, provision for and benefit from income taxes, depreciation and amortization and income and loss from discontinued operations, net of tax. Adjusted EBITDA is defined as EBITDA excluding metal price lag, unrealized gains and losses on derivative financial instruments, restructuring charges, currency exchange gains and losses on debt, stock-based compensation expense, start-up costs, loss on extinguishment of debt, impairment of amounts held in escrow related to the sale of the recycling business and certain other gains and losses. Segment Adjusted EBITDA represents Adjusted EBITDA on a per segment basis. EBITDA as defined in the credit agreement governing the Term Loan Facility and the indenture governing the 2023 Junior Priority Notes also limits the amount of adjustments for cost savings, operational improvement and synergies for the purpose of determining our compliance with such covenants. Adjusted EBITDA as defined under the ABL Facility also limits the amount of adjustments for restructuring charges and requires additional adjustments be made if certain annual pension funding levels are exceeded. Commercial margin represents revenues less the hedged cost of metal and the effects of metal price lag.

EBITDA, Adjusted EBITDA, segment Adjusted EBITDA and commercial margin (collectively, the “Non-GAAP Measures”), as we use them, may not be comparable to similarly titled measures used by other companies. We calculate the Non-GAAP Measures by eliminating the impact of a number of items we do not consider indicative of our ongoing operating performance and certain other items. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. However, the Non-GAAP Measures are not financial measurements recognized under GAAP, and when analyzing our operating performance, investors should use the Non-GAAP Measures in addition to, and not as an alternative for, net income and loss, operating income and loss or any other performance measure derived in accordance with GAAP, or in addition to, and not as an alternative for, cash flow from operating activities as a measure of our liquidity.

~~expense,~~The ~~start~~Non-upGAAP ~~costs,~~Measures ~~loss~~have onlimitations ~~extinguishment~~as ofanalytical ~~debt~~tools, ~~impairment of amounts held in escrow related to the sale of the recycling business~~ and ~~certain~~they ~~other~~should ~~gains~~not ~~and~~be ~~losses.~~considered ~~Segment~~in ~~Adjusted~~isolation, ~~EBITDA~~or ~~represents~~as ~~Adjusted EBITDA on~~ a ~~per~~substitute ~~segment basis. EBITDA as defined in the indentures governing the Senior Notes also limits the amount of adjustments~~ for ~~cost savings~~, ~~operational~~or ~~improvement~~superior ~~and~~to, ~~synergies for the purpose of determining~~ our ~~compliance~~measures ~~with such covenants. Adjusted EBITDA as defined under the ABL Facility also limits the amount~~ of ~~adjustments~~financial ~~for~~performance ~~restructuring~~prepared ~~charges~~in ~~and~~accordance ~~requires~~with ~~additional adjustments be made if certain annual pension funding levels are exceeded~~GAAP. ~~Commercial~~These ~~margin~~limitations ~~represents~~include: ~~revenues less the hedged cost of metal and the effects of metal price lag.~~

EBITDA, Adjusted EBITDA, segment Adjusted EBITDA and commercial margin (collectively, the “Non-GAAP Measures”), as we use them, may not be comparable to similarly titled measures used by other companies. We calculate the Non-GAAP Measures by eliminating the impact of a number of items we do not consider indicative of our ongoing operating performance and certain other items. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. However, the Non-GAAP Measures are not financial measurements recognized under GAAP, and when analyzing our operating performance, investors should use the Non-GAAP Measures in addition to, and not as an alternative for, net income and loss attributable to Aleris Corporation, operating income and loss or any other performance measure derived in accordance with GAAP, or in addition to, and not as an alternative for, cash flow from operating activities as a measure of our liquidity. The Non-GAAP Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for, or superior to, our measures of financial performance prepared in accordance with GAAP. These limitations include:


▪	They do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;


▪	They do not reflect changes in, or cash requirements for, working capital needs;

▪ They do not reflect interest expense or cash requirements necessary to service interest expense or principal payments under ~~the~~our ~~ABL~~outstanding ~~Facility, the Senior Notes or the Exchangeable Notes~~indebtedness;


▪	They do not reflect certain tax payments that may represent a reduction in cash available to us;


▪	Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA, including segment Adjusted EBITDA, do not reflect cash requirements for such replacements; and


▪	Other companies, including companies in our industry, may calculate these measures differently and, as the number of differences in the way companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.

In addition, in evaluating Adjusted EBITDA, including segment Adjusted EBITDA, we may incur expenses in the future that are similar to the adjustments in the below presentation. Our presentation of Adjusted EBITDA, including segment Adjusted EBITDA, should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

For reconciliations of EBITDA, Adjusted EBITDA and commercial margin to their most directly comparable financial measures presented in accordance with GAAP, see the tables below. For a reconciliation of segment Adjusted EBITDA to segment income and a reconciliation of commercial margin to revenues, which are the most directly comparable financial measures presented in accordance with GAAP, for the North America, Europe and Asia Pacific segments, see the reconciliations in “– Our Segments.”

For the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, our reconciliations of EBITDA and Adjusted EBITDA to net (loss) ~~income attributable to Aleris Corporation~~ and net cash provided (used) ~~provided~~ by operating activities are presented below:

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
	(in millions)
Adjusted EBITDA from continuing operations	$	~~200~~276.60		$	~~205~~200.16		$	~~222~~205.81
Unrealized gains (losses) on derivative financial instruments of continuing operations	3.0			19.0			(30.1		)
Unrealized gains on derivative financial instruments	22.7			3.0			19.0
Restructuring charges (i)	(24.98		)	(12.59		)	(101.35		)
Currency exchange (losses) gains on debt	(2.5		)	(0.6		)	1.0
Currency exchange losses on debt	(2.3		)	(2.5		)	(0.6		)
Stock-based compensation expense	(119.32		)	(711.03		)	(47.80		)
Start-up costs	(7355.60		)	(4673.06		)	(2146.10		)
(Unfavorable) favorable metal price lag (ii)	(6.3		)	3.2			(18.6		)
Favorable (unfavorable) metal price lag (ii)	36.3			(6.3		)	3.2
Loss on extinguishment of debt	—(48.9		)	~~(12.6~~—		)	(212.06		)
Impairment of amounts held in escrow related to the sale of the recycling business	~~(22.8~~—		)	—(22.8		)	—
Other (iii)	(183.45		)	(418.54		)	(144.15		)
EBITDA from continuing operations	65211.83			~~155~~65.18			~~122~~155.81
Interest expense, net	(~~124~~144.17		)	(82124.51		)	(9482.15		)
(Provision for) benefit from income taxes	(40.4		)	(40.0		)	22.7
Provision for income taxes	(18.5		)	(40.4		)	(40.0		)
Depreciation and amortization from continuing operations	(~~115~~139.7		)	(~~104~~115.97		)	(~~123~~104.89		)
(Loss) income from discontinued operations, net of tax	3.8			(3.3		)	121.1
Income (loss) from discontinued operations, net of tax	—			3.8			(3.3		)
Net (loss) income attributable to Aleris Corporation	(210.6		)	(75.6		)	48.7
Net loss	(91.6		)	(210.6		)	(75.6		)
Net income from discontinued operations attributable to noncontrolling interest	—			—			0.1
Depreciation and amortization	139.7			115.7			104.9
Net (loss) income	(210.6		)	(75.6		)	48.8
Provision for deferred income taxes	2.0			32.3			21.5
Depreciation and amortization	115.7			104.9			123.8
Stock-based compensation expense	9.2			11.3			7.0
Provision for deferred income taxes	32.3			21.5			34.5
Unrealized gains on derivative financial instruments	(23.1		)	(3.0		)	(19.0		)
Stock-based compensation expense	11.3			7.0			4.8
Amortization of debt issuance costs	5.9			2.8			5.7
Unrealized (gains) losses on derivative financial instruments	(3.0		)	(19.0		)	28.1
Loss on extinguishment of debt	48.9			—			12.6
Amortization of debt issuance costs	2.8			5.7			6.6
Net (gain) loss on sale of discontinued operations	—			(4.5		)	3.3
Loss on extinguishment of debt	—			12.6			2.0
Non-cash (gain) loss	(11.1		)	22.8			—
Net loss (gain) on sale of discontinued operations	(4.5		)	3.3			(191.7		)
Other	6.5			10.1			4.9
Impairment of amounts held in escrow related to the sale of the recycling business	22.8			—			—
Other	10.1			4.9			(10.2		)
Change in operating assets and liabilities:
Change in accounts receivable	(545.7		)	(95.47		)	(319.34		)
Change in inventories	(58183.45		)	(7058.24		)	~~128~~(70.02		)
Change in other assets	39.9			(13.49		)	3(1.84		)
Change in accounts payable	3384.7			4133.7			~~(18~~41.67		)
Change in accrued liabilities	1870.25			~~(14~~18.02		)	(914.10		)
Net cash (used) provided by operating activities	$	(31.4	)	$	12.0		$	119.5
Net cash provided (used) by operating activities	$	22.3		$	(31.4	)	$	12.0

(i) See Note 34, “Restructuring Charges,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.

(ii)

Represents the financial impact of the timing difference between when aluminum prices included within our revenues are established and when aluminum purchase prices included in our cost of sales are established. This lag will, generally, increase our earnings and EBITDA in times of rising primary aluminum prices and decrease our earnings and EBITDA in times of declining primary aluminum prices; however, our use of derivative financial instruments seeks to reduce this impact. Metal price lag is net of the realized gains and losses from our derivative financial instruments. We exclude metal price lag from our determination of Adjusted EBITDA because it is not an indicator of the performance of our underlying operations.

(iii) Includes gains and losses on the disposal of assets, costs incurred in connection with proposed capital raising transactions, certain acquisition and disposition activities and other business development costs and in 2018 a gain from the ~~write-down~~resolution of ~~inventories~~the ~~associated~~bankruptcy ~~with~~of ~~plant~~our ~~closures~~former recycling business (see Note 19, “Stockholders’ Equity” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K).

For the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, our reconciliations of revenues to commercial margin are presented below.

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
	(in millions)
Revenues	$	23,~~857~~445.39		$	2,~~663~~857.93		$	2,~~917~~663.89
Hedged cost of metal	(1,~~664~~991.75		)	(1,~~467~~664.67		)	(1,~~732~~467.16		)
Unfavorable (favorable) metal price lag	6.3			(3.2		)	18.6
(Favorable) unfavorable metal price lag	(36.3		)	6.3			(3.2		)
Commercial margin	$	1,~~198~~418.91		$	1,~~193~~198.19		$	1,~~204~~193.31

Exchange Rates

During ~~2017~~2018, the fluctuation of the U.S. dollar against other currencies resulted in unrealized currency translation ~~gains~~losses that ~~increased~~decreased our equity by $8227.03 million. Currency translation adjustments are the result of the process of translating an international entity’s financial statements from the entity’s functional currency to U.S. dollars. Currency translation adjustments accumulate in consolidated equity until the disposition or liquidation of the international entities.

The euro is the functional currency of substantially all of our European-based operations and the renminbi is the functional currency of our China operations. In the future, our results of operations will continue to be impacted by the exchange rate between the U.S. dollar and the euro and the U.S. dollar and renminbi. In addition, we have other operations where the functional currency is not our reporting currency, the U.S. dollar, and our results of operations are impacted by currency fluctuations between the U.S. dollar and such other currencies.

Contractual Obligations

We and our subsidiaries are obligated to make future payments under various contracts such as debt agreements, lease agreements, postretirement and pension benefit plans and unconditional purchase obligations. The following table summarizes our estimated significant contractual cash obligations and other commercial commitments at December 31, ~~2017~~2018.

	Cash Payments Due by Period
	(in millions)
	Total		~~2018~~2019		~~2019-~~2020-2021		~~2021-~~2022-2023		After ~~2022~~2023
Long-term debt and capital lease obligations	$	1,~~783~~961.92	$	922.01	$	~~834~~114.89	$	~~865~~1,786.42	$	7438.70
Interest on long-term debt obligations	~~393~~546.82		~~123~~131.10		~~237~~253.32		31159.39		2.1
Estimated postretirement benefit payments	2624.98		3.21		65.16		5.71		11.90
Estimated pension benefit payments	4946.65		118.69		7.87		8.43		21.86
Operating lease obligations	1215.96		34.9		47.54		2.5		2.0.8
Estimated payments for asset retirement obligations	78.96		—		—		—		78.96
Purchase obligations	1,~~526~~666.0		~~985~~1,323.09		~~483~~320.21		355.36		2216.54
Total	$	34,~~801~~268.09	$	1,~~135~~493.89	$	~~1,573~~708.79	$	~~948~~1,967.6	$	~~142~~98.95

Our estimated funding for our funded pension plans and postretirement benefit plans is based on actuarial estimates using benefit assumptions for discount rates, expected long-term rates of return on assets, rates of compensation increases, and health care cost trend rates. For our funded pension plans, estimating funding beyond ~~2018~~2019 would depend upon the performance of the plans’ investments, among other things. As a result, estimating pension funding beyond ~~2018~~2019 is not practicable. Payments for unfunded pension plan benefits and postretirement benefit payments are estimated through 2026.

Operating lease obligations are payment obligations under leases classified as operating. Most of the lease obligations relate to the costs of leasing office space. In addition, some leases relate to items used in our manufacturing processes, which typically are leased for a period of one to five years.

Our estimated payments for asset retirement obligations are based on management’s estimates of the timing and extent of payments to be made to fulfill legal or contractual obligations associated with the retirement of certain long-lived assets. Amounts presented represent the future value of expected payments.

Our purchase obligations represent non-cancellable agreements (short-term and long-term) to purchase goods or services that are enforceable and legally binding on us that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations include the pricing of anticipated metal purchases using contractual prices or, where pricing is dependent upon the prevailing LME metal prices at the time of delivery, market prices as of December 31, ~~2017~~2018, as well as natural gas and electricity purchases using minimum contractual quantities and either contractual prices or prevailing rates. As a result of the variability in

the pricing of many of our metals purchasing obligations, actual amounts paid may vary from the amounts shown above. Purchase obligations also include amounts associated with capital expenditure projects.

The ABL Facility ~~and~~carries ~~China Loan Facility carry~~ variable interest rates and variable outstanding amounts for which estimating future interest payments is not practicable. The Term Loan Facility and China Loan Facility carry variable interest rates. The estimated future interest payments were based on the average rate paid in 2018.

Environmental Contingencies

Our operations are subject to federal, state, local and international laws, regulations and ordinances. These laws and regulations (1) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as waste handling and disposal practices and (2) impose liability for costs of cleaning up, and certain damages resulting from, spills, disposals or other releases of regulated materials. It can be anticipated that more rigorous environmental laws will be enacted that could require us to make substantial expenditures in addition to those described in this annual report on Form 10-K. See Item 1. – “Business—Environmental.”

From time to time, our operations have resulted, or may result, in certain non-compliance with applicable requirements under such environmental laws. To date, any such non-compliance with such environmental laws have not had a material adverse effect on our financial position, results of operations or cash flows. See Note 1415, “Commitments and Contingencies,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including, among others, those related to the valuation of inventory, property and equipment and intangible assets, allowances related to doubtful accounts, income taxes, pensions and other post-retirement benefits and environmental liabilities. Our management bases its estimates on historical experience, actuarial valuations and other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates. Our accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K. ~~There~~During ~~have~~the ~~been~~year ended December 31, 2018, our revenue recognition policy was updated for the adoption of ASC 606. There were no significant changes to our critical accounting policies or estimates during the ~~years~~year ended December 31, 2017 ~~or 2016~~.

The following critical accounting policies and estimates are used to prepare our consolidated financial statements:

Revenue Recognition and Shipping and Handling Costs

~~Revenues~~Revenue ~~are~~is recognized when ~~title~~obligations ~~transfers~~under ~~and~~the ~~risk~~terms of ~~loss~~a ~~passes~~contract to(as ~~the~~defined ~~customer~~by inASC ~~accordance~~606) with ~~the~~our ~~provisions~~customer ofare ~~the~~satisfied, ~~Securities~~which ~~and~~occurs ~~Exchange~~at ~~Commission~~a ~~(“SEC”)~~point ~~Staff~~in ~~Accounting~~time ~~Bulletin~~when ~~(“SAB”)~~control ~~No. 104,~~of ~~“Revenue~~the ~~Recognition~~product transfers to the customer.” ~~This~~Control ~~occurs~~may transfer to the customer at various points in the delivery process. In North America, ~~substantially~~most ~~all~~ revenue is recognized at the point of shipment. In Europe and China, the timing of revenue recognition varies depending on individual customer arrangements~~. For material that is consigned~~, ~~revenue is not recognized until the product is used by the customer. We occasionally enter into long-term supply contracts with customers~~ and ~~receive~~may ~~advance~~include ~~payments~~point ~~for~~of ~~product to be delivered in future periods. These advance payments are recorded as deferred revenue~~shipment, ~~and~~delivery ~~revenue is recognized as shipments are made and title, ownership, and risk of loss pass~~ to ~~the customer during the term of the applicable contract. In connection with the January 1~~port, ~~2018~~final ~~adoption~~delivery ~~of Accounting Standard Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, our revenue recognition policy will be updated~~ to ~~reflect the new revenue recognition model, which requires the recognition of revenue when a~~ customer ~~obtains~~or ~~control~~another ofpoint ~~the~~in ~~product and can obtain substantially all of~~ the ~~benefits~~delivery ~~from the product~~process. ~~For additional information, see Note 2, “Summary of Significant Accounting Policies,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.~~

Certain contractual arrangements, primarily with customers in our automotive and heat exchanger end-uses, allow for inventory to be held at a customer’s location or in a third-party warehouse with direct customer access. Title does not transfer to the customer on such inventory until the customer has removed the product for consumption. Under such arrangements, management has concluded that control has passed to the customer upon delivery to the customer’s location or the third-party warehouse if the customer has unrestricted access to the product and the Company has the right to invoice that customer after a specified period of time regardless of whether or not the product has been removed by the customer for production.

The transaction price for our products includes the value of the aluminum in the product plus a conversion fee, or rolling margin, which is the price charged to the customer for conversion of the aluminum raw material to the finished product. Certain customer contracts include volume rebates applied retrospectively to quantities purchased during a specified period. The resulting variable consideration from volume rebates is estimated using the expected value method.

As all customer contracts (as defined by ASC 606) have an original expected duration of less than twelve months, we have applied the practical expedient to the disclosure of the aggregate amount of the transaction price allocated to remaining performance obligations.

Customer payments are due shortly after completion of the performance obligation, on payment terms that are customary for the industry. As all customer payments are due in less than one year, we have not adjusted revenue for the effects of a significant financing component.

Shipping and handling costs are included within “Cost of sales” in the Consolidated Statements of Operations included elsewhere in this annual report on Form 10-K.

Inventories

Our inventories are stated at the lower of cost or net realizable value. Cost is determined using either an average cost or specific identification method and includes an allocation of manufacturing labor and overhead costs to work-in-process and finished goods. We review our inventory values on a regular basis to ensure that their carrying values can be realized. In assessing the ultimate realization of inventories, we are required to make judgments as to future demand requirements and compare that with the current or committed inventory levels. As the ultimate realizable value of most of inventories is based upon the price of prime or scrap aluminum, future changes in those prices may lead to the determination that the cost of some or all of our inventory will not be realized and we would then be required to record the appropriate adjustment to inventory values.

or all of our inventory will not be realized and we would then be required to record the appropriate adjustment to inventory values.

Derivative Financial Instruments

Derivative contracts are recorded at fair value under ASC 820, “Fair Value Measurements and Disclosures” using quoted market prices and significant other observable and unobservable inputs. 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 (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 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.

We endeavor to use the best available information in measuring fair value. To estimate fair value, we apply an industry standard valuation model, which is based on the market approach. Where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based on available market evidence and unobservable inputs. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Impairment of Long-Lived Assets and Amortizable Intangible Assets

We review the carrying value of property, plant and equipment to be held and used as well as amortizable intangible assets when events or circumstances indicate that their carrying value may not be recoverable. Factors that we consider important that could trigger our testing of the related asset groups for an impairment include current period operating or cash flow losses combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing losses, significant adverse changes in the business climate within a particular business or current expectations that a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life. We consider these factors quarterly and may test more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. To test for impairment, we compare the estimated undiscounted cash flows expected to be generated from the use and disposal of the asset or asset group to its carrying value. An asset group is established by identifying the lowest level of cash flows generated by the group of assets that are largely independent of cash flows of other assets. If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify projected cash flows. If these undiscounted cash flows are less than their respective carrying values, an impairment charge would be recognized to the extent that the carrying values exceed estimated fair values. Although third-party estimates of fair value are utilized when available, the estimation of undiscounted cash flows and fair value requires us to make assumptions regarding future operating results, as well as appropriate discount rates, where necessary. The results of our impairment testing are dependent on these estimates which require significant judgment. The ~~occurrence of certain events, including changes in economic and competitive conditions, could impact cash flows eventually realized and our ability to accurately assess whether an asset is impaired.~~

occurrence of certain events, including changes in economic and competitive conditions, could impact cash flows eventually realized and our ability to accurately assess whether an asset is impaired.

Indefinite-Lived Intangible Asset

An indefinite-lived intangible asset related to our trade name is not amortized. The indefinite-lived intangible asset is tested for impairment as of October 1st of each year and may be tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. As part of the annual impairment test, the non-amortized intangible asset is reviewed to determine if the indefinite status remains appropriate.

~~The~~In ~~annual~~2018, ~~impairment~~an ~~test~~optional ~~may~~qualitative beassessment ~~completed~~was ~~quantitatively,~~performed ~~based~~to ondetermine awhether ~~relief~~it ~~from~~is ~~royalty~~more-likely-than-not ~~valuation~~that ~~approach~~the indefinite-lived intangible asset was impaired. ~~Significant~~The ~~assumptions~~qualitative assessment included consideration of relevant events and circumstances that could affect the significant inputs used ~~under~~to ~~this~~determine ~~approach~~the ~~include~~fair value of the ~~royalty~~indefinite-lived ~~rate~~intangible asset, ~~weighted~~including ~~average~~our ~~cost~~financial ofperformance, ~~capital~~macroeconomic ~~and~~conditions, the ~~terminal~~competitive ~~growth~~environment, ~~rate.~~legal ~~The~~and ~~annual~~regulatory ~~impairment~~factors, ~~test~~and ~~may~~other berelevant ~~completed~~entity ~~using~~specific anconsiderations. ~~optional~~Using the qualitative assessment, inwe ~~lieu~~determined ofthat it was not more-likely-than-not that the ~~quantitative~~indefinite-lived intangible asset was impaired.

60If it were determined that it is more-likely-than-not that the indefinite-lived intangible asset were impaired, a quantitative impairment analysis would be performed. The quantitative impairment test would be based on a relief from royalty valuation approach. Significant assumptions used under this approach include the royalty rate, weighted average cost of capital and the terminal growth rate.

test to determine whether it is more-likely-than-not that the indefinite-lived intangible asset is impaired. The qualitative assessment includes consideration of relevant events and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset, including our financial performance, macroeconomic conditions, the competitive environment, legal and regulatory factors, and other relevant entity specific considerations. Using the qualitative assessment, we determine whether it is more-likely-than-not that the indefinite-lived intangible asset is impaired. If it is determined that it is more-likely-than-not that the indefinite-lived intangible asset is impaired, a quantitative impairment analysis would be performed.

A quantitative impairment test is completed at least once every three years. A quantitative impairment test was completed at October 1, 2017, and no impairments relating to our indefinite-lived intangible asset was necessary.

Credit Risk

We recognize our allowance for doubtful accounts based on our historical experience of customer write-offs as well as specific provisions for customer receivable balances. In establishing the specific provisions for uncollectible accounts, we make assumptions with respect to the future collectability of amounts currently owed to us. These assumptions are based upon such factors as each customer’s ability to meet and sustain its financial commitments, its current and projected financial condition and the occurrence of changes in its general business, economic or market conditions that could affect its ability to make required payments to us in the future. In addition, we provide reserves for customer rebates, claims, allowances, returns and discounts based on, in the case of rebates, contractual relationships with customers, and, in the case of claims, allowances, returns and discounts, our historical loss experience and the lag time between the recognition of the sale and the granting of the credit to the customer. Our level of reserves for our customer accounts receivable fluctuates depending upon all of these factors. Significant changes in required reserves may occur in the future if our evaluation of a customer’s ability to pay and assumptions regarding the relevance of historical data prove incorrect.

Environmental and Asset Retirement Obligations

Environmental obligations that are not legal or contractual asset retirement obligations and that relate to existing conditions caused by past operations with no benefit to future operations are expensed while expenditures that extend the life, increase the capacity or improve the safety of an asset or that mitigate or prevent future environmental contamination are capitalized in property, plant and equipment. Our environmental engineers and consultants review and monitor environmental issues at our existing operating sites. This process includes investigation and remedial action selection and implementation, as well as negotiations with other potentially responsible parties and governmental agencies. Based on the results of this process, we provide reserves for environmental liabilities when and if environmental assessment and/or remediation costs are probable and can be reasonably estimated in accordance with ASC 410-30 “Environmental Obligations.” While our accruals are based on management’s current best estimate of the future costs of remedial action, these liabilities can change substantially due to factors such as the nature and extent of contamination, changes in the required remedial actions and technological advancements. Our existing environmental liabilities are not discounted to their present values as the amount and timing of the expenditures are not fixed or reliably determinable.

Asset retirement obligations represent obligations associated with the retirement of tangible long-lived assets. Our asset retirement obligations relate primarily to costs related to the future removal of asbestos and costs to remove underground storage tanks. The costs associated with such legal obligations are accounted for under the provisions of ASC 410-20 “Asset Retirement Obligations,” which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and capitalized as part of the carrying amount of the long-lived asset. These fair values are based upon the present value of the future cash flows expected to be incurred to satisfy the obligation. Determining the fair value of asset retirement obligations requires judgment, including estimates of the credit adjusted interest rate and estimates of future cash flows. Estimates of future cash flows are obtained primarily from independent engineering consulting firms. The present value of the obligations is accreted over time while the capitalized cost is depreciated over the useful life of the related asset.

Deferred Income Taxes

We record deferred income taxes to reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are regularly reviewed for recoverability. A valuation allowance is provided to reduce certain deferred tax assets to amounts that, in our estimate, are more likely than not to be realized.

In determining the adequacy of recorded valuation allowances, management assesses our profitability in the applicable jurisdictions by taking into account the current and forecasted amounts of earnings or losses as well as the forecasted taxable income as a result of the reversal of future taxable temporary differences. Although subjective positive evidence exists in some of the applicable jurisdictions in the form of forecasted earnings in future periods, our recent history of losses provides objective negative evidence that management believes outweighs any subjective positive evidence in those jurisdictions. Therefore, we will maintain valuation allowances against certain of our net deferred tax assets in the U.S. and other applicable jurisdictions until sufficient objective positive evidence (for example, cumulative positive earnings and future taxable income) exists to reduce or eliminate the valuation allowance.

Market Risk Management Using Financial Instruments

The procurement and processing of aluminum in our industry involves many risks. Some of these risks include changes in metal and natural gas prices. We attempt to manage these risks by the use of derivative financial instruments and long-term contracts. While these derivative financial instruments reduce, they do not eliminate these risks.

We do not account for derivative financial instruments as hedges. As a result, all of the related gains and losses on our derivative financial instruments are reflected in current period earnings.

The counterparties to our derivative financial instruments expose us to losses in the event of non-performance. All credit parties are evaluated for creditworthiness and risk assessment prior to initiating trading activities. In addition, the fair values of our derivative financial instruments include an estimate of the risk associated with non-performance by either ourselves or our counterparties.

Pension and Postretirement Benefits

Our pension and postretirement benefit costs are accrued based on annual analyses performed by our actuaries. These analyses are based on assumptions such as an assumed discount rate and an expected rate of return on plan assets. Both the discount rate and expected rate of return on plan assets require estimates and projections by management and can fluctuate from period to period. Our objective in selecting a discount rate is to select the best estimate of the rate at which the benefit obligations could be effectively settled. In making this estimate, projected cash flows are developed and matched with a yield curve based on an appropriate universe of high-quality corporate bonds. Assumptions for long-term rates of return on plan assets are based upon historical returns, future expectations for returns for each asset class and the effect of periodic target asset allocation rebalancing. The results are adjusted for the payment of reasonable expenses of the plan from plan assets. The historical long-term return on the plans’ assets exceeded the selected rates and we believe these assumptions are appropriate based upon the mix of the investments and the long-term nature of the plans’ investments.

The weighted average discount rate used to determine the U.S. pension benefit obligation was 34.5315% as of December 31, ~~2017~~2018 compared to 43.0053% as of December 31, ~~2016~~2017 and 4.1900% as of December 31, ~~2015~~2016. The weighted average discount rate used to determine the non-U.S. pension benefit obligation was 2.1223% as of December 31, ~~2017~~2018 compared to 12.9112% as of December 31, ~~2016~~2017 and 21.5991% as of December 31, ~~2015~~2016. The weighted average discount rate used to determine the other postretirement benefit obligation was 34.4308% as of December 31, ~~2017~~2018 compared to 3.8143% as of December 31, ~~2016~~2017 and 3.9681% as of December 31, ~~2015~~2016. The weighted average discount rate used to determine the net periodic benefit cost is the rate used to determine the benefit obligation at the end of the previous year.

~~Through~~We ~~the~~use ~~year~~an ~~ended December 31, 2015, we used a single weighted-average discount rate~~ approach to develop the interest and service cost components of the net periodic benefit costs. ~~This method represented the constant annual rate~~ that would be required to discount all future benefit payments related to past service from the date of expected future payment to the measurement date such that the aggregate present value equals the obligation. During the fourth quarter of 2015, we updated the method previously used for substantially all of our pension and other post-retirement benefit plans. Beginning with our 2016 fiscal year, we have used an approach that discounts the individual expected cash flows underlying interest and service costs using the applicable spot rates derived from the yield curve used to determine the benefit obligation to the relevant projected cash flows. The ~~election~~use ~~and adoption~~ of this method provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. The change in estimate resulted in a decrease in the service and interest components of net periodic benefit cost in 2016 of approximately $1.5 million, $0.6 million and $0.4 million for the U.S. pension plans, non-U.S. pension plans and postretirement plans, respectively. We have accounted for this change in estimate on a prospective basis.

As of December 31, ~~2017~~2018, an increase in the discount rate of 0.5%, assuming inflation remains unchanged, would result in a decrease of $2422.73 million in the pension and other postretirement obligations and a decrease of $1.37 million in the net periodic benefit cost. A decrease in the discount rate of 0.5% as of December 31, ~~2017~~2018, assuming inflation remains unchanged, would result in an increase of $2825.04 million in the pension and other postretirement obligations and an increase of $1.87 million in the net periodic benefit cost.

The calculation of the estimate of the expected return on assets and additional discussion regarding pension and other postretirement plans is described in Note 1011, “Employee Benefit Plans,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K. The weighted average expected return on assets associated with our U.S. pension benefits was 7.7526% for ~~2017~~2018 and ~~2016~~2017 and 87.0075% for ~~2015~~2016. The weighted average expected return on assets associated with our U.S. pension benefit expense to be recognized in 2019 has been decreased to 7.20%, primarily as a result of our strategy to decrease exposure to equity investments as the funding level of the plans improves. The weighted average

associated with our U.S. pension benefit expense to be recognized in 2018 has been decreased to 7.26%, primarily as a result of our strategy to decrease exposure to equity investments as the funding level of the plans improves. The weighted average expected return on assets associated with our European pension benefits was 23.4600% for ~~2017~~2018, 2.7846% for ~~2016~~2017 and 2.9078% for ~~2015~~2016. The expected return on assets is a long-term assumption whose accuracy can only be measured over a long period based on past experience. A variation in the expected return on assets by 0.5% as of December 31, ~~2017~~2018 would result in a variation of approximately $0.7 million in the net periodic benefit cost.

Unrecognized actuarial gains and losses related to changes in our assumptions and actual experiences differing from them will be recognized over the expected remaining service life of the employee group. As of December 31, ~~2017~~2018, the accumulated amount of unrecognized losses on pension and other postretirement benefit plans was $8782.35 million, of which $4.45 million of amortization is expected to be recognized in ~~2018~~2019.

The actuarial assumptions used to determine pension and other postretirement benefits may differ from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. We do not believe differences in actual experience or changes in assumptions will materially affect our financial position or results of operations.

Stock-Based Compensation

We use a Black-Scholes option-pricing model to estimate the grant-date fair value of the stock options awarded. Under this valuation method, the estimate of fair value is affected by the assumptions included in the following table. Expected equity volatility was determined based on historical stock prices and implied and stated volatilities of our peer companies. There were no stock options granted during the years ended December 31, 2018 and 2016. The following table summarizes the significant assumptions used to determine the fair value of the stock options granted during the year ended December ~~31,~~ ~~2017. There were no stock options granted during the year ended December~~ 31, ~~2016~~2017:



	Year ended
	December 31, 2017
Weighted-average expected option life in years	5.5
Risk-free interest rate	2.1	%
Equity volatility factor	50.0	%
Dividend yield	—	%

Business Combinations

All business combinations are accounted for using the acquisition method as prescribed by ASC 805, “Business Combinations.” The purchase price paid is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Any excess purchase price over the fair value of the net assets acquired is recorded as goodwill.

Discontinued Operations

In accordance with ASC 205-20, “Discontinued Operations,” a component of an entity that is disposed of or classified as held for sale is reported as a discontinued operation if the transaction represents a strategic shift that will have a major effect on an entity’s operations and financial results. The results of discontinued operations are aggregated and presented separately in the Consolidated Statements of Operations. Assets and liabilities of the discontinued operations are aggregated and reported separately as assets and liabilities of discontinued operations in the Consolidated Balance Sheet, including the comparative prior year period.

Amounts presented in discontinued operations have been derived from our consolidated financial statements and accounting records using the historical basis of assets and liabilities to be disposed and historical results of operations related to our former recycling and specification alloys businesses and extrusions business. The discontinued operations exclude general corporate allocations of certain functions historically provided by our corporate offices, such as accounting, treasury, tax, human resources, facility maintenance, and other services. Interest costs have been excluded from discontinued operations except for the interest expense on the debt and capital leases that have been assumed by the buyers. See Note 17, “Discontinued Operations” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K for more information.

Off-Balance Sheet Transactions

We had no off-balance sheet arrangements at December 31, ~~2017~~2018.

Recently Issued Accounting Standards Updates

For a summary of recently issued accounting standards, see Note 2, “Summary of Significant Accounting Policies,” to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In the ordinary course of our business, we are exposed to earnings and cash flow volatility resulting from changes in the prices of aluminum and, to a lesser extent, hardeners, such as zinc and copper, and natural gas and other fuels, as well as changes in currency and interest rates. ~~For~~We ~~aluminum hedges, we~~ use derivative instruments, such as forwards, futures, options, collars and swaps to manage the effect, both favorable and unfavorable, of such changes. For electricity and some natural gas price exposures, fixed price commitments are used.

Derivative contracts are used primarily to reduce uncertainty and volatility and cover underlying exposures and are held for purposes other than trading. Our commodity and derivative activities are subject to the management, direction and control of our Risk Management Committee, which is composed of our ~~chief~~Chief ~~financial~~Financial ~~officer~~Officer and other officers and employees that the ~~chief~~Chief ~~executive~~Executive ~~officer~~Officer designates. The Risk Management Committee reports to the Audit Committee of our Board of Directors, which has supervisory authority over all of its activities.

We are exposed to losses in the event of non-performance by the counterparties to the derivative contracts discussed below. Although non-performance by counterparties is possible, we do not currently anticipate any nonperformance by any of these parties. Counterparties are evaluated for creditworthiness and risk assessment prior to our initiating contract activities. The counterparties’ creditworthiness is then monitored on an ongoing basis, and credit levels are reviewed to ensure that there is not an inappropriate concentration of credit outstanding to any particular counterparty.

The counterparties’ creditworthiness is then monitored on an ongoing basis, and credit levels are reviewed to ensure that there is not an inappropriate concentration of credit outstanding to any particular counterparty.

Metal Hedging

Aluminum ingots, copper and zinc are internationally produced, priced and traded commodities, with the LME being the primary exchange. As part of our efforts to preserve margins, we enter into forward, futures and options contracts. For accounting purposes, we do not consider our metal derivative instruments as hedges and, as a result, changes in the fair value of these derivatives are recorded immediately in our consolidated operating results.

The selling prices of the majority of the orders for our products are established at the time of order entry or, for certain customers, under long-term contracts. As the related raw materials used to produce these orders can be purchased several months or years after the selling prices are fixed, margins are subject to the risk of changes in the purchase price of the raw materials used for these fixed price sales. In order to manage this transactional exposure, future, swaps or forward purchase contracts are purchased at the time the selling prices are fixed. As metal is purchased to fill these fixed price sales orders, futures, swaps or ~~forwards~~forward contracts are then sold. We also maintain a significant amount of inventory on hand to meet anticipated and unpriced future sales. In order to preserve the value of this inventory, future, swaps or forward contracts are sold at the time inventory is purchased. As sales orders are priced, futures, swaps or forward contracts are purchased. These derivatives generally settle within three months.

We can also use call option contracts, which function in a manner similar to the natural gas call option contracts discussed below, and put option contracts for managing metal price exposures. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Upon settlement of a put option contract, we receive cash and recognize a related gain if the LME closing price is less than the strike price of the put option. If the put option strike price is less than the LME closing price, no amount is paid and the option expires.

As of December 31, ~~2017~~2018, we had 0.12 million metric tons and 0.23 million metric tons of metal buy and sell derivative contracts, respectively. As of December 31, ~~2016~~2017, we had 0.1 million metric tons and 0.2 million metric tons of metal buy and sell derivative contracts, respectively.

Energy Hedging

To manage the price exposure for natural gas purchases, we can fix the future price of a portion or all of our natural gas requirements by entering into financial hedge contracts. Additionally, from time to time, we have entered into diesel fuel swaps with financial counterparties to mitigate the impact of the volatility of diesel fuel prices on our freight costs. We do not consider our natural gas or fuel derivative instruments as hedges for accounting purposes and as a result, changes in the fair value of these derivatives are recorded immediately in our consolidated operating results.

WeUnder ~~do not consider~~ our natural gas ~~derivatives instruments as hedges for accounting purposes and as a result, changes in the fair value of these derivatives are recorded immediately in our consolidated operating results. Under these~~ contracts, payments are made or received based on the differential between the monthly closing price on the New York Mercantile Exchange (“NYMEX”) and the contractual hedge price. We can also use a combination of call option contracts and put option contracts for managing the exposure to increasing natural gas prices while maintaining the benefit from declining prices. Upon settlement of call option contracts, we receive cash and recognize a related gain if the NYMEX closing price exceeds the strike price of the call option. If the call option strike price exceeds the NYMEX closing price, no amount is received and the option expires unexercised. Upon settlement of a put option contract, we pay cash and recognize a related loss if the NYMEX closing price is lower than the strike price of the put option. If the put option strike price is less than the NYMEX closing price, no amount is paid and the option expires unexercised. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Natural gas cost can also be managed through the use of cost escalators included in some of our long-term supply contracts with customers, which limits exposure to natural gas price risk.

As of December 31, 2018 and 2017, we had 4.6 trillion and 3.5 trillion, respectively, of British thermal unit forward buy contracts. We anticipate consuming 5.3 trillion British thermal units of natural gas in our operations in 2019.

We use independent freight carriers to deliver our products. As part of the total freight charge, these carriers include a per mile diesel surcharge based on the Department of Energy, Energy Information Administration’s (“DOE”) Weekly Retail Automotive Diesel National Average Price. From time to time, we enter into over-the-counter DOE diesel fuel swaps with financial counterparties to mitigate the impact of the volatility of diesel fuel prices on our freight costs. Under these swap agreements, we pay a fixed price per gallon of diesel fuel determined at the time the agreements were executed and receive a floating rate payment that is determined on a monthly basis based on the average price of the DOE Diesel Fuel Index during the applicable month. The swaps are designed to offset increases or decreases in fuel surcharges that we pay to our carriers. All

~~expires~~swaps ~~unexercised.~~are ~~Upon~~financially ~~settlement~~settled. ofThere ~~a put option contract, we pay cash and recognize a related loss if the NYMEX closing price~~ is ~~lower~~no ~~than~~possibility ~~the strike price~~ of ~~the~~physical ~~put option~~settlement. IfAs ~~the~~of ~~put~~December 31, ~~option strike price is less than the NYMEX closing price~~2018, nowe ~~amount~~had is4.3 ~~paid~~million gallons ~~and~~of ~~the~~diesel ~~option~~fuel ~~expires~~swap ~~unexercised~~contracts. ~~Option~~As ~~contracts require the payment~~ of aDecember 31, ~~premium~~2017, ~~which~~we ishad ~~recorded as a realized loss upon settlement or expiration of the option contract~~1.5 ~~Natural~~million ~~gas~~gallons ~~cost can also be managed through the use~~ of ~~cost~~diesel ~~escalators~~fuel ~~included~~swap ~~in some of our long-term supply~~ contracts ~~with customers, which limits exposure to natural gas price risk~~.

As of December 31, 2017 and 2016, we had 3.5 trillion and 2.1 trillion, respectively, of British thermal unit forward buy contracts. We anticipate consuming 5.3 trillion British thermal units of natural gas in our operations in 2018.

Currency Hedging and Exchange Risks

The financial condition and results of operations of some of our operating entities are reported in various currencies and then translated into U.S. dollars at the applicable exchange rate for inclusion in our consolidated financial statements. As a result, appreciation of the U.S. dollar against these currencies will have a negative impact on reported revenues and operating profit, while depreciation of the U.S. dollar against these currencies will generally have a positive effect on reported revenues and operating profit. In addition, our aerospace and heat exchanger businesses expose the U.S. dollar operating results of our European operations to fluctuations in the euro as sales contracts are generally in U.S. dollars while the costs of production are in euros. As a result, appreciation in the U.S. dollar will have a positive impact on earnings while depreciation of the U.S. dollar will have a negative impact on earnings. In order to mitigate the risk that fluctuations in the euro may have on our business we have entered into forward currency contracts. As of December 31, ~~2017~~2018 and ~~2016~~2017, we had euro forward contracts covering a notional amount of €~~100~~77.86 million and €34100.68 million, respectively.

Interest Rate Risks

As of December 31, 2018, subsequent to the debt refinancing transactions discussed above, approximately 77% of our debt obligations had variable interest rates. We are subject to interest rate risk related to the Term Loan Facility, the ABL Facility and the China Loan Facility, to the extent borrowings are outstanding under these facilities. As of December 31, 2018, Aleris International had $1,094.5 million and $253.7 million of borrowings under the Term Loan Facility and the ABL Facility, respectively, and Aleris Zhenjiang had $157.6 million of borrowings under the Zhenjiang Term Loans. In the third quarter of 2018, we entered into an interest rate swap to fix the LIBOR interest rate on $700.0 million the Term Loan Facility for the period of October 31, 2018 through June 28, 2019, thus significantly offsetting our exposure to changes in interest rates. We estimate that if the market interest rates would have increased by 10%, our interest expense for the year ended December 31, 2018 would have increased by approximately $2.7 million, excluding the impact of any interest rate derivative instruments.

Fair Values and Sensitivity Analysis

The following table shows the fair values of outstanding derivative contracts at December 31, 2018 and the effect on the fair value of a hypothetical adverse change in the market prices that existed at December 31, 2018:



				Impact of
	Fair			10% Adverse
Derivative	Value			Price Change
Metal	$	28.0		$	(24.5	)
Energy	(1.3		)	(1.6		)
Currency	(4.2		)	(3.1		)

The following table shows the fair values of outstanding derivative contracts at December 31, 2017 and the effect on the fair value of a hypothetical adverse change in the market prices that existed at December 31, 2017:

				Impact of
	Fair			10% Adverse
Derivative	Value			Price Change
Metal	$	(2.5	)	$	(24.4	)
Energy	0.2			(12.35		)
Currency	1.5			(12.4		)

The ~~following~~disclosures ~~table~~above ~~shows~~do not take into account the ~~fair~~underlying ~~values~~commitments ofor ~~outstanding~~anticipated ~~derivative~~transactions. ~~contracts~~If atthe ~~December 31~~underlying items were included in the analysis, ~~2016~~the gains or losses on our derivative instruments would be offset by gains and ~~the~~losses ~~effect~~realized on the ~~fair~~purchase ~~value~~ of the physical commodities. Actual results will be determined by a ~~hypothetical~~number ~~adverse~~of ~~change~~factors inoutside of our control and could vary significantly from the ~~market~~amounts ~~prices~~disclosed. ~~that~~For ~~existed~~additional atinformation ~~December 31~~on derivative financial instruments, ~~2016:~~see Note 2, “Summary of Significant Accounting Policies,” and Note 13, “Derivative and Other Financial Instruments,” to our audited consolidated financial statements included elsewhere in the annual report on Form 10-K.

				Impact of
	Fair			10% Adverse
Derivative	Value			Price Change
Metal	$	(3.3	)	$	(16.5	)
Energy	0.7			(0.8		)

The disclosures above do not take into account the underlying commitments or anticipated transactions. If the underlying items were included in the analysis, the gains or losses on our derivative instruments would be offset by gains and losses realized on the purchase of the physical commodities. Actual results will be determined by a number of factors outside of our control and could vary significantly from the amounts disclosed. For additional information on derivative financial instruments, see Note 2, “Summary of Significant Accounting Policies,” and Note 12, “Derivative and Other Financial Instruments,” to our audited consolidated financial statements included elsewhere in the annual report on Form 10-K.

Interest Rate Risks

As of December 31, 2017, approximately 73% of our debt obligations were at fixed rates. We are subject to interest rate risk related to the ABL Facility and the China Loan Facility, to the extent borrowings are outstanding under these facilities. As of December 31, 2017, Aleris International had $319.3 million of borrowings outstanding under the ABL Facility and Aleris Zhenjiang had $164.8 million of borrowings outstanding under the Zhenjiang Term Loans. We estimate that if the market interest rates would have increased by 10%, our interest expense for the year ended December 31, 2017 would have increased by approximately $1.8 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements

Index	Page Number
Management’s Report on Internal Control Over Financial Reporting	6867
Reports of Independent Registered Public Accounting Firm	6968
Consolidated Balance Sheet as of December 31, 2017 and December 31, 2016	71
Consolidated Balance Sheet as of December 31, 2018 and December 31, 2017	70
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015	72
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016	71
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2017, 2016 and 2015	73
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016	72
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	74
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016	73
Consolidated Statements of Changes in Stockholders’ Equity and Redeemable Noncontrolling Interest for the years ended December 31, 2017, 2016 and 2015	75
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016	74
Notes to Consolidated Financial Statements	7675

6766

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is 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.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2017~~2018 using the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, ~~2017~~2018, the Company’s internal control over financial reporting was effective based on those criteria.

The effectiveness of internal control over financial reporting as of December 31, ~~2017~~2018, has been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited the Company’s consolidated financial statements. Ernst & Young LLP’s attestation report on the effectiveness of the Company’s internal control over financial reporting is included herein.

/s/ Sean M. Stack

Sean M. Stack

Chairman and Chief Executive Officer

(Principal Executive Officer)

/s/ Eric M. Rychel

Eric M. Rychel

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

6867

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Aleris Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Aleris Corporation (the Company) as of December 31, ~~2017~~2018 and ~~2016~~2017, the related consolidated statements of operations, comprehensive (loss~~) income~~, cash flows and changes in stockholders’ equity ~~and redeemable noncontrolling interest~~ for each of the three years in the period ended December 31, ~~2017~~2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, ~~2017~~2018 and ~~2016~~2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2017~~2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and in accordance with auditing standards generally accepted in the United States of America, the Company’s internal control over financial reporting as of December 31, ~~2017~~2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 208, ~~2018~~2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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 and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since at least 1988, but we are unable to determine the specific year.

Cleveland, Ohio

March 208, ~~2018~~2019

6968

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Aleris Corporation

Opinion on Internal Control over Financial Reporting

We have audited Aleris Corporation’s internal control over financial reporting as of December 31, ~~2017~~2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Aleris Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017~~2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the PCAOB) and in accordance with auditing standards generally accepted in the United States of America, the ~~2017~~2018 consolidated financial statements of the Company and our report dated March 208, ~~2018~~2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible 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 an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.

/s/ Ernst & Young LLP

Cleveland, Ohio

March 208, ~~2018~~2019

7069

ALERIS CORPORATION

CONSOLIDATED BALANCE SHEET

(in millions, except share and per share data)

	December 31,
ASSETS	~~2017~~2018			~~2016~~2017
Current Assets
Cash and cash equivalents	$	~~102~~108.46		$	55102.64
Accounts receivable (net of allowances of $4.9 and $7.6 at December 31, 2017 and 2016, respectively)	245.7			218.7
Accounts receivable, net	308.8			245.7
Inventories	~~631~~772.29			~~538~~631.92
Prepaid expenses and other current assets	3662.17			3336.41
Total Current Assets	1,~~015~~253.40			~~846~~1,015.64
Property, plant and equipment, net	1,~~470~~395.90			1,~~346~~470.09
Intangible assets, net	3432.75			3634.87
Deferred income taxes	7060.72			8870.37
Other long-term assets	5238.7			7252.27
Total Assets	$	2,~~644~~779.4		$	2,~~389~~644.94
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	~~299~~374.28		$	~~246~~299.62
Accrued liabilities	~~197~~198.41			~~201~~197.4
Current portion of long-term debt	921.19			279.71
Total Current Liabilities	~~505~~594.78			~~475~~505.7
Long-term debt	1,~~771~~906.4			1,~~438~~771.54
Deferred income taxes	4.0			2.8
Deferred revenue	65.0			17.0
Accrued pension benefits	170.2			158.4
Deferred income taxes	0.9			4.0
Accrued postretirement benefits	34.3			34.2
Accrued pension benefits	163.7			170.2
Other long-term liabilities	66.1			63.7
Accrued postretirement benefits	29.6			34.3
Total Long-Term Liabilities	2,046.0			1,697.6
Other long-term liabilities	46.1			49.1
Total Long-Term Liabilities	2,211.7			2,046.0
Stockholders’ Equity
Common stock; par value $.01; 45,000,000 shares authorized; 32,001,318 and 31,904,250 shares issued at December 31, 2017 and 2016, respectively	0.3			0.3
Common stock; par value $.01; 45,000,000 shares authorized; 32,380,867 and 32,001,318 shares issued at December 31, 2018 and 2017, respectively	0.3			0.3
Preferred stock; par value $.01; 1,000,000 shares authorized; none issued	—			—
Additional paid-in capital	~~436~~431.38			~~428~~436.03
Retained (deficit) earnings	(203.4		)	11.8
Retained deficit	(292.2		)	(203.4		)
Accumulated other comprehensive loss	(~~140~~167.50		)	(~~223~~140.5		)
Total Equity	92(27.71		)	~~216~~92.67
Total Liabilities and Equity	$	2,~~644~~779.4		$	2,~~389~~644.94

The accompanying notes are an integral part of these audited consolidated financial statements.

7170

ALERIS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions)

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
Revenues	$	23,~~857~~445.39		$	2,~~663~~857.93		$	2,~~917~~663.89
Cost of sales	23,~~597~~160.97			2,~~376~~595.09			2,~~702~~374.92
Gross profit	~~259~~285.42			~~287~~261.94			~~214~~289.97
Selling, general and administrative expenses	~~220~~213.87			~~218~~219.52			~~203~~217.5
Restructuring charges	24.98			12.59			101.35
Losses on derivative financial instruments	44.7			12.1			6.9
(Gains) losses on derivative financial instruments	(47.0		)	44.7			12.1
Other operating expense, net	53.75			35.97			23.59
Operating (loss) income	(14.7		)	51.9			(8.3		)
Operating income (loss)	110.2			(11.1		)	54.7
Interest expense, net	~~124~~144.17			82124.51			9482.15
Other expense (income), net	35.2			1.7			(7.4		)
Debt extinguishment costs	48.9			—			12.6
Loss from continuing operations before income taxes	(174.0		)	(32.3		)	(95.0		)
Other (income) expense, net	(10.3		)	38.8			(8.1		)
Provision for (benefit from) income taxes	40.4			40.0			(22.7		)
Loss from continuing operations before income taxes	(73.1		)	(174.0		)	(32.3		)
Loss from continuing operations	(214.4		)	(72.3		)	(72.3		)
Provision for income taxes	18.5			40.4			40.0
Income (loss) from discontinued operations, net of tax	3.8			(3.3		)	121.1
Loss from continuing operations	(91.6		)	(214.4		)	(72.3		)
Net (loss) income	(210.6		)	(75.6		)	48.8
Income (loss) from discontinued operations, net of tax	—			3.8			(3.3		)
Net income from discontinued operations attributable to noncontrolling interest	—			—			0.1
Net loss	$	(91.6	)	$	(210.6	)	$	(75.6	)
Net (loss) income attributable to Aleris Corporation	$	(210.6	)	$	(75.6	)	$	48.7

The accompanying notes are an integral part of these audited consolidated financial statements.

7271

ALERIS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS~~) INCOME~~

(in millions)

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
Net (loss) income	$	(210.6	)	$	(75.6	)	$	48.8
Net loss	$	(91.6	)	$	(210.6	)	$	(75.6	)
Other comprehensive income (loss), before tax:
Other comprehensive (loss) income, before tax:
Currency translation adjustments	82(27.03		)	~~(29~~82.70		)	(8029.37		)
Reclassification into earnings due to the sale of businesses	—			—			45.2
Pension and other postretirement liability adjustments	2.2			2.7			(16.1		)
Pension and other postretirement liability adjustments	2.7			(16.1		)	21.6
Other comprehensive (loss) income, before tax	(25.1		)	84.7			(45.8		)
Other comprehensive income (loss), before tax	84.7			(45.8		)	(13.5		)
Income tax expense (benefit) related to items of other comprehensive (loss) income	1.4			1.7			(5.0		)
Income tax expense (benefit) related to items of other comprehensive loss	1.7			(5.0		)	8.3
Other comprehensive (loss) income, net of tax	(26.5		)	83.0			(40.8		)
Other comprehensive income (loss), net of tax	83.0			(40.8		)	(21.8		)
Comprehensive loss	$	(118.1	)	$	(127.6	)	$	(116.4	)
Comprehensive (loss) income	(127.6		)	(116.4		)	27.0
Comprehensive income attributable to noncontrolling interest	—			—			0.1
Comprehensive (loss) income attributable to Aleris Corporation	$	(127.6	)	$	(116.4	)	$	26.9

The accompanying notes are an integral part of these audited consolidated financial statements.

7372

ALERIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

	For the years ended December 31,
	2017			2016			2015
	2018			2017			2016
Operating activities
Net (loss) income	$	(210.6	)	$	(75.6	)	$	48.8
Net loss	$	(91.6	)	$	(210.6	)	$	(75.6	)
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization	~~115~~139.7			~~104~~115.97			~~123~~104.89
Provision for deferred income taxes	322.30			2132.53			3421.5
Stock-based compensation expense	119.32			711.03			47.80
Unrealized (gains) losses on derivative financial instruments	(3.0		)	(19.0		)	28.1
Unrealized gains on derivative financial instruments	(23.1		)	(3.0		)	(19.0		)
Amortization of debt issuance costs	25.89			52.78			65.67
Loss on extinguishment of debt	—48.9			~~12.6~~—			212.06
Net (gain) loss on sale of discontinued operations	~~(4.5~~—		)	3(4.35		)	~~(191~~3.73		)
Impairment of amounts held in escrow related to the sale of the recycling business	22.8			—			—
Non-cash (gain) loss (see Note 19)	(11.1		)	22.8			—
Other	106.15			410.91			~~(10~~4.29		)
Changes in operating assets and liabilities:
Change in accounts receivable	(545.7		)	(95.47		)	(319.34		)
Change in inventories	(58183.45		)	(7058.24		)	~~128~~(70.02		)
Change in other assets	39.9			(13.49		)	3(1.84		)
Change in accounts payable	3384.7			4133.7			~~(18~~41.67		)
Change in accrued liabilities	18.2			(14.0		)	(9.1		)
Change in accrued liabilities and deferred revenue	70.5			18.2			(14.0		)
Net cash (used) provided by operating activities	(31.4		)	12.0			119.5
Net cash provided (used) by operating activities	22.3			(31.4		)	12.0
Investing activities
Payments for property, plant and equipment	(~~207~~108.72		)	(~~358~~207.17		)	(~~313~~358.61		)
Proceeds from the sale of businesses, net of cash transferred	—			~~5.0~~—			~~587~~5.40
Other	(32.0		)	(13.50		)	(0.1.5		)
Net cash (used) provided by investing activities	(210.7		)	(354.6		)	273.7
Net cash used by investing activities	(110.2		)	(210.7		)	(354.6		)
Financing activities
Proceeds from revolving credit facilities	~~575~~295.13			~~360~~575.41			~~159~~360.54
Payments on revolving credit facilities	(~~536~~355.31		)	(~~107~~536.03		)	(~~380~~107.80		)
Proceeds from senior secured notes, inclusive of premiums and discounts	263.8			540.4			—
Proceeds from notes and term loans, inclusive of premiums and discounts	1,483.0			263.8			540.4
Payments on senior notes, including premiums	—			(443.8		)	(125.0		)
Payments on notes and term loans, including premiums	(1,292.2		)	—			(443.8		)
Net payments on other long-term debt	(69.49		)	(76.34		)	(67.43		)
Debt issuance costs	(221.80		)	(42.08		)	(4.60		)
Other	(2.94		)	(02.69		)	(20.6		)
Net cash provided (used) by financing activities	290.5			338.1			(359.9		)
Net cash used by financing activities	97.7			290.5			338.1
Effect of exchange rate differences on cash, cash equivalents and restricted cash	4(2.02		)	(24.10		)	(72.1		)
Net increase (decrease) in cash, cash equivalents and restricted cash	527.46			(652.64		)	26(6.26		)
Cash, cash equivalents and restricted cash at beginning of period	55108.60			6255.26			3662.02
Cash, cash equivalents and restricted cash at end of period	~~108.0~~$	115.6		~~55.6~~$	108.0		~~62.2~~$	55.6
Cash and cash equivalents	~~102.4~~$	108.6		~~55.6~~$	102.4		~~62.2~~$	55.6
Restricted cash (included in “Prepaid expenses and other current assets”)	57.60			—5.6			—
Cash, cash equivalents and restricted cash	$	~~108~~115.06		$	55108.60		$	6255.26

The accompanying notes are an integral part of these audited consolidated financial statements.

7473

ALERIS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY ~~AND~~

REDEEMABLE NONCONTROLLING INTEREST

(in millions)

	Common stock		Additional paid-in capital			Retained earnings (deficit)			Accumulated other comprehensive loss			Total ~~Aleris Corporation equity~~Equity			~~Noncontrolling interest~~			~~Total equity~~			~~Redeemable noncontrolling interest~~
Balance at January 1, 2015	$	0.3	$	414.1		$	39.1		$	(160.9	)	$	292.6		$	0.7		$	293.3		$	5.7
Balance at January 1, 2016	$	0.3	$	421.9		$	87.7		$	(182.7	)	$	327.2
Net income	—		—			48.7			—			48.7			0.1			48.8			—
Net loss	—		—			(75.6		)	—			(75.6		)
Other comprehensive loss	—		—			—			(2140.8		)	(2140.8		)	—			~~(21.8~~		)	—
Stock-based compensation activity	—		2.6.3			—			—			2.6.3			—			~~2.6~~			—
Conversion of Aleris International preferred stock to common stock	—		5.6			—			—			5.6			—			5.6			(5.6		)
Other	—		(0.2		)	(0.3		)	—			(0.5		)
Other	—		(0.4		)	(0.1		)	—			(0.5		)	(0.8		)	(1.3		)	(0.1		)
Balance at December 31, 2016	$	0.3	$	428.0		$	11.8		$	(223.5	)	$	216.6
Balance at December 31, 2015	$	0.3	$	421.9		$	87.7		$	(182.7	)	$	327.2		$	—		$	327.2		$	—
Net loss	—		—			(210.6		)	—			(210.6		)
Net loss	—		—			(75.6		)	—			(75.6		)	—			(75.6		)	—
Other comprehensive income	—		—			—			83.0			83.0
Other comprehensive loss	—		—			—			(40.8		)	(40.8		)	—			(40.8		)	—
Stock-based compensation activity	—		8.3			—			—			8.3
Stock-based compensation activity	—		6.3			—			—			6.3			—			6.3			—
Adoption of accounting standard	—		—			(4.7		)	—			(4.7		)
Other	—		~~(0.2~~—		)	(0.31		)	—			(0.51		)	—			~~(0.5~~		)	—
Balance at December 31, 2016	$	0.3	$	428.0		$	11.8		$	(223.5	)	$	216.6		$	—		$	216.6		$	—
Balance at December 31, 2017	$	0.3	$	436.3		$	(203.4	)	$	(140.5	)	$	92.7
Net loss	—		—			(~~210~~91.6		)	—			(~~210~~91.6		)	—			~~(210.6~~		)	—
Other comprehensive income	—		—			—			83.0			83.0			—			83.0			—
Other comprehensive loss	—		—			—			(26.5		)	(26.5		)
Stock-based compensation activity	—		8.3			—			—			8.3			—			8.3			—
Dividend (see Note 19)	—		(11.3		)	—			—			(11.3		)
Adoption of accounting standard	—		—			(4.7		)	—			(4.7		)	—			(4.7		)	—
Stock-based compensation activity	—		6.8			—			—			6.8
Other	—		—			0.1			—			0.1			—			0.1			—
Adoption of accounting standard	—		—			2.8			—			2.8
Balance at December 31, 2017	$	0.3	$	436.3		$	(203.4	)	$	(140.5	)	$	92.7		$	—		$	92.7		$	—
Balance at December 31, 2018	$	0.3	$	431.8		$	(292.2	)	$	(167.0	)	$	(27.1	)

The accompanying notes are an integral part of these audited consolidated financial statements.

7574

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except share and per share data)


1.	BASIS OF PRESENTATION

Nature of Operations

Aleris Corporation and all of its subsidiaries (collectively, except where the context otherwise requires, referred to as “Aleris,” “we,” “our,” “us,” and the “Company” or similar terms) is a Delaware corporation with its principal executive offices located in Cleveland, Ohio. The principal business of the Company is the production of aluminum rolled products, including aluminum plate, sheet and fabricated products, using continuous cast and direct-chill processes. Our aluminum plate and sheet products are sold to customers and distributors serving the aerospace, automotive, building and construction, truck trailer, consumer durables, other general industrial and distribution industries.

Basis of Presentation

Aleris ~~Corporation~~ is a holding company and currently conducts its business and operations through its direct wholly owned subsidiary, Aleris International, Inc. and its consolidated subsidiaries. Aleris International, Inc. is referred to herein as Aleris International. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Accounting Estimates

The consolidated financial statements are prepared in conformity with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are inherent in the valuations of derivatives, property, plant and equipment, intangible assets, ~~assets held in escrow,~~ the assumptions used to estimate the fair value of stock-based payments, pension and postretirement benefit obligations, workers’ compensation, medical and environmental liabilities, deferred tax asset valuation allowances, reserves for uncertain tax positions and allowances for uncollectible accounts receivable.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and our majority owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

Revenue Recognition and Shipping and Handling Costs

Revenues are recognized when title transfers and risk of loss passes to the customer in accordance with the provisions of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” (codified in Accounting Standards Codification (“ASC”) 605). This occurs at various points in the delivery process. In North America, substantially all revenue is recognized at the point of shipment. In Europe and China, the timing of revenue recognition varies depending on individual customer arrangements. For material that is consigned, revenue is not recognized until the product is used by the customer. We occasionally enter into long-term supply contracts with customers and receive advance payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue, and revenue is recognized as shipments are made and title, ownership, and risk of loss pass to the customer during the term of the applicable contract. In connection with the January 1, 2018 adoption of Accounting Standards Update (“ASU”) 2014-09 (defined below), our revenue recognition policy will be updated to reflect the new revenue recognition model, which requires the recognition of revenue when a customer obtains control of the product and can obtain substantially all of the benefits from the product.

Shipping and handling costs are included within “Cost of sales” in the Consolidated Statements of Operations.

Cash Equivalents

All highly liquid investments with a maturity of three months or less when purchased are considered cash equivalents. The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments.

Restricted Cash

Cash that is reserved for a specific purpose and not available for general business use is considered restricted cash. Restricted cash is classified as either ~~in the~~ current ~~assets~~ or ~~in the~~ noncurrent assets ~~section of the balance sheet,~~ depending on the date of availability or disbursement. At December 31, ~~2017~~2018, $57.60 of cash was restricted for payments of the China Loan Facility (defined below), all of which was included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheet. There was $5.6 of restricted cash at December 31, 2017.

76Accounts Receivable Allowances and Credit Risk

We extend credit to our customers based on an evaluation of their financial condition; generally, collateral is not required. Substantially all of the accounts receivable associated with our European operations and a portion of the accounts receivable associated with our China operations are insured against loss by third party credit insurers. We maintain an allowance against our accounts receivable for the estimated probable losses on uncollectible accounts. The valuation reserve is based upon our historical loss experience, current economic conditions within the industries we serve and our determination of the specific risk related to certain customers. Accounts receivable are charged off against the reserve when, in management’s estimation, further collection efforts would not result in a reasonable likelihood of receipt, or, if later, as proscribed by statutory regulations. The movement of the accounts receivable allowance is as follows:

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(dollars in millions, except share and per share data)

(defined below), all of which was included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheet. There was no restricted cash at December 31, 2016.



	For the years ended December 31,
	2018			2017		2016
Balance at beginning of the period	$	0.4		$	0.3	$	0.4
Expenses for uncollectible accounts, net of recoveries	—			0.1		0.4
Receivables written off against the valuation reserve	(0.3		)	—		(0.5		)
Balance at end of the period	$	0.1		$	0.4	$	0.3

Accounts Receivable Allowances and Credit Risk

We extend credit to our customers based on an evaluation of their financial condition; generally, collateral is not required. Substantially all of the accounts receivable associated with our European operations and a portion of the accounts receivable associated with our China operations are insured against loss by third party credit insurers. We maintain an allowance against our accounts receivable for the estimated probable losses on uncollectible accounts and sales returns and allowances. The valuation reserve is based upon our historical loss experience, current economic conditions within the industries we serve and our determination of the specific risk related to certain customers. Accounts receivable are charged off against the reserve when, in management’s estimation, further collection efforts would not result in a reasonable likelihood of receipt, or, if later, as proscribed by statutory regulations. The movement of the accounts receivable allowances is as follows:

	For the years ended December 31,
	2017			2016			2015
Balance at beginning of the period	$	7.6		$	7.7		$	7.7
Expenses for uncollectible accounts, sales returns and allowances, net of recoveries	30.8			33.0			40.3
Divestitures	—			—			(1.0		)
Receivables written off against the valuation reserve	(33.5		)	(33.1		)	(39.3		)
Balance at end of the period	$	4.9		$	7.6		$	7.7

Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers in various industry segments comprising our customer base.

Inventories

Our inventories are stated at the lower of cost or net realizable value. Cost is determined primarily on the average cost or specific identification method and includes material, labor and overhead related to the manufacturing process. ~~We recorded charges associated with lower of cost or net realizable value adjustments of $0.3, $1.5 and $0.6 for the years ended December 31, 2017, 2016 and 2015, respectively.~~ Our consigned inventory held at third party warehouses and customer locations was approximately $3216.54 and $1932.65 as of December 31, ~~2017~~2018 and ~~2016~~2017, respectively.

Property, Plant and Equipment

Property, plant and equipment is stated at cost, net of asset impairments. The cost of property, plant and equipment acquired in business combinations represents the fair value of the acquired assets at the time of acquisition.

The fair values of asset retirement obligations are capitalized to the related long-lived asset at the time the obligation is incurred and depreciated over the remaining useful life of the related asset. Major renewals and improvements that extend an asset’s useful life are capitalized to property, plant and equipment. Major repair and maintenance projects are expensed over periods not exceeding 18 months while normal maintenance and repairs are expensed as incurred. Depreciation is primarily computed using the straight-line method over the estimated useful lives of the related assets, as follows:



Buildings and improvements		5 - 38 years
Production equipment and machinery		2 - 25 years
Office furniture, equipment and other		3 - 10 years

Interest is capitalized in connection with major construction projects. Capitalized interest costs are as follows:

	For the years ended December 31,
	2017		2016		2015
	2018		2017		2016
Capitalized interest	$	81.42	$	258.24	$	825.02

Intangible Assets

Intangible assets are primarily related to trade names, technology and customer relationships. Acquired intangible assets are recorded at their estimated fair value in the allocation of the purchase price paid. Intangible assets with indefinite useful lives are not amortized and intangible assets with finite useful lives are amortized over their estimated useful lives, ranging from 15 to 25 years. See Note 67, “Intangible Assets,” for additional information.

77Impairment of Property, Plant, Equipment and Finite-Lived Intangible Assets

We review our long-lived assets for impairment when changes in circumstances indicate that the carrying amount may not be recoverable. Once an impairment indicator has been identified, the asset impairment test is a two-step process. The first step consists of determining whether the sum of the estimated undiscounted future cash flows attributable to the specific asset group being tested is less than its carrying value. Estimated future cash flows used to test for recoverability include only the future cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the relevant asset group. If the carrying value of the asset group exceeds the future undiscounted cash flows expected from the asset group, a second step is performed to compute the extent of the impairment. Impairment charges are determined as the amount by which the carrying value of the asset group exceeds the estimated fair value of the asset group.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(dollars in millions, except share and per share data)

~~Impairment~~highest and best use of ~~Property,~~an ~~Plant,~~asset ~~Equipment~~establishes ~~and~~the ~~Finite~~valuation premise. The valuation premise is used to measure the fair value of an asset. ASC 820-~~Lived~~10-35-10 ~~Intangible~~states ~~Assets~~that the valuation premise of an asset is either of the following:

As outlined in ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), the fair value measurement of our long-lived assets assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible, and financially feasible at the measurement date. Highest and best use is determined based on the use of the asset by market participants, even if the intended use of the asset by the Company is different. The highest and best use of an asset establishes the valuation premise. The valuation premise is used to measure the fair value of an asset. ASC 820-10-35-10 states that the valuation premise of an asset is either of the following:


▪	In-use: The highest and best use of the asset is in-use if the asset would provide maximum value to market participants principally through its use in combination with other assets as a group (as installed or otherwise configured for use).


▪	In-exchange: The highest and best use of the asset is in-exchange if the asset would provide maximum value to market participants principally on a stand-alone basis.

Once a premise is selected, the approaches considered in the estimation of the fair values of the Company’s long-lived assets tested for impairment, which represent level 3 measurements within the fair value hierarchy, include the income approach, sales comparison approach and the cost approach.

Indefinite-Lived Intangible Asset

Our indefinite-lived intangible asset related to our trade name is tested for impairment as of October ~~1st~~1 of each year and may be tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists.

Under ASC 350, “Intangibles - Goodwill and Other,” intangible assets determined to have indefinite lives are not amortized, but are tested for impairment at least annually. As part of the annual impairment test, the non-amortized intangible asset is reviewed to determine if the indefinite status remains appropriate. ~~Based~~Using ona qualitative assessment in the ~~annual~~current ~~test~~year, ~~performed~~we asdetermined ofthat ~~October~~it 1,was ~~2017,~~not more-likely-than-not that the indefinite-lived intangible asset was impaired and no ~~impairments~~impairment relating to our indefinite-lived intangible asset was necessary.

Deferred Financing Costs

The costs related to the issuance of debt are capitalized and amortized over the terms of the related debt agreements as interest expense using the effective interest method.

Revenues

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied, which occurs at a point in time when control of the product transfers to the customer. See Note 3, “Revenue from Contracts with Customers,” for additional information.

Shipping and Handling Costs

Shipping and handling costs are included within “Cost of sales” in the Consolidated Statements of Operations.

Research and Development

Our research and development organization includes three locations in Europe, one location in the United States and one location in China, along with support staff focused on new product and alloy offerings and process performance technology. Research and development expenses, included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations, were $1618.04, $1016.90 and $1110.29 for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively.

Stock-Based Compensation

We recognize compensation expense for stock options, restricted stock units and restricted shares under the provisions of ASC 718, “Compensation—Stock Compensation,” 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 each ~~new~~ stock option was estimated on the date of grant using a Black-Scholes option pricing model. Determining the fair value of stock options at the grant date requires judgment, including estimates for the average risk-free interest rate, dividend yield and volatility. Subsequent to the adoption of ASU 2016-09, “Compensation-Stock Compensation-Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), forfeitures are recognized as they occur and the term of the awards are calculated using the practical expedient that allows for the calculation of the term to be the midpoint between the requisite service period and the contractual term of the award. The fair value of restricted stock units and restricted shares were based on the estimated fair value of our common stock on the date of grant. The fair value of our common stock was estimated based upon a present value technique using discounted cash flows, forecasted over a five-year period with residual growth rates thereafter, and a market comparable approach. From these two approaches, the discounted cash flow analysis was weighted at 50% and the comparable public company analysis was weighted at 50%.

7877

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(dollars in millions, except share and per share data)

shares were based on the estimated fair value of our common stock on the date of grant. The fair value of our common stock was estimated based upon a present value technique using discounted cash flows, forecasted over a five-year period with residual growth rates thereafter, and a market comparable approach. From these two approaches, the discounted cash flow analysis was weighted at 50% and the comparable public company analysis was weighted at 50%.

The discounted cash flow analysis was based on our projected financial information which includes a variety of estimates and assumptions. While we consider such estimates and assumptions reasonable, they are inherently subject to uncertainties and a wide variety of significant business, economic and competitive risks, many of which are beyond our control and may not materialize. Changes in these estimates and assumptions may have a significant effect on the determination of the fair value of our common stock.

The discounted cash flow analysis was based on production volume projections developed by internal forecasts, as well as commercial, wage and benefit and inflation assumptions. The discounted cash flow analysis included the sum of (i) the present value of the projected unlevered cash flows for a five-year period (the “Projection Period”); and (ii) the present value of a terminal value, which represented the estimate of value attributable to periods beyond the Projection Period. ~~For 2017, all cash flows were discounted using a weighted-average cost of capital (“WACC”) percentage of 10.5%.~~ To calculate the terminal value, a perpetuity growth rate approach is used. ~~For 2017, a growth rate of three percent was used and was determined based on research of long-term aluminum demand growth rates.~~ Other significant assumptions include future capital expenditures and changes in working capital requirements.

The comparable public company analysis identified a group of comparable companies giving consideration to, among other relevant characteristics, similar lines of business, business risks, growth prospects, business maturity, market presence, leverage, size and scale of operations. The analysis compared the public market implied fair value for each comparable public company to its historical and projected revenues, and earnings before interest, taxes, depreciation and amortization (“EBITDA”). For the year ended December 31, 2017, the calculated range of multiples for the comparable companies was used to estimate a range of 7.0x to 12.0x and 0.65x to 0.85x, which was applied to our historical and projected EBITDA and revenues, respectively, to determine a range of fair values.

There were no stock options, restricted stock units or restricted shares granted during the year ended December 31, 2018. Total stock-based compensation expense included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016 was $119.32, $711.03 and $47.80, respectively.

Derivatives and Hedging

We are engaged in activities that expose us to various market risks, including changes in the prices of primary aluminum, aluminum alloys, scrap aluminum, copper, zinc, natural gas and diesel, as well as changes in currency and interest rates. Certain of these financial exposures are managed as an integral part of our risk management program, which seeks to reduce the potentially adverse effects that the volatility of the markets may have on operating results. We do not hold or issue derivative financial instruments for trading purposes. WeOur ~~maintain~~metal ~~a natural gas~~ pricing strategy is designed to minimize significant, unanticipated fluctuations in earnings caused by the volatility of ~~natural~~aluminum ~~gas~~ prices. ~~Our~~We ~~metal~~also maintain a natural gas pricing strategy is designed to minimize significant, ~~unanticipated~~ fluctuations in earnings caused by the volatility of ~~aluminum~~natural gas prices.

Generally, we enter into master netting arrangements with our counterparties and offset net derivative positions with the same counterparties against amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those arrangements in our Consolidated Balance Sheet. For classification purposes, we record the net fair value of all positions expected to settle in less than one year with these counterparties as a net current asset or liability and all long-term positions as a net long-term asset or liability.

The fair values of our derivative financial instruments are recognized as assets or liabilities at the balance sheet date. Fair values for our metal and energy derivative instruments are determined based on the differences between contractual and forward rates of identical hedge positions as of the balance sheet date. Our currency and interest rate derivative instruments are valued using observable or market-corroborated inputs such as exchange rates, volatility and forward yield curves. In accordance with the requirements of ASC 820, we have included an estimate of the risk associated with non-performance by either ourselves or our counterparties in developing these fair values. See Note 1213, “Derivative and Other Financial Instruments,” for additional information.

The Company does not currently account for its derivative financial instruments as hedges. ~~The~~With ~~changes~~the inexception ~~fair~~of ~~value~~our ofinterest rate derivative ~~financial~~ instruments ~~that~~(for which realized gains are ~~not~~included ~~accounted~~within ~~for~~“Interest asexpense, ~~hedges~~net” ~~and~~in the ~~associated~~Consolidated ~~gains~~Statements ~~and~~of ~~losses~~Operations) both realized ~~upon~~and ~~settlement~~unrealized ~~are~~gains ~~recorded~~and inlosses ~~“Losses~~ on derivative financial instruments” orare ~~“Income~~included within “(~~loss~~Gains) ~~from~~losses ~~discontinued~~on ~~operations,~~derivative ~~net~~financial ~~of tax~~instruments” in the Consolidated Statements of Operations. All realized gains and losses are included within “Net cash provided (used) ~~provided~~ by operating activities” in the Consolidated Statements of Cash Flows.

79We are exposed to losses in the event of non-performance by counterparties to derivative contracts. Counterparties are evaluated for creditworthiness and a risk assessment is completed prior to our initiating contract activities. The counterparties’ creditworthiness is then monitored on an ongoing basis, and credit levels are reviewed to ensure there is not an inappropriate concentration of credit outstanding to any particular counterparty. Although non-performance by counterparties is possible, we do not currently anticipate non-performance by any of these parties. At December 31, 2018, substantially all of our derivative financial instruments were maintained with ten counterparties. We have the right to require cash collateral from our counterparties based on the fair value of the underlying derivative financial instruments.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(dollars in millions, except share and per share data)

We are exposed to losses in the event of non-performance by counterparties to derivative contracts. Counterparties are evaluated for creditworthiness and a risk assessment is completed prior to our initiating contract activities. The counterparties’ creditworthiness is then monitored on an ongoing basis, and credit levels are reviewed to ensure there is not an inappropriate concentration of credit outstanding to any particular counterparty. Although non-performance by counterparties is possible, we do not currently anticipate non-performance by any of these parties. At December 31, 2017, substantially all of our derivative financial instruments were maintained with ten counterparties. We have the right to require cash collateral from our counterparties based on the fair value of the underlying derivative financial instruments.

Currency Translation

The majority of our international subsidiaries use the local currency as their functional currency. Individually significant transactions are translated at the applicable currency exchange rate on the date of the transaction. We translate all of the other amounts included in our Consolidated Statements of Operations from our international subsidiaries into U.S. dollars at average monthly exchange rates, which we believe are representative of the actual exchange rates on the dates of the transactions. Adjustments resulting from the translation of the assets and liabilities of our international operations into U.S. dollars at the balance sheet date exchange rates are reflected as a separate component of stockholders’ equity. Currency translation adjustments accumulate in consolidated equity until the disposition or liquidation of the international entities. Except for intercompany debt determined to be of a long-term investment nature, current intercompany accounts and transactional gains and losses associated with receivables, payables and debt denominated in currencies other than the functional currency are included within “Other ~~expense~~ (income), ~~net” or “Income (loss) from discontinued operations~~expense, net ~~of tax~~” in the Consolidated Statements of Operations. The translation of accounts receivables, payables and debt denominated in currencies other than the functional currencies resulted in transactional losses (gains) of $80.23, $~~(0.~~8).2 and $(70.78) for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively~~, of which gains of $0~~.~~2 have been included within “Income (loss) from discontinued operations, net of tax” for the year ended December 31, 2015 in the Consolidated Statements of Operations.~~

Income Taxes

We account for income taxes using the asset and liability method, whereby deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In valuing deferred tax assets, we use judgment in determining if it is more likely than not that some portion or all of a deferred tax asset will not be realized and the amount of the required valuation allowance.

Tax benefits from uncertain tax positions are recognized in the financial statements when it is more likely than not that the position is sustainable, based solely on its technical merits and considerations of the relevant taxing authority, widely understood practices and precedents. We recognize interest and penalties related to uncertain tax positions within “Provision for ~~(benefit from)~~ income taxes” in the Consolidated Statements of Operations.

Environmental and Asset Retirement Obligations

Environmental obligations that are not legal or contractual asset retirement obligations and that relate to existing conditions caused by past operations with no benefit to future operations are expensed while expenditures that extend the life, increase the capacity or improve the safety of an asset or that mitigate or prevent future environmental contamination are capitalized in property, plant and equipment. Obligations are recorded when their occurrence is probable and the associated costs can be reasonably estimated in accordance with ASC 410-30, “Environmental Obligations.” While our accruals are based on management’s current best estimate of the future costs of remedial action, these liabilities can change substantially due to factors such as the nature and extent of contamination, changes in the required remedial actions and technological advancements. Our existing environmental liabilities are not discounted to their present values as the amount and timing of the expenditures are not fixed or reliably determinable.

Asset retirement obligations represent obligations associated with the retirement of tangible long-lived assets. Our asset retirement obligations relate primarily to the requirements related to the future removal of asbestos and underground storage tanks. The costs associated with such legal obligations are accounted for under the provisions of ASC 410-20, “Asset Retirement Obligations,” which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and capitalized as part of the carrying amount of the long-lived asset. These fair values are based upon the present value of the future cash flows expected to be incurred to satisfy the obligation. Determining the fair value of asset retirement obligations requires judgment, including estimates of the credit adjusted interest rate and estimates of future cash flows. Estimates of future cash flows are obtained primarily from engineering consulting firms. The present value of the obligations is accreted over time while the capitalized cost is depreciated over the useful life of the related asset.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(dollars in millions, except share and per share data)

Retirement, Early Retirement and Postemployment Benefits

Our defined benefit pension and other postretirement benefit plans are accounted for in accordance with ASC 715, “Compensation—Retirement Benefits.”

Pension and postretirement benefit obligations are actuarially calculated using management’s best estimates of assumptions which include the expected return on plan assets (calculated using the fair value of plan assets), the rate at which plan liabilities may be effectively settled (discount rate), health care cost trend rates and rates of compensation increases. Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor, which is set at 10% of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over an average employee future service period that differs by plan. If substantially all of the plan’s participants are no longer actively accruing benefits, the average life expectancy is used.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(dollars in millions, except share and per share data)

Benefits provided to employees after employment but prior to retirement are accounted for under ASC 712, “Compensation—Nonretirement Postemployment Benefits” (“ASC 712”). Such postemployment benefits include severance and medical continuation benefits that are offered pursuant to an ongoing benefit arrangement and do not represent a one-time benefit termination arrangement. Under ASC 712, liabilities for postemployment benefits are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. This is typically at the time a triggering event occurs, such as the decision by management to close a facility. Benefits related to the relocation of employees and certain other termination benefits are accounted for under ASC 420, “Exit or Disposal Cost Obligations,” and are expensed over the required service period.

Business Combinations

Discontinued Operations

Amounts presented in discontinued operations have been derived from our consolidated financial statements and accounting records using the historical basis of assets and liabilities to be disposed and historical results of operations related to our recycling and specification alloys businesses and the extrusions business. The discontinued operations exclude general corporate allocations of certain functions historically provided by our corporate offices, such as accounting, treasury, tax, human resources, facility maintenance and other services. Interest costs have been excluded from discontinued operations except for the interest expense on the debt and capital leases that have been assumed by the buyers. See Note 17, “Discontinued Operations” for more information.

General Guarantees and Indemnifications

It is common in long-term processing agreements for us to agree to indemnify customers for tort liabilities that arise out of, or relate to, the processing of their material. Additionally, we typically indemnify such parties for certain environmental liabilities that arise out of or relate to the processing of their material.

In our equipment financing agreements, we typically indemnify the financing parties, trustees acting on their behalf and other related parties against liabilities that arise from the manufacture, design, ownership, financing, use, operation and maintenance of the equipment and for tort liability, whether or not these liabilities arise out of or relate to the negligence of these indemnified parties, except for their gross negligence or willful misconduct.

We expect that we would be covered by insurance (subject to deductibles) for most tort liabilities and related indemnities described above with respect to equipment we lease and material we process.

Although we cannot estimate the potential amount of future payments under the foregoing indemnities and agreements, we are not aware of any events or actions that will require payment.

81Recently Adopted and New Accounting Pronouncements

In January 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). This guidance gives entities the option to reclassify to retained earnings tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) related to items in accumulated other comprehensive income (“AOCI”) that the FASB refers to as having been stranded in AOCI. The new guidance may be applied retrospectively to each period in which the effect of the Tax Act is recognized, or in the period of adoption. We elected to early adopt ASU 2018-02 in the first quarter of 2018. As we maintain a full valuation allowance against our U.S. deferred tax assets, there was no net impact on retained earnings.

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). This guidance requires the presentation of all components of net periodic benefit cost, other than service costs, outside of operating income. Upon adoption, only the service cost component of periodic benefit costs are included in operating income and eligible for capitalization in assets. This guidance was adopted in the first quarter of 2018. For the year ended December 31, 2017, $2.0 and $1.6 of pension and postretirement benefit expenses were reclassified from “Cost of sales” and “Selling, general and administrative expenses,” respectively, to “Other (income) expense, net” in the Consolidated Statements of Operations. For the year ended December 31, 2016, $1.8 and $1.0 of pension and postretirement benefit expenses were reclassified from “Cost of sales” and “Selling, general and administrative expenses,” respectively, to “Other (income) expense, net” in the Consolidated Statements of Operations. The adoption had no impact on reported net income or retained earnings.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”). This guidance requires lessees to put most leases on their balance sheets but recognize expense on the income statement in a manner similar to current guidance. The guidance is effective for the Company for fiscal years beginning after December 15, 2018, and a modified retrospective approach is required for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company adopted ASU 2016-02 on January 1, 2019 and has executed a project plan to guide the implementation of the standard. The project plan includes analyzing the Company’s purchasing contracts, drafting an updated accounting policy and evaluating new disclosure requirements. In addition, the Company is identifying and implementing appropriate changes to its business processes and controls to support the accounting and disclosure under the new guidance. We

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(dollars in millions, except share and per share data)

~~Recently~~have ~~Adopted~~adopted ~~and~~the ~~New~~standard ~~Accounting~~using ~~Pronouncements~~a modified retrospective approach, applying the standard’s transition provisions at the beginning of the period of adoption. ASU 2016-02 provides for certain practical expedients when adopting the guidance. The Company elected the package of practical expedients allowing us to not reassess whether any expired or existing contracts are, or contain, leases, the lease classification for any expired or existing leases or initial direct costs for any expired or existing leases.

InUpon ~~March 2017~~adoption, ~~the~~we ~~Financial~~expect ~~Accounting~~to ~~Standards~~record ~~Board~~operating ~~(“FASB”)~~lease ~~issued ASU No. 2017~~right-~~07,~~of-use ~~“Improving~~assets in the ~~Presentation~~range of ~~Net~~approximately ~~Periodic~~$10.0 ~~Pension~~to ~~Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”)~~$15.0, ~~This~~representing ~~guidance requires~~ the ~~presentation~~present ofvalue ~~all components~~ of ~~net~~future ~~periodic~~lease ~~benefit~~payments ~~cost,~~under ~~other~~operating ~~than~~leases ~~service~~with ~~costs,~~terms ~~outside~~ of ~~operating~~greater ~~income.~~than ~~Only~~twelve ~~the~~months. ~~service~~We ~~cost~~also ~~component~~expect ~~will~~to berecord ~~included~~corresponding in operating ~~income~~lease ~~and~~liabilities ~~eligible~~in ~~for~~the ~~capitalization~~range inof ~~assets~~approximately and $11.0 ~~The~~to ~~guidance~~$16.0. isIn ~~effective~~addition, ~~for~~we expect the ~~Company~~current ~~for~~capital ~~fiscal~~lease ~~years~~balances ~~beginning~~of ~~after December 15~~$10.4, ~~2017,~~$4.0 and ~~will be applied retrospectively~~$6.2 Wereported ~~estimate~~in ~~that~~fixed ~~upon adoption~~assets, ~~approximately~~current ~~$3.2~~maturities ~~and $2.8~~ of ~~pension~~long-term debt and ~~postretirement~~long-term ~~benefit~~debt, ~~expense~~respectively, will be reclassified ~~from~~into ~~“Operating~~separately ~~(loss)~~classified ~~income”~~right-of-use toasset ~~“Other~~and ~~expense~~lease ~~(income),~~obligation ~~net”~~accounts. inWe ~~the~~do ~~Consolidated~~not ~~Statements~~expect ~~of Operations for~~ the ~~years~~adoption ~~ended~~to ~~December~~impact ~~31,~~retained ~~2017 and 2016, respectively~~earnings.

In ~~November~~May ~~2016~~2014, the FASB issued ASU No. ~~2016~~2014-1809, “~~Restricted~~Revenue ~~Cash~~from Contracts with Customers (Topic 606)” (“ASU ~~2016~~2014-1809” or “ASC 606”)., ~~This~~which ~~guidance~~was ~~requires~~the ~~companies~~result toof ~~show~~a joint project by the ~~changes~~FASB inand International Accounting Standards Board to clarify the ~~total~~principles ~~cash,~~for ~~cash~~recognizing ~~equivalents~~revenue and ~~restricted~~to ~~cash~~develop ina common revenue standard for GAAP and International Financial Reporting Standards. Subsequent accounting standard updates have been issued which amend and/or clarify the ~~statement~~application of ~~cash~~ASU ~~flows~~2014-09. WeThe Company adopted ASU ~~2016~~2014-1809 in the first quarter of ~~2017~~2018, and has applied the standard to all contracts at that date. ~~The~~In ~~adoption~~evaluating the impact of ~~this~~the ~~guidance~~standard, ~~resulted~~management inhas ~~the~~concluded ~~updated~~that ~~presentation~~control has transferred on certain of ~~restricted~~the ~~cash~~inventory held on consignment at customer locations or in ~~our~~third-party ~~current~~warehouses. ~~period~~Subsequent ~~Consolidated~~to ~~Statements~~adoption of ~~Cash~~the ~~Flows.~~standard, Asrevenue ~~there~~has ~~was~~been norecognized ~~restricted~~on ~~cash~~such inconsignment inventory when it is delivered into consignment. We adopted this standard using the ~~prior~~modified ~~years~~retrospective approach. The January 1, ~~the~~2018 adoption of ~~this~~the ~~guidance~~standard ~~had~~resulted noin ~~effect~~an onincrease ~~the~~to ~~prior~~accounts ~~year~~receivable, ~~presentation~~accrued liabilities and deferred income tax liabilities of ~~cash~~$28.6, ~~flow~~$1.6 and $1.2, respectively, and a decrease in inventory of $23.0. The net impact was recorded as a decrease to retained deficit of $2.8.

InThe ~~October 2016, the FASB issued ASU No. 2016~~pre-~~16, “Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). This guidance requires companies to account for the income~~ tax ~~effects~~impact of ~~intercompany transfers of assets other than inventory when~~ the ~~transfer~~adoption ~~occurs. The income tax effects~~ of ~~intercompany inventory transactions will continue to be deferred. We early adopted~~ ASU ~~2016~~2014-1609 ~~in the first quarter of 2017. The impact of adopting this guidance~~ on ~~the~~our ~~Company’s~~Consolidated ~~consolidated~~Balance ~~financial~~Sheet ~~statements~~at ~~resulted~~December 31, in2018 ~~credits to “Prepaid expenses~~ and ~~other~~our ~~current~~Consolidated ~~assets”~~Statement ~~and “Accumulated other comprehensive loss”~~ of ~~approximately~~Operations ~~$8.2~~for ~~and~~the ~~$0.1,~~year ~~respectively,~~ended ~~and debits to “Deferred income taxes” (assets) and “Retained (deficit) earnings” of approximately $3.6 and $4.7~~December 31, ~~respectively,~~2018 is as ~~of the date of adoption.~~ follows:

In March 2016, the FASB issued ASU 2016-09. This guidance makes several modifications to the accounting for stock-based compensation, including forfeitures, employer tax withholding on stock-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of stock-based awards. We adopted ASU 2016-09 in the first quarter of 2017. The tax effects associated with stock-based compensation are now recorded through the income statement. Additionally, forfeitures are now recognized as they occur and the term of awards are calculated as the midpoint between the requisite service period and the contractual term of the award. Prior periods have not been adjusted.



	Increase (decrease)
Consolidated Balance Sheet
Accounts receivable	$	26.0
Inventories	(22.8		)
Accrued liabilities	2.4
Consolidated Statement of Operations
Revenues	$	(2.0	)
Cost of goods sold	(1.7		)

~~In February 2016, the FASB issued ASU No~~3. ~~2016-02,~~REVENUE ~~“Leases”~~FROM ~~(“ASU~~CONTRACTS ~~2016-02”).~~WITH This guidance requires lessees to put most leases on their balance sheets but recognize expense on the income statement in a manner similar to current guidance. The guidance is effective for the Company for fiscal years beginning after December 15, 2018, and a modified retrospective approach is required for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. We are currently evaluating the impact the application of ASU 2016-02 will have on the Company’s consolidated financial statements. We expect that the adoption will result in an increase to our long-term assets and long-term liabilities as a result of substantially all operating leases existing as of the adoption date being capitalized along with the associated obligations. CUSTOMERS

InWe ~~May~~generate ~~2014,~~substantially ~~the~~all ~~FASB~~of ~~issued~~our ~~ASU~~revenue ~~No. 2014-09, “Revenue~~ from ~~Contracts with Customers (Topic 606)” (“ASU 2014-09”), which was~~ the ~~result~~manufacture ~~of a joint project by the FASB~~ and ~~International~~shipment ~~Accounting~~of ~~Standards~~aluminum ~~Board~~products to ~~clarify~~our ~~the~~customers. ~~principles~~Sales, ~~for~~value ~~recognizing~~add ~~revenue~~ and toother ~~develop~~taxes awe ~~common~~collect ~~revenue~~concurrent ~~standard~~with ~~for~~revenue-producing ~~GAAP~~activities ~~and~~are ~~International~~excluded ~~Financial~~from ~~Reporting Standards~~revenue. ~~Subsequent~~Revenue ~~accounting~~is ~~standard~~recognized ~~updates~~when ~~have~~obligations ~~been~~under ~~issued which amend and/or clarify~~ the ~~application~~terms of ~~ASU 2014-09. The issuance of~~ a ~~comprehensive~~contract ~~and~~(as ~~converged~~defined ~~standard~~by onASC ~~revenue~~606) ~~recognition~~with isour ~~expected~~customer toare ~~enable~~satisfied, ~~financial~~which ~~statement~~occurs ~~users~~at toa ~~better~~point ~~understand~~in ~~and~~time ~~consistently~~when ~~analyze~~control anof ~~entity’s~~the ~~revenue~~product ~~across~~transfers ~~industries,~~to ~~transactions~~the ~~and geographies~~customer. ~~The~~Control ~~standard~~may ~~will~~transfer ~~require additional disclosures~~ to ~~help~~the ~~financial~~customer ~~statement~~at ~~users~~various ~~better~~points ~~understand~~in the ~~nature,~~delivery ~~amount,~~process. ~~timing,~~In ~~and~~North ~~potential~~America, ~~uncertainty~~most ~~of the~~ revenue ~~that~~ is recognized. Adoption of ASU 2014-09 will require either retrospective application to each prior reporting period presented or retrospective application with the cumulative effect of initially applying the standard recognized at the ~~date~~point of ~~adoption (the “modified retrospective approach”)~~shipment. ~~The~~In ~~Company~~Europe ~~adopted~~and ~~ASU 2014-09 on January 1~~China, ~~2018 and has executed a project plan to guide~~ the ~~implementation~~timing of ~~the~~revenue ~~standard.~~recognition ~~The~~varies ~~project~~depending ~~plan~~on ~~included~~individual ~~analyzing the Company’s~~ customer ~~contracts~~arrangements, ~~identifying revenue streams, drafting an updated accounting policy~~ and ~~evaluating~~may ~~new~~include ~~disclosure~~point ~~requirements.~~of ~~In addition~~shipment, ~~the~~delivery ~~Company is identifying and implementing appropriate changes~~ to ~~its~~port, ~~business~~final ~~processes~~delivery ~~and controls~~ to support recognition and disclosure under the new guidance. In evaluating the impact of the standard, management has concluded that control has transferred on some of the inventory held on consignment at customer ~~locations~~ or inanother ~~third~~point party warehouses. Subsequent to adoption of the standard, revenue will be recognized when such inventory is delivered into consignment. We adopted this standard using the modified retrospective approach and anticipate that the adoption will result in ~~an increase to~~ the ~~revenue~~delivery ~~disclosures in our consolidated financial statements~~process. ~~The January 1, 2018~~

82Certain contractual arrangements, primarily with customers in our automotive and heat exchanger end-uses, allow for inventory to be held at a customer’s location or in a third-party warehouse with direct customer access. Title does not transfer to the customer on such inventory until the customer has removed the product for consumption. Under such arrangements, management has concluded that control has passed to the customer upon delivery to the customer’s location or the third-party warehouse if the customer has unrestricted access to the product and the Company has the right to invoice that customer after a specified period of time regardless of whether or not the product has been removed by the customer for production.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(dollars in millions, except share and per share data)

~~adoption~~As ofall ~~the~~customer ~~standard~~contracts ~~will~~(as ~~result~~defined inby anASC ~~increase~~606) tohave ~~accounts~~an ~~receivable,~~original ~~accrued~~expected ~~liabilities~~duration ~~and deferred income tax liabilities in a range~~ of ~~approximately~~less ~~$28.0~~than totwelve ~~$30.0~~months, ~~$1.0~~ towe ~~$2.0~~have ~~and~~applied ~~$1.0~~the topractical ~~$2.0,~~expedient ~~respectively,~~to ~~and~~the adisclosure ~~decrease~~of inthe ~~inventory~~aggregate inamount ~~a range~~ of ~~approximately~~the ~~$22.0~~transaction toprice ~~$24.0.~~allocated ~~The net impact will be recorded as a decrease~~ to ~~retained~~remaining ~~deficit~~performance ~~in a range of approximately $2~~obligations.0 ~~to $3.0.~~

3Customer payments are due shortly after completion of the performance obligation, on payment terms that are customary for the industry. ~~RESTRUCTURING~~As ~~CHARGES~~all customer payments are due in less than one year, we have not adjusted revenue for the effects of a significant financing component.

The following table discloses the disaggregated revenue from our contracts with customers by major end-use:



	For the year ended December 31, 2018
	North America		Europe		Asia Pacific		Intra-entity sales			Total
Aerospace	$	—	$	293.3	$	85.1	$	—		$	378.4
Automotive	221.0		400.8		—		(25.0		)	596.8
Building and construction	834.6		—		—		—			834.6
Distribution	465.0		—		61.6		(0.8		)	525.8
Heat exchanger

Filing Compare · Aleris Corp