Howmet Aerospace : ARCONIC CORP Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

(dollars in millions, except per-share amounts and per-metric ton amounts;
shipments in thousands of metric tons (kmt))
References to (i) "ParentCo" refer to Arconic Inc., a Delaware corporation, and
its consolidated subsidiaries (through March 31, 2020, at which time it was
renamed Howmet Aerospace Inc.), and (ii) "2016 Separation Transaction" refer to
the November 1, 2016 separation of Alcoa Inc., a Pennsylvania corporation, into
two standalone, publicly-traded companies, Arconic Inc. and Alcoa Corporation.
Overview
Our Business
Arconic Corporation (or the "Company") is a manufacturer of fabricated aluminum
products, including sheet and plate, extrusions, and architectural products,
with a primary focus on the ground transportation, aerospace, building and
construction, industrial products, and packaging end markets. The Company has 22
primary operating locations in 8 countries around the world, situated in the
United States, Canada, China, France, Germany, Hungary, Russia, and the United
Kingdom.
The Separation
On February 8, 2019, ParentCo announced that its Board of Directors approved a
plan to separate into two standalone, publicly-traded companies (the
"Separation"). The spin-off company, later named Arconic Corporation, was to
include the rolled aluminum products, aluminum extrusions, and architectural
products operations of ParentCo, as well as the Latin America extrusions
operations sold in April 2018, (collectively, the "Arconic Corporation
Businesses"). The existing publicly traded company, ParentCo, was to continue to
own the engine products, engineered structures, fastening systems, and forged
wheels operations (collectively, the "Howmet Aerospace Businesses").
The Separation was subject to a number of conditions, including, but not limited
to: final approval by ParentCo's Board of Directors (see below); receipt of an
opinion of legal counsel (received on March 31, 2020) regarding the
qualification of the distribution, together with certain related transactions,
as a "reorganization" within the meaning of Sections 335 and 368(a)(1)(D) of the
U.S. Internal Revenue Code (i.e., a transaction that is generally tax-free for
U.S. federal income tax purposes); and the U.S. Securities and Exchange
Commission (the "SEC") declaring effective a Registration Statement on Form 10,
as amended, filed with the SEC on February 13, 2020 (effectiveness was declared
by the SEC on February 13, 2020).
On February 5, 2020, ParentCo's Board of Directors approved the completion of
the Separation by means of a pro rata distribution by ParentCo of all of the
outstanding shares of common stock of Arconic Corporation to ParentCo common
stockholders of record as of the close of business on March 19, 2020 (the
"Record Date"). At the time of the Separation, ParentCo common stockholders were
to receive one share of Arconic Corporation common stock for every four shares
of ParentCo common stock (the "Separation Ratio") held as of the Record Date
(ParentCo common stockholders were to receive cash in lieu of fractional
shares).
In connection with the Separation, as of March 31, 2020, Arconic Corporation and
Howmet Aerospace entered into several agreements to implement the legal and
structural separation between the two companies; govern the relationship between
Arconic Corporation and Howmet Aerospace after the completion of the Separation;
and allocate between Arconic Corporation and Howmet Aerospace various assets,
liabilities, and obligations, including, among other things, employee benefits,
environmental liabilities, intellectual property, and tax-related assets and
liabilities. These agreements included a Separation and Distribution Agreement,
Tax Matters Agreement, Employee Matters Agreement, and certain Patent, Know-How,
Trade Secret License and Trademark License Agreements. The Separation and
Distribution Agreement identified the assets to be transferred, the liabilities
to be assumed, and the contracts to be transferred to each of Arconic
Corporation and Howmet Aerospace as part of the Separation, and provided for
when and how these transfers and assumptions were to occur.
On April 1, 2020 (the "Separation Date"), the Separation was completed and
became effective at 12:01 a.m. Eastern Daylight Time. To effect the Separation,
ParentCo undertook a series of transactions to separate the net assets and
certain legal entities of ParentCo, resulting in a cash payment of $728 to
ParentCo by Arconic Corporation from a portion of the aggregate net proceeds of
previously executed financing arrangements (see Financing Activities in
Liquidity and Capital Resources below). In connection with the Separation,
109,021,376 shares of Arconic Corporation common stock were distributed to
ParentCo stockholders. This was determined by applying the Separation Ratio to
the 436,085,504 shares of ParentCo's outstanding common stock as of the Record
Date. "Regular-way" trading of Arconic Corporation's common stock began with the
opening of the New York Stock Exchange on April 1, 2020 under the ticker symbol
"ARNC." Arconic Corporation's common stock has a par value of $0.01 per share.
                                       46
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
ParentCo incurred costs to evaluate, plan, and execute the Separation, and
Arconic Corporation was allocated a pro rata portion of these costs based on
segment revenue (see Cost Allocations below). ParentCo recognized $38 from
January 2020 through March 2020 and $78 in 2019 for such costs, of which $18 and
$40, respectively, was allocated to Arconic Corporation. The allocated amounts
were included in Selling, general administrative, and other expenses on Arconic
Corporation's Statement of Consolidated Operations.
Basis of Presentation.  The Consolidated Financial Statements of Arconic
Corporation are prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP). In accordance with GAAP,
certain situations require management to make estimates based on judgments and
assumptions, which may affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements. They also may affect the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates
upon subsequent resolution of identified matters. These estimates are based on
historical experience and, in some cases, assumptions based on current and
future market experience, including considerations related to the coronavirus
(COVID-19) pandemic. Management has made its best estimates using all relevant
information available at the time, but it is possible that these estimates will
differ from actual results and affect the Consolidated Financial Statements in
future periods and potentially require adverse adjustments to the recoverability
of goodwill and long-lived assets, the realizability of deferred tax assets and
other judgments and estimations and assumptions that may be impacted by
COVID-19.
Prior to the Separation Date, Arconic Corporation did not operate as a separate,
standalone entity. Arconic Corporation's operations were included in ParentCo's
financial results. Accordingly, for all periods prior to the Separation Date,
the Consolidated Financial Statements of Arconic Corporation were prepared from
ParentCo's historical accounting records and were presented on a standalone
basis as if the Arconic Corporation Businesses had been conducted independently
from ParentCo. Such Consolidated Financial Statements include the historical
operations that were considered to comprise the Arconic Corporation Businesses,
as well as certain assets and liabilities that were historically held at
ParentCo's corporate level but were specifically identifiable or otherwise
attributable to Arconic Corporation.
Cost Allocations.  The description and information on cost allocations is
applicable for all periods included in Arconic Corporation's Consolidated
Financial Statements prior to the Separation Date.
The Consolidated Financial Statements of Arconic Corporation include general
corporate expenses of ParentCo that were not historically charged to the Arconic
Corporation Businesses for certain support functions that were provided on a
centralized basis, such as expenses related to finance, audit, legal,
information technology, human resources, communications, compliance, facilities,
employee benefits and compensation, and research and development activities.
These general corporate expenses were included on Arconic Corporation's
Statement of Consolidated Operations within Cost of goods sold, Selling, general
administrative and other expenses, and Research and development expenses. These
expenses were allocated to Arconic Corporation on the basis of direct usage when
identifiable, with the remainder allocated based on the Arconic Corporation
Businesses' segment revenue as a percentage of ParentCo's total segment revenue,
as reported in the respective periods.
All external debt not directly attributable to Arconic Corporation was excluded
from Arconic Corporation's Consolidated Balance Sheet. Financing costs related
to these debt obligations were allocated to Arconic Corporation based on the
ratio of capital invested by ParentCo in the Arconic Corporation Businesses to
the total capital invested by ParentCo in both the Arconic Corporation
Businesses and the Howmet Aerospace Businesses, and were included on Arconic
Corporation's Statement of Consolidated Operations within Interest expense.
The following table reflects the allocations described above:
                                                                 2020      2019      2018
       Cost of goods sold(1)                                    $  -      $ 14      $ 11
       Selling, general administrative, and other expenses(2)     25       115        56
       Research and development expenses                           -        11        24
       Provision for depreciation and amortization                 1        10        10
       Restructuring and other charges(3)                          2         7        50
       Interest expense                                           28       115       125
       Other (income), net                                        (5)       (6)      (12)

__________________

(1) For all periods presented, amount principally relates to an allocation of expenses for ParentCo's retained pension and other postretirement benefit obligations associated with closed and sold operations.

                                       47
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
(2) In 2020 (January through March) and 2019, amount includes an allocation of
$18 and $40, respectively, for costs incurred by ParentCo associated with the
Separation (see above).
(3)  In 2018, amount includes an allocation of settlement and curtailment
charges and benefits related to several actions taken (lump sum payments and
benefit reductions) by ParentCo associated with pension and other postretirement
benefit plans.
Management believes the assumptions regarding the allocation of ParentCo's
general corporate expenses and financing costs were reasonable.
Nevertheless, the Consolidated Financial Statements of Arconic Corporation may
not include all of the actual expenses that would have been incurred and may not
reflect Arconic Corporation's consolidated results of operations, financial
position, and cash flows had it been a standalone company during the periods
prior to the Separation Date. Actual costs that would have been incurred if
Arconic Corporation had been a standalone company would depend on multiple
factors, including organizational structure, capital structure, and strategic
decisions made in various areas, including information technology and
infrastructure. Transactions between Arconic Corporation and ParentCo, including
sales to the Howmet Aerospace Businesses, were presented as related party
transactions in Arconic Corporation's Consolidated Financial Statements and were
considered to be effectively settled for cash at the time the transaction was
recorded. The total net effect of the settlement of these transactions was
reflected on Arconic Corporation's Statement of Consolidated Cash Flows as a
financing activity and on the Company's Consolidated Balance Sheet as Parent
Company net investment.
Management Review of 2020 and Outlook for the Future
After the Separation from ParentCo on April 1, 2020, we immediately took actions
to conserve cash, manage working capital more efficiently, and preserve
operational flexibility as the COVID-19 pandemic continued to adversely impact
the global economy. In the weeks that followed, we optimized our capital
structure through new debt offerings and a new credit facility. The new debt
structure created greater financial flexibility to operate in an uncertain
economic environment and improved our liquidity. While 2020 was a challenging
year, the Company demonstrated agility and solid performance in the face of
pandemic driven lower demand and uncertainty. As we completed the Separation
during a global pandemic that caused rapid shifts in the markets we serve, we
have become a stronger and more dynamic organization.
In 2020, Sales of $5,675 declined 22% from 2019, reflecting lower volumes across
the Company's three segments mainly caused by the economic impact of the
COVID-19 pandemic and/or production declines due to delays associated with the
Boeing 737 MAX. Lower aluminum prices also contributed to the decline, with a 5%
drop in the average LME aluminum price and a 33% decrease in the average Midwest
premium (United States). Revenue in the fourth quarter of 2020 was $1,462, down
14% year over year, but up 3% over the third quarter of 2020 reflecting a
continued recovery from the COVID-19 pandemic impacts. The decline in revenue
over the prior year quarter was primarily a result of continued softness in
aerospace and was partially offset by strength in the industrial products and
packaging end markets. In the segments, Total Segment Adjusted EBITDA decreased
14% in 2020 compared with 2019 due to the impact of the COVID-19 pandemic across
all end markets, partially offset by cost actions implemented during the year
and the absence of certain employee retirement benefit plan expenses (see Cost
of Goods Sold under Results of Operations below).
In 2020, the Company recorded a net loss of $109, or $1.00 per share, compared
to net income of $177, or $1.63 per share, in 2019. The 2020 results included a
pre-tax charge of $198 ($156 after-tax) for the settlement of certain employee
retirement benefits related to the annuitization of pension plan obligations in
the U.S. and the U.K. Of this charge, $140 ($108 after-tax) was recorded in the
fourth quarter of 2020. Additional items impacting the fourth quarter of 2020
included a pre-tax benefit of $25 ($19 after-tax) for contingent consideration
received related to the 2018 sale of the Texarkana (Texas) rolling mill and a
pre-tax benefit of $20 ($20 after-tax) for the reversal of a liability
previously established at the Separation Date related to a potential
indemnification to Howmet Aerospace by Arconic Corporation for an outstanding
income tax matter in Spain. The results for 2020 compared to 2019 were also
favorably impacted by a lower corporate cost structure as a standalone company
compared to an allocation of ParentCo's corporate overhead in 2019.
We ended the year with a cash balance of $787, and total liquidity of
approximately $1,500. Subsequent to year-end, we accelerated our 2021 U.S.
pension contributions into January 2021 and funded $200 to be opportunistic on
capitalizing on investment arbitrage by using our balance sheet cash. The
Company is planning to complete additional annuitizations of its pension
obligations over the first half of 2021.
As we look forward to 2021 and beyond, we see multiple paths to growth on both
the top and bottom line through driving asset utilization, debottlenecking
operations, maintaining permanent cost reductions, and capturing productivity
driven cost savings. We have identified several opportunities that are expected
to drive future volume growth and increase market penetration for continued
improvement of our results. We are continuing to ramp up incremental capacity
for automotive and industrial products at our Tennessee facility and we expect
to benefit from an increase in demand in the industrial products end
                                       48
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
market due to favorable outcomes in the U.S. common alloy aluminum sheet trade
case. We are also in the process of re-entering packaging in several markets
following the expiration of the non-compete agreement from the 2016 Separation
Transaction. We are bringing our Tennessee can sheet facility back online and
are in discussions with customers about qualification runs. Bringing this
capacity back online is timely, as surging aluminum packaging demand over recent
years has driven multiple recently announced capacity additions by North
American can makers resulting in increased demand for can sheet.
Based on current internal and external projections of build rates and leading
indicators in the markets we serve, and assuming an average LME aluminum price
of $2,030 per metric ton and an average Midwest premium of $320 per metric ton,
our expectations for sales by major end market in 2021 follow. These
expectations may change during the course of the year given the continued
uncertainty in the global economy. For the ground transportation end market, we
expect sales to increase approximately 25% to 35% in 2021 compared with 2020.
This range is somewhat wider reflecting uncertainty on how quickly the supply
chain recovers from the semiconductor chip shortage. Automotive sales are
expected to increase due to strong consumer demand and a recovery from soft 2020
levels, along with continued improvement in heavy duty truck sales. For the
industrial products end market, we anticipate sales to increase by approximately
15% to 20% in 2021 compared with 2020, driven by increased capabilities and
capacity at our Tennessee facility and stronger domestic pricing and volume
demand due to the impact of ongoing U.S. trade actions. For the building and
construction end market, we anticipate sales to be flat in 2021 compared with
2020, as global macro uncertainty continues to pressure non-residential
construction, which comprises the vast majority of our sales in this segment.
For the packaging end market, we expect sales to be relatively flat in 2021
compared with 2020. In 2020, our facility in Russia was operating at near full
capacity to satisfy strong global packaging demand. Although the non-compete
agreement expired in the fourth quarter of 2020, the qualification and
negotiation process to reenter the U.S. packaging market is expected to take
several quarters. Therefore, we would expect U.S. packaging production to
meaningfully contribute to results in 2022. For the aerospace end market, we
expect sales to decline approximately 25% to 30% from 2020, which is
approximately 50% below pre-pandemic 2019 levels as continued destocking is
expected to impact the entire aerospace supply chain. This destocking impact is
anticipated to continue through the first half of 2021 and we expect return to
year over year growth in the second half of the year.
COVID-19 Pandemic
Our operations and financial results have been, and are expected to continue to
be, adversely affected by the COVID-19 pandemic. Since Arconic Corporation's
launch as a standalone company on April 1, 2020, market conditions have been
changing rapidly and unpredictably. As a result of the COVID-19 pandemic,
several of our automotive and aerospace customers temporarily suspended
operations. While many of our customers have resumed operations, we are unable
to estimate with certainty at this time the status, frequency, or duration of
any potential reoccurrences of customer shutdowns, or the duration or extent of
resumed operations. In 2020, we derived approximately 33% of our revenue from
the ground transportation end market-including approximately 11% of its revenue
from Ford, our largest customer-and 14% from the aerospace end market. Due to
the impacts of the COVID-19 pandemic on our customers, we are experiencing, and
expect to continue experiencing, lower demand and volume for our products. These
trends may lead to charges, impairments and other adverse financial impacts over
time. The duration of the current disruptions to our customers and related
financial impact to us has been estimated, but remains highly uncertain at this
time. The impact on our business, results of operations, financial condition,
liquidity, and/or cash flows will be magnified if the disruption from the
COVID-19 pandemic continues for an extended period.
We believe that our diverse end markets and geographic composition mitigate a
portion of the impact on the Company from any singular area of decline.
Furthermore, despite the challenges that we currently face in North America and
Europe, we are seeing positive momentum at our Chinese facilities that felt the
full brunt of the COVID-19 pandemic in early 2020 and are now back to
essentially normal production. Our Russian packaging facility is running at full
operations due to strong end market demand. Moreover, our operating footprint
benefits from a highly variable cost structure and we are actively managing
operations to effectively flex activity to respond to changing automotive and
aerospace market conditions. However, the geographic locations in which our
products are manufactured, distributed or sold are in varying stages of
continued restrictions or lifting of restrictions, and the status of
restrictions in certain areas may change on short notice. Because we rely on
supply chain continuity, restrictions in one location may materially impact
operations in multiple locations, and the impact of the COVID-19 pandemic in one
location may have a disproportionate effect on our operations in the future.
The safety of our employees is our highest priority. We heightened measures at
all of our locations to maintain strict hygiene, increase social distancing, and
enable employees to work remotely where possible. In response to market
conditions we implemented a series of proactive actions starting in April 2020
to mitigate the impacts of the COVID-19 pandemic on our business, including the
following:
•deferred initiating a dividend on common stock;
                                       49
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
•reduced the CEO's salary and the Board of Directors' cash compensation by 30%*;
•reduced salaries for senior-level management by 20% and for all other salaried
employees by 10%*;
•restructuring of the salaried workforce, targeting a 10% reduction;
•idling of various production facilities based on market conditions within the
regions where the Company operates;
•decreasing production and operating with a reduced labor force through
shortened work weeks, shift reductions, layoffs, and the elimination of
temporary workers and contractors at U.S.-based rolling and extrusion
facilities;
•implementing a combination of modified schedules, adjusted work hours, lower
costs, and/or delayed raises at all rolling mill facilities in Europe, China and
Russia;
•suspended the 401K match program for U.S. salaried employees*; and
•reducing capital expenditures by approximately $50, or approximately 30%.
*Effective September 1, 2020, the Company restored both the salaries of all
salaried employees and the 401K match of all salaried U.S. employees, including
executive officers, to the levels in effect prior to the actions described
above. Also effective September 1, 2020, the Company restored the annual cash
retainers payable to the non-employee members of the Company's Board of
Directors to the levels in effect prior to the previous reduction described
above.
The foregoing measures from our cash conservation program resulted in actual
cost savings of approximately $160, comprised of $100 in temporary savings
(i.e., 2020 only) and $60 in permanent savings, as well as an additional $50 for
capital expenditure reductions, from April 2020 through December 2020. While we
anticipate incremental cost savings in future periods related to the measures
that resulted in permanent cost savings during 2020, we may not achieve such
savings. In addition, we may determine that it is necessary to modify or rescind
cost-saving actions, in which case certain of the realized permanent cost
savings may not continue and/or any anticipated incremental cost savings would
not be fully realized. Further disruptions and uncertainties related to the
COVID-19 pandemic could require us to take additional cost-saving actions or to
modify or rescind current cost-saving actions, make additional modifications to
our strategic plans and/or incur additional expenses as part of our continued
response to the COVID-19 pandemic. The cost-savings measures taken to date, and
any cost-cutting measures we may need to take in the future, could have a
material and adverse effect on our business, results of operations, financial
condition, liquidity, and/or cash flows.
While we are continuing to evaluate the impact of this global event, our
liquidity and financial position remains strong despite the COVID-19 pandemic's
impact to our business. Our business is flexible and we have demonstrated a
robust and agile cash management program in 2020, and together with potential
future cash conservation actions, we believe we have adequate liquidity to
operate the Company over the next twelve months.
The timing for the Company and/or our customers resuming operations and the
levels of operations experienced before the COVID-19 pandemic depend on numerous
factors beyond the Company's control, including, among other things: the
revision of governmental quarantine, shelter in place or similar social
distancing orders or guidelines; the occurrence and magnitude of future
outbreaks; the availability of vaccines or other medical remedies and preventive
measures; the location of facilities; and determinations regarding, among other
things, health and safety, demand for specific products, and broader economic
conditions. We are continuing to evaluate the impact this global event may have
on its future results of operations, financial condition, liquidity, and cash
flows.
See Part I. Item 1A. "Risk Factors" for additional information regarding the
continuing impact of the COVID-19 pandemic on our operations.
Results of Operations
Earnings Summary
Effective July 1, 2020, the Company changed its inventory cost method to average
cost for all U.S. inventories previously carried at LIFO cost. The effects of
the change in accounting principle have been retrospectively applied to all
prior periods presented in the Company's Consolidated Financial Statements. See
Note M to the Consolidated Financial Statements in Part II Item 8 of this Form
10-K.
Sales.  Sales were $5,675 in 2020 compared with $7,277 in 2019, a decrease of
$1,602, or 22%. The decrease was principally due to depressed volumes within
each of the Company's three segments, mainly caused by the economic impact of
COVID-19 and/or production declines due to delays associated with the Boeing 737
MAX; lower aluminum prices in the Rolled Products segment, driven by a drop in
both the average LME price and regional premiums; the absence of sales ($176)
related to the divestitures of a rolling mill in Brazil (February 2020) and an
extrusions plant in South Korea (March 2020); an unfavorable impact related to
the curtailment of a rolling mill and both the exit and rationalization of two
separate product lines in the Building and Construction Systems segment; and
unfavorable product mix in the Rolled Products segment.
                                       50
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Sales in 2019 were $7,277 compared with $7,442 in 2018, a decrease of $165, or
2%. The decrease was largely attributable to lower aluminum prices, the absence
of sales ($169 combined) as a result of both the ramp down of the Company's
North American packaging operations (completed in December 2018) and the
divestiture of its Latin America Extrusions business (April 2018), and
unfavorable foreign currency movements. These negative impacts were mostly
offset by favorable product mix and pricing in the Rolled Products segment and
volume growth related to the packaging (excluding North America), aerospace, and
industrial end markets.
Cost of Goods Sold.  COGS was $4,862 in 2020 compared with $6,332 in 2019, a
decline of $1,470, or 23%. Also, COGS as a percentage of Sales was 85.7% in 2020
compared to 87.0% in 2019. This percentage was positively impacted by net cost
savings, including lower labor costs (see Outlook above), and the absence of
certain employee retirement benefit plan expenses ($69 - see below), mostly
offset by lower volumes and unfavorable product mix.
COGS was $6,332 in 2019 compared with $6,527 in 2018, a decline of $195, or 3%.
Also, COGS as a percentage of Sales was 87.0% in 2019 compared to 87.7% in 2018.
This percentage was positively impacted by favorable product pricing and mix in
the Rolled Products segment and the absence of a charge for a physical inventory
adjustment at an Extrusions plant ($14). These positive impacts were partially
offset by costs associated with the transition of the Company's Tennessee plant
to industrial products from packaging, a charge to increase an environmental
reserve related to a U.S. Extrusions plant ($25), and a charge, primarily for a
one-time employee signing bonus, related to a collective bargaining agreement
negotiation ($9 - see below).
In June of 2019, Arconic Corporation and the United Steelworkers (USW) reached a
tentative three-year labor agreement covering approximately 3,400 employees at
four U.S. locations; the previous labor agreement expired on May 15, 2019. The
tentative agreement was ratified on July 11, 2019.
In preparation for the Separation, effective January 1, 2020, certain U.S.
defined benefit pension and other postretirement plans previously sponsored by
ParentCo were separated into standalone plans for both Arconic Corporation and
Howmet Aerospace. Additionally, effective April 1, 2020, Arconic Corporation
assumed a portion of the obligations associated with certain non-U.S. defined
benefit pension plans that included participants related to both the Arconic
Corporation Businesses and the Howmet Aerospace Businesses, as well as legacy
defined benefit pension plans assigned to the Company as a result of the
Separation. As a result, beginning in the first quarter of 2020 for these U.S.
plans and in the second quarter of 2020 for these non-U.S. plans, Arconic
Corporation applied defined benefit plan accounting resulting in benefit plan
expense being recorded in operating income (service cost) and nonoperating
income (nonservice cost). In all historical periods prior to these respective
timeframes, Arconic Corporation was considered a participating employer in
ParentCo's defined benefit plans and, therefore, applied multiemployer plan
accounting resulting in the Company's share of benefit plan expense being
recorded entirely in operating income. Also, Arconic Corporation is the plan
sponsor of certain other non-U.S. defined benefit plans that contain
participants related only to the Arconic Corporation Businesses and, therefore,
the related benefit plan expense was recorded in accordance with defined benefit
plan accounting in all periods presented. The following table presents the total
benefit plan expense (excluding settlements and curtailments) recorded by
Arconic Corporation based on the foregoing in each period presented:
                                                                 2020       2019       2018
       Cost of goods sold                                       $  25      $  94      $ 101
       Selling, general administrative, and other expenses          -         13         13
       Research and development expenses                            -          2          2
       Other expenses (income), net                                78          2          2
       Total                                                    $ 103      $ 111      $ 118


Selling, General Administrative, and Other Expenses.  SG&A expenses were $258,
or 4.5% of Sales, in 2020 compared with $346, or 4.8% of Sales, in 2019. The
decrease of $88, or 25%, was largely attributable to a combination of a lower
corporate cost structure as a standalone company in 2020 compared to an
allocation of ParentCo's corporate overhead (excluding costs for the Separation)
in 2019 and cost reduction actions in response to COVID-19 (see Outlook above),
a lower allocation ($22) of costs incurred for the Separation (see Cost
Allocations under The Separation above), and the absence of certain employee
retirement benefit plan expenses ($13 - see Cost of goods sold above).
SG&A expenses were $346, or 4.8% of Sales, in 2019 compared with $288, or 3.9%
of Sales, in 2018. The increase of $58, or 20%, was primarily the result of a
higher allocation (increase of $59) of ParentCo's corporate overhead, which was
mostly driven by the following: costs incurred for the Separation ($78, of which
$40 was allocated to Arconic Corporation) and higher
                                       51
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
expenses for both executive compensation and estimated annual employee incentive
compensation, all of which was somewhat offset by reductions in several other
overhead costs.
Research and Development Expenses.  R&D expenses were $36 in 2020 compared with
$45 in 2019. The decrease was primarily driven by a lower amount of expenses
associated with the Company's standalone R&D facility in 2020 compared to the
expenses allocated to Arconic Corporation by ParentCo (see Cost Allocations
under The Separation above) in 2019. The lower cost structure was the result of
the consolidation of this R&D facility in connection with cost reduction efforts
initiated by ParentCo in 2019.
R&D expenses were $45 in 2019 compared with $63 in 2018. The decrease was
principally related to a lower allocation of ParentCo's expenses, which was
driven by decreased spending.
Provision for Depreciation and Amortization.  The provision for D&A was $251 in
2020 compared with $252 in 2019. The decrease of $1 was primarily due to lower
D&A due to restructuring actions related to impairment of assets in 2019, mostly
offset by capital projects placed into service.
The provision for D&A was $252 in 2019 compared with $272 in 2018. The decrease
of $20, or 7%, was primarily due to the divestiture of the Texarkana (Texas)
rolling mill and cast house.
Restructuring and Other Charges.  In 2020, 2019, and 2018, Restructuring and
other charges were comprised of a net charge of $188, a net charge of $87, and a
net benefit of $104, respectively. See Note E to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K for additional information.
Interest Expense.  Interest expense was $118 in 2020 compared with $115 in 2019.
The increase of $3, or 3%, was primarily due to the write-off and immediate
expensing of $19 in debt issuance costs as a result of a debt refinancing (see
Financing Activities under Liquidity and Capital Resources below) in May 2020,
partially offset by a lower amount of interest associated with the Company's
standalone outstanding debt (see Financing Activities under Liquidity and
Capital Resources below) in 2020 compared to the interest allocated to Arconic
Corporation by ParentCo (see Cost Allocations under The Separation above) in
2019.
Interest expense was $115 in 2019 compared with $129 in 2018. The decrease of
$14, or 11%, was mostly the result of a lower allocation (decrease of $10) of
ParentCo's financing costs due to a lower average amount of ParentCo's
outstanding debt in 2019 compared to 2018 and an increase ($3) in the amount of
interest capitalized due to expansion projects at the Company's Davenport (Iowa)
and Tennessee facilities (see Investing Activities in Liquidity and Capital
Resources below).
Other Expenses (Income), Net.  Other expenses, net was $70 in 2020 compared with
Other income, net of $15 in 2019. The unfavorable change of $85 was mainly the
result of an increase ($76) in non-service cost related to the new standalone
U.S. pension and other postretirement benefit plans that became effective
January 1, 2020 (see Cost of goods sold above), as well as net unfavorable
foreign currency movements ($28), somewhat offset by the reversal of a liability
($20) established at Separation for Arconic Corporation's share of a Spanish tax
matter of ParentCo that was favorably settled in the fourth quarter of 2020.
Other income, net was $15 in 2019 compared with Other expenses, net of $4 in
2018. The change of $19 was largely attributable to net favorable foreign
currency movements.
Provision (Benefit) for Income Taxes.  Arconic Corporation's effective tax rate
was (0.9)% (provision on a loss) in 2020, (53.9)% (benefit on income) in 2019,
and 28.9% (provision on income) in 2018. See Note I to the Consolidated
Financial Statements in Part II Item 8 of this Form 10-K for a reconciliation of
the effective tax rate for each of these years to the U.S. federal statutory
rate of 21%.
Segment Information
Arconic Corporation's operations consist of three reportable segments: Rolled
Products, Building and Construction Systems, and Extrusions. Segment performance
under Arconic Corporation's management reporting system is evaluated based on
several factors; however, the primary measure of performance is Segment Adjusted
EBITDA (Earnings before interest, taxes, depreciation, and amortization).
Effective in the second quarter of 2020, management elected to change the profit
or loss measure of the Company's reportable segments from Segment operating
profit to Segment Adjusted EBITDA for internal reporting and performance
measurement purposes. This change was made to enhance the transparency and
visibility of the underlying operating performance of each segment. Effective in
the third quarter of 2020, management refined the Company's Segment Adjusted
EBITDA measure to remove the impact of metal price lag (see footnote 4 to the
Reconciliation of Total Segment Adjusted
                                       52
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
EBITDA below). This change was made to further enhance the transparency and
visibility of the underlying operating performance of each segment by removing
the volatility associated with metal prices.
Arconic Corporation calculates Segment Adjusted EBITDA as Total sales
(third-party and intersegment) minus each of (i) Cost of goods sold, (ii)
Selling, general administrative, and other expenses, and (iii) and Research and
development expenses, plus Stock-based compensation expense and Metal price lag.
Previously, the Company calculated Segment operating profit as Segment Adjusted
EBITDA minus each of (i) the Provision for depreciation and amortization, (ii)
Stock-based compensation expense, and (iii) Metal price lag. Arconic
Corporation's Segment Adjusted EBITDA may not be comparable to similarly titled
measures of other companies' reportable segments.
Also, effective July 1, 2020, the Company changed its inventory cost method to
average cost for all U.S. inventories previously carried at LIFO cost. The
effects of the change in accounting principle have been retrospectively applied
to all prior periods presented in the Company's Consolidated Financial
Statements. See Note M to the Consolidated Financial Statements in Part II Item
8 of this Form 10-K.
Segment information for all prior periods presented was recast to reflect the
new measure of segment profit or loss and the change in inventory cost method.
Segment Adjusted EBITDA for all reportable segments totaled $648 in 2020, $757
in 2019, and $702 in 2018. The following information provides Sales and Segment
Adjusted EBITDA for each reportable segment for each of the three years in the
period ended December 31, 2020. See Note D to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K for additional information.
Rolled Products
                                                       2020         2019         2018
           Third-party sales*                        $ 4,335      $ 5,609      $ 5,731
           Intersegment sales                             19           25           15
            Total sales                              $ 4,354      $ 5,634      $ 5,746
           Segment Adjusted EBITDA                   $   527      $   640      $   562
           Third-party aluminum shipments (kmt)        1,179        1,390        1,309

__________________

*  Sales to the Howmet Aerospace Businesses were $75, $131, and $145,
respectively, in 2020, 2019, and 2018, respectively. These sales are deemed to
be related-party sales and are presented as such on Arconic Corporation's
Statement of Consolidated Operations. The product sold to the Howmet Aerospace
Businesses consists of aluminum billet.
Overview.  The Rolled Products segment produces aluminum sheet and plate for a
variety of end markets. Sheet and plate are sold directly to customers and
through distributors related to the aerospace, automotive, commercial
transportation, packaging, building and construction, and industrial products
(mainly used in the production of machinery and equipment and consumer durables)
end markets. A small portion of this segment also produced aseptic foil for the
packaging end market prior to February 1, 2020 (see below). While the customer
base for flat-rolled products is large, a significant amount of sales of sheet
and plate is to a relatively small number of customers. Prices for these
products are generally based on the price of metal plus a premium for adding
value to the aluminum to produce a semi-finished product, resulting in a
business model in which the underlying price of metal is contractually
passed-through to customers. Generally, the sales and costs and expenses of this
segment are transacted in the local currency of the respective operations, which
are the U.S. dollar and, to a lesser extent, each of the following: the Russian
ruble, Chinese yuan, the euro, the British pound, and the Brazilian real.
On February 1, 2020, Arconic Corporation completed the sale of its aluminum
rolling mill in Itapissuma, Brazil to Companhia Brasileira de Alumínio. This
rolling mill produced aseptic foil and sheet products. The rolling mill
generated third-party sales of $10, $143, and $179 in 2020, 2019, and 2018,
respectively, and, at the time of divestiture, had approximately 500 employees.
See Note S to the Consolidated Financial Statements in Part II Item 8 of this
Form 10-K for additional information.
On November 1, 2016, Arconic Corporation entered into a toll processing
agreement with Alcoa Corporation for the tolling of metal for the Warrick, IN
rolling mill which became a part of Alcoa Corporation upon the completion of the
2016 Separation Transaction. As part of this arrangement, Arconic Corporation
provided a toll processing service to Alcoa Corporation to produce can sheet
products at its facility in Tennessee through the end date of the contract,
December 31, 2018. Alcoa Corporation supplied all required raw materials to
Arconic Corporation, which processed the raw materials into finished can sheet
coils ready for shipment to the end customer. Tolling revenue for 2018 was $144.
                                       53
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Sales.  Third-party sales for the Rolled Products segment decreased $1,274, or
23%, in 2020 compared with 2019, primarily attributable to depressed volumes
(see below), unfavorable product mix, lower aluminum prices (see below), and the
absence of sales related to both the February 2020 divestiture of a rolling mill
in Brazil ($133) and the December 2019 curtailment of operations in San Antonio
(Texas).
The lower volumes were largely attributable to a decline in the ground
transportation end market due to the economic impact of COVID-19. Additionally,
volumes related to the aerospace end market were also unfavorably impacted due
to the economic impact of COVID-19 and production declines due to delays
associated with the Boeing 737 MAX.
In 2020, the lower aluminum prices were largely driven by a 5% drop in the
average LME aluminum price and a 33% decrease in the average Midwest premium
(United States).
Third-party sales for this segment decreased $122, or 2%, in 2019 compared with
2018, primarily attributable to lower aluminum prices (see below), the absence
of sales ($144) as a result of the ramp down of the Company's North American
packaging operations (completed in December 2018), and unfavorable foreign
currency movements. These negative impacts were partially offset by favorable
product pricing and mix and higher volumes in the packaging (excluding North
America), aerospace, and industrial products end markets.
In 2019, the lower aluminum prices were largely driven by a 15% drop in the
average LME aluminum price and a 6% decrease in the average Midwest premium.
Segment Adjusted EBITDA. Segment adjusted EBITDA for the Rolled Products segment
decreased $113, or 18%, in 2020 compared with 2019, primarily driven by lower
volumes, unfavorable product mix, and unfavorable pricing on industrial and
ground transportation products, partially offset by net cost savings, including
lower labor costs (see Outlook under Results of Operations above), and the
absence of certain employee retirement benefit plan expenses (see footnote 1 to
the Reconciliation of Total Segment Adjusted EBITDA below).
Segment adjusted EBITDA for this segment increased $78, or 14%, in 2019 compared
with 2018, principally driven by favorable pricing adjustments on industrial
products and commercial transportation products, favorable aluminum price
impacts, net cost savings, and favorable product mix. These positive impacts
were somewhat offset by the Company's Tennessee plant's transition to industrial
production from packaging production.
Building and Construction Systems
                                                 2020        2019         2018
                  Third-party sales             $ 963      $ 1,118      $ 1,140
                  Segment Adjusted EBITDA       $ 137      $   126      $   117


Overview.  The Building and Construction Systems segment manufactures products
that are used in the non-residential building and construction end market. These
products include integrated aluminum architectural systems and architectural
extrusions, which are sold directly to customers and through distributors. A
limited amount of this segment's product sales is directly impacted by metal
pricing, which is a pass-through to the related customers. Generally, the sales
and costs and expenses of this segment are transacted in the local currency of
the respective operations, which are the U.S. dollar and, to a lesser extent,
each of the following: the euro, the British pound, and Canadian dollar.
Sales.  Third-party sales for the Building and Construction Systems segment
decreased $155, or 14%, in 2020 compared with 2019, primarily due to lower
volumes driven by the economic impact of COVID-19, the exit of the Reynobond
product line in Europe, and the rationalization of the windows product line.
Third-party sales for this segment decreased $22, or 2%, in 2019 compared with
2018, primarily driven by unfavorable foreign currency movements, principally
driven by a weaker euro, and unfavorable aluminum pricing (see below). These
negative impacts were somewhat offset by higher volume.
In 2019, the lower aluminum prices were largely driven by a 15% drop in the
average LME aluminum price.
Segment Adjusted EBITDA.  Segment adjusted EBITDA for the Building and
Construction Systems segment increased $11, or 9%, in 2020 compared with 2019,
principally driven by net cost savings and a decrease in employee retirement
benefit plan expenses (see footnote 1 to the Reconciliation of Total Segment
Adjusted EBITDA below), partially offset by lower volumes.
                                       54
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Segment adjusted EBITDA for this segment increased $9, or 8%, in 2019 compared
with 2018, principally driven by net cost savings.
Extrusions
                                                         2020       2019       2018
              Third-party sales*                        $ 381      $ 550      $ 546
              Segment Adjusted EBITDA                   $ (16)     $  (9)     $  23
              Third-party aluminum shipments (kmt)         40         60         59

__________________

*  Sales to the Howmet Aerospace Businesses were $33, $52, and $61 in 2020,
2019, and 2018, respectively. These sales are deemed to be related-party sales
and are presented as such on Arconic Corporation's Statement of Consolidated
Operations. The product sold to the Howmet Aerospace Businesses consists of
aluminum billet and forged aluminum stock.
Overview.  The Extrusions segment produces a range of extruded and machined
parts for the aerospace, automotive, commercial transportation, and industrial
products end markets. These products are sold directly to customers and through
distributors. Prices for these products are generally based on the price of
metal plus a premium for adding value to the aluminum to produce a semi-finished
product, resulting in a business model in which the underlying price of metal is
contractually passed-through to customers. Generally, the sales and costs and
expenses of this segment are transacted in the local currency of the respective
operations, which are the U.S. dollar and, to a lesser extent, the euro.
On March 1, 2020, Arconic Corporation completed the sale of its hard alloy
extrusions plant in South Korea. The extrusions plant generated third-party
sales of $8, $51, and $53 in 2020, 2019, and 2018, respectively, and, at the
time of divestiture, had approximately 160 employees. See Note S to the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K for
additional information.
Sales.  Third-party sales for the Extrusions segment decreased $169, or 31%, in
2020 compared with 2019, primarily driven by lower volumes related to the
aerospace, ground transportation, and industrial end markets, driven by the
economic impact of COVID-19 and/or production declines due to delays associated
with the Boeing 737 MAX, and the absence of sales ($43) related to the
divestiture of an extrusions plant in South Korea (see above). These negative
impacts were slightly offset by a favorable aerospace mix.
Third-party sales for this segment increased $4, or 1%, in 2019 compared with
2018, primarily driven by favorable product mix (mainly related to the
automotive end market).
Segment Adjusted EBITDA.  Segment Adjusted EBITDA for the Extrusions segment
decreased $7 in 2020 compared with 2019, principally caused by lower volumes and
costs ($9) related to both inventory write-downs and customer settlements,
partially offset by net cost savings, including lower labor costs (see Outlook
under Results of Operations above), and the absence of certain employee
retirement benefit plan expenses (see footnote 1 to the Reconciliation of Total
Segment Adjusted EBITDA below).
Segment Adjusted EBITDA for this segment decreased $32 in 2019 compared with
2018, principally driven by higher operating costs, including labor,
maintenance, and transportation. These negative impacts were partially offset by
the absence of a charge for a physical inventory adjustment at one plant ($14).

                                       55
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net (Loss)
Income Attributable to Arconic Corporation
For the year ended December 31,                                2020               2019               2018
Total Segment Adjusted EBITDA(1),(2)                       $     648          $     757          $     702
Unallocated amounts:
Corporate expenses(1),(3)                                        (24)               (53)               (57)
Stock-based compensation expense                                 (23)               (40)               (22)
Metal price lag(4)                                               (27)               (39)                 3
Provision for depreciation and amortization                     (251)              (252)              (272)
Restructuring and other charges(5)                              (188)               (87)               104
Other(1),(6)                                                     (55)               (71)               (62)
Operating income(2)                                               80                215                396
Interest expense                                                (118)              (115)              (129)
Other (expenses) income, net(1)                                  (70)                15                 (4)
(Provision) Benefit for income taxes(2)                           (1)                62                (76)
Net income attributable to noncontrolling interest                 -                  -                  -
Consolidated net (loss) income attributable to
Arconic Corporation(2)                                     $    (109)

$ 177 $ 187

_________________

(1)In preparation for the Separation, effective January 1, 2020, certain U.S.
defined benefit pension and other postretirement plans previously sponsored by
ParentCo were separated into standalone plans for both Arconic Corporation and
Howmet Aerospace. Additionally, effective April 1, 2020, Arconic Corporation
assumed a portion of the obligations associated with certain non-U.S. defined
benefit pension plans that included participants related to both the Arconic
Corporation Businesses and the Howmet Aerospace Businesses, as well as legacy
defined benefit pension plans assigned to the Company as a result of the
Separation. As a result, beginning in the first quarter of 2020 for these U.S.
plans and in the second quarter of 2020 for these non-U.S. plans, Arconic
Corporation applied defined benefit plan accounting resulting in benefit plan
expense being recorded in operating income (service cost) and nonoperating
income (nonservice cost). In all historical periods prior to these respective
timeframes, Arconic Corporation was considered a participating employer in
ParentCo's defined benefit plans and, therefore, applied multiemployer plan
accounting resulting in the Company's share of benefit plan expense being
recorded entirely in operating income. Also, Arconic Corporation is the plan
sponsor of certain other non-U.S. defined benefit plans that contain
participants related only to the Arconic Corporation Businesses and, therefore,
the related benefit plan expense was recorded in accordance with defined benefit
plan accounting in all periods presented. The following table presents the total
benefit plan expense (excluding settlements and curtailments) recorded by
Arconic Corporation based on the foregoing in each period presented:
              For the year ended December 31,          2020        2019        2018
              Segment Adjusted EBITDA:
              Rolled Products                        $  (17)     $  (62)     $  (67)
              Building and Construction Systems          (2)         (5)         (6)
              Extrusions                                 (7)        (18)        (18)
              Segment total                             (26)        (85)        (91)
              Unallocated amounts:
              Corporate expenses                          -         (15)        (13)
              Other                                       1          (9)        (11)
              Subtotal                                    1         (24)        (24)
              Other expenses, net                       (78)         (2)         (2)
              Total                                  $ (103)     $ (111)     $ (117)


(2)Effective July 1, 2020, the Company changed its inventory cost method to
average cost for all U.S. inventories previously carried at LIFO cost. The
effects of the change in accounting principle have been retrospectively applied
to all prior periods presented in the accompanying Consolidated Financial
Statements. See Note M to the Consolidated Financial Statements in Part II Item
8 of this Form 10-K for additional information.
                                       56
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
(3)Corporate expenses are composed of general administrative and other expenses
of operating the corporate headquarters and other global administrative
facilities, as well as research and development expenses of the corporate
technical center. Amounts presented for all periods prior to second quarter 2020
represent an allocation of ParentCo's corporate expenses (see the Cost
Allocations section of The Separation under Overview above).
(4)Metal price lag represents the financial impact of the timing difference
between when aluminum prices included in Sales are recognized and when aluminum
purchase prices included in Cost of goods sold are realized. This adjustment
aims to remove the effect of the volatility in metal prices and the calculation
of this impact considers applicable metal hedging transactions.
(5)In 2020, Restructuring and other charges includes a $199 charge for the
settlement of certain employee retirement benefits virtually all within the
United States and the United Kingdom. See Note H to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K for additional information.
(6)Other includes certain items that impact Cost of goods sold and Selling,
general administrative, and other expenses on the Company's Statement of
Consolidated Operations that are not included in Segment Adjusted EBITDA.
Environmental Matters
See the Environmental Matters section of Note T to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K.
Liquidity and Capital Resources
Arconic Corporation's primary future cash needs are centered on operating
activities, including working capital, as well as recurring and strategic
capital expenditures. The Company's ability to fund its cash needs depends on
its ongoing ability to generate and raise cash in the future. Although
management believes that Arconic Corporation's future cash from operations,
together with the Company's access to capital markets, will provide adequate
resources to fund Arconic Corporation's operating and investing needs, the
Company's access to, and the availability of, financing on acceptable terms in
the future will be affected by many factors, including: (i) Arconic
Corporation's credit rating; (ii) the liquidity of the overall capital markets;
and (iii) the current state of the economy. There can be no assurances that the
Company will continue to have access to capital markets on terms acceptable to
Arconic Corporation.
For all periods prior to the Separation Date, ParentCo provided capital, cash
management, and other treasury services to the Company. Only cash amounts
specifically attributable to Arconic Corporation were reflected in the Company's
Consolidated Financial Statements. Transfers of cash, both to and from
ParentCo's centralized cash management system, were reflected as a component of
Parent Company net investment in Arconic Corporation's Consolidated Financial
Statements.
Cash provided from operations and financing activities is expected to be
adequate to cover the Company's operational and business needs over the next 12
months. For an analysis of long-term liquidity, see Contractual Obligations and
Off-Balance Sheet Arrangements below.
At December 31, 2020, the Company's cash and cash equivalents were $787, of
which $256 was held outside the United States. Arconic Corporation has a number
of commitments and obligations related to the Company's operations in various
foreign jurisdictions, resulting in the need for cash outside the United States.
Management continuously evaluates the Company's local and global cash needs for
future business operations, which may influence future repatriation decisions.
Operating Activities
Cash provided from operations was $6 in 2020 compared with $457 in 2019 and $503
in 2018.
In 2020, cash provided from operations was comprised of a positive add-back for
non-cash transactions in earnings of $552 and a favorable change in noncurrent
assets and liabilities of $56, mostly offset by pension contributions of $271,
an unfavorable change in working capital of $222 (see below), and a net loss of
$109.
In 2019, cash provided from operations was comprised primarily of a positive
add-back for non-cash transactions in earnings of $313 and net income of $177,
slightly offset by an unfavorable change in working capital of $57.
In 2020, working capital was significantly impacted by the fact that customer
receivables related to the Arconic Corporation Businesses were no longer
included in ParentCo's accounts receivable securitization program effective
January 2, 2020. In periods prior to 2020, certain identified customer
receivables related to the Arconic Corporation Businesses were sold on a
revolving basis to a ParentCo subsidiary under this program. Accordingly, sales
of such receivables were reflected as a
                                       57
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
component of Parent Company net investment on Arconic Corporation's Consolidated
Balance Sheet as Arconic Corporation no longer had the right to collect and
receive cash from the related customers. Had customer receivables related to the
Arconic Corporation Businesses not been included in ParentCo's program in 2019,
the previously mentioned unfavorable change in working capital of $57 would have
increased by $281. See Cash Management in Note A to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K.
In 2018, cash provided from operations was comprised primarily of a positive
add-back for non-cash transactions in earnings of $201, net income of $187, and
a favorable change in working capital of $137.
Financing Activities
Cash provided from financing activities was $744 in 2020 compared with cash used
for financing activities of $295 in 2019 and cash used for financing activities
of $536 in 2018. The source of cash in 2020 was due to $2,343 in net proceeds
(reflects additional debt issuance costs paid from cash on hand) from the
issuance of new indebtedness (see below) and $216 in net cash funding provided
by ParentCo prior to the Separation Date, partially offset by $1,100 for the
repayment of debt (see below) and a $728 payment to ParentCo in connection with
the Separation (see The Separation under Overview above). The use of cash in
both 2019 and 2018 was mostly due to net cash transfers to ParentCo.
Financing Arrangements. In connection with the capital structure to be
established at the time of the Separation, Arconic Corporation secured $1,200 in
third-party indebtedness. On February 7, 2020, Arconic Corporation completed a
Rule 144A (U.S. Securities Act of 1933, as amended) debt offering for $600 of
6.125% Senior Secured Second-Lien Notes due 2028 (the "2028 Notes"). The Company
received $593 in net proceeds from the debt offering reflecting a discount to
the initial purchasers of the 2028 Notes. Also, on March 25, 2020, Arconic
Corporation entered into a credit agreement, which provided a $600 Senior
Secured First-Lien Term Loan B Facility (variable rate and seven-year term) (the
"Term Loan") and a $1,000 Senior Secured First-Lien Revolving Credit Facility
(variable rate and five-year term) (the "Credit Facility"), with a syndicate of
lenders and issuers named therein (the "Credit Agreement"). The Company received
$575 in net proceeds from the Term Loan reflecting upfront fees and costs to
enter into the financing arrangement.
The Company used a portion of the $1,168 in net proceeds from the aggregate
indebtedness to make a $728 payment to ParentCo on April 1, 2020 to fund the
transfer of certain net assets from ParentCo to Arconic Corporation in
connection with the completion of the Separation (see The Separation under
Overview above). The payment to ParentCo was calculated as the difference
between (i) the $1,168 of net proceeds from the aggregate indebtedness and (ii)
the difference between a beginning cash balance at the Separation Date of $500,
as provided for in the Separation and Distribution Agreement, and the amount of
cash held by Arconic Corporation Businesses at March 31, 2020 ($60 - the sum of
this amount and the aggregate indebtedness in (i) equals the sum of Cash and
cash equivalents and Restricted cash on the Company's Combined Balance Sheet as
of March 31, 2020).
On April 2, 2020, Arconic Corporation borrowed $500, which was subject to an
interest rate equal to the sum of the three-month LIBOR plus a 2.0% applicable
margin, under the Credit Facility. This borrowing was a proactive measure taken
by the Company to bolster its liquidity and preserve financial flexibility in
light of uncertainties resulting from the COVID-19 outbreak (see Outlook under
Results of Operations above).
On May 13, 2020, Arconic Corporation executed a refinancing of its existing
Credit Agreement in order to provide improved financial flexibility. Arconic
Corporation completed a Rule 144A (U.S. Securities Act of 1933, as amended) debt
offering for $700 of 6.0% Senior Secured First-Lien Notes due 2025 (the "2025
Notes"). The Company received $691 in net proceeds from the debt offering
reflecting a discount to the initial purchasers of the 2025 Notes. Additionally,
Arconic Corporation entered into a credit agreement with a syndicate of lenders
named therein and Deutsche Bank AG New York Branch, as administrative agent (the
"ABL Credit Agreement"). The ABL Credit Agreement provides for a senior secured
asset-based revolving credit facility in an aggregate principal amount of $800
(availability was $678 during the 2020 fourth quarter and was determined to be
$732 for the 2021 first quarter - see ABL Credit Agreement in Note Q to the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K),
including a letter of credit sub-facility and a swingline loan sub-facility (the
"ABL Credit Facility"). In addition, the ABL Credit Facility includes an
accordion feature allowing the Company to request one or more increases to the
revolving commitments in an aggregate principal amount up to $350.
Arconic Corporation used the net proceeds from the new indebtedness, together
with cash on hand, to prepay in full the obligations outstanding under both the
Term Loan ($600) and Credit Facility ($500) and to terminate in full the
commitments under the Credit Agreement.
See Note Q to the Consolidated Financial Statements in Part II Item 8 of this
Form 10-K for descriptions of the 2028 Notes, 2025 Notes, and ABL Credit
Agreement.
                                       58
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
In connection with the issuance of the 2028 Notes and the execution of the
Credit Agreement, the Company paid $42 in discounts to the initial purchasers
and/or upfront fees and costs (the "debt issuance costs"), of which $30 was
attributable to the Term Loan and the Credit Facility. The debt issuance costs
were initially deferred and were being amortized to interest expense over the
respective terms of the 2028 Notes, the Term Loan, and the Credit Facility. In
connection with the issuance of the 2025 Notes and the execution of the ABL
Credit Agreement, the Company paid $15 in discounts to the initial purchasers
and/or upfront fees and costs (the "new debt issuance costs"). As a result of
applying both debt modification and debt extinguishment accounting, as
appropriate based on the lender mix for each debt instrument, to the debt
refinancing, the Company was required to write off $16 of the $30 in debt
issuance costs and immediately expense $3 of the $15 in new debt issuance costs.
This $19 was reported within Interest expense on the Company's Statement of
Consolidated Operations. The remaining $14 in debt issuance costs continued to
be deferred and the remaining $12 in new debt issuance costs were deferred; both
are being amortized to interest expense over the respective terms of the 2025
Notes and the ABL Credit Agreement.
Ratings. Arconic Corporation's cost of borrowing and ability to access the
capital markets are affected not only by market conditions but also by the
ratings assigned to Arconic Corporation and its debt by the major credit rating
agencies. As of December 31, 2020, the following are the most recent ratings for
Arconic Corporation and its outstanding debt.
Moody's Investor Service (Moody's) has assigned a Ba3 rating to both the Company
and the 2028 Notes and a Ba1 rating to the 2025 Notes. Additionally, Moody's has
given these ratings a stable outlook.
Standard and Poor's Global Ratings (S&P) has assigned a BB rating to the
Company, a B+ rating to the 2028 Notes, and a BB+ rating to the 2025 Notes.
Additionally, S&P has given these ratings a stable outlook.
Fitch Ratings (Fitch) has assigned a BB+ rating to both the Company and the 2028
Notes and a BBB- rating to both the 2025 Notes and the ABL Credit Facility.
Additionally, Fitch has given these ratings a negative outlook.
Investing Activities
Cash used for investing activities was $38 in 2020 compared with $170 in 2019
and $10 in 2018.
The use of cash in 2020 reflects capital expenditures of $163, mostly offset by
$98 in net proceeds received from the sales of an extrusions plant in South
Korea and a rolling mill in Brazil and additional proceeds of $25 (contingent
consideration) received from the 2018 sale of the Texarkana (Texas) rolling
mill.
The use of cash in 2019 reflects capital expenditures of $201, including for an
approximately $140 project at the Davenport (Iowa) plant and an approximately
$100 project at the Tennessee plant, slightly offset by additional proceeds of
$27 (contingent consideration) received from the 2018 sale of the Texarkana
(Texas) rolling mill. At Davenport, Arconic Corporation installed a new
horizontal heat treat furnace to capture growth in the aerospace and industrial
products markets. This project began near the end of 2017 and was completed in
2019 (furnace was in customer qualification stage as of December 31, 2019). At
Tennessee, Arconic Corporation is expanding its hot mill capability and adding
downstream equipment capabilities to capture growth in the automotive and
industrial products markets. This project began in early 2019 and was
essentially complete at the end of 2020.
The use of cash in 2018 reflects capital expenditures of $317, including for a
horizontal heat treat furnace at the Davenport (Iowa) plant, mostly offset by
proceeds of $302 from the sale of the Texarkana (Texas) rolling mill and cast
house.








                                       59

--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations.  Arconic Corporation is required to make future
payments under various contracts, including long-term purchase obligations,
lease agreements, and financing arrangements. The Company also has commitments
to make contributions to its funded pension plans, provide payments for pension
(unfunded) and other postretirement benefit plans, and fund capital projects. As
of December 31, 2020, a summary of Arconic Corporation's outstanding contractual
obligations is as follows (these contractual obligations are grouped in the same
manner as they are classified in the Statement of Consolidated Cash Flows in
order to provide a better understanding of the nature of the obligations and to
provide a basis for comparison to historical information):
                                        Total             2021             2022-2023           2024-2025          Thereafter
Operating activities:
Raw material purchase obligations    $  1,545          $    957          $      588          $        -          $        -
Energy-related purchase obligations       101                16                  28                  25                  32
Other purchase obligations                 11                 9                   1                   1                   -
Operating leases                          180                43                  60                  36                  41
Interest related to debt                  465                79                 158                 137                  91
Pension contributions - funded plans      786               209                 308                 269                   -
Pension benefit payments - unfunded
plans                                      74                 8                  16                  14                  36
Other postretirement benefit
payments                                  319                37                  70                  65                 147
Layoff and other restructuring
payments                                   14                12                   2                   -                   -
Uncertain tax positions                    23                 -                   -                   -                  23
Financing activities:
Debt                                    1,300                 -                   -                 700                 600
Dividends to stockholders                   -                 -                   -                   -                   -
Investing activities:
Capital projects                           76                56                  20                   -                   -
Totals                               $  4,894          $  1,426          $    1,251          $    1,247          $      970


Obligations for Operating Activities
Raw material purchase obligations consist mostly of aluminum with expiration
dates ranging from less than one year to two years. Energy-related purchase
obligations consist primarily of electricity and natural gas contracts with
expiration dates ranging from one year to eight years. Many of these purchase
obligations contain variable pricing components, and, as a result, actual cash
payments may differ from the estimates provided in the preceding table.
Operating leases represent multi-year obligations for certain land and
buildings, plant equipment, vehicles, and computer equipment.
Interest related to debt is based on stated interest rates on debt with
maturities that extend to 2028 (see the Financing Arrangements section of
Financing Activities under Liquidity and Capital Resources above).
Pension contributions (funded plans) and pension (unfunded plans) and other
postretirement benefit payments are based on actuarial estimates using current
assumptions for, among others, discount rates, long-term rate of return on plan
assets, rate of compensation increases, and/or health care cost trend rates. It
is Arconic Corporation's policy to contribute amounts to funded pension plans
sufficient to meet the minimum requirements set forth in applicable country
employee benefit and tax regulations. The minimum required contributions to
funded pension plans are estimated to be $192 for 2021, $144 for 2022, $164 for
2023, $152 for 2024, and $117 for 2025. In January 2021, the Company contributed
a combined $200 to its two U.S. funded pension plans, comprised of the estimated
minimum required funding for 2021 of $183 and an additional $17. Accordingly,
the amount for pension contributions - funded plans in the preceding table for
2021 includes the $17. Pension benefit payments for unfunded plans are expected
to approximate $7 to $8 annually for years 2021 through 2030. Other
postretirement benefit payments are expected to approximate $30 to $35 annually
for years 2021 through 2025 and $30 annually for years 2026 through 2030. The
other postretirement benefit payments will be slightly offset by subsidy
receipts related to Medicare Part D, which are estimated to approximate $1
annually. Management has determined that it is not practicable to present
pension contributions (funded plans) and both pension (unfunded plans) and other
postretirement benefit payments beyond 2025 and 2030, respectively.
                                       60
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Layoff and other restructuring payments relate virtually all to severance costs.
Uncertain tax positions taken or expected to be taken on an income tax return
may result in additional payments to tax authorities. As of December 31, 2020,
no interest and penalties were accrued related to such positions. The total
amount of uncertain tax positions is included in the "Thereafter" column as
Arconic Corporation is not able to reasonably estimate the timing of potential
future payments. If a tax authority agrees with the tax position taken or
expected to be taken or the applicable statute of limitations expires, then
additional payments will not be necessary.
Obligations for Financing Activities
The debt amount in the preceding table represents the principal amounts of all
outstanding long-term debt, which have maturities that extend to 2028 (see the
Financing Arrangements section of Financing Activities under Liquidity and
Capital Resources above).
As of December 31, 2020, Arconic Corporation had 109,205,226 issued and
outstanding shares of common stock. Dividends on common stock are subject to
authorization by the Company's Board of Directors. Arconic Corporation did not
declare or pay any dividends from April 1, 2020 through December 31, 2020.
Obligations for Investing Activities
Capital projects in the preceding table only include amounts approved by
management as of December 31, 2020. Funding levels may vary in future years
based on anticipated construction schedules of the projects. It is expected that
significant expansion projects will be funded through various sources, including
cash provided from operations. Total capital expenditures are anticipated to be
approximately $180 in 2021.
Off-Balance Sheet Arrangements.  Arconic Corporation has outstanding bank
guarantees related to, among others, tax matters and customs duties. The total
amount committed under these guarantees, which expire at various dates between
2021 and 2026 was $2 at December 31, 2020. Additionally, Howmet Aerospace has
outstanding bank guarantees related to the Company in the amount of $1 at
December 31, 2020. In the event Howmet Aerospace would be required to perform
under any of these instruments, Howmet Aerospace would be indemnified by Arconic
Corporation in accordance with the Separation and Distribution Agreement.
Furthermore, Alcoa Corporation has outstanding bank guarantees related to the
Company in the amount of $14 at December 31, 2020. In the event Alcoa
Corporation would be required to perform under any of these instruments, Alcoa
Corporation would be indemnified by Arconic Corporation in accordance with the
2016 Separation and Distribution Agreement.
Arconic Corporation has outstanding letters of credit primarily related to
insurance, environmental, and lease obligations. The total amount committed
under these letters of credit, which automatically renew or expire at various
dates, mostly in 2021, was $7 at December 31, 2020. Additionally, Howmet
Aerospace has outstanding letters of credit related to the Company in the amount
of $43 at December 31, 2020. In the event Howmet Aerospace would be required to
perform under any of these instruments, Howmet Aerospace would be indemnified by
Arconic Corporation in accordance with the Separation and Distribution
Agreement.
Arconic Corporation has outstanding surety bonds primarily related to customs
duties and environmental obligations. The total amount committed under these
surety bonds, which expire at various dates, primarily in 2021, was $45 at
December 31, 2020. Additionally, Howmet Aerospace has outstanding surety bonds
related to the Company in the amount of $4 at December 31, 2020. In the event
Howmet Aerospace would be required to perform under any of these instruments,
Howmet Aerospace would be indemnified by Arconic Corporation in accordance with
the Separation and Distribution Agreement. Furthermore, Alcoa Corporation has
outstanding surety bonds related to the Company in the amount of $5 at December
31, 2020. In the event Alcoa Corporation would be required to perform under any
of these instruments, Alcoa Corporation would be indemnified by Arconic
Corporation in accordance with the 2016 Separation and Distribution Agreement.
                                       61
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Critical Accounting Policies and Estimates
The preparation of Arconic Corporation's Consolidated Financial Statements in
accordance with accounting principles generally accepted in the United States of
America requires management to make certain estimates based on judgments and
assumptions regarding uncertainties that may affect the amounts reported in the
Consolidated Financial Statements and disclosed in the Notes to the Consolidated
Financial Statements. Areas that require such estimates include the review of
properties, plants, and equipment and goodwill for impairment, and accounting
for each of the following: environmental and litigation matters; pension and
other postretirement employee benefit obligations; stock-based compensation; and
income taxes.
Management uses historical experience and all available information to make
these estimates, and actual results may differ from those used to prepare
Arconic Corporation's Consolidated Financial Statements at any given time.
Despite these inherent limitations, management believes that Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements, including the Notes to the Consolidated
Financial Statements, provide a meaningful and fair perspective of the Company.
A summary of Arconic Corporation's significant accounting policies is included
in Note B to the Consolidated Financial Statements in Part II Item 8 of this
Form 10-K. Management believes that the application of these policies on a
consistent basis enables Arconic Corporation to provide the users of the
Consolidated Financial Statements with useful and reliable information about
Arconic Corporation's operating results and financial condition.
Prior to the Separation Date, Arconic Corporation did not operate as a separate,
standalone entity. Arconic Corporation's operations were included in ParentCo's
financial results. Accordingly, for all periods prior to the Separation Date,
the Company's Consolidated Financial Statements were prepared from ParentCo's
historical accounting records and were presented on a standalone basis as if the
Arconic Corporation Businesses had been conducted independently from ParentCo.
Such Consolidated Financial Statements include the historical operations that
were considered to comprise the Arconic Corporation Businesses, as well as
certain assets and liabilities that were historically held at ParentCo's
corporate level but were specifically identifiable or otherwise attributable to
Arconic Corporation. The Critical Accounting Policies described below reflect
any incremental judgments and assumptions made by management in the preparation
of the Company's Consolidated Financial Statements prior to the Separation Date
(see The Separation in Overview above for additional information).
Properties, Plants, and Equipment.  Properties, plants, and equipment are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of such assets may not be recoverable. Recoverability of
assets is determined by comparing the estimated undiscounted net cash flows of
the related operations (asset group) to the carrying value of the associated
assets. An impairment loss would be recognized when the carrying value of the
assets exceeds the estimated undiscounted net cash flows of the asset group. The
amount of the impairment loss to be recorded is calculated as the excess of the
carrying value of the assets over their fair value, with fair value determined
using the best information available, which generally is a discounted cash flow
(DCF) model. The determination of what constitutes an asset group, the
associated estimated undiscounted net cash flows, and the estimated useful lives
of the assets also require significant judgments.
Goodwill.  Goodwill is not amortized; it is reviewed for impairment annually (in
the fourth quarter) or more frequently if indicators of impairment exist or if a
decision is made to sell, exit, or realign a business. A significant amount of
judgment is involved in determining if an indicator of impairment has occurred.
Such indicators may include, among others, deterioration in general economic
conditions, negative developments in equity and credit markets, adverse changes
in the markets in which an entity operates, increases in input costs that have a
negative effect on earnings and cash flows, or a trend of negative or declining
cash flows over multiple periods. The fair value that could be realized in an
actual transaction may differ from that used to evaluate goodwill for
impairment.
Goodwill is allocated among and evaluated for impairment at the reporting unit
level, which is defined as an operating segment or one level below an operating
segment. Arconic Corporation has three reporting units-the Rolled Products
segment, the Building and Construction Systems segment, and the Extrusions
segment-all of which contain goodwill. As of December 31, 2020, the carrying
value of goodwill for Rolled Products, Building and Construction Systems, and
Extrusions was $254, $71, and $65, respectively.
In reviewing goodwill for impairment, an entity has the option to first assess
qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not (greater
than 50%) that the estimated fair value of a reporting unit is less than its
carrying amount. If an entity elects to perform a qualitative assessment and
determines that an impairment is more likely than not, the entity is then
required to perform a quantitative impairment test (described below), otherwise
no further analysis is required. An entity also may elect not to perform the
qualitative assessment and, instead, proceed directly to the quantitative
impairment test. The ultimate outcome of the goodwill impairment review for a
reporting unit should be the same whether an entity chooses to perform the
qualitative assessment or proceeds directly to the quantitative impairment test.
                                       62
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Arconic Corporation determines annually, based on facts and circumstances, which
of its reporting units will be subject to the qualitative assessment. For those
reporting units where a qualitative assessment is either not performed or for
which the conclusion is that an impairment is more likely than not, a
quantitative impairment test will be performed. Arconic Corporation's policy is
that a quantitative impairment test be performed for each reporting unit at
least once during every three-year period.
Under the qualitative assessment, various events and circumstances (or factors)
that would affect the estimated fair value of a reporting unit are identified
(similar to impairment indicators above). These factors are then classified by
the type of impact they would have on the estimated fair value using positive,
neutral, and adverse categories based on current business conditions.
Additionally, an assessment of the level of impact that a particular factor
would have on the estimated fair value is determined using high, medium, and low
weighting. Furthermore, management considers the results of the most recent
quantitative impairment test completed for a reporting unit and compares the
weighted average cost of capital (WACC) between the current and prior years for
each reporting unit.
Under the quantitative impairment test, the evaluation of impairment involves
comparing the current fair value of each reporting unit to its carrying value,
including goodwill. Arconic Corporation uses a DCF model to estimate the current
fair value of its reporting units when testing for impairment, as management
believes forecasted cash flows are the best indicator of such fair value.
Several significant assumptions and estimates are involved in the application of
the DCF model to forecast operating cash flows, including sales growth (volumes
and pricing), production costs, capital spending, working capital levels, and
discount rate. Certain of these assumptions may vary significantly among the
reporting units. Cash flow forecasts are generally based on approved business
unit operating plans for the early years and historical relationships in
later years. The WACC rate for the individual reporting units is estimated by
management with the assistance of valuation experts. In the event the estimated
fair value of a reporting unit per the DCF model is less than the carrying
value, Arconic Corporation would recognize an impairment charge equal to the
excess of the reporting unit's carrying value over its fair value without
exceeding the total amount of goodwill applicable to that reporting unit.
During the 2020 annual review of goodwill, management proceeded directly to the
quantitative impairment test for all three of the Company's reporting units. The
estimated fair value for each of the three reporting units was substantially in
excess of the respective carrying value, resulting in no impairment.
The annual review in 2019 and 2018 indicated that goodwill was not impaired for
any of Arconic Corporation's reporting units and there were no triggering events
that necessitated a quantitative impairment test for any of the reporting units.
That said, in light of the economic impact of the COVID-19 pandemic, the Company
did perform periodic qualitative assessments throughout 2020 as described below.
During the first quarter of 2020, the equity value of Arconic Corporation's peer
group companies, and the overall U.S. stock market declined significantly amid
market volatility. In addition, as a result of the COVID-19 pandemic and
measures designed to contain the spread, sales globally to customers in the
ground transportation and aerospace industries that are impacted by COVID-19
have been and are expected to be negatively impacted as a result of disruption
in demand. As a result of these macroeconomic factors, the Company performed a
qualitative assessment to evaluate whether it was more likely than not that the
fair value of any of its reporting units was less than the respective carrying
value. As a result of this assessment, the Company concluded that no further
analysis was required and no impairment existed. The Company revisited this
assessment in both the second and third quarters of 2020 amid the continued
widespread impact of COVID-19 and arrived at the same conclusion. If Arconic
Corporation's actual results or external market factors further decline
significantly, future goodwill impairment charges may be necessary and could be
material.
Environmental Matters.  Expenditures for current operations are expensed or
capitalized, as appropriate. Expenditures relating to existing conditions caused
by past operations, which will not contribute to future revenues, are expensed.
Liabilities are recorded when remediation costs are probable and can be
reasonably estimated. The liability may include costs such as site
investigations, consultant fees, feasibility studies, outside contractors, and
monitoring expenses. Estimates are generally not discounted or reduced by
potential claims for recovery, which are recognized when probable and as
agreements are reached with third parties. The estimates may also include costs
related to other potentially responsible parties to the extent that Arconic
Corporation has reason to believe such parties will not fully pay their
proportionate share. The liability is continuously reviewed and adjusted to
reflect current remediation progress, prospective estimates of required
activity, and other factors that may be relevant, including changes in
technology or regulations.
Litigation Matters.  For asserted claims and assessments, liabilities are
recorded when an unfavorable outcome of a matter is deemed to be probable and
the loss is reasonably estimable. Management determines the likelihood of an
unfavorable outcome based on many factors such as, among others, the nature of
the matter, available defenses and case strategy, progress of the matter, views
and opinions of legal counsel and other advisors, applicability and success of
appeals processes, and the
                                       63
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
outcome of similar historical matters. Once an unfavorable outcome is deemed
probable, management weighs the probability of estimated losses, and the most
reasonable loss estimate is recorded. If an unfavorable outcome of a matter is
deemed to be reasonably possible, the matter is disclosed and no liability is
recorded. With respect to unasserted claims or assessments, management must
first determine the probability an assertion will be made is likely; then a
determination as to the likelihood of an unfavorable outcome and the ability to
reasonably estimate the potential loss is made. Legal matters are reviewed on a
continuous basis to determine if there has been a change in management's
judgment regarding the likelihood of an unfavorable outcome or the estimate of a
potential loss.
Pension and Other Postretirement Benefits.  For all periods prior to January 1,
2020 (see below), certain employees attributable to the Arconic Corporation
Businesses participated in defined benefit pension and other postretirement
benefit plans sponsored by ParentCo (the "Shared Plans"), which also included
participants attributable to non-Arconic Corporation Businesses. Arconic
Corporation accounted for the portion of the Shared Plans related to its
employees as multiemployer benefit plans. Accordingly, Arconic Corporation did
not record an asset or liability to recognize any portion of the funded status
of the Shared Plans. However, the related expense recorded by the Company was
based primarily on pensionable compensation and estimated interest costs related
to participants attributable to the Arconic Corporation Businesses.
Prior to the Separation Date, certain other ParentCo plans that were entirely
attributable to employees of the Arconic Corporation Businesses ("Direct Plans")
were accounted for as defined benefit pension and other postretirement benefit
plans. Accordingly, the funded and unfunded position of each Direct Plan was
recorded in the Consolidated Balance Sheet. Actuarial gains and losses that have
not yet been recognized in earnings were recorded in accumulated other
comprehensive income, net of taxes, until they were amortized as a component of
net periodic benefit cost. The determination of benefit obligations and
recognition of expenses related to the Direct Plans is dependent on various
assumptions, including discount rates, long-term expected rates of return on
plan assets, and future compensation increases. ParentCo's management developed
each assumption using relevant company experience in conjunction with
market-related data for each individual location in which such plans exist.
In preparation for the Separation, effective January 1, 2020, certain of the
Shared Plans were separated into standalone plans for both Arconic Corporation
("New Direct Plans") and ParentCo (see Note H to the Consolidated Financial
Statements in Part II Item 8 of this Form 10-K). Additionally, effective April
1, 2020, certain of the other remaining Shared Plans were assumed by Arconic
Corporation ("Additional New Direct Plans") (see Note H to the Consolidated
Financial Statements in Part II Item 8 of this Form 10-K). Accordingly,
beginning on the respective effective dates, the New Direct Plans and the
Additional New Direct Plans are accounted for as defined benefit pension and
other postretirement plans. Additionally, the Direct Plans continue to be
accounted for as defined benefit pension and other postretirement plans.
The following table summarizes the total expenses (excluding settlements and
curtailments) recognized by Arconic Corporation related to the pension and other
postretirement benefits described above:
                                                                           Pension benefits                              Other postretirement benefits
                                                                             December 31,                                         December 31,
Type of Plan                    Type of Expense                  2020              2019            2018               2020              2019            2018
Cumulative Direct
Plans                     Net periodic benefit cost*         $    82             $    5          $    5          $        22          $    -          $    -
                          Multiemployer contribution
Shared Plans              expense                                  -                 61              67                    -              21              21
Shared Plans              Cost allocation                         (1)                20              20                    -               4               5
                                                             $    81             $   86          $   92          $        22          $   25          $   26


__________________
*  In 2020, 2019, and 2018, net periodic benefit cost for pension benefits was
comprised of service cost of $21, $3, and $3, respectively, and non-service cost
of $61, $2, and $2, respectively. In 2020, net periodic benefit cost for other
postretirement benefits was comprised of service cost of $5 and non-service cost
of $17.
Liabilities and expenses for pension and other postretirement benefits are
determined using actuarial methodologies and incorporate significant
assumptions, including the interest rate used to discount the future estimated
liability, the expected long-term rate of return on plan assets, and several
assumptions relating to the employee workforce (compensation increases, health
care cost trend rates, retirement age, and mortality).
                                       64
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
The interest rate used to discount future estimated liabilities is determined
using a Company-specific yield curve model (above-median) developed with the
assistance of an external actuary. The cash flows of the projected benefit
obligations are discounted using a single equivalent rate derived from yields on
high quality corporate bonds, which represent a broad diversification of issuers
in various sectors. The yield curve model parallels the projected plan cash
flows, which have a weighted average duration of 11 years, and the underlying
cash flows of the bonds included in the model exceed the cash flows needed to
satisfy the plan obligations multiple times. If a deep market of high quality
corporate bonds does not exist in a country, then the yield on government bonds
is used. In 2020, the weighted average discount rate used to determine benefit
obligations for pension plans was 2.45% and for other postretirement benefit
plans was 2.61%. The impact on the combined pension and other postretirement
liabilities of a change in the weighted average discount rate of 1/4 of 1% would
be approximately $140 and either a charge or credit of approximately $1 to
pretax earnings in the following year.
The expected long-term rate of return on plan assets is generally applied to a
five-year market-related value of plan assets (the fair value at the plan
measurement date is used for certain non-U.S. plans). The process used by
management to develop this assumption is one that relies on forward-looking
investment returns by asset class. Management incorporates expected future
investment returns on current and planned asset allocations using information
from various external investment managers and consultants, as well as
management's own judgment. For 2020, management used 6.09% as its
weighted-average expected long-term rate of return, which was based on the
prevailing and planned strategic asset allocations, as well as estimates of
future returns by asset class. For 2021, management anticipates that the
weighted-average expected long-term rate of return will be in the range of 5.00%
to 6.00%. A change in the assumption for the weighted average expected long-term
rate of return on plan assets of 1/4 of 1% would impact pretax earnings by
approximately $6 for 2021.
Stock-Based Compensation.  For all periods prior to the Separation Date,
eligible employees attributable to the Arconic Corporation Businesses
participated in ParentCo's stock-based compensation plan. The compensation
expense recorded by Arconic Corporation included the expense associated with
these employees, as well as the expense associated with an allocation of
stock-based compensation expense for ParentCo's corporate employees (see Cost
Allocations in The Separation under Overview above). From the Separation Date
through December 31, 2020, Arconic Corporation recorded stock-based compensation
expense for all of the Company's employees eligible to participate in Arconic
Corporation's stock-based compensation plan. The following describes the manner
in which stock-based compensation expense was initially determined for both
Arconic Corporation and ParentCo.
Compensation expense for employee equity grants is recognized using the
non-substantive vesting period approach, in which the expense is recognized
ratably over the requisite service period based on the grant date fair value.
The fair value of stock options is estimated on the date of grant using a
lattice-pricing model. The fair value of performance stock units containing a
market condition is valued using a Monte Carlo valuation model. Determining the
fair value at the grant date requires judgment, including estimates for the
average risk-free interest rate, dividend yield, volatility, and exercise
behavior. These assumptions may differ significantly between grant dates because
of changes in the actual results of these inputs that occur over time.
In 2020, 2019, and 2018, Arconic Corporation recognized stock-based compensation
expense of $23 ($18 after-tax), $38 ($30 after-tax), and $22 ($17 after-tax),
respectively.
Income Taxes.  The provision for income taxes is determined using the asset and
liability approach of accounting for income taxes. Under this approach, the
provision for income taxes represents income taxes paid or payable (or received
or receivable) for the current year plus the change in deferred taxes during the
year. Deferred taxes represent the future tax consequences expected to occur
when the reported amounts of assets and liabilities are recovered or paid, and
result from differences between the financial and tax bases of Arconic
Corporation's assets and liabilities and are adjusted for changes in tax rates
and tax laws when enacted.
For all periods prior to the Separation Date, the Arconic Corporation Businesses
were included in the income tax filings of ParentCo. The provision for income
taxes was determined in the same manner described above, but on a on a separate
return methodology as if Arconic Corporation was a standalone taxpayer filing
hypothetical income tax returns where applicable. Any additional accrued tax
liability or refund arising as a result of this approach was assumed to be
immediately settled with ParentCo as a component of Parent Company net
investment. Deferred taxes were also determined in the same manner described
above and were reflected in the Consolidated Balance Sheet for net operating
losses, credits or other attributes to the extent that such attributes were
expected to transfer to Arconic Corporation upon the Separation. Any difference
from attributes generated in a hypothetical return on a separate return basis
was adjusted as a component of Parent Company net investment.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not (greater than 50%) that a tax benefit will not be realized. In
evaluating the need for a valuation allowance, management considers all
potential sources of taxable income, including income available in carryback
periods, future reversals of taxable temporary differences, projections
                                       65
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
of taxable income, and income from tax planning strategies, as well as all
available positive and negative evidence. Positive evidence includes factors
such as a history of profitable operations, projections of future profitability
within the carryforward period, including from tax planning strategies, and
Arconic Corporation's experience with similar operations. Existing favorable
contracts and the ability to sell products into established markets are
additional positive evidence. Negative evidence includes items such as
cumulative losses, projections of future losses, or carryforward periods that
are not long enough to allow for the utilization of a deferred tax asset based
on existing projections of income. Deferred tax assets for which no valuation
allowance is recorded may not be realized upon changes in facts and
circumstances, resulting in a future charge to establish a valuation allowance.
Existing valuation allowances are re-examined under the same standards of
positive and negative evidence. If it is determined that it is more likely than
not that a deferred tax asset will be realized, the appropriate amount of the
valuation allowance, if any, is released. Deferred tax assets and liabilities
are also re-measured to reflect changes in underlying tax rates due to law
changes and the grant and lapse of tax holidays.
Arconic Corporation applies a tax law ordering approach when considering the
need for a valuation allowance on net operating losses expected to offset Global
Intangible Low Taxed Income (GILTI) income inclusions. Under this approach,
reductions in cash tax savings are not considered as part of the valuation
allowance assessment. Instead, future GILTI inclusions are considered a source
of taxable income that support the realizability of deferred tax assets.
Tax benefits related to uncertain tax positions taken or expected to be taken on
a tax return are recorded when such benefits meet a more likely than not
threshold. Otherwise, these tax benefits are recorded when a tax position has
been effectively settled, which means that the statute of limitations has
expired or the appropriate taxing authority has completed its examination even
though the statute of limitations remains open. Interest and penalties related
to uncertain tax positions are recognized as part of the provision for income
taxes and are accrued beginning in the period that such interest and penalties
would be applicable under relevant tax law until such time that the related tax
benefits are recognized.
Related Party Transactions
 Transactions between the Arconic Corporation Businesses and the Howmet
Aerospace Businesses have been presented as related party transactions on
Arconic Corporation's Consolidated Financial Statements. In 2020, 2019, and
2018, sales to the Howmet Aerospace Businesses from the Arconic Corporation
Businesses were $108, $183, and $206, respectively. As of December 31, 2020,
outstanding receivables from the Howmet Aerospace Businesses were $12 and were
included in Receivables from customers on Arconic Corporation's Consolidated
Balance Sheet.
Recently Adopted Accounting Guidance
See the Recently Adopted Accounting Guidance section of Note B to the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K.
Recently Issued Accounting Guidance
See the Recently Issued Accounting Guidance section of Note B to the
Consolidated Financial Statements in Part II Item 8 of this Form 10-K.

                                       66

--------------------------------------------------------------------------------

TABLE OF CONTENTS

© Edgar Online, source Glimpses