Company Quick10K Filing
Quick10K
Constellium
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$9.29 136 $1,260
20-F 2018-12-31 Annual: 2018-12-31
20-F 2017-12-31 Annual: 2017-12-31
20-F 2016-12-31 Annual: 2016-12-31
20-F 2015-12-31 Annual: 2015-12-31
FTNT Fortinet 13,970
LECO Lincoln Electric Holdings 5,270
RETA Reata Pharmaceuticals 2,620
BMTC Bryn Mawr Bank 776
EVBN Evans Bancorp 176
FONR Fonar 131
LOAC Longevity Acquisition 53
EVSI Envision Solar 26
C865 Lincoln National Life Insurance 0
CIRT Cirtran 0
CSTM 2018-12-31
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16.
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
Note 1-General Information
Note 2-Summary of Significant Accounting Policies
Note 3-Revenue
Note 4-Operating Segment Information
Note 5-Information By Geographic Area
Note 6-Expenses By Nature
Note 7-Employee Benefit Expenses
Note 8-Other Gains / (Losses)-Net
Note 9-Currency Gains / (Losses)
Note 10-Finance Costs-Net
Note 11-Income Tax
Note 12-Earnings per Share
Note 13-Cash and Cash Equivalents
Note 14-Trade Receivables and Other
Note 15-Inventories
Note 16-Property, Plant and Equipment
Note 17-Intangible Assets (Including Goodwill)
Note 18-Investments Accounted for Under The Equity Method
Note 19-Deferred Income Taxes
Note 20-Trade Payables and Other
Note 21-Borrowings
Note 22- Financial Instruments
Note 23-Financial Risk Management
Note 24-Pensions and Other Post-Employment Benefit Obligations
Note 25-Provisions
Note 26-Non-Cash Investing & Financing Transactions
Note 27-Share Capital
Note 28-Commitments
Note 29-Related Parties
Note 30-Share-Based Compensation
Note 31-Subsidiaries and Operating Segments
Note 32-Parent Company
Note 33-Acquisition of Constellium-Bowling Green
Note 34-Subsequent Events
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Constellium Earnings 2018-12-31

CSTM 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 d664608d20f.htm 20-F 20-F
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35931

 

 

Constellium N.V.

(Exact Name of Registrant as Specified in its Charter)

 

 

Constellium N.V.

(Translation of Registrant’s name into English)

 

 

The Netherlands

(Jurisdiction of incorporation or organization)

 

 

Tupolevlaan 41-61,

1119 NW Schiphol-Rijk

The Netherlands

(Address of principal executive offices)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Name of each exchange on which registered

Ordinary Shares   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:

135,999,394 Class A Ordinary Shares, Nominal Value €0.02 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☒  Yes    ☐  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     ☐  Yes     ☒  No

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     ☒   Yes     ☐   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒            Accelerated filer  ☐            Non-accelerated filer  ☐            Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP   ☐     

International Financial Reporting Standards as issued by the

International Accounting Standards Board   ☒

  Other   ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:    Item 17  ☐        Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

     ii  

Part I

     1  

Item 1. Identity of Directors, Senior Management and Advisers

     1  

Item 2. Offer Statistics and Expected Timetable

     1  

Item 3. Key Information

     1  

Item 4. Information on the Company

     31  

Item 4A. Unresolved Staff Comments

     54  

Item 5. Operating and Financial Review and Prospects

     54  

Item 6. Directors, Senior Management and Employees

     77  

Item 7. Major Shareholders and Related Party Transactions

     93  

Item 8. Financial Information

     98  

Item 9. The Offer and Listing

     99  

Item 10. Additional Information

     99  

Item 11. Quantitative and Qualitative Disclosures About Market Risk

     125  

Item 12. Description of Securities Other than Equity Securities

     125  

Part II

     126  

Item 13. Defaults, Dividend Arrearages and Delinquencies

     126  

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

     126  

Item 15. Controls and Procedures

     126  

Item 16A. Audit Committee Financial Expert

     127  

Item 16B. Code of Ethics

     127  

Item 16C. Principal Accountant Fees and Services

     127  

Item 16D. Exemptions from the Listing Standards for Audit Committees

     128  

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     128  

Item 16F. Change in Registrant’s Certifying Accountant

     128  

Item 16G. Corporate Governance

     129  

Item 16H. Mine Safety Disclosure

     132  

Part III

     133  

Item 17. Financial Statements

     133  

Item 18. Financial Statements

     133  

Item 19. Exhibits

     133  

Index to Financial Statements

     F-1  

 

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Table of Contents

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F (this “Annual Report”) contains “forward-looking statements” with respect to our business, results of operations and financial condition, and our expectations or beliefs concerning future events and conditions. You can identify certain forward-looking statements because they contain words such as, but not limited to, “believes,” “expects,” “may,” “should,” “approximately,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “likely,” “will,” “would,” “could” and similar expressions (or the negative of these terminologies or expressions). All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our business and operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward-looking statements contained in this Annual Report.

Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements are disclosed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this Annual Report, including, without limitation, in conjunction with the forward-looking statements included in this Annual Report and including with respect to our estimated and projected earnings, income, equity, assets, ratios and other estimated financial results. All forward-looking statements in this Annual Report and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could materially affect our results include:

 

   

we may be unable to compete successfully in the highly competitive markets in which we operate;

 

   

the highly competitive nature of the beverage can sheet industry

 

   

the advantages our competitors have over us with respect to beverage can production;

 

   

the substantial capital investment requirements of our business;

 

   

difficulties in the launch or production ramp-up of our existing or new products;

 

   

unplanned business interruptions and equipment failure;

 

   

failure of our production capacity to meet demand or changing market conditions;

 

   

labor disputes and work stoppages that could disrupt our business;

 

   

our dependence on a limited number of customers for a substantial portion of our sales;

 

   

consolidation among our customers and its impact on our business;

 

   

the failure of our products to meet customer requirements;

 

   

delays caused by the lengthy and unpredictable qualification process for our new products;

 

   

our dependence on a limited number of suppliers for a substantial portion of our aluminium supply;

 

   

loss of certain key members of our management team;

 

   

failure to implement our business strategy, including our productivity improvement initiatives;

 

   

our inability to execute an effective hedging policy;

 

   

maturity mismatch between certain of our derivative instruments and the underlying exposure;

 

   

risks associated with the acquisition of UACJ Corporation’s (“UACJ”) interest in our joint venture;

 

   

failure to successfully develop and implement new technology initiatives and other strategic investments;

 

   

interruptions or failures in our information technology (“IT”) systems;

 

-ii-


Table of Contents
   

disruptions caused by upgrading our IT infrastructure;

 

   

severance-related or other costs associated with potential restructuring;

 

   

risks inherent in international operations;

 

   

unexpected requirements to make contributions to our defined benefit pension plans;

 

   

failure to protect proprietary rights to our technology;

 

   

costs associated with legal proceedings or investigations;

 

   

compliance with environmental, health and safety laws;

 

   

costs associated with product liability claims against us;

 

   

risk of injury or death as a result of our operations;

 

   

failure of our insurance to cover all potential exposures;

 

   

risks related to the industries in which we operate;

 

   

risks related to our indebtedness;

 

   

risks related to our corporate structure and ownership of our ordinary shares;

 

   

risks related to the taxation statutes and regulations, and their interpretations, in the jurisdictions in which we have operations; and

 

   

the other factors presented under “Item 3. Key Information—D. Risk Factors.”

We caution you that the foregoing list may not contain all of the factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Annual Report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

 

-iii-


Table of Contents

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

 

A.

Selected Financial Data

The following tables set forth our selected historical financial and operating data.

The selected historical financial information as of December 31, 2018 and 2017 and for each of the three years in the period ended December 31, 2018 has been derived from our audited consolidated financial statements (the “Consolidated Financial Statements”) included elsewhere in this Annual Report. The selected historical financial information as of December 31, 2016, 2015 and 2014 and for each of the two years in the period ended December 31, 2015 have been derived from our audited consolidated financial statements not included in this Annual Report.

The audited Consolidated Financial Statements included elsewhere in this Annual Report have been prepared in a manner that complies, in all material respects, with the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”), and as endorsed by the European Union (“EU”).

In fiscal year 2018, we changed the presentation of our pension and other benefit expense. The interest component of the pension and other benefit expense, which was previously presented within income from operations, is now presented in finance costs. Comparative financial information for prior years has been reclassified accordingly to conform to the current year’s presentation. See Note 2.6 in the Consolidated Financial Statements attached hereto starting on Page F-1 in this Annual Report.

References to “tons” throughout this Annual Report are to metric tons.

References to the Wise Acquisition refer to our January 5, 2015 acquisition of Wise Metals Intermediate Holdings LLC and its subsidiaries, which companies we refer to collectively as “Wise.”

 

    As of and for the year ended
December 31,
 
(€ in millions other than per share and per ton
data)
  2018      2017     2016     2015     2014  

Statement of income data:

          

Revenue

    5,686        5,237       4,743       5,153       3,666  

Gross profit

    538        555       535       468       501  

Income/(Loss) from operations

    404        338       267       (406     170  

Net income/(loss) for the period

    190        (31     (4     (552     54  

Earnings/(loss) per share—basic

    1.40        (0.28     (0.04     (5.27     0.48  

Earnings/(loss) per share—diluted

    1.37        (0.28     (0.04     (5.27     0.48  

Weighted average number of shares
outstanding (diluted)

    138,145,914        110,164,320       105,500,327       105,097,442       105,326,872  

Dividends per ordinary share (Euro)

    —          —         —         —         —    

 

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Table of Contents
    As of and for the year ended
December 31,
 
(€ in millions other than per share and per ton
data)
  2018     2017     2016     2015     2014  

Balance sheet data:

         

Total assets

    3,901       3,711       3,787       3,628       3,012  

Net (liabilities)/assets or total invested equity

    (114     (319     (570     (540     (37

Share capital

    3       3       2       2       2  

Other operational and financial data (unaudited):

         

Net trade working capital(1)

    456       232       199       149       210  

Capital expenditure(2)

    277       276       355       350       199  

Volumes (in kt)

    1,534       1,482       1,470       1,478       1,062  

Revenue per ton (€ per ton)

    3,707       3,534       3,227       3,486       3,452  

 

(1)

Net trade working capital, a measurement not defined by IFRS, represents total inventories plus trade receivables less trade payables.

 

     As of December 31,  
(€ in millions)    2018      2017      2016      2015      2014  

Trade receivables—net

     481        306        235        264        436  

Inventories

     660        643        591        542        436  

Trade payables

     (685      (717      (627      (657      (662
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net trade working capital

     456        232        199        149        210  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

Represents purchases of property, plant, and equipment.

 

B.

Capitalization and Indebtedness

Not applicable.

 

C.

Reasons for the Offer and Use of Proceeds

Not applicable.

 

D.

Risk Factors

You should carefully consider the risks and uncertainties described below and the other information in this Annual Report. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our ordinary shares could decline. This Annual Report also contains forward-looking statements that involve risks and uncertainties. See “Special Note About Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors.

Risks Related to Our Business

We may not be able to compete successfully in the highly competitive markets in which we operate, and new competitors could emerge, which could negatively impact our share of industry sales, sales volumes and selling prices. In particular, beverage can sheet industry is competitive, and our competitors have greater resources and product and geographic diversity than we do.

We are engaged in a highly competitive industry and compete in the production and sale of rolled and extruded aluminium products with a number of other producers, some of which are larger and have greater

 

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Table of Contents

financial and technical resources than we do. Producers with a different cost basis may, in certain circumstances, have a competitive pricing advantage. Our competitors may be better able to withstand reductions in price or other adverse industry or economic conditions. In addition, a current or new competitor may also add or build new capacity, which could diminish our profitability by decreasing prices in our markets. New competitors could emerge from within Europe or North America or globally, and could include existing producers and sellers of steel and other products that may seek to compete in our industry. Emerging or transitioning markets in these regions with abundant natural resources, low-cost labor and energy, and lower environmental and other standards may pose a significant competitive threat to our business. In addition, technological innovation is important to our customers who require us to lead or keep pace with new innovations to address their needs. If we do not compete successfully, our share of industry sales, sales volumes and selling prices may be negatively impacted. Our competitive position may also be affected by exchange rate fluctuations that may make our products less competitive. Changes in regulation that have a disproportionately negative effect on us or our methods of production may also diminish our competitive advantage and industry position.

Our competitors in the market for beverage can sheet products have market presence, operating capabilities, product and geographic diversity and financial and other resources that are greater than ours. As a result, these competitors may have an advantage over us in their abilities to research and develop technology, pursue acquisition, investment and other business opportunities, market and sell their products and services, capitalize on market opportunities, enter new markets and withstand business interruptions or adverse global economic conditions. There are no assurances that we will be able to compete successfully in these circumstances. In addition, we are subject to competition from non-aluminium sources of packaging, such as plastics and glass. Consumer demand and preferences also impact customer selection of packaging materials. While we believe that the recyclability of aluminium, coupled with increasing consumer focus on resource conservation, may reduce the impact of competition from certain alternative packaging sources, there is no guarantee that such competition will be reduced.

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

Our business requires substantial capital investments that we may be unable to fulfill. We may be unable to timely complete our expected capital investments, including in Auto Body Sheet (“ABS”), or may be unable to achieve the anticipated benefits of such investments.

Our operations are capital intensive. Our total capital expenditures were €277 million for the year ended December 31, 2018, and €276 million and €355 million for the years ended December 31, 2017 and 2016, respectively.

There can be no assurance that we will be able to complete our capital investments, including our expected investments in ABS, on schedule, or that we will be able to achieve the anticipated benefits of such capital investments. In addition, we are under no legal obligation to complete the expansion of our ABS program and we may at any time determine not to complete such expansion. Additionally, we may not generate sufficient operating cash flows and our external financing sources may not be available in an amount sufficient to enable us to make anticipated capital expenditures (including completing our expected ABS investments), service or refinance our indebtedness or fund other liquidity needs, including additional investments. We may experience delays in materializing demand for our ABS products, and we may not receive customer orders for ABS products as quickly as we had anticipated. Delays in materializing demand or revenue from our ABS investments could adversely affect our results of operations.

 

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If we are unable to make upgrades, repairs or purchase new plants and equipment, our financial condition and results of operations could be materially adversely affected by higher maintenance costs, lower sales volumes due to the impact of reduced product quality, reduced production capacity and other competitive factors. In addition, if we are unable to, or determine not to, complete our expected or additional ABS investments, or such investments are delayed, we will not realize the anticipated benefits of such investments, which may adversely affect our results of operations.

We may experience difficulties in the launch or production ramp-up of our existing or new products, which could adversely affect our business.

As we begin manufacturing processes in our new locations or for newly introduced products, we may experience difficulties, including operational and manufacturing disruptions, delays or other complications, which could adversely affect our ability to timely launch or ramp-up productions and serve our customers, our reputation or our costs of production and ultimately, our financial position and results of operations.

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

Our operations may be materially adversely affected by unplanned business interruptions caused by events such as explosions, fires, war or terrorism, inclement weather, natural disasters, accidents, equipment failure and breakdown, IT systems and process failures, electrical blackouts or outages, transportation and supply interruptions. Operational interruptions at one or more of our production facilities could cause substantial losses and delays in our production capacity, increase our operating costs and have a negative financial impact on the company and our customers. In addition, replacement of assets damaged by such events could be difficult, lengthy or expensive, and to the extent these losses are not covered by insurance or our insurance policies have significant deductibles, our financial position, results of operations and cash flows may be adversely affected by such events. From time to time, we have similar or other equipment failures impacting our production capacity, which may adversely affect our financial results.

Furthermore, because customers may be dependent on planned deliveries from us, customers that have to reschedule, delay or cancel their own production due to our delivery delays or operational challenges, may be able to pursue financial and legal claims against us, and we may incur costs to correct such problems in addition to any liability resulting from such claims. Interruptions may also harm our reputation among actual and potential customers, and the reputation of our customers, potentially resulting in a loss of business, operational shutdowns or other adverse consequences for us and our customers. In addition, because in many cases we have dedicated facilities and arrangements with customers, production outages or other business operations at an isolated facility could adversely affect our ability to timely fulfill orders for the applicable customer, potentially adversely affecting our relationship with that customer or our business and results of operations.

Our production capacity might not be able to meet customer or market demand or changing market conditions.

We may be unable to meet customer or market demand, or changing market conditions due to production capacity constraints or operational challenges and disruptions. Meeting such demand may also require us to make substantial capital investments to repair, maintain, upgrade, and expand our facilities and equipment. Notwithstanding our ongoing plans and investments to increase our capacity, we may not be able to expand our production capacity quickly enough in response to operational challenges or changing market conditions, and there can be no assurance that our production capacity will be able to meet our existing obligations and the growing market demand for our products. If we are unable to adequately expand our production capacity, we may be unable to take advantage of improved market conditions and increased demand for our products. We may also experience loss of market share, operational challenges, increased costs, penalties for late delivery, disruption in our ability to supply our products, reduction in demand for our products, our reputation with actual

 

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and potential customers may be harmed, and our customer’s reputation may be harmed, resulting in loss of business and a negative impact on our financial performance.

We could experience labor disputes and work stoppages, or be unable to renegotiate collective bargaining agreements, which could disrupt our business and have a negative impact on our financial condition and results of operations.

From time to time, we may experience labor disputes and work stoppages at our facilities generally, and at times in connection with collective bargaining agreement negotiations. In 2018, no economic or labor disputes occurred in North America. In France, we experienced work stoppages and / or labor disputes in Issoire, Neuf-Brisach and Nuits-Saint-Georges. In Germany, work stoppages and / or labor disputes occurred in all of our German sites. None occurred in Switzerland. Reasons for stoppages included disapproval of governmental measures, solidarity with an employee for being dismissed, wage claims, protest against working conditions and / or warn strikes. These disruptions had a duration ranging from some hours to some days.

Existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future. Any such stoppages or disturbances may adversely affect our financial condition and results of operations by limiting plant production, sales volumes, profitability and operating costs.

A significant number of our employees are represented by unions or equivalent bodies or are covered by collective bargaining or similar agreements that are subject to periodic renegotiation. Although we believe that we will be able to successfully negotiate new collective bargaining agreements when the current agreements expire, these negotiations may not prove successful, and may result in a significant increase in the cost of labor, or may break down and result in the disruption or cessation of our operations.

In addition, in light of demographic trends in the labor markets where we operate, we expect that our factories will be confronted with high levels of natural attrition in the coming years due to retirements. Strategic workforce planning will be a challenge to ensure a controlled exit of skills and competencies and the timely acquisition of new talent and competencies, in line with changing technological and industrial needs.

We are dependent on a limited number of customers for a substantial portion of our sales, and a failure to successfully renew, renegotiate or re-price our long-term or other agreements with our customers may adversely affect our results of operations, financial condition and cash flows.

Our business is exposed to risks related to existing market concentration of our customers. We estimate that our ten largest customers accounted for approximately 49% of our consolidated revenue in 2018, one of which accounted for more than 10% of our consolidated revenue over the same period. A significant downturn in the business, credit or financial condition of our significant customers exposes us to the risk of default on contractual agreements and trade receivables, and this risk is increased by weak and deteriorating economic conditions on a global, regional or industry sector level.

We have long-term contracts and related arrangements with a significant number of our customers. Some of our long-term customer contracts and related arrangements have provisions that, by their terms, may become less favorable to us over time. If we fail to successfully renegotiate or re-price these less favorable provisions, including payment terms, in our long-term agreements and related arrangements then our results of operations, financial condition and cash flows could be materially adversely affected. Furthermore, some of our long-term contracts and related arrangements are subject to renewal, renegotiation or re-pricing at periodic intervals or upon changes in competitive and regulatory supply conditions, or provide termination rights to our customers. If we fail to renew, renegotiate or re-price these long-term contracts or arrangements at all, or on favorable terms, including payment terms, then our results of operations, financial condition and cash flows could be materially adversely affected. Any of these risks, or any material deterioration in, or termination of, these customer relationships, could result in a reduction or loss in sales volume or revenue, which could adversely affect our

 

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results of operations. If we are not successful in replacing business lost from such customers, or in negotiating favorable terms, our results of operations, financial condition and cash flows could be materially adversely affected.

In addition, our strategy of having dedicated facilities and arrangements with customers subjects us to the inherent risk of increased dependence on a single or few customers with respect to these facilities. In such cases, the loss of such a customer, or the reduction of that customer’s business at one or more of our facilities, or the deterioration of such customer’s credit or financial condition, could materially adversely affect our financial condition and results of operations, and we may be unable to timely replace, or replace at all, lost order volumes and revenue.

Customer consolidation could adversely affect our financial position, results of operations and cash flows.

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

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

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

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

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

 

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We are dependent on a limited number of suppliers for a substantial portion of our aluminium supply and a failure to successfully renew, renegotiate or re-price our long-term agreements or other arrangements with our suppliers may adversely affect our results of operations, financial condition and cash flows.

Our ability to produce competitively priced aluminium products depends on our ability to procure competitively priced supply of aluminium in a timely manner and in sufficient quantities to meet our production needs. We have supply arrangements with a limited number of suppliers for aluminium and other raw materials. Our top ten suppliers accounted for approximately 55% of our total raw material and consumable expense for the year ended December 31, 2018. Increasing aluminium demand levels have caused regional supply constraints in the industry, and further increases in demand levels, could exacerbate these issues. We maintain long-term contracts for a majority of our supply requirements, and for the remainder we depend on annual and spot purchases. There can be no assurance that we will be able to renew, or obtain replacements for, any of our long-term contracts or any related arrangements when they expire on terms that are as favorable as our existing agreements or at all. Additionally, if any of our key suppliers is unable to deliver sufficient quantities on a timely basis, our production may be disrupted, and we could be forced to purchase primary metal and other supplies from alternative sources, which may not be available in sufficient quantities or may only be available on terms that are less favorable to us. As a result, an interruption in key supplies required for our operations could have a material adverse effect on our ability to produce and deliver products on a timely or cost-efficient basis and therefore on our financial condition, results of operations and cash flows. In addition, a significant downturn in the business or financial condition of our significant suppliers exposes us to the risk of default by the supplier on our contractual agreements. This risk is increased by weak and deteriorating economic conditions on a global, regional or industry sector level.

We depend on scrap aluminium for our operations and acquire our scrap inventory from numerous sources. Our suppliers generally are not bound by long-term contracts and have no obligation to sell scrap metal to us. In periods of low inventory prices, suppliers may elect to hold scrap until they are able to charge higher prices. In addition, a decrease in the supply of used beverage containers (“UBCs”) available to us resulting from a decrease in the rate at which consumers consume or recycle products contained or packaged in aluminium beverage cans could negatively impact our supply of aluminium. If an adequate supply of scrap metal is not available to us, we would be unable to recycle metals at desired volumes and our results of operations, financial condition and cash flows could be materially adversely affected.

In addition, we seek to take advantage of the lower price of scrap aluminium compared to primary aluminium to provide a cost-competitive product. A decrease in the supply of scrap aluminium could increase its cost. To the extent the discount between the primary aluminium price and scrap price narrows, our competitive advantage may be reduced. We cannot make use of financial markets to effectively hedge against reductions in this discount as this market is not readily available. If the difference between the price of primary and scrap aluminium is narrow for a considerable period of time, it could adversely affect our business, financial condition and results of operations.

The loss of certain key members of our management team may have a material adverse effect on our operating results.

Our success will depend, in part, on the efforts of our senior management and other key employees. These individuals including our Chief Executive Officer and Chief Financial Officer, possess sales, marketing, engineering, technical, manufacturing, financial and administrative skills that are critical to the operation of our business. If we lose or suffer an extended interruption in the services of one or more of our senior officers or other key employees, our ability to operate and expand our business, improve our operations, develop new products, and, as a result, our financial condition and results of operations, may be adversely affected. Moreover, the hiring of qualified individuals is highly competitive in our industry, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees.

 

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

Our future financial performance and success depend in large part on our ability to successfully implement our business strategy, including investing in high-return opportunities in our core markets, focusing on higher-margin, technologically advanced products, differentiating our products, expanding our strategic relationships with customers in selected international regions, fixed-cost containment and cash management, and executing on our manufacturing productivity improvement programs. We cannot assure you that we will be able to successfully implement our business strategy or be able to continue improving our operating results.

Implementation of our business strategy could be affected by a number of factors beyond our control, such as increased competition, legal and regulatory developments, or general economic conditions. Any failure to successfully implement our business strategy could adversely affect our financial condition and results of operations. In addition, we may decide to alter or discontinue certain aspects of our business strategy at any time. Although we have undertaken and expect to continue to undertake productivity and manufacturing system and process transformation initiatives to improve performance, we cannot assure you that all of these initiatives will be completed or that any estimated cost savings from such activities will be fully realized. Even when we are able to generate new efficiencies in the short- to medium-term, we may not be able to continue to reduce costs and increase productivity over the long term.

Our results of operations, cash flows and liquidity could be adversely affected if we are unable to execute on our hedging policy, if counterparties to our derivative instruments fail to honor their agreements or if we are unable to enter into certain derivative instruments.

We purchase and sell LME and other forwards, futures and options contracts as part of our efforts to reduce our exposure to changes in currency exchange rates, aluminium prices and other raw materials and energy prices. If we are unable to enter into such derivative instruments to manage those risks due to the cost or availability of such instruments or other factors, or if we are not successful in passing through the costs of our risk management activities, our results of operations, cash flows and liquidity could be adversely affected. Our ability to realize the benefit of our hedging program is dependent upon many factors, including factors that are beyond our control. For example, our foreign exchange hedges are scheduled to mature on the expected payment date by the customer; therefore, if the customer fails to pay an invoice on time and does not warn us in advance, we may be unable to reschedule the maturity date of the foreign exchange hedge, which could result in an outflow of foreign currency that will not be offset until the customer makes the payment. We may realize a gain or a loss in unwinding such hedges. In addition, our metal-price hedging program depends on our ability to match our monthly exposure to sold and purchased metal, which can be made difficult by seasonal variations in metal demand, unplanned changes in metal delivery dates by either us or by our customers and other disruptions to our inventories, including for maintenance.

We may also be exposed to losses if the counterparties to our derivative instruments fail to honor their agreements.

To the extent our hedging transactions fix prices or exchange rates and if primary aluminium prices, energy costs or foreign exchange rates are below the fixed prices or rates established by our hedging transactions, then our income and cash flows will be lower than they otherwise would have been. Similarly, if we do not effectively manage and adequately hedge for prices and premiums (including the Midwest regional premium) of our aluminium and other raw materials, our financial results may also be adversely affected. Further, with the exception of hedge accounting on certain long-term aerospace contracts and on our net investment in certain of our subsidiaries, we do not apply hedge accounting to our forwards, futures or option contracts. Unrealized gains and losses on our derivative financial instruments that do not qualify for hedge accounting are reported in our consolidated results of operations. The inclusion of such unrealized gains and losses in earnings may produce significant period-over-period earnings volatility that is not necessarily reflective of our underlying operating

 

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performance. In addition, in certain scenarios when market price movements result in a decline in value of our current derivatives position, our mark-to-market expense may exceed our credit line and counterparties may request the posting of cash collateral which, in turn, can be a significant demand on our liquidity.

At certain times, hedging instruments may simply be unavailable or not available on terms acceptable to us. In addition, recent legislation has been adopted to increase the regulatory oversight of over-the-counter derivatives markets and derivative transactions. The companies and transactions that are subject to these regulations may change. If future regulations subject us to additional capital or margin requirements or other restrictions on our trading and commodity positions, this could have an adverse effect on our financial condition and results of operations.

Our cash flows and liquidity could be adversely affected as a result of the maturity mismatch between certain of our derivative instruments and the underlying exposure.

We use financial derivatives to hedge the foreign currency risk associated with the repayment of a portion of our U.S. Dollar-denominated debt. These financial derivatives may have a shorter maturity than either the maturity or call date of the hedged debt instrument. This could result in an adverse impact on our cash flows and liquidity as the impact from changes in foreign exchange rates on the hedging instruments could result in a cash outflow before the corresponding favorable impact on the underlying hedged debt results in a positive cash flow.

We recently completed the purchase of UACJ’s 49% interest in CUA, which business may not generate the expected returns and we may be unable to execute on our business strategy.

We recently purchased UACJ’s indirectly held stake in CUA, our joint venture with UACJ to produce ABS sheet in the United States. Despite this acquisition, there can be no assurance that we will be able to successfully implement our business strategy with respect to the North American ABS market. Any inability to execute on our strategy could reduce our expected earnings and could adversely affect our operations overall. See “Item 4. Information on the Company—B. Business Overview—Recent Developments—Acquisition of UACJ’s Interest in Bowling Green.”

CUA’s automotive line continues to undergo an extensive qualification process and production ramp up for original equipment manufacturer (“OEM”) products. At the same time, our Muscle Shoals facility will be supplying an increasing share of the cold coil needs at CUA. Any significant delays incurred during this qualification process, supply and production ramp up, which would jeopardize the start of series production of OEM customer products, would be detrimental to the financial performance of CUA and would adversely affect our North American ABS strategy and our anticipated return on investments. As the sole owner of CUA following our purchase of UACJ’s stake, we will be solely responsible for the management and operation of CUA’s business. We may not realize the intended benefits of the acquisition of CUA, as rapidly as, or to the extent, anticipated by our management. There can be no assurance that we will be able to successfully integrate CUA’s business without substantial expenses, delays or other operational or financial problems. Furthermore, there can be no assurance that CUA’s business will achieve anticipated revenue and income. Our failure to manage our acquisition and integration strategy successfully could have a material adverse effect on our business, results of operations and financial condition.

We may not be able to successfully develop and implement new technology initiatives and other strategic investments in a timely manner.

We have invested in, and are involved with, a number of technology and process initiatives, including the development of new aluminium-lithium products. Being at the forefront of technological development is important to remain competitive. Several technical aspects of certain of these initiatives are still unproven and/or the eventual commercial outcomes and feasibility cannot be assessed with any certainty. Even if we are successful with these initiatives, we may not be able to bring them to market as planned before our competitors

 

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or at all, and the initiatives may end up costing more than expected. As a result, the costs and benefits from our investments in new technologies and the impact on our financial results may vary from present expectations.

In addition, we have undertaken and may continue to undertake growth, streamlining and productivity initiatives to improve performance. We cannot assure you that these initiatives will be completed or that they will have their intended benefits. Capital investments in debottlenecking or other organic growth initiatives may not produce the returns we anticipate. Even if we are able to generate new efficiencies successfully in the short- to medium-term, we may not be able to continue to reduce cost and increase productivity over the long term.

Interruptions or failures in our IT systems, or failure to protect our IT systems against cyber-attacks or information security breaches, could have a material adverse effect on our business and financial results.

The efficient operation of our business depends on our IT systems. We rely on our IT systems to effectively manage and operate our business, including such processes as data, accounting, financial reporting, communications, supply chain, order entry and fulfillment and other business processes. The failure of our IT systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer.

In addition, some of our IT are nearing obsolescence, in that the software versions they are developed on are no longer fully supported or kept up-to-date by the original vendors. While day-to-day operations are not at risk, major new requirements (e.g., in legal or payroll) might require manual workarounds if the current software versions do not support those new functionalities. Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks.

A failure in, or breach of, our IT systems as a result of cyber-attacks or information security breaches could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs or cause losses. As cyber threats continue to evolve, we are expending additional resources to continue to enhance our information security measures and be able to investigate and remediate promptly any information security vulnerabilities. We experienced a few security incidents in 2018, but they were successfully detected and handled. They did not have a material negative impact on the Company, our business or our operations.

We continue to make investments and adopt measures designed to enhance our protection, detection, response, and recovery capabilities, and to mitigate potential risks to our technology, products, services and operations from potential cyber-attacks. However, given the unpredictability, nature and scope of cyber-attacks, it is possible that potential vulnerabilities could go undetected for an extended period. We could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromise of confidential or otherwise protected information, misappropriation, destruction or corruption of data, security breaches, other manipulation or improper use of our or third-party systems, networks or products, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

The process of upgrading our IT infrastructure may disrupt our operations.

We continuously perform an evaluation of our IT systems and requirements and have implemented or plan to implement upgrades to our IT systems that support our business. These upgrades involve replacing legacy systems with state-of-the-art systems, making changes to legacy systems or acquiring new systems with new functionality. There are inherent risks associated with replacing, changing or acquiring new systems, including accurately capturing data and system disruptions. We may experience operational problems with our information

 

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systems as a result of system failures, viruses, computer “hackers” or other causes. Any material disruption or slowdown of our systems, including a disruption or slowdown caused by our failure to successfully upgrade our systems could cause information losses, including data related to customer orders. Such a disruption could adversely affect our business, financial condition or results of operations.

As part of our ongoing evaluation of our operations, we may undertake additional restructuring efforts in the future, which could in some instances result in significant severance-related costs and other restructuring charges.

We recorded restructuring charges of €1 million for the year ended December 31, 2018, €4 million for the year ended December 31, 2017 and €5 million for the year ended December 31, 2016. Restructuring costs in 2018, 2017, and 2016 were primarily related to corporate and production sites’ restructuring operations. We may pursue additional restructuring activities in the future, which could result in significant severance-related costs, restructuring charges and related costs and expenses, including resulting labor disputes, which could materially adversely affect our profitability and cash flows.

A significant portion of our revenue is derived from our international operations, which exposes us to certain risks inherent in doing business globally.

We have operations primarily in the United States, Germany, France, Slovakia, Switzerland, the Czech Republic and China and primarily sell our products across Europe, Asia and North America. Economic downturns in regional and global economies, including in Europe and North America, or a prolonged recession in our principal industry segments, have had a negative impact on our operations in the past by reducing overall demand of our products, and could have a negative impact on our future financial condition or results of operations.

We also continue to explore opportunities to expand our international operations. Our operations generally are subject to financial, political, economic, regulatory and business risks in connection with our global operations, including:

 

   

changes in international governmental regulations, trade restrictions and laws, including those relating to taxes, employment and repatriation of earnings;

 

   

compliance with sanctions regimes and export control laws of multiple jurisdictions;

 

   

currency exchange rate fluctuations;

 

   

tariffs and other trade barriers;

 

   

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

 

   

renegotiation or nullification of existing agreements;

 

   

interest rate fluctuations;

 

   

high rates of inflation;

 

   

currency restrictions and limitations on repatriation of profits;

 

   

differing protections for intellectual property and enforcement thereof;

 

   

divergent environmental laws and regulations; and

 

   

political, economic and social instability.

The occurrence of any of these events could cause our costs to rise, limit growth opportunities or have a negative effect on our operations and our ability to plan for future periods. In certain emerging markets, the degree of these risks may be higher due to more volatile economic conditions, less developed and predictable legal and regulatory regimes and increased potential for various types of adverse governmental action.

 

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Our principal headquarters are in the European Union, and we maintain a significant presence in various European markets and the United States through our operating subsidiaries, including significant sales to customers in both Europe and the United States. If political and regulatory conditions in Europe, the United States or other key markets, remain uncertain or deteriorate, our customers may respond by suspending, delaying or reducing their capital expenditures, which may adversely affect our sales, cash flows and results of operations. For example, in June 2016, the United Kingdom held a non-binding advisory referendum in which voters voted for the United Kingdom to exit the European Union (“Brexit”). The final agreement with respect to Brexit remains under review by the parties involved. Political or geographical events, such as Brexit, or diplomatic tensions could result in changes in trade policy, taxes, market volatility or currency exchange rate fluctuations, and resulting uncertainty in the economy and markets could cause our customers and potential customers to delay or reduce spending on our products or services. Any of these effects, could adversely affect our business, results of operations and financial condition.

During periods of sustained economic downturn or significant supply/demand imbalances impacting our automotive, aerospace or beverage can businesses, our sales may be negatively impacted as our customers and consumers shift their purchases in response to such downturns. Our diversified customer base and product applications may help mitigate the effects of economic fluctuations, however, many of our customers and suppliers are reliant on liquidity from global credit markets and, in some cases, require external financing to purchase products or finance operations. Lack of liquidity or inability to access the credit markets by our customers could adversely affect our ability to collect the outstanding amounts due to us. Although we continue to seek to diversify our business on a geographic and end-market basis, the occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.

We could be required to make unexpected contributions to our defined benefit pension plans as a result of adverse changes in interest rates and the capital markets.

Most of our pension obligations relate to funded defined benefit pension plans for our employees in the United States and Switzerland, unfunded pension benefits in France and Germany, and lump sum indemnities payable to our employees in France and Germany upon retirement or termination. Our pension plan assets consist primarily of funds invested in listed stocks and bonds. Our estimates of liabilities and expenses for pensions and other post-retirement benefits incorporate a number of assumptions, including interest rates used to discount future benefits. Our liquidity or shareholders’ equity in a particular period could be materially adversely affected by capital market returns that are less than their assumed long-term rate of return or a decline in the rate used to discount future benefits. If the assets of our pension plans do not achieve assumed investment returns for any period, such deficiency could result in one or more charges against shareholders’ equity for that period. In addition, changing economic conditions, poor pension investment returns or other factors may require us to make unexpected cash contributions to the pension plans in the future, preventing the use of such cash for other purposes.

We also participate in various “multi-employer” pension plans in one of our facilities in the United States administered by labor unions representing some of our employees. Our withdrawal liability for any multi-employer plan would depend on the extent of the plan’s funding of vested benefits. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that maintain these plans, we could decide to discontinue participation in a plan, and in that event we could face a withdrawal liability. We could also be treated as withdrawing from participation in one of these plans if the number of our employees participating in these plans is reduced to a certain degree, or over certain periods of time. Such reductions in the number of our employees participating in these plans could occur as a result of changes in our business operations, such as facility closures or consolidations. Any withdrawal liability could have an adverse effect on our results of operations.

 

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We may not be able to adequately protect proprietary rights to our technology and legal proceedings or investigations, including enforcement of our intellectual property rights, could increase our operating costs and adversely affect our financial condition and results of operations.

Our success depends in part upon our proprietary technology and processes. We believe that our intellectual property has significant value and is important to the marketing of our products and maintaining our competitive advantage. Although we attempt to protect our intellectual property rights both in the United States and in foreign countries through a combination of patent, trademark, trade secret and copyright laws, as well as through confidentiality and nondisclosure agreements and other measures, these measures may not be adequate to fully protect our rights. For example, we have a presence in China, which historically has afforded less protection to intellectual property rights than the United States or Europe. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.

We have applied for patent protection relating to certain existing and proposed products and processes. While we generally apply for patents in those countries where we intend to make, have made, use or sell patented products, we may not accurately predict all of the countries where patent protection will ultimately be desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date. Furthermore, we cannot assure you that any of our patent applications will be approved. We also cannot assure you that the patents issued as a result of our foreign patent applications will have the same scope of coverage as our United States patents. The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Further, we cannot assure you that competitors or other third parties will not infringe our patents, or that we will have adequate resources to enforce our patents.

We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.

We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors or other third parties will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.

We may from time-to-time be involved in, or be the subject of, disputes, proceedings and investigations with respect to a variety of matters, including matters related to personal injury, intellectual property, employees, taxes, contracts, anti-competitive or anti-corruption practices as well as other disputes and proceedings that arise in the ordinary course of business. It could be costly to address these claims or any investigations involving them, whether meritorious or not, and legal proceedings and investigations could divert management’s attention as well as operational resources, adversely affecting our financial position, results of operations and cash flows. Although the unauthorized use of our intellectual property may adversely affect our results of operations, any attempts to enforce our intellectual property rights, even if successful, could result in costly and prolonged litigation, divert management’s attention and resources, and materially adversely affect our results of operations.

 

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Furthermore, we may be subject to claims that we have infringed the intellectual property rights of another. Even if without merit, such claims could result in costly and prolonged litigation, cause us to cease making, licensing or using products or technologies that incorporate the challenged intellectual property, require us to redesign, reengineer or rebrand our products, if feasible, divert management’s attention and resources, and materially adversely affect our results of operations. We may also be required to enter into licensing agreements in order to continue using technology that is important to our business, or we may be unable to obtain license agreements on acceptable terms. The requirements of such licensing agreements, failure to obtain the rights granted under such agreements, failure to conclude them on acceptable terms or litigation related to such agreements could adversely affect our financial position or results of operations.

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

Our operations are subject to international, national, state and local laws and regulations in the jurisdictions where we do business, which govern, among other things, air emissions, wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the remediation of contaminated sites, and employee health and safety. At December 31, 2018, we had close-down and environmental remediation costs provisions of €83 million. Future environmental regulations or more aggressive enforcement of existing regulations could impose stricter compliance requirements on us and on the industries in which we operate. Additional pollution control equipment, process changes, or other environmental control measures may be needed at some of our facilities to meet future requirements. If we are unable to comply with these laws and regulations, we could incur substantial costs, including fines and civil or criminal sanctions, or costs associated with upgrades to our facilities or changes in our manufacturing processes in order to achieve and maintain compliance. Additionally, evolving regulatory standards and expectations can result in increased litigation and/or increased costs. There are also no assurances that newly discovered conditions, or new or more aggressive enforcement of applicable environmental requirements, or any failure by counterparties to perform indemnification obligations, will not have a material adverse effect on our business.

Financial responsibility for contaminated property can be imposed on us where current or former operations have had an environmental impact. Such liability can include the cost of investigating and remediating contaminated soil or ground water, financial assurance, fines and penalties sought by environmental authorities, and damages arising out of personal injury, contaminated property and other toxic tort claims, as well as lost or impaired natural resources. Certain environmental laws impose strict, and in certain circumstances joint and several, liability for certain kinds of matters, such that a person can be held liable without regard to fault for all of the costs of a matter regardless of legality at the time of conduct and even though others were also involved or responsible.

We have accrued, and expect to accrue, costs relating to the above matters that are reasonably expected to be incurred based on available information. However, it is possible that actual costs may differ, perhaps significantly, from the amounts expected or accrued. Similarly, the timing of those expenditures may occur faster than anticipated. These differences could adversely affect our financial position, results of operations and cash flows.

Product liability claims against us could result in significant costs and could materially adversely affect our reputation and our business.

If any of the products that we sell are defective or cause harm to any of our customers, we could be exposed to product liability lawsuits and/or warranty claims. If we were found liable under product liability claims or are obligated under warranty claims, we could be required to pay substantial monetary damages. Even if we successfully defend ourselves against these types of claims, we could still be forced to spend a substantial amount of money in litigation expenses, our management could be required to devote significant time and attention to defending against these claims, and our reputation could suffer, any of which could harm our business.

 

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Our operations present significant risk of injury or death.

Because of the heavy industrial activities conducted at our facilities, there exists a risk of injury or death to our employees or other visitors, notwithstanding the safety precautions we take. Our operations are subject to regulation by national, state and local agencies responsible for employee health and safety, which has from time to time levied fines against us for certain isolated incidents. While such fines have not been material and we have in place policies to minimize such risks, we may nevertheless be unable to avoid material liabilities for any employee death or injury that may occur in the future, and any such incidents may materially adversely affect our reputation.

The insurance level that we maintain may not fully cover all potential exposures.

We maintain property, casualty and workers’ compensation insurance in accordance with market practice, but such insurance may not fully cover all risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including, but not limited to, liabilities for breach of contract, environmental compliance or remediation. In addition, from time to time and depending on market conditions, various types of insurance coverage for companies in our industry may not be available on commercially acceptable terms or, in some cases, may not be available at all. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.

Risks Related to Our Industry

Our financial results could be adversely affected by the volatility in aluminium prices.

The overall price of primary aluminium consists of several components: (1) the underlying base metal component, which is typically based on quoted prices from the London Metal Exchange (“LME”); (2) the regional premium, which represents an incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States or the Rotterdam premium for metal sold in Europe); and (3) the product premium, which represents a separate incremental price for receiving physical metal in a particular shape (e.g., billet, slab, rod, etc.), alloy, or purity. Each of these three components has its own drivers of variability. The LME price is typically driven by macroeconomic factors, including the global supply and demand of aluminium. Regional premiums tend to vary based on the supply and demand for metal in a particular region, changes in tariffs and associated warehousing and transportation costs. Product premiums generally are a function of supply and demand as well as production and raw material costs for a given primary aluminium shape and alloy combination in a particular region.

Speculative trading in aluminium has increased in recent years, contributing to higher levels of price volatility. During 2014, regional premiums reached levels substantially higher than historical averages, whereas, in 2015, such premiums experienced significant decreases in all regions, reverting to levels that are closer to historical averages. The Rotterdam regional premium increased to 26% of the LME base price in December 2014 and the Midwest regional premium increased to 27% of the LME base price. Sustained high aluminium prices, increases in aluminium prices, the inability to meaningfully hedge our exposure to aluminium prices, or the inability to pass through any fluctuation in regional premiums or product premiums to our customers, could have a material adverse effect on our business, financial condition, and results of operations and cash flow. In 2018, the LME cash price of aluminium reached a high of $2,603 per metric ton and a low of $1,870 per metric ton compared to a high of $2,246 per metric ton and a low of $1,701 per metric ton in 2017. In 2018, regional premiums ranged from 6% to 11% of the LME base price for the Rotterdam regional premium and from 9% to 23% of the LME base price for the U.S. Midwest regional premium.

 

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Aluminium may become less competitive with alternative materials, which could reduce our share of industry sales, lower our selling prices and reduce our sales volumes.

Our fabricated aluminium products compete with products made from other materials—such as steel, glass, plastics and composite materials—for various applications. Higher aluminium prices relative to substitute materials tend to make aluminium products less competitive with these alternative materials. The willingness of customers to accept aluminium substitutes could result in reduced prices or sales volumes, either of which could materially and adversely affect our business, financial condition, results of operations and cash flows.

Environmental and other regulations may also increase our costs and may be passed on to our customers, and may restrict the use of chemicals needed to produce aluminium products. These regulations may make our products less competitive as compared to materials that are subject to fewer regulations. Certain existing regulations may make our products more attractive than competing products, including the Corporate Average Fuel Economy (“CAFE”) standards that require material improvements in the automotive and light truck miles per gallon by 2025 in the U.S. We believe such standards have increased demand for lighter materials used in the vehicle’s body in North America. The relaxation of these standards under the new Safer Affordable Fuel Efficient (SAFE) Vehicles Proposed Rule, which is being finalized by the Trump Administration, and the resulting potential litigation between California and the Federal State could reduce or delay the need for lighter materials among our customers. Any reduction in the competitiveness of our products relative to alternative materials could adversely affect our financial position, results of operations and cash flows.

Customers in our end-markets, including the can, packaging, aerospace and automotive sectors, use and continue to evaluate the further use of alternative materials to aluminium in order to reduce the weight and increase the efficiency of their products. Although trends in “light-weighting” have generally increased use of aluminium and substitution of aluminium for other materials, the willingness of customers to accept substitutions for aluminium, or the ability of large customers to exert leverage in the market to reduce the pricing for fabricated aluminium products, could adversely affect the demand for our products, and thus materially adversely affect our financial position, results of operations and cash flows.

If we are unable to substantially pass on to our customers the cost of price increases of our raw materials, including aluminium, our profitability could be adversely affected.

Prices for the raw materials we require are subject to continuous volatility and may increase from time to time. Although our sales are generally made on a “margin over metal price” basis, if prices increase, we may not be able to pass on the entire cost of the increases to our customers. There could also be a time lag between when changes in prices under our purchase contracts are effective and the point when we can implement corresponding changes under our sales contracts with our customers. As a result, we are exposed to fluctuations in raw materials prices, including metal, since during this time lag we may have to temporarily bear the additional cost of the price change under our purchase contracts. Further, although most of our contracts allow us to substantially pass through metal prices to our customers, we have certain contracts that are based on fixed metal pricing, where pass through is not available. Similarly, in certain contracts we have ineffective pass through mechanisms related to regional premium fluctuation. A related risk is that a sustained significant increase in raw materials prices may cause some of our customers to substitute our products with other materials. We attempt to mitigate these risks, including through hedging, but we may not be able to successfully reduce or eliminate any resulting impact, which could have a material adverse effect on our financial results.

Significant regulatory developments stemming from the current U.S. administration could have an adverse effect on us.

Changes or uncertainties in U.S. political and regulatory conditions or laws and policies governing foreign trade, manufacturing, and development and investment in resulting from the current U.S. administration, could adversely affect our business and financial statements. In particular, the current U.S. administration is negotiating

 

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new trade agreements with partners such as Europe and Canada, and has implemented and/or is considering new duties and potential tariffs on selected imported goods (including aluminium products, cars and automotive components as part of ongoing or potential 232 investigations). These actions could lead to retaliatory tariffs or other adverse actions toward the United States by our customers in those countries, which could adversely affect our business, financial condition and results of operations.

The price volatility of energy costs may adversely affect our profitability.

Our operations use natural gas and electricity, which represent the third largest component of our cost of sales, after metal and labor costs. We purchase part of our natural gas and electricity on a market basis. The volatility in costs of fuel, principally natural gas, and other utility services, principally electricity, used by our production facilities affects operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets as well as governmental regulation and imposition of further taxes on energy. Although we have secured a large part of our natural gas and electricity under fixed price commitments or long-term contracts with suppliers, future increases in fuel and utility prices, or disruptions in energy supply, may have an adverse effect on our financial position, results of operations and cash flows.

Adverse changes in currency exchange rates could adversely affect our financial results.

The financial condition and results of operations of some of our operating entities are reported in various currencies and then translated into euros at the applicable exchange rate for inclusion in our Consolidated Financial Statements. As a result, the appreciation of the euro against the currencies of our operating local entities may have a negative impact on reported revenue and operating profit, and the resulting accounts receivable, while depreciation of the euro against these currencies may generally have a positive effect on reported revenue and operating profit. We do not hedge translation of forecasted results or actual results.

In addition, while the majority of costs incurred are denominated in local currencies, a portion of the revenue are denominated in U.S. dollars and other currencies. As a result, appreciation in the U.S. dollar may have a positive impact on earnings while depreciation of the U.S. dollar may have a negative impact on earnings. While we engage in significant hedging activity to attempt to mitigate this foreign transactions currency risk, this may not fully protect us from adverse effects due to currency fluctuations on our business, financial condition or results of operations.

The cyclical and seasonal nature of the metals industry, our end-use markets and our customers’ industries could adversely affect our financial condition and results of operations.

The metals industry is generally cyclical in nature, and these cyclical fluctuations tend to directly correlate with changes in general and local economic conditions. These conditions include the level of economic growth, financing availability, the availability of affordable energy sources, employment levels, interest rates, consumer confidence and housing demand. Historically, in periods of recession or periods of minimal economic growth, metals companies have often tended to underperform other sectors.

We are particularly sensitive to cycles in the aerospace, defense, automotive, other transportation, building and construction and general engineering end-markets, which are highly cyclical. During recessions or periods of low growth, these industries typically experience major cutbacks in production, resulting in decreased demand for aluminium products. This leads to significant fluctuations in demand and pricing for our products and services. Because our operations are capital intensive and we generally have high fixed costs and may not be able to reduce costs and production capacity on a sufficiently rapid basis, our near-term profitability may be significantly affected by decreased processing volumes. Accordingly, reduced demand and pricing pressures may significantly reduce our profitability and materially adversely affect our financial condition, results of operations and cash flows.

 

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In particular, we derive a significant portion of our revenue from products sold to the aerospace industry, which is highly cyclical and tends to decline in response to overall declines in the general economy. The commercial aerospace industry is historically driven by the demand from commercial airlines for new aircraft. Demand for commercial aircraft is influenced by airline industry profitability, trends in airline passenger traffic, the state of the U.S. and global economies and numerous other factors, including the effects of terrorism. A number of major airlines have undergone Chapter 11 bankruptcy or comparable insolvency proceedings and experienced financial strain from volatile fuel prices. The aerospace industry also suffered significantly in the wake of the events of September 11, 2001, resulting in a sharp decrease globally in new commercial aircraft deliveries and order cancellations or deferrals by the major airlines. Despite existing backlogs, continued financial uncertainty in the industry, inadequate liquidity of certain airline companies, production issues and delays in the launch of new aircraft programs at major aircraft manufacturers, stock variations in the supply chain, terrorist acts or the increased threat of terrorism may lead to reduced demand for new aircraft that utilize our products, which could materially adversely affect our financial position, results of operations and cash flows.

Further, the demand for our automotive extrusions and rolled products and many of our general engineering and other industrial products is dependent on the production of cars, light trucks, and heavy duty vehicles and trailers. The automotive industry is highly cyclical, as new vehicle demand is dependent on consumer spending and is tied closely to the strength of the overall economy. We note that the demand for luxury vehicles in China has become significant over the past several years and therefore fluctuations in the Chinese economy may adversely affect the demand for our products. Production cuts by manufacturers may adversely affect the demand for our products. Many automotive-related manufacturers and first tier suppliers are burdened with substantial structural costs, including pension, healthcare and labor costs that have resulted in severe financial difficulty, including bankruptcy, for several of them. A worsening of these companies’ financial condition or their bankruptcy could have further serious effects on the conditions of the markets, which directly affects the demand for our products. In addition, the loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which we are a significant supplier could have a materially adverse impact on our financial position, results of operations and cash flows.

Customer demand in the aluminium industry is also affected by holiday seasons, weather conditions, economic and other factors beyond our control. Our volumes are impacted by the timing of the holiday seasons in particular, the lowest volumes typically occurring in August and December and highest volumes occurring in January to June. Our business is also impacted by seasonal slowdowns and upturns in certain of our customers’ industries. Historically, the beverage can industry is strongest in the spring and summer season, whereas the automotive and construction sectors encounter slowdowns in both the third and fourth quarters of the calendar year. Therefore, our quarterly financial results could fluctuate as a result of climatic or other seasonal changes, and a prolonged period of unusually cool summers in different regions in which we conduct our business could have a negative effect on our financial position, results of operations and cash flows.

Regulations regarding carbon dioxide emissions, and unfavorable allocation of rights to emit carbon dioxide or other air emission related issues, as well as other environmental laws and regulations, could have a material adverse effect on our business, financial condition and results of operations.

Global climate change associated with increased levels of greenhouse gases, including carbon dioxide, has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. Measures to reduce carbon dioxide and other greenhouse gas emissions that directly or indirectly affect us or our suppliers have been implemented and more such measures are being developed or may be developed in the future. Substantial quantities of greenhouse gases are released as a consequence of our operations. Compliance with regulations governing such emissions tend to become more stringent over time and could lead to a need for us to further reduce such greenhouse gas emissions, to purchase rights to emit from third parties, or to make other changes to our business, all of which could result in significant additional costs or could reduce demand for our products. In addition, we are a significant purchaser of energy. Existing and future regulations relating to the emission of carbon dioxide by our energy suppliers could result in materially increased energy costs for our operations, and

 

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we may be unable to pass along these increased energy costs to our customers, which could have a material adverse effect on our business, financial condition and results of operations. For example, the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change resulted in an agreement (the “Paris Agreement”), that calls for the parties to undertake “ambitious efforts” to limit the average global temperature and to conserve and enhance sinks and reservoirs of greenhouse gases and establishes a framework for the parties to cooperate and report actions to reduce greenhouse gas emissions. Implementation of the Paris Agreement, whether through a revised European emissions trading system or other measures, could have a material adverse effect on our business, financial condition and results of operations.

Our fabrication process is subject to regulations that may hinder our ability to manufacture our products. Some of the chemicals we use in our fabrication processes are subject to government regulation, such as REACH (“Registration, Evaluation, Authorisation and Restriction of Chemicals”) in the EU. Under REACH, we are required to register some of our products with the European Chemicals Agency, and compliance with the registration process or obtaining necessary approvals could impose significant costs on our facilities or delay our introduction of new products. We may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance, and we may lose customers or revenue as a result. Additionally, if we fail to comply with these or similar laws and regulations, we could be subject to significant fines or other civil and criminal penalties should we not achieve such compliance. To the extent that other nations in which we operate also require chemical registration, potential delays similar to those in Europe may delay our entry into these markets. Any failure to obtain or delay in obtaining regulatory approvals for chemical products used in our facilities could have a material adverse effect on our business, financial condition and results of operations.

Market-driven balancing of global aluminium supply and demand may be disrupted by non-market forces or other impediments to production closures.

In response to market-driven factors relating to the global supply and demand of aluminium and alumina, certain producers in the aluminium market have curtailed or closed portions of their production capacity. Certain other industry producers have independently undertaken to reduce production as well. Reductions in production may be delayed or impaired by the terms of long-term contracts to buy power or raw materials. The existence of non-market forces on global aluminium industry capacity, such as political pressures in certain countries to keep jobs or to maintain or further develop industry self-sufficiency, may prevent or delay the closure or curtailment of certain producers’ smelters, irrespective of their position on the industry cost curve. The impact of such non-market forces on the industry as a whole might adversely affect the company and its results of operations.

Risks Related to Our Indebtedness and Financial Reporting

Our level of indebtedness could limit cash flow available for our operations and capital expenditures and could adversely affect our ability to service our debt or obtain additional financing, if necessary, and our net income.

We have now and will continue to have a significant amount of indebtedness. As of December 31, 2018, we had total indebtedness of €2,151 million (of which €2,148 million consisted of the principal amount of the Notes, net of €32 million of issuance costs). Further, we have substantial pension and other post-employment benefit obligations, resulting in net liabilities of €610 million as of December 31, 2018.

Our level of indebtedness could adversely affect our operations. Among other things, our substantial indebtedness could:

 

   

limit our ability to obtain additional financing for working capital, capital expenditures, research and development efforts, acquisitions and general corporate purposes;

 

   

make it more difficult for us to satisfy leverage and fixed charge coverage ratios required for us to incur additional indebtedness under our existing indebtedness;

 

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make it more difficult for us to satisfy our financial obligations;

 

   

increase our vulnerability to general adverse economic and industry conditions;

 

   

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;

 

   

restrict us from making strategic acquisitions, introducing new technologies and exploiting business opportunities;

 

   

adversely affect the terms under which suppliers provide goods and services to us;

 

   

limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete; and

 

   

place us at a competitive disadvantage compared to our competitors that have less debt.

In addition, if we are unable to meet our debt service obligations and pay our expenses, we may be forced to reduce or delay business activities and capital expenditures, sell assets, obtain additional debt or equity capital, restructure or refinance all or a portion of our debt before maturity or take other measures. Such measures may materially adversely affect our business. If these alternative measures are unsuccessful, we could default on our obligations, which could result in the acceleration of our outstanding debt obligations and could have a material adverse effect on our business, results of operations and financial condition.

In addition, a portion of our indebtedness is, and our future indebtedness may be, subject to variable rates of interest, exposing us to interest rate risk. See “Item 10. Additional Information—C. Material Contracts.” If interest rates increase, our debt service obligations on the variable rate indebtedness would increase, resulting in a reduction of our net income that could be significant, even though the principal amount borrowed would remain the same.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indentures and agreements governing our existing indebtedness do not fully prohibit us or our subsidiaries from doing so. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.

The terms of our indebtedness contain covenants that restrict our current and future operations, and a failure by us to comply with those covenants may materially adversely affect our business, results of operations and financial condition.

The agreements governing our existing indebtedness contains, and the agreements governing any future indebtedness we may incur would likely contain, a number of financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. These include, without limitation, restrictions on our ability to, among other things: (i) incur or guarantee additional debt; (ii) pay dividends and make other restricted payments and investments; (iii) create or incur certain liens; (iv) make certain loans, acquisitions or investments; (v) engage in sales of assets and subsidiary stock; (vi) enter into transactions with affiliates; (vii) transfer all or substantially all of our assets or enter into merger or consolidation transactions; and (viii) enter into sale and lease-back transactions.

In addition, the Pan-U.S. ABL Facility for our Ravenswood, Muscle Shoals, and Bowling Green sites provides that at any time during which borrowing availability thereunder is below 10% of the aggregate commitments under the Pan-U.S. ABL Facility, we will be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 and a minimum Borrower EBITDA Contribution of 25%, in each case calculated on a trailing twelve-month basis. “Borrower EBITDA Contribution” means, for any period, the ratio of (x) the combined EBITDA of the borrowers under the Pan-U.S. ABL Facility and their subsidiaries for such period, to (y) the consolidated EBITDA of the Company and its subsidiaries for such period.

 

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A failure to comply with our debt covenants could result in an event of default that, if not cured or waived, could have a material adverse effect on our business, results of operations and financial condition. If we default under our indebtedness, we may not be able to borrow additional amounts and our lenders could elect to declare all outstanding borrowings, together with accrued and unpaid interest and fees, to be due and payable, or take other remedial actions. Our indebtedness also contains cross-default provisions, which means that if an event of default occurs under certain material indebtedness, such event of default may trigger an event of default under our other indebtedness. If our indebtedness were to be accelerated, we cannot assure you that our assets would be sufficient to repay such indebtedness in full and our lenders could foreclose on our pledged assets.

A deterioration in our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs, lead to our inability to access liquidity facilities, and adversely affect our business relationships.

A deterioration in our financial position or a downgrade of our credit ratings could adversely affect our financing, limit access to the capital or credit markets or our liquidity facilities, or otherwise adversely affect the availability of other new financing on favorable terms or at all, result in more restrictive covenants in agreements governing the terms of any future indebtedness that we incur, increase our borrowing costs, or otherwise impair our business, financial condition and results of operations.

While the terms of our other existing financing arrangements do not require us to maintain a specific credit rating, the commitments under the Wise Factoring Facility (as defined herein) are conditioned on, among other things, (i) Constellium’s corporate credit rating not having been withdrawn by either Standard & Poor’s or Moody’s or downgraded below B- by Standard & Poor’s and B3 by Moody’s, and (ii) there not having occurred a material adverse change in the business condition, operations, or performance of Wise Alloys Funding II LLC, since renamed Constellium Muscle Shoals Funding II LLC, Wise Alloys LLC, since renamed Constellium Muscle Shoals LLC (“Muscle Shoals”), or Constellium International. See “Item 10. Additional Information—C. Material Contracts—Wise Factoring Facilities.” If either of these conditions occurs, all purchases under the Wise Factoring Facility will become uncommitted. If the Wise Factoring Facility is not extended, refinanced or replaced, Wise’s cash collections from customers will be on longer terms than currently funded through the Wise Factoring Facility. As a result, the Company’s liquidity could meaningfully decrease, causing the Company to have insufficient liquidity to operate its business and service its indebtedness, unless another source of liquidity is identified.

A deterioration of our financial position or a downgrade of our credit ratings for any reason could also increase our borrowing costs and have an adverse effect on our business relationships with customers, suppliers and hedging counterparties. As discussed above, we enter into various forms of hedging arrangements against currency, interest rate or metal price fluctuations and trade metal contracts on the LME. Financial strength and credit ratings are important to the availability and pricing of these hedging and trading activities. As a result, any downgrade of our credit ratings may make it more costly for us to engage in these activities, and changes to our level of indebtedness may make it more difficult or costly for us to engage in hedging and trading activities in the future.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and research and development efforts will depend on our ability to generate cash in the future. Although there can be no assurances, we believe that the cash provided by our operations will be sufficient to provide for our cash requirements for the foreseeable future. However, our ability to satisfy our obligations will depend on our future operating performance and financial results, which will be subject, in part, to factors beyond our control, including interest rates and general economic, financial and business conditions. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an

 

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amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If we are unable to generate sufficient cash flow to service our debt, we may be required to:

 

   

refinance all or a portion of our debt;

 

   

obtain additional financing;

 

   

sell some of our assets or operations;

 

   

reduce or delay capital expenditures and acquisitions;

 

   

reduce or delay our research and development efforts; or

 

   

revise or delay our strategic plans.

If we are required to take any of these actions, it could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure you that we would be able to take any of these actions, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt instruments.

Our historical financial information presented in this report may not be representative of future results, our relatively short history operating as a standalone company may pose some challenges and we have incurred and will continue to incur increased costs and demands upon resources as a result of being a public company.

Due to inherent uncertainties of our business, the historical financial information does not necessarily indicate what our results of operations, financial position, cash flows or costs and expenses will be in the future as past performance is not necessarily an indicator of future performance. In addition, we have a relatively short history operating as a standalone company which may pose some operational challenges to our management. We incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Exchange Act and regulations regarding internal control over financial reporting, as well as compliance with NYSE requirements. Our management is required to devote substantial time and attention to our public company reporting obligations and other compliance matters. We evaluate and monitor developments with respect to these rules and regulations, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs as rules and regulations change. Our reporting and other compliance obligations as a public company may place a significant strain on our management, operational and financial resources and systems for the foreseeable future which may divert management’s attention from running our core business or otherwise materially adversely affect our operating results.

If we do not adequately maintain and continue to evolve our financial reporting and internal controls (which could result in higher operating costs), we may be unable to accurately report our financial results or prevent fraud.

We will need to continue to improve existing, and implement new, financial reporting and management systems, procedures and controls to manage our business effectively and support our growth in the future. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures and controls, or the obsolescence of existing financial control systems, could harm our ability to accurately forecast sales demand and record and report financial and management information on a timely and accurate basis.

We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the trading price of our ordinary shares. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and the price of our ordinary shares may be materially adversely affected.

 

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Risks Related to Our Corporate Structure and Ownership of our Ordinary Shares

We are a foreign private issuer under the U.S. securities laws and within the meaning of the New York Stock Exchange (“NYSE”) rules. As a result, we qualify for and rely on exemptions from certain corporate governance requirements and may rely on other exemptions available to us in the future.

As a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”), we are permitted to follow our home country practice in lieu of certain corporate governance requirements of the NYSE. Foreign private issuers are also exempt from certain U.S. securities law requirements applicable to U.S. domestic issuers, including the requirement to file quarterly reports on Form 10-Q, to distribute a proxy statement pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the solicitation of proxies for shareholder meetings, and Section 16 filings.

We rely on the exemptions for foreign private issuers and follow Dutch corporate governance practices in lieu of some of the NYSE corporate governance rules. We may change the home country corporate governance practices we follow, and, accordingly, which exemptions we rely on from the NYSE requirements. So long as we qualify as a foreign private issuer, you may not have the same protections applicable to companies that are subject to all of the NYSE corporate governance requirements.

If we were to lose our status as a foreign private issuer or otherwise not be considered a foreign private issuer, the regulatory and compliance costs to the Company could be significantly more than the costs we incur as a foreign private issuer. We would be required to file periodic reports, including audited financial statements, and registration statements on U.S. domestic issuer forms with the SEC, including proxy statements pursuant to Section 14 of the Exchange Act. These SEC disclosure requirements are more detailed and extensive than the forms available to a foreign private issuer. Furthermore, if we were not a foreign private issuer, we would be required to meet such filing requirements on a more abbreviated timetable than is applicable to our current filings with the SEC. In addition, our directors, executive officers and 10% owners would become subject to insider short-swing profit disclosure and recovery rules under Section 16 of the Exchange Act. We could also be required to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. In addition, we would lose our ability to rely upon exemptions from certain NYSE corporate governance requirements that are available to foreign private issuers. In particular, within six months of losing our foreign private issuer status we would be required to have a majority of independent directors and a nominating/corporate governance committee and a compensation committee comprised entirely of independent directors, unless other exemptions are available under the NYSE rules. Any of these changes would likely increase our regulatory and compliance costs and expenses, which could have a material adverse effect on our business, financial condition and results of operations.

If we fail to meet the continuing listing requirements to maintain the listing of our ordinary shares on the NYSE, our ordinary shares could be delisted by the NYSE prior to any voluntary delisting.

Our ordinary shares are currently listed on the NYSE under the symbol “CSTM”. We must meet continuing listing requirements to maintain the listing of our ordinary shares on the NYSE. If we fail to meet certain listing standards on the NYSE, our ordinary shares may be subject to delisting after the expiration of the period of time, if any, that we are allowed for regaining compliance. We may also voluntarily delist our ordinary shares from the NYSE under certain circumstances. There can be no assurance that our ordinary shares will remain listed on the NYSE. Any delisting of our ordinary shares could adversely affect a shareholder’s ability to dispose, or obtain quotations as to the market value, of such shares and the market price and liquidity of such ordinary shares.

 

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We do not comply with all the provisions of the Dutch Corporate Governance Code, which could affect your rights as a shareholder.

We are subject to the Dutch Corporate Governance Code, which applies to all Dutch companies listed on a regulated market, whether in the Netherlands or elsewhere, including the NYSE. The Dutch Corporate Governance Code contains principles and best practice provisions for boards of directors, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The Dutch Corporate Governance Code is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the provisions of the Dutch Corporate Governance Code and, if they do not comply with those provisions, to give the reasons for such noncompliance. The principles and best practice provisions apply to the board (relating to, among other matters, the board’s role and composition, conflicts of interest and independence requirements, board committees and remuneration), shareholders and the general meeting of shareholders (for example, regarding anti-takeover protection and obligations of a company to provide information to its shareholders), and financial reporting (such as external auditor and internal audit requirements). We have decided not to comply with a number of the provisions of the Dutch Corporate Governance Code because such provisions conflict, in whole or in part, with the corporate governance rules of the NYSE and U.S. securities laws that apply to our company whose ordinary shares are traded on the NYSE, or because such provisions do not reflect best practices of global companies listed on the NYSE. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the Dutch Corporate Governance Code. See “Item 16G. Corporate Governance—Dutch Corporate Governance Code.”

The market price of our ordinary shares may fluctuate significantly, and you could lose all or part of your investment.

The market price of our ordinary shares may be influenced by many factors, some of which are beyond our control and could result in significant fluctuations, including: (i) the failure of financial analysts to cover our ordinary shares, changes in financial estimates by analysts or any failure by us to meet or exceed any of these estimates; (ii) actual or anticipated variations in our operating results; (iii) announcements by us or our competitors of significant contracts or acquisitions; (iv) the recruitment or departure of key personnel; (v) regulatory and litigation developments; (vi) developments in our industry; (vii) future sales of our ordinary shares; and (viii) investor perceptions of us and the industries in which we operate.

In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. If any such litigation is instituted against us, it could materially adversely affect our business, results of operations and financial condition.

Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline.

Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. In addition, the sale of our ordinary shares by our officers and directors in the public market, or the perception that such sales may occur, could cause the market price of our ordinary shares to decline.

We may issue ordinary shares or other securities from time to time as consideration for, or to finance, future acquisitions and investments or for other capital needs. We cannot predict the size of future issuances of our

 

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shares or the effect, if any, that future sales and issuances of shares would have on the market price of our ordinary shares. If any such acquisition or investment is significant, the number of ordinary shares or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial and may result in additional dilution to our shareholders. We may also grant registration rights covering ordinary shares or other securities that we may issue in connection with any such acquisitions and investments.

Provisions of our organizational documents and applicable law may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their ordinary shares or to make changes in our board of directors.

Several provisions of our Amended and Restated Articles of Association and the laws of the Netherlands could make it difficult for our shareholders to change the composition of our board of directors, thereby preventing them from changing the composition of our management. In addition, the same provisions may discourage, delay or prevent a merger, consolidation or acquisition that shareholders may consider favorable. Provisions of our Amended and Restated Articles of Association impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. These anti-takeover provisions could substantially impede the ability of our shareholders to benefit from a change in control and, as a result, may materially adversely affect the market price of our ordinary shares and your ability to realize any potential change of control premium.

Our general meeting of shareholders has empowered our board of directors to issue shares and restrict or exclude preemptive rights on those shares for a period of five years. Accordingly, an issue of new shares may make it more difficult for a shareholder to obtain control over our general meeting of shareholders.

In addition, because certain of our products may have applications in the defense sector, we may be subject to rules and regulations in France and other jurisdictions that could impede or discourage a takeover or other change in control of Constellium or its subsidiaries. In particular, Constellium supplies aluminium alloy products, such as plates, sheets, profiles, tubes and castings, and related services and research and development (“R&D”) activities in connection with aerospace and defense programs in France. As a result, a controlling investment in Constellium or certain of its French subsidiaries, or the purchase of assets constituting a business that produces products or provides services with applications in the defense sector, by a company or individual that is considered to be foreign or non-resident in France may be subject to the French Monetary and Financial Code, which requires prior authorization of the French Ministry of Economy.

The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.

Our corporate affairs are governed by our Amended and Restated Articles of Association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. See “Item 16G. Corporate Governance—Dutch Corporate Governance Code.”

Although shareholders have the right to approve legal mergers or demergers, Dutch law does not grant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upon a domestic legal merger or demerger of a company. In addition, if a third party is liable to a Dutch company, under Dutch law shareholders generally do not have the right to bring an action on behalf of the company or to bring an action on their own behalf to recover damages sustained as a result of a decrease in value, or loss of an increase in

 

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value, of their stock. Only in the event that the cause of liability of such third party to the company also constitutes a tortious act directly against such shareholder and the damages sustained are permanent, may that shareholder have an individual right of action against such third party on its own behalf to recover damages. The Dutch Civil Code provides for the possibility to initiate such actions collectively. A foundation or an association whose objective, as stated in its articles of association, is to protect the rights of persons having similar interests, may institute a collective action. The collective action cannot result in an order for payment of monetary damages but may result in a declaratory judgment (verklaring voor recht), for example, declaring that a party has acted wrongfully or has breached a fiduciary duty. The foundation or association and the defendant are permitted to reach (often on the basis of such declaratory judgment) a settlement that provides for monetary compensation for damages. A designated Dutch court may declare the settlement agreement binding upon all the injured parties with an opt-out choice for an individual injured party. An individual injured party, within the period set by the court, may also individually institute a civil claim for damages if such injured party is not bound by a collective agreement.

The provisions of Dutch corporate law and our Amended and Restated Articles of Association have the effect of concentrating control over certain corporate decisions and transactions in the hands of our board of directors. As a result, holders of our shares may have more difficulty in protecting their interests in the face of actions by members of the board of directors than if we were incorporated in the United States.

United States civil liabilities may not be enforceable against us.

We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside the United States. In addition, certain directors, officers and experts named herein reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. federal securities laws.

There is no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-litigated before a Dutch court. However, under current practice, the courts of the Netherlands may be expected to render a judgment in accordance with the judgment of the relevant U.S. court, provided that such judgment (i) is a final judgment and has been rendered by a court which has established its jurisdiction on the basis of internationally accepted grounds of jurisdictions, (ii) has not been rendered in violation of elementary principles of fair trial, (iii) is not contrary to the public policy of the Netherlands, and (iv) is not incompatible with (a) a prior judgment of a Netherlands court rendered in a dispute between the same parties, or (b) a prior judgment of a foreign court rendered in a dispute between the same parties, concerning the same subject matter and based on the same cause of action, provided that such prior judgment is not capable of being recognized in the Netherlands. It is uncertain whether this practice extends to default judgments as well.

Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named herein in an original action predicated solely upon

 

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the U.S. federal securities laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts, respectively.

Our plan to convert the Company into a Societas Europaea and transfer our corporate seat from the Netherlands to France is subject to various risks and uncertainties, including shareholder approval, and may not be completed in accordance with the expected plans or at all.

We announced in July 2017 that we intend to move our corporate seat to France and close our Amsterdam office (the “Corporate Seat Transfer”). The Corporate Seat Transfer is intended to enable us to reorganize in a manner that would, among other things, reduce costs and simplify our corporate structure. See “Item 4. Information on the Company—B. Business Overview—Recent Developments—Plan to Transfer Corporate Seat to France.”

The Corporate Seat Transfer is subject to shareholder approval. Pursuant to governing law, two separate shareholder approvals are required for the conversion from its present form, a Dutch public company or Naamloze Vennootschap (“NV”), into a European public company (Societas Europaea or “SE”) and for the Corporate Seat Transfer. We are required to obtain shareholder approval for, first, the conversion into an SE and, second, the transfer of the corporate seat to France. If we do not obtain both of the required shareholder approvals we will not be able to consummate the Corporate Seat Transfer or realize the anticipated benefits.

We are continuing to evaluate the requirements for effectuating such conversion and transfer, and it is possible that adverse impacts of such requirements on our Company or failure to obtain required approvals could delay or prevent the completion of such plans or could cause us to materially modify or abandon such plans. If the Corporate Seat Transfer is not approved or successfully completed, we will continue to be governed by Dutch law.

Risks Related to Taxation

Increases or decreases in income tax rates, changes in income tax laws, additional income tax liabilities due to unfavorable resolution of tax audits and challenges to our tax position could have a material adverse impact on our financial results.

We operate in multiple tax jurisdictions and believe that we file our tax returns in compliance with the tax laws and regulations of these jurisdictions. Various factors determine our effective tax rate and/or the amount we are required to pay, including changes in or interpretations of tax laws and regulations in any given jurisdiction or global- and EU-based initiatives such as the Action Plan on Base Erosion and Profit Shifting (“BEPS”) of the Organization for Economic Co-operation and Development (the “OECD”) and the EU Anti-Tax Avoidance Directive (EU/2016/1164 as amended by EU/2017/952, the “ATAD”) which aim among other things to address tax avoidance by multinational companies, changes in geographical allocation of income and expense, our ability to use net operating loss and other tax attributes, and our evaluation of our deferred tax assets that requires significant judgment. The current incorporation into domestic tax law of the OECD principles related to BEPS included in the final reports released by the OECD as well as the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS signed in Paris on June 7, 2017 could increase administrative efforts within the Company and impact existing structures. Furthermore, the European Commission published a corporate reform package proposal on October 25, 2016 including three new proposals that aim at (i) re-launching the Common Consolidated Corporate Tax Base (“CCCTB”) which is a single set of rules to compute companies’ taxable profits in the EU, (ii) avoiding loopholes associated with profit-shifting for tax between EU countries and non-EU countries, and (iii) providing new dispute resolution rules to relieve problems with double taxation for businesses. Changes to our effective tax rate could materially adversely affect our financial position, liquidity, results of operations and cash flows.

 

 

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In addition, due to the size and nature of our business, we are subject to ongoing reviews by taxing authorities on various tax matters, including challenges to positions we assert on our income tax and withholding tax returns. We accrue income tax liabilities and tax contingencies based upon our best estimate of the taxes ultimately expected to be paid after considering our knowledge of all relevant facts and circumstances, existing tax laws and regulations, our experience with previous audits and settlements, the status of current tax examinations and how the tax authorities and courts view certain issues. Such amounts are included in income taxes payable, other non-current liabilities or deferred income tax liabilities, as appropriate, and updated over time as more information becomes available or on the basis of the lapse of the statute of limitation. We record additional tax expenses or reduce tax expenses in the period in which we determine that the recorded tax liability is less than or in excess of the ultimate assessment we expect. We are currently subject to audit and review in a number of jurisdictions in which we operate, and further audits may commence in the future.

The Company is incorporated under the laws of the Netherlands and on this basis is subject to Dutch tax laws as a Dutch resident taxpayer. In July 2017, we announced the Corporate Seat Transfer. In anticipation of the envisaged Corporate Seat Transfer, the Company has executed certain restructuring steps including amongst others the establishment of a French branch which is engaged in holding activities and is the head of our French tax consolidated group. We believe that, until completion of the Corporate Seat Transfer, because of the manner in which we conduct our business, the Company remains resident only in the Netherlands and has a French branch, which is subject to French taxes for the operations attributable to this branch.

If our tax position were successfully challenged by applicable tax authorities, or if there were changes in the tax laws, tax treaties, or the interpretation or application thereof (which could in certain circumstances have retroactive effect) or in the manner in which we conduct our business, this could materially adversely affect our financial position.

The impact of recent U.S. Tax reform is uncertain.

New U.S. federal tax legislation (commonly referred to as “The Tax Cuts and Jobs Act”) was enacted in December 2017. This legislation made significant changes to the U.S. Internal Revenue Code, many of which are highly complex and may require interpretations and implementing regulations. As a result, we may incur meaningful expenses (including professional fees) as the new legislation is implemented. The expected impact of certain aspects of the legislation is unclear and subject to change.

French tax legislation may restrict the deductibility, for French tax purposes, of all or a portion of the interest on our indebtedness incurred in France, thus reducing the cash flow available to service our indebtedness.

French tax provisions restricting the deductibility of interest by reference to the French tax group’ EBITDA

Under article 223 B bis of the French tax code (“FTC”) which implemented article 4 of the EU Anti-Tax Avoidance Directive EU/2016/1164 of 12 July 2016 (“ATAD Directive”), deduction of net financial expenses incurred by a French tax group is allowed up to a maximum amount which depends on whether the said French tax group is deemed thinly-capitalized or not.

A French tax group is deemed thinly-capitalized for a financial year when the average amount of the sums left or made available during such financial year to member companies of the French tax group by related companies that are not members of the French tax group (subject to certain adjustments) exceeds 1.5 times the total shareholders’ equity of the French tax group.

 

  a)

In the case where the French tax group is not deemed thinly-capitalized, deduction of the net financial expenses borne by the French tax group is allowed up to the greater of (i) €M 3.0 and (ii) 30% of the French tax group’s EBITDA (subject to certain safe-harbor rules).

 

 

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  b)

In the case where the French tax group is deemed thinly-capitalized (subject to certain safe-harbor rules) deduction of the net financial expenses borne by the French tax group is allowed up the sum of

 

  -

the amount of the net financial expenses borne by the French tax group multiplied by the ratio R of (x) the debt of the French tax group towards unrelated parties plus 1.5 times the total shareholders’ equity over (y) the total debt of the French tax group, up to the greater of (i) €M 3.0 and (ii) 30% of the French tax group’s EBITDA, multiplied by the ratio R; and

 

  -

the amount of the net financial expenses borne by the French tax group multiplied by 1 – ratio R, up to the greater of (i) €M1.0 and (ii) 10% of the French tax group’s EBITDA, multiplied by 1 – ratio R.

Disallowed interest and unused interest capacity can be carried forward, subject to certain limitations.

Similar interest deduction limitations apply to the French companies that are not part of a French tax group.

French tax provisions restricting the deductibility of interest paid to shareholders

Interest paid by companies that are subject to French corporate income to their shareholders are only tax deductible up to the rate referred to in Article 39-1-3 of the FTC (i.e. the annual average of the average effective floating rates on bank loans to companies with an initial maturity exceeding two years). By exception, Article 212 § I-a) of the FTC provides that interest incurred on loans granted by a related party is deductible up to the rate referred to in Article 39-1-3 of the FTC or, if higher, up to the rate that the borrowing company could have obtained from independent financial credit institutions in similar circumstances.

French tax provisions restricting the deductibility of interest paid to related parties

Under Article 212 § I-b) of the FTC, the French debtor must demonstrate, at the French tax authorities’ request, that the interest paid to a foreign related party is subject to the condition that the lender is subject to income tax on such interest, the amount of which is at least equal to 25% of the corporate income which would be due on such interest if the lender was established in France, determined under standard French tax rules.

On February 22, 2017, the Council of the European Union adopted the EU Directive EU/2017/952 of May 29, 2017, (“ATAD 2 Directive”), amending the ATAD Directive, which, inter alia, extends the scope of the ATAD Directive to hybrid mismatches involving third countries, which would be applicable as from January 1, 2020, except for certain of its provisions which would be applicable as from January 1, 2022.

The ATAD 2 Directive, once implemented under French domestic law, may limit our ability to deduct interest accrued on our indebtedness incurred in France and may thus increase our tax burden, which could adversely affect our business, financial condition and results of operations, and reduce the cash flow available to service our indebtedness.

Similarly, until the effective date of the Corporate Seat Transfer, the detailed Dutch rules limiting interest deductions and the ATAD and ATAD 2 Directives may limit our ability to deduct interest in the Netherlands and may thus decrease the amount of our Dutch tax losses and increase our tax burden.

Any of the above consequences may have an adverse effect on our results of operations.

 

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We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could subject U.S. investors in our ordinary shares to significant adverse U.S. federal income tax consequences.

A foreign corporation will be a passive foreign investment company for U.S. federal income tax purposes (a “PFIC”) in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable “look-through rules,” either (i) at least 75% of its gross income is “passive income,” or (ii) at least 50% of its assets produce or are held for the production of “passive income.” For this purpose, “passive income” generally includes dividends, interest, royalties and rents and certain other categories of income, subject to certain exceptions. We believe that we will not be a PFIC for the current taxable year and that we have not been a PFIC for prior taxable years and we expect that we will not become a PFIC in the foreseeable future, although there can be no assurance in this regard. The determination of whether we are a PFIC is a fact-intensive determination that includes ascertaining the fair market value (or, in certain circumstances, tax basis) of all of our assets on a quarterly basis and the character of each item of income we earn. This determination is made annually and cannot be completed until the close of a taxable year. It depends upon the portion of our assets (including goodwill) and income characterized as passive under the PFIC rules. Accordingly, it is possible that we may become a PFIC due to changes in our income or asset composition or a decline in the market value of our equity. Because PFIC status is a fact-intensive determination, no assurance can be given that we are not, have not been, or will not become, classified as a PFIC.

If we were to be classified as a PFIC in any taxable year, U.S. Holders (as defined in “Item 10. Additional Information—E. Material U.S. Federal Income Tax Consequences”) generally would be subject to special tax rules that could result in materially adverse U.S. federal income tax consequences. Further, investors should assume that a “qualified electing fund” election, which, if made, could serve as an alternative to the general PFIC rules and could reduce any adverse consequences to U.S. Holders if we were to be classified as a PFIC, will not be available because we do not intend to provide U.S. Holders with the information needed to make such an election. A mark-to-market election may be available, however, if our ordinary shares are regularly traded. For more information, see “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Consequences” and consult your tax advisor concerning the U.S. federal income tax consequences of acquiring, owning or disposing of our ordinary shares if we are or become classified as a PFIC.

Transactions in our ordinary shares could be subject to the European financial transaction tax, if adopted.

On February 14, 2013, the European Commission adopted a proposal for a directive on a common financial transaction tax (the “FTT”) to be implemented under the enhanced cooperation procedure by several Member States (Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain (the “Participating Member States”) and Estonia. However, Estonia has since stated that it will not participate.

The proposed FTT has a very broad scope and could, if introduced in its current form, apply to certain dealings in our ordinary shares (including secondary market transactions) in certain circumstances. The mechanism by which the tax would be applied and collected is not yet known, but if the proposed directive or any similar tax is adopted, transactions in our ordinary shares would be subject to higher costs, and the liquidity of the market for our ordinary shares may be diminished.

Under the 2013 proposals, the FTT could apply in certain circumstances to persons both within and outside of the Participating Member States. Generally, it would apply to certain dealings in our ordinary shares where at least one party is a financial institution, and at least one party is established in a Participating Member State. A financial institution may be, or be deemed to be, “established” in a Participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a Participating Member State, or (b) where the financial instrument which is subject to the dealings is issued in a Participating Member State.

However, the FTT proposal remains subject to negotiation between the Participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member

 

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States such as for example the Netherlands may decide to participate and/or certain of the Participating Member States may decide to withdraw. Prospective holders of our ordinary shares are advised to seek their own professional advice in relation to the consequences of the FTT.

Item 4. Information on the Company

 

A.

History and Development of the Company

Constellium Holdco B.V. (formerly known as Omega Holdco B.V.) was incorporated as a Dutch private limited liability company on May 14, 2010 (incorporated and governed under the Dutch Civil Code). Constellium Holdco B.V. was formed to serve as the holding company for various entities comprising the EAP Business, which Constellium acquired from affiliates of Rio Tinto on January 4, 2011 (the “Acquisition”). On May 21, 2013, Constellium Holdco B.V. was converted into a Dutch public limited liability company and renamed Constellium N.V. Any references to Dutch law and the Amended and Restated Articles of Association are references to Dutch law and the articles of association of the Company, respectively, following the conversion. On May 29, 2013, we completed our initial public offering. The articles of association of the Company were last amended and restated on August 18, 2015.

For information on our historical capital expenditures, see “Item 5. Operating and Financial Review and Prospects—Cash Flows—Historical Capital Expenditures.” For information on our capital expenditures currently in process, see “—B. Business Overview—Our Operating Segments.” We expect to finance our capital expenditures currently in process with a combination of internal and external financing sources.

The business address (head office) of Constellium N.V. is Tupolevlaan 41-61, 1119 NW Schiphol-Rijk, the Netherlands, and our telephone number is +31 20 654 97 80. The address for our agent for service of process in the United States is Corporation Service Company, 80 State Street, Albany, New York 12207-2543, and its telephone number is (518) 433-4740.

 

B.

Business Overview

The Company

Overview

We are a global leader in the design and manufacture of a broad range of innovative rolled and extruded aluminium products, serving primarily the packaging, aerospace and automotive end-markets. Our business model is to add value by converting aluminium into semi-fabricated and in some instances fabricated products. We supply numerous blue-chip customers with many value-added products for performance-critical applications. Our product portfolio generally commands higher margins as compared to less differentiated, more commoditized fabricated aluminium products, such as common alloy coils, paintstock, foilstock and soft alloys for construction and distribution.

As of December 31, 2018, we operated 26 production facilities, including a joint venture with our partner, UACJ (Note: in January 2019 we acquired our partner’s share in this entity, see Recent Developments), we had three administrative centers in Baltimore, Paris and Zürich, and had three R&D centers. Additionally, we are building new facilities in Spain, China and Slovakia to serve our automotive structures customers. We believe our portfolio of flexible, integrated and strategically located facilities is among the most technologically advanced in the industry and that the significant growth investments we have made now position us well to capture expected demand growth in each of our end markets. It is our view that our established presence in North America, Europe and China combined with more than 50 years of manufacturing experience, quality and innovation, strategically position us to be a leading supplier to our global customer base. The Company had approximately 13,000 employees as of December 31, 2018.

 

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We seek to sell to end-markets that have attractive characteristics for aluminium, including (i) stability through economic cycles as seen in our North American and European packaging businesses, (ii) rigorous and complex technical requirements as seen in global aerospace and automotive businesses, and (iii) favorable growth fundamentals supported by the vehicle lightweighting trend seen in global automotive business, and the growth in electric vehicles.

We have invested capital in a number of attractive growth opportunities including: (i) Auto Body Sheet capabilities in Muscle Shoals, Alabama, in our joint venture in Bowling Green, Kentucky, in Neuf-Brisach, France, and in Singen, Germany (ii) a pusher furnace in Ravenswood, West Virginia, (iii) Automotive Structures operations in Van Buren, Michigan, White, Georgia and San Luis Potosí, Mexico, two production lines for battery enclosures for electric vehicles in Gottmadingen, Germany, advanced body structure capabilities in Dahenfeld, Germany, new cast houses and additional extrusion capability in Děčín, Czech Republic and a number of growth initiatives through R&D and debottlenecking efforts.

Our unique platform has enabled us to develop a stable and diversified customer base and to enjoy long-standing relationships with our largest customers. Our customer base includes market leading firms in packaging, aerospace, and automotive, such as AB InBev, Ball Corporation, Crown Holdings, Inc., Airbus, Boeing, and several premium automotive OEMs, including BMW AG, Daimler AG and Ford Motor Company. We believe that we are a critical supplier to many of our customers due to our technological and R&D capabilities as well as the long and complex qualification process required for many of our products. Our core products require close collaboration and, in many instances, joint development with our customers. We believe that this integrated collaboration with our customers for high value-added products reduces substitution risk, supports our competitive position and creates high barriers to entry.

For the years ended December 31, 2018, 2017 and 2016, the Company’s main key figures were as follows:

 

     For the years ended December 31,  
     2018      2017      2016  

Shipments (kT)

     1,534        1,482        1,470  

Revenue (in € millions)

     5,686        5,237        4,743  

Net income/(loss) (in € millions)

     190        (31      (4

Adjusted EBITDA (in € millions)

     498        448        398  

Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Item 5. Operating and Financial Review and Prospects—Segment Results.”

Our objective is to expand our leading position as a supplier-of-choice of high value-added, technologically advanced products where we believe we have a competitive advantage through the following business strategies:

 

  (i)

High Value-added Product Focus

We are focused on our three strategic end-markets—packaging, aerospace and automotive—in which we have market leading positions and established relationships with many of the main manufacturers. These are also markets where we believe that we can differentiate ourselves through our high value-added and specialty products which make up the majority of our product portfolio. We have made substantial investments to develop unique R&D and technological capabilities, which we believe give us a competitive advantage in designs and innovations. We believe our differentiated products provide significant benefits to our customers in many areas such as weight reduction, higher strength and better formability. In addition, these products typically command higher margins than more commoditized products, and are supplied to end-markets that we believe have highly attractive characteristics and long-term growth trends. We intend to continue to invest in our R&D and technological capabilities and develop high value-added product portfolio.

 

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  (ii)

Customer Connectivity

We aim to deepen our ties with our customers by consistently providing best-in-class quality products, joint product development projects, market leading supply chain integration, customer technical support and scrap and recycling solutions. We regard our relationships with our customers as partnerships in which we work closely together to utilize our unique R&D and technological capabilities to develop customized solutions in order to meet evolving customer requirements. The close collaboration to develop best-in-class and tailored solutions, as well as significant effort and investment to adhere to rigorous qualification procedures, enable us to foster long-term relationships with our customers. In addition, through supply chain integration we are able to better anticipate customer demands, optimize supply and more efficiently manage our working capital needs. We also seek to strengthen customer connectivity through customer technical support and the closed-loop scrap management program. We will aim to continue to further foster and enhance the relations with our customers and position our company as a preferred supplier to our customers.

 

  (iii)

Optimize Margins and Asset Utilization Through Product Portfolio Management

We believe there are significant opportunities to enhance our profitability through rigorous focus on the products we choose to make and optimizing the throughput of these products in our facilities. For example, given our manufacturing configurations, there are certain products that our facilities are better equipped to manufacture. As a consequence, we can manufacture them more efficiently and at a lower cost. In addition, we are highly focused on maximizing the throughput of our facilities to increase the tons per machine hour and profitability per machine hour. We strive to achieve this through our investments in asset integrity, and through continuous improvements in our operations such as debottlenecking and optimizing equipment uptime, recovery and mill speed.

 

  (iv)

Harvesting Returns from Recent Investments

We have invested capital in a number of attractive growth opportunities. While these investments have attractive return and growth profiles, many of them are still in the ramp-up phase and are not yet making a significant contribution to our earnings. We believe the investments we have made now leave us well positioned to capture expected growth in our end markets and to contribute to future earnings.

 

  (v)

Strict Cost Control and Continuous Improvement

We believe that there are significant opportunities to improve the services and quality that we provide to our customers and to reduce our operating costs by implementing manufacturing excellence initiatives and other cost reduction initiatives such as our cost reduction initiative, Project 2019. We aim to establish best-in-class operations and achieve cost reductions by standardizing manufacturing processes and the associated upstream and downstream production elements where possible, while still allowing the flexibility to respond to local market demands.

 

  (vi)

Increased Financial Flexibility

We are focused on increasing our financial flexibility through earnings growth, strict cost control and working capital management, which we believe will collectively drive free cash flow generation and deleveraging. We believe having increased financial flexibility is a key pillar in achieving our long-term objective as a supplier-of-choice of high value-added, specialized and technologically-advanced products.

 

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Recent Developments

Plan to Transfer Corporate Seat to France

In line with our initiatives to reduce costs and simplify our corporate structure, we announced the Corporate Seat Transfer in July 2017. In order to effectuate this change, the Company intends to convert its corporate form from an NV to an SE through an amendment to its articles of association, and to take other steps under Dutch and French law to transfer its corporate seat to France. We expect the Corporate Seat Transfer, if completed, will enable us to make our corporate cost structure more efficient and to benefit from more advantageous tax treatment. The actions required to implement the Corporate Seat Transfer are subject to shareholder approval and, if approved, we currently expect the Corporate Seat Transfer should be completed in 2019.

The Corporate Seat Transfer may affect the rights of our shareholders. See “Item 3. Key Information—D. Risk Factors.”

Acquisition of UACJ’s Interest in Bowling Green

On January 10, 2019, pursuant to a purchase agreement with UACJ and its U.S. subsidiary, Tri-Arrows Aluminum Holding Inc. (“TAAH”), we acquired TAAH’s 49% stake in Constellium-UACJ ABS, LLC (“CUA”), for $100 million plus the assumption of 49% of approximately $80 million of third party debt at CUA. In connection with the agreement with UACJ and TAAH, we and TAAH agreed to certain transitional commercial arrangements connected to the continuing operations and the business, including an agreement for a multiyear supply of cold coils.

Amendment of U.S. ABL Facility

On February 20, 2019, we amended the Pan-U.S. ABL Facility to, among other things, (i) join Constellium Bowling Green LLC as an additional borrower and Constellium Property and Equipment Company LLC as an additional guarantor, (ii) increase the maximum commitments thereunder to $350 million, and (iii) make certain changes to the covenants, terms, and conditions thereof.

Our Operating Segments

Our business is organized into three operating segments:

(i) Packaging & Automotive Rolled Products includes the production of rolled aluminium products in our European and North American facilities. We supply the packaging market with canstock and closure stock for the beverage and food industry, as well as foil stock for the flexible packaging market. In addition, we supply the automotive market with a number of technically sophisticated applications such as ABS and heat exchanger materials.

(ii) Aerospace & Transportation includes the production of rolled aluminium products (and very limited volumes of extruded products) for the aerospace market, as well as rolled products for transport, industry and defense end-uses in our European and North American facilities.

(iii) Automotive Structures & Industry includes the production of extruded products and technologically advanced structures for the automotive industry including crash-management systems, body structures, side impact beams and battery enclosures in our European, North American and Chinese facilities. In addition, we fabricate hard and soft aluminium alloy extruded profiles in a number of our other European facilities for a range of high demand industry applications in the automotive, engineering, building and construction and other transportation end markets.

 

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Table: Overview of Operating Segments (as of December 31, 2018)

 

   

Packaging & Automotive
Rolled Products

 

Aerospace &
Transportation

 

Automotive Structures &
Industry

Manufacturing Facilities1  

4

(France, Germany, United States)

 

6

(France, United States, Switzerland)

 

16

(France, Germany, Switzerland, Czech Republic, Slovakia, U.S., Canada, Mexico, China)

Employees (as of December 31, 2018)

 

•  3,750

 

•  4,007

 

•  4,559

Key Products  

•  Can Stock

 

•  Can End Stock

 

•  Closure Stock

 

•  Auto Body Sheet

 

•  Rolled Products for Heat Exchangers

 

•  Specialty reflective sheet (Bright)

 

•  Aerospace plates, sheets and extrusions

 

•  Aerospace wing skins

 

•  Plate and sheet for transportation, industry and defense applications

 

•  Automotive structures

 

•  Other extruded products including:

 

•  Soft alloys

 

•  Hard alloys

 

•  Large profiles

Key Customers  

•  Packaging: AB InBev, Ball Corporation, Can-Pack, Crown, Amcor, Ardagh Group, Coca-Cola

 

•  Automotive:
Daimler AG, Audi, Volkswagen, Valeo, PSA Group, BMW AG

 

•  Aerospace: Airbus, Boeing, Bombardier, Dassault, Embraer

 

•  Transportation, Industry, Defense and Distribution: Ryerson, ThyssenKrupp, Amari

 

•  Automotive: Audi, BMW AG, Daimler AG, Porsche, Ford, PSA Group, FCA Group

 

•  Rail: Stadler, CAF

Select Key Facilities  

•  Neuf-Brisach (France)

 

•  Singen (Germany)

 

•  Muscle Shoals (Alabama, USA)

 

•  Bowling Green (Kentucky, USA)2

 

•  Issoire (France)

 

•  Ravenswood (West Virginia, USA)

 

•  Sierre (Switzerland)

 

•  Gottmadingen (Germany)

 

•  Van Buren (Michigan, USA)

 

•  Děčín (Czech Republic)

 

•  Singen (Germany)

% of total Revenue3

(for the twelve months ended December 31, 2018)

  54%   23%   23%

% of Adjusted EBITDA4

(for the twelve months ended December 31, 2018)

  49%   31%   25%

 

1 

Our 26 manufacturing facilities are located in 24 sites, two of which are shared between two operating segments.

2 

Joint venture with UACJ, 51% is owned by Constellium and accounted for under the equity method. On January 10, 2019, Constellium acquired the remaining 49% of the equity in the joint venture.

3 

Holdings & Corporate not included.

4 

The difference between the sum of Adjusted EBITDA for our three segments and the Company’s Adjusted EBITDA is attributable to our fourth segment Holdings and Corporate which is not presented here.

 

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The following table presents our shipments by product lines:

 

(in metric tons)    For the year ended
December 31,
 
   2018      2017      2016  

Packaging rolled products

     799        807        856  

Automotive rolled products

     196        158        113  

Specialty and other thin-rolled products

     44        43        44  

Aerospace rolled products

     111        106        118  

Transportation, industry, and other rolled products

     135        132        125  

Automotive extruded products

     114        109        99  

Other extruded products

     135        127        118  

Other

     —          —          (3
  

 

 

    

 

 

    

 

 

 

Total shipments

     1,534        1,482        1,470  
  

 

 

    

 

 

    

 

 

 

Packaging & Automotive Rolled Products Operating Segment

In our Packaging & Automotive Rolled Products operating segment, we develop and produce customized aluminium sheet and coil solutions. For the year ended December 31, 2018:

 

   

approximately 77% of operating segment volume was in packaging rolled products, which primarily includes beverage and food canstock as well as closure stock and foil stock,

 

   

approximately 19% of operating segment volume was in automotive rolled products,

 

   

and approximately 4% of operating segment volume for that period was in specialty and other thin-rolled products, which include technologically advanced products for the industrial sector.

We are a leading European and North American supplier of canstock and the leading worldwide supplier of closure stock. We are also a major European player in automotive rolled products for ABS (e.g., closure panels of a car), and for heat exchangers. These products are subject to the exacting requirements and qualification processes of our customers which we consider to provide us with a competitive advantage and to represent a barrier to entry for new competitors. We have a diverse customer base, consisting of many of the world’s largest beverage and food can manufacturers, specialty packaging producers, leading automotive firms and global industrial companies. Our customer base includes AB InBev, Ball Corporation, Crown Holdings, Inc., Ardagh Group S.A., Can-Pack S.A., Coca-Cola, Amcor Ltd., VW Group, Daimler AG, Ford, and PSA Group. Our customer contracts in packaging usually have a duration of three to five years. Our customer contracts in automotive are usually valid for the lifetime of a model, which is typically five to seven years.

We have two integrated rolling operations located in Europe and one in the U.S. Neuf-Brisach, our facility on the border of France and Germany, is a fully integrated aluminium recycling, rolling and finishing facility producing both canstock and ABS. Singen, located in Germany, is specialized in high-margin niche applications and has an integrated hot/cold rolling line and high-grade cold mills with special surfaces capabilities that facilitate unique metallurgy and lower production costs. Muscle Shoals, Alabama, is a highly focused facility mostly dedicated to canstock rolling and UBC recycling, and ramping up its ABS cold coils capacity as a result of our automotive readiness investment program. In addition, at December 31st, 2018, we owned 51% of Constellium-UACJ ABS LLC, which operates a finishing line for ABS in Bowling Green, Kentucky (see Recent Developments).

Our Packaging & Automotive Rolled Products operating segment serves the packaging market which has historically been relatively resilient during periods of economic downturn and has had relatively limited exposure to economic cycles and periods of financial instability. See “—Our Key End-Markets—Rigid Packaging.”

 

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The following table summarizes our volume, revenue and Adjusted EBITDA for our Packaging & Automotive Rolled Products operating segment for the periods presented:

 

     For the year ended December 31,  
(€ in millions, unless otherwise noted)    2018     2017     2016  

Packaging & Automotive Rolled Products:

      

Segment Revenue

     3,059       2,812       2,498  

Segment Shipments (kt)

     1,039       1,008       1,013  

Segment Revenue (€/ton)

     2,944       2,789       2,466  

Segment Adjusted EBITDA(1)

     243       204       204  

Segment Adjusted EBITDA(€/ton)

     234       202       201  

Segment Adjusted EBITDA margin

     8     7     8

 

(1)

Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Item 5. Operating and Financial Review and Prospects—Segment Results.”

Aerospace & Transportation Operating Segment

Our Aerospace & Transportation operating segment has market leadership positions in technologically advanced aluminium and specialty material products with wide applications across the global aerospace, defense, transportation, and industrial sectors. We offer a wide range of products including plate, sheet, extrusions and a few precision cast products which allows us to offer tailored solutions to our customers. We seek to differentiate our products and act as a key partner to our customers through our broad product range, supply-chain solutions, advanced R&D capabilities, extensive recycling capabilities and portfolio of plants with an extensive range of capabilities across Europe and North America. In order to reinforce the competitiveness of our metal solutions, we design our processes and alloys with a view to optimizing our customers’ operations and costs. This includes offering services such as customizing alloys to our customers’ processing requirements, processing short lead time orders and providing vendor managed inventories or tolling arrangements.

Our most significant facilities in the Aerospace & Transportation Operating Segment (Ravenswood (West Virginia), Issoire (France) and Sierre (Switzerland)) offer a broad spectrum of plate required by the aerospace industries (alloys, temper, dimensions, pre-machined) and have strong capabilities such as producing some wide and very high gauge plates required for some civil and commercial aerospace programs.

Downstream aluminium products for the aerospace market require relatively high levels of R&D investment and advanced technological capabilities, and therefore tend to command higher margins compared to more commoditized products. We work in close collaboration with our customers to develop highly engineered solutions to fulfill their specific requirements. For example, we developed Airware®, a lightweight specialty aluminium-lithium alloy, for our aerospace customers to address increasing demand for lighter and more environmentally friendly aircraft.

Aerospace products are typically subject to long development and supply lead times and the majority of our contracts with our largest aerospace customers have a term of five years or longer, which provides visibility on volumes and profitability. In addition, we expect demand for our aerospace products to directly correlate with aircraft backlogs and build rates. As of December 2018, the backlog reported by Airbus and Boeing for commercial aircraft reached 13,450 units on a combined basis, representing approximately eight to nine years of production at current build rates.

Additionally, aerospace products are generally subject to long qualification periods. Aerospace production sites are regularly audited by external certification organizations including the National Aerospace and Defense Contractors Accreditation Program (“NADCAP”) and/or the International Organization for Standardization. NADCAP is a cooperative organization of numerous aerospace OEMs that defines industry-wide manufacturing

 

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standards. NADCAP appoints private auditors who grant suppliers like Constellium a NADCAP certification, which customers tend to require. New products or alloys are certified by the OEM that uses the product. Our sites have been qualified by external certification organizations and our products have been qualified by our customers. We are typically able to obtain qualification within 6 months to one year mainly because: (i) due to our long history of working with the main aircraft OEMs, we have an existing range of qualifications including in excess of 100 specifications regarding alloy, temper or shape, which we can build on to obtain new product qualifications; and (ii) we have invested in a number of capital intensive equipment and R&D programs to be able to qualify to the current industry norms and standards.

We also serve the transportation and defense industries. Our product portfolio in these segments include both standard products as well as specialty products. Standard products typically face higher levels of competition in the marketplace, in the regions that we serve. Specialty products command higher margins and are exposed to less competition. Specialty products are differentiated products, which are engineered to meet specific customer needs and as such have specific properties (e.g., mechanical properties, dimensions, surface aspect, etc.).

The following table summarizes our volume, revenue and Adjusted EBITDA for our Aerospace & Transportation operating segment for the periods presented:

 

     For the year ended December 31,  
(€ in millions, unless otherwise noted)      2018         2017         2016    

Aerospace & Transportation:

      

Segment Revenue

     1,389       1,335       1,302  

Segment Shipments (kt)

     246       238       243  

Segment Revenue (€/ton)

     5,646       5,618       5,360  

Segment Adjusted EBITDA(1)

     152       146       118  

Segment Adjusted EBITDA(€/ton)

     619       614       487  

Segment Adjusted EBITDA margin

     11     11     9

 

(1)

Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Item 5. Operating and Financial Review and Prospects—Segment Results.”

Automotive Structures & Industry Operating Segment

Our Automotive Structures & Industry operating segment produces (i) technologically advanced structures for the automotive industry including crash management systems (“CMS”), body structures, side impact beams and battery enclosures and (ii) soft and hard alloy extrusions for automotive, road, energy and building and large profiles for rail and industrial applications. We complement our products with a comprehensive offering of downstream technology and services, which include pre-machining, surface treatment, R&D and technical support services. Approximately 46% of the segment volume for the year ended December 31, 2018 was in automotive extruded products and approximately 54% was in other extruded product applications.

We believe that we are one of the largest providers of aluminium automotive crash management systems globally. We manufacture automotive structural products for some of the largest European and North American car manufacturers supplying the global market, including Daimler AG, BMW AG, VW Group, FCA Group and Ford. We are also a leading supplier of hard alloys for the automotive market and of large structural profiles for rail, industrial and other transportation markets in Europe. We also have a strong presence in soft alloys in France and Germany, with customized solutions for a diverse number of end markets.

Sixteen of our facilities, located in Germany, North America, the Czech Republic, Slovakia, France, Switzerland, China, and Mexico manufacture products sold in our Automotive Structures & Industry operating segment. We believe our local presence, downstream services and industry leading cycle times help to ensure

 

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that we respond to our customer demands in a timely and consistent fashion. Our two integrated remelt and casting centers in Switzerland and the Czech Republic utilize significant amounts of recycled aluminium and help provide security of metal supply. We also operate the largest extrusion press in Western Europe at our Singen facility, which allows us to produce specialized large profile products for our rail and transportation customers. In addition, we operate a strategic network of 5 soft alloys facilities with strong technical capabilities, across Europe to better serve primarily our automotive and industrial customers as well as customers in other diversified market segments.

We operate a joint venture, Astrex Inc., which produces automotive extruded profiles in Ontario, Canada, for our North American operations, and a joint venture, Engley Automotive Structures Co., Ltd., which is currently producing aluminium crash-management systems in China.

We believe that we have strong market positions given our R&D and manufacturing capability in Automotive Structures. Led by our partnership with Brunel University, London we have proprietary alloy and manufacturing technology which enables us to deliver differentiated design, engineering and manufacturing capabilities to our customers, and to accelerate time to market.

The following table summarizes our volume, revenue and Adjusted EBITDA for our Automotive Structures & Industry operating segment for the periods presented:

 

     For the year ended December 31,  
(€ in millions, unless otherwise noted)    2018     2017     2016  

Automotive Structures & Industry:

      

Segment Revenue

     1,290       1,123       1,002  

Segment Shipments (kt)

     249       236       217  

Segment Revenue (€/ton)

     5,181       4,756       4,608  

Segment Adjusted EBITDA(1)

     125       120       104  

Segment Adjusted EBITDA(€/ton)

     502       510       480  

Segment Adjusted EBITDA margin

     10     11     10

 

(1)

Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Item 5. Operating and Financial Review and Prospects—Segment Results.”

Our Industry

Aluminium Sector Value Chain

The global aluminium industry consists of (i) mining companies that produce bauxite, the ore from which aluminium is ultimately derived, (ii) primary aluminium producers that refine bauxite into alumina and smelt alumina into aluminium, (iii) aluminium semi-fabricated products manufacturers, including aluminium casters, extruders and rollers, (iv) aluminium recyclers and remelters and (v) integrated companies that are present across multiple stages of the aluminium production chain.

Our business is primarily focused on rolling and extruding semi-fabricated products for a variety of value added end markets. We do not smelt aluminium, nor do we participate in other upstream activities such as mining or refining bauxite. We recycle aluminium, both for our own use and as a service to our customers.

 

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Constellium’s Position in the Aluminium Sector Value Chain

Aluminium value chain

 

LOGO

Rolled and extruded aluminium product prices are based generally on the price of aluminium (which is quoted on LME) plus a conversion margin (i.e., the cost incurred to convert the aluminium into a semi-finished product). The price of aluminium is not a significant driver of our financial performance, in contrast to the more direct relationship the price of aluminium has on the financial performance of primary aluminium producers. Instead, the financial performance of producers of rolled and extruded aluminium products, such as Constellium, is driven by the dynamics in the end markets that they serve, their relative positioning in those markets and the efficiency of their industrial operations.

There are two main sources of input metal for our aluminium rolled or extruded products:

 

   

Slabs or billets we cast from a combination of primary and recycled aluminium. The primary aluminium is typically in form of standard ingots. The recycled aluminium comes either from scrap from fabrication processes, known as recycled process material, or from recycled end products in their end of life phase, such as used beverage cans.

 

   

Slabs or billets purchased from smelters or metal trading companies.

Primary aluminium, sheet ingot and extrusion billets can generally be purchased at prices set on the LME plus a premium that varies by geographic region on delivery, alloying material, form (ingot or molten metal) and purity.

Recycled aluminium is also tied to the LME pricing (typically sold at discounts of up to 25%). Aluminium is infinitely recyclable and recycling aluminium requires only approximately 5% of the energy required to produce primary aluminium. As a result, in regions where aluminium is widely used, manufacturers and customers are active in setting up collection processes in which used beverage cans and other end-of-life aluminium products are collected for remelting at purpose-built plants. Manufacturers may also enter into agreements with customers who return recycled process material and pay to have it re-melted and rolled into the same product again.

 

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Aluminium Rolled Products Overview

The rolling process consists of passing aluminium through a hot-rolling mill and then transferring it to a cold-rolling mill, which can gradually reduce the thickness of the metal down to approximately 6 mm for plates and to approximately 0.2-6 mm for sheet.

Aluminium rolled products, including sheet, plate and foil, are semi-finished products that provide the raw material for the manufacture of finished goods ranging from packaging to automotive body panels to fuselage sheet to aircraft wing parts. The packaging industry is a major consumer of the majority of sheet and foil for making beverage cans, foil containers and foil wrapping. Sheet is also used extensively in transport for airframes, road and rail vehicles, in marine applications, including offshore platforms, and superstructures and hulls of boats and in building for roofing and siding. Plate is used for airframes, military vehicles and bridges, ships and other large vessels and as tooling plate for the production of plastic products. Foil applications outside packaging include electrical equipment, insulation for buildings and foil for heat exchangers.

The following chart illustrates expected global demand for aluminium rolled products according to CRU International Limited. The average expected growth between 2018 and 2023 for the flat rolled products market is 3.8% according to CRU.

Projected Aluminium Flat Rolled Products Demand 2018-2023 (in kt)

Flat rolled

 

LOGO

Source: Republished under license from CRU International Ltd.

Asia Pacific includes Japan, China, India, South Korea, Australia, Middle East and other Asia. Other includes Central and South America, and Africa

The aluminium rolled products industry is characterized by economies of scale, as significant capital investments are required to achieve and maintain technological capabilities and demanding customer qualification standards. The service and efficiency demands of large customers have encouraged consolidation among suppliers of aluminium rolled products.

The supply of aluminium rolled products has historically been affected by production capacity, alternative technology substitution and trade flows between regions. The demand for aluminium rolled products has historically been affected by economic growth, substitution trends, down-gauging, cyclicality and seasonality.

Aluminium Extrusions and Automotive Structures Overview

Aluminium extrusion is a technique used to transform aluminium billets into objects with a defined cross-sectional profile for a wide range of uses. In the extrusion process, heated aluminium is forced through a die.

 

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Extrusions can be manufactured in many sizes and in almost any shape for which a die can be created. The extrusion process makes the most of aluminium’s unique combination of physical characteristics. Its malleability allows it to be easily machined and cast, and yet aluminium is one-third the density and stiffness of steel so the resulting products offer strength and stability, particularly when alloyed with other metals.

Extruded profiles can be produced in solid or hollow form, while additional complexities can be applied using advanced die designs. After the extrusion process, a variety of options are available to adjust the color, texture and brightness of the aluminium’s finish. This may include aluminium anodizing or painting.

Today, aluminium extrusions are used for a wide range of purposes, including building, transportation and industrial markets. Virtually every type of vehicle contains aluminium extrusions, including cars, boats, bicycles and trains. Home appliances and tools take advantage of aluminium’s excellent strength-to-weight ratio. The increased focus on green building is also leading contractors and architects to use more extruded aluminium products, as aluminium extrusions are flexible and corrosion-resistant. These diverse applications are possible due to the advantageous attributes of aluminium, including its particular blend of strength and ductility its conductivity, its non-magnetic properties and its ability to be recycled repeatedly without loss of integrity. We believe that all of these capabilities make aluminium extrusions a viable and adaptable solution for a growing number of manufacturing needs.

CRU forecasts the consumption of aluminium extruded products will grow on an annual basis for the tenth consecutive year in 2019, at approximately 1.7%. Demand will once again be driven by the two main end use markets of transportation and construction. CRU expects 33% of the demand will come from transportation, 28% will come from construction, and the remainder will be accounted for by the electrical and consumer durable markets.

One segment that increasingly relies on aluminium extrusions is the automotive structures segment. In an automotive structure, a series of aluminium extrusions are consolidated into a system for specific automotive applications. Due to the unique combination of strength and weight, aluminium extrusions are increasingly favored in this segment.

Our Key End-markets

We have a significant presence in (i) the can sheet and packaging end-markets, which have proved to be relatively stable and historically recession-resilient, (ii) the automotive and the aerospace end-markets, which are driven by global demand trends, and (iii) a number of niche specialty end markets including transportation (trucks, rail, space), industry, defense and bright products which diversify our exposure to economic trends.

Rigid Packaging

Aluminium beverage cans represented approximately 16% of the total European aluminium flat rolled demand by volume and 33% of total U.S. and Canada aluminium flat rolled demand in 2018. According to CRU, aluminium demand for the canstock market in Europe and North America is expected to grow by 2.4% and 0.2% per year between 2018 and 2023, respectively.

Aluminium is a preferred material for beverage packaging as it allows drinks to chill faster, can be stacked for transportation and storage more densely than competing formats (such as glass bottles), is highly formable for unique or differentiated branding, and offers the environmental advantage of easy, cost- and energy-efficient recycling. As a result of these benefits, aluminium is displacing glass as the preferred packaging material in certain markets, such as beer. In Europe, aluminium is replacing steel as the standard for beverage cans. Between 2002 and 2016, we believe that aluminium’s penetration of the European canstock market versus tinplate increased from 58% to 85%. In the United States, we believe aluminium’s penetration has been at 100% for many years. In addition, we are benefiting from increased consumption in Eastern Europe and Mexico and growth in high margin products such as the specialty cans used for energy drinks.

 

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Total European Rolled Products Consumption

Can Stock (Kt)

  

Total North American Rolled Products

Consumption Can Stock (Kt)

 

LOGO

  

 

LOGO

Source: Republished under license from CRU International Ltd., Aluminium Rolled Products Market Outlook November 2018    Source: Republished under license from CRU International Ltd., Aluminium Products Market Outlook November 2018

In addition, demand for can sheet has been highly resilient across economic cycles. Between 2007 and 2009, during the economic crisis, European Can Body Stock volumes decreased by less than 9% as compared to a 24% decline for total European flat rolled products volumes.

U.S. and Europe Metal Beverage

Can Consumption

 

LOGO

Source: Republished under license from Global Data

Automotive

We supply the automotive sector with rolled products out of our Packaging & Automotive Rolled Products operating segment and extruded and fabricated products out of our Automotive Structures & Industry operating segment.

In our view, the main drivers of automotive sales are overall economic growth, credit availability, consumer prices and consumer confidence. According to CRU, global vehicle production is expected to grow by approximately 2.4% per annum from 2018 to 2023.

 

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Vehicle Production

 

 

LOGO

Source: Republished under license from CRU International Ltd.

Industrial & Economic Outlook December 2018

Note: Represents both car and commercial vehicle production, including

light trucks, heavy trucks and, except in the U.S. and Canada, coaches

Within the automotive sector, the demand for aluminium has been increasing faster than the underlying demand for light vehicles due to recent growth in the use of aluminium products in automotive applications. We believe the main reasons for this are aluminium’s high strength-to-weight ratio in comparison to steel and a need for increased energy efficiency. This lightweighting facilitates better fuel economy and improved emissions performance. As a result, manufacturers are seeking additional applications where aluminium can be used in place of steel and an increased number of cars are being manufactured with aluminium panels and CMS.

We believe that the vehicle lightweighting trend will continue as increasingly stringent EU and U.S. regulations relating to reductions in carbon emissions, will force the automotive industry to increase its use of aluminium to “lightweight” vehicles. In Europe, European Union legislation has set mandatory emission reduction targets for new cars such that by 2021, the fleet average to be achieved by all new cars is 95 grams of CO2 emissions per kilometer compared to an average target of 130g/km in 2015. In the United States, we expect that U.S. regulations requiring reductions in carbon emissions and fuel efficiency, as well as fluctuating fuel prices, will continue to drive aluminium demand in the automotive industry.

In the longer term, to the extent electric vehicles become more prevalent, we believe the demand for aluminium in the automotive industry will increase due to the greater importance of lightweighting. Aluminium thermal conductivity is a significant inherent advantage for battery boxes and has superior energy absorption as compared to steel. Whereas growth in aluminium use in vehicles has historically been driven by increased use of aluminium castings, we anticipate that future growth will be primarily in the kinds of extruded and rolled products that we supply to the OEMs.

According to the CRU, the consumption of ABS between 2018 and 2023 will grow 10% per annum in Europe, 11% per annum in North America and 27% per annum in China.

 

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Automotive Body Sheet Flat Rolled Products Consumption (kt)

 

 

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Source: Republished under license from CRU International Ltd., Aluminium Rolled Products Market Outlook November 2018

We believe that Constellium is one of only a limited number of companies that is able to produce the quality and quantity required by car manufacturers for both flat rolled products and automotive structures, and that we are therefore well positioned to take advantage of these market trends. Our automotive products are predominantly used in premium models, light trucks and sport utility vehicles manufactured by the European and North American OEMs, which have experienced strong customer demand. In addition, due to the increasing mandatory emission reduction targets we expect more conversion to aluminium solutions among high volume car platforms which enhances the long-term growth prospects for our automotive products given our strong established relationships with the major car manufacturers.

Aerospace

Demand for aerospace plates is primarily driven by the build rate of aircraft, which we believe will be supported for the foreseeable future by (i) necessary replacement of aging fleets by airline operators, particularly in the United States and Western Europe, and (ii) increasing global passenger air traffic (the aerospace industry publication The Airline Monitor estimates that global revenue passenger miles will grow at a compound annual growth rate (“CAGR”) of approximately 5% from 2018 to 2024). In 2018, Boeing and Airbus predicted respectively approximately 42,730 and 37,400 new aircraft over the next 20 years across all categories of large commercial aircraft. Boeing estimates that between 2018 and 2037, 37% of sales of new airplanes will be to Asia Pacific, 40% to Europe and North America and the remaining 23% delivered to the Middle East, Latin America, the Commonwealth of Independent States and Africa. Demand for aluminium aerospace plates is also influenced by alternative materials becoming more mature in the aerospace market (e.g., composites). According to CRU, aluminium demand for the aerospace rolled products markets in North America and Europe is expected to grow by 3.6% per year between 2018 and 2023.

 

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World’s Commercial Aircraft Fleet (thousands)    Fleet Development Driven by Passenger Demand and Aging Fleet (units)

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   LOGO

Source: Boeing 2018 current market outlook

  

Source: Boeing 2018 current market outlook

Aerospace Flat Rolled Products Consumption (kt)

 

 

LOGO

Source: Republished under license from CRU International Ltd., Aluminium Rolled Products Market Outlook November 2018

Our Business Operations

Our business model is to add value by converting aluminium into semi-fabricated products. It is our policy not to speculate on metal price movements.

Managing Our Metal Price Exposure

For all contracts, we seek to minimize the impact of aluminium price fluctuations in order to protect our cash flows against variations in the LME price and regional premiums that we buy and sell, with the following methods:

 

   

In cases where we are able to align the price and quantity of physical aluminium purchases with that of physical aluminium sales to our customers, we enter into back-to-back arrangements with our customers.

 

   

When we are unable to align the price and quantity of physical aluminium purchases with that of physical aluminium sales to our customers, we enter into derivative financial instruments to pass through the exposure to financial institutions at the time the price is set.

 

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For a small portion of our volumes, the aluminium we process is owned by our customers and we bear no aluminium price risk.

The price of the aluminium that we buy includes other premiums on top of the LME price. These premiums relate to specific features of the metal being purchased, such as its location, purity, shape, etc.

Where possible, we align premium formulas in order to pass through the vast majority of our premium exposure to our customers, and in certain instances we enter into over-the-counter hedge instruments with third-parties to mitigate our exposure. We seek to apply the same policy and methods to minimize the impact of geographical premium price fluctuations that we do for the LME aluminium price variations.

Sales and Marketing

Our sales force is based in Europe (France, Germany, Czech Republic, United Kingdom, Switzerland and Italy), the United States and Asia (Tokyo, Shanghai, and Seoul). We serve our customers either directly or through distributors.

Raw Materials and Supplies

Approximately 72% of our rolling slab demand is produced in our own internal casthouses. In addition, our external metal supply is secured through long-term contracts with several upstream companies, remelters and metal traders. All of our top 10 metal suppliers have been long-standing suppliers to our plants (in many cases for more than 10 years) and, in aggregate, accounted for approximately 55% of our total raw material and consumable expense for the year ended December 31, 2018. We typically enter into multi-year contracts with these metal suppliers pursuant to which we purchase various types of metal, including:

 

   

Primary metal from smelters or metal traders in the form of ingots, rolling slabs or extrusion billets.

 

   

Remelted metal in the form of rolling slabs or extrusion billets from external casthouses, as an addition to our own internal casthouses.

 

   

Production scrap from customers and scrap traders.

 

   

End-of-life scrap (e.g., used beverage cans) from customers, collectors and scrap traders.

 

   

Specific alloying elements and primary ingots from producers and metal traders.

Our operations use natural gas and electricity, which represents the third largest component of our cost of sales, after metal and labor costs. We purchase natural gas and electricity from the market and typically secure a large part of our natural gas and electricity needs pursuant to fixed-price commitments. To reduce the risks associated with our natural gas and electricity requirements, we use financial futures or forward contracts with our suppliers to fix the price of energy costs. Furthermore, in our longer-term sales contracts, we try to include indexation clauses on energy prices. Where possible we try to pass natural gas and electricity prices through to our long term contract customers through indexation clauses.

Our Customers

Our customer base includes some of the largest leading manufacturers in the packaging, aerospace and automotive end-markets. We have a relatively diverse customer base with our 10 largest customers representing approximately 49% of our revenue for year ended December 31, 2018. We generally have long-term relationships with our significant customers, many of which span decades.

Generally, we have three- to five-year terms in contracts with our packaging customers, five-year terms in contracts with our largest aerospace customers, and five- to seven-year terms in our “life of a car platform/car model” contracts with our automotive customers. For the year ended December 31, 2018, we estimate that approximately 70% of our volumes were generated under multi-year contracts. This provides us with significant visibility into our future volumes and earnings.

 

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We see our relationships with our customers as partnerships where we work together to find customized solutions to meet their evolving requirements. In addition, we collaborate with our customers to complete a rigorous process for qualifying our products in each of our end-markets, which requires substantial time and investment and creates high switching costs, resulting in longer-term, mutually beneficial relationships with our customers. For example, in the packaging industry, where qualification occurs on a plant-by-plant basis, we are currently one of the qualified suppliers to several facilities of our customers.

Our product portfolio is predominantly focused on high value-added products, which we believe are particularly well-suited to developing and manufacturing for our customers. These products tend to require close collaboration with our customers to develop tailored solutions, as well as significant effort and investment to adhere to rigorous qualification procedures, which enables us to foster long-term relationships with our customers. Our customized products typically command higher margins than more commoditized products, and are supplied to end-markets that we believe have highly attractive characteristics and long-term growth trends.

Competition

The worldwide rolled and extruded aluminium industry is highly competitive and we expect this dynamic to continue for the foreseeable future. We believe the most important competitive factors in our industry are: product quality, price, timeliness of delivery and customer service, geographic coverage and product innovation. Aluminium competes with other materials such as steel, plastic, composite materials and glass for various applications. Our key competitors in our Packaging & Automotive Rolled Products operating segment are Novelis Inc., Norsk Hydro ASA, Alcoa Corporation, Arconic Inc. and Tri-Arrows Aluminum Inc. Our key competitors in our Aerospace & Transportation operating segment are Arconic Inc., Aleris International, Inc., Kaiser Aluminum Corp., Austria Metall AG, and Universal Alloy Corporation. Our key competitors in our Automotive Structures & Industry operating segment are Norsk Hydro ASA, Sankyo Tateyama, Inc., Eural Gnutti S.p.A., Gestamp, Otto Fuchs KG, Impol Aluminium Corp., Benteler International AG, Whitehall Industries, and Metra Aluminum.

Seasonality

Customer demand in the aluminium industry is seasonal due to a variety of factors, including holiday seasons, weather conditions, economic and other factors beyond our control. Our volumes are impacted by the timing of the holiday seasons in particular, with the lowest volumes typically delivered in August and December and highest volumes delivered in January to June. Our business is also impacted by seasonal slowdowns and upturns in certain of our customers’ industries. Historically, the can industry is strongest in the spring and summer seasons and the automotive and aerospace sectors encounter slowdowns in both the third and fourth quarters of the calendar year. In response to this seasonality, we seek to scale back and may even temporarily close some operations to reduce our operating costs during these periods.

Research and Development (“R&D”)

We believe that our research and development capabilities coupled with our integrated, longstanding customer relationships create a distinctive competitive advantage versus our competition. Our three R&D centers are based inVoreppe, France, Plymouth, Michigan, and Brunel University, London.

Our R&D center based in Voreppe, France provides services and support to all of our facilities, focusing on product and process development, providing technical assistance to our plants and working with our customers to develop new products. In developing new products, we focus on increased performance that aims to lower the total cost of ownership for the end users of our products, for example, by developing materials that decrease maintenance costs of aircraft or increase fuel efficiency in cars.Within the Voreppe facility, we also work on the development, improvement, and testing of processes used in our plants such as melting, casting, rolling, extruding, finishing and recycling. We also develop and test technologies used by our customers, such as friction stir welding, and provide technological support to our customers.

 

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The key contributors to our success in establishing our R&D capabilities include:

 

   

Close interaction with key customers, including through formal partnerships or joint development teams—examples include Strongalex®, Formalex® and Surfalex®, which were developed with automotive customers (mainly Daimler and Audi) and the Fusion bottle, a draw and wall iron technology created in partnership with Ball Corporation.

 

   

Technologically advanced equipment—for example, full-size casthouse for rapid prototyping of new Airware® low density alloys, innovative joining technologies for aerospace alloys (friction stir welding), forming technologies for automotive body sheets.

 

   

Long-term partnerships with universities worldwide—Michigan University in the U.S., Stuttgart University in Germany or Manchester University in the United Kingdom—generate significant innovation opportunities and foster new ideas.

Our R&D center located in Plymouth, Michigan opened in 2016 in order to improve our support to North American customers.

Additionally, in the Constellium University Technology Center inaugurated in 2016 at Brunel University London, a dedicated team of R&D engineers and project managers translate technology from the lab to new customer programs and to our plants for production. The facility features industrial scale casting and extrusion equipment, forming technology and extensive joining methods, enabling us to leverage on our proprietary alloys and strong manufacturing innovation capabilities to develop engineered solutions adapted to customer needs, and accelerate time to market.

As of December 31, 2018, the research and development center in Voreppe employed 248 employees, of which 199 are scientists and technicians. The research and development center in Plymouth employed 8 employees. We invested €40 million in R&D in the year ended December 31, 2018, €36 million in R&D in the year ended December 31, 2017 and €31 million in R&D in the year ended December 31, 2016.

Trademarks, Patents, Licenses and IT

We actively review intellectual property arising from our operations and our research and development activities and, when appropriate, apply for patents in the appropriate jurisdictions. We currently hold approximately 200 active patent families and regularly apply for new ones. While these patents and patent applications are important to the business on an aggregate basis, we do not believe any single patent family or patent application is critical to the business.

We are from time to time involved in opposition and re-examination proceedings that we consider to be part of the ordinary course of our business, in particular at the European Patent Office and the U.S. Patent and Trademark Office. We believe that the outcome of existing proceedings would not have a material adverse effect on our financial position, results of operations or cash flows.

In connection with our collaborations with universities and other third parties, we occasionally obtain royalty-bearing licenses for the use of third-party technologies in the ordinary course of business.

Insurance

We have implemented a corporate-wide insurance program consisting of both corporate-wide master policies with worldwide coverage and local policies where required by applicable regulations. Our insurance coverage includes: (i) property damage and business interruption; (ii) general liability including operation, professional, product and environment liability; (iii) aviation product liability; (iv) marine cargo (transport);

 

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(v) business travel and personal accident; (vi) construction all risk; (vii) automobile liability; (viii) trade credit; (ix) Cyber risk; (x) Workers Compensation in the U.S.; and (xi) other specific coverages for executive and special risks.

We believe that our insurance coverage terms and conditions are customary for a business such as Constellium and are sufficient to protect us against catastrophic losses.

We also purchase and maintain insurance on behalf of our directors and officers.

Governmental Regulations and Environmental, Health and Safety Matters

Our operations are subject to a number of international, national, state and local regulations relating to the protection of the environment and to workplace health and safety. Our operations involve the use, handling, storage, transportation and disposal of hazardous substances, and accordingly we are subject to extensive federal, state and local laws and regulations governing emissions to air, discharges to water emissions, the generation, storage, transportation, treatment or disposal of hazardous materials or wastes and employee health and safety matters. In addition, prior operations at certain of our properties have resulted in contamination of soil and groundwater which we are required to investigate and remediate pursuant to applicable environmental, health and safety (“EHS”) laws and regulations. Environmental compliance at our key facilities is supervised by the Direction Régionale de l’Environnement de l’Aménagement et du Logement in France, the Umweltbundesamt in Germany, the Service de la Protection de l’Environnement du Canton du Valais in Switzerland, the United States Environmental Protection Agency, West Virginia Department of Environmental Protection, the Alabama Department of the Environmental Management and the Kentucky Department for Environmental Protection in the United States, the Regional Authority of the Usti Region in the Czech Republic, the Slovenká Insvpekcia zvivotného prostredia in Slovakia, Secretaria de Medio Ambiente y Recursos Naturales in Mexico and the Environmental Monitoring Agency in China. Violations of EHS laws and regulations, and remediation obligations arising under such laws and regulations, may result in restrictions being imposed on our operating activities as well as fines, penalties, damages or other costs. Accordingly, we have implemented EHS policies and procedures to protect the environment and ensure compliance with these laws, and incorporate EHS considerations into our planning for new projects. We perform regular risk assessments and EHS reviews. We closely and systematically monitor and manage situations of noncompliance with EHS laws and regulations and cooperate with authorities to redress any noncompliance issues. We believe that we have made adequate reserves with respect to our remediation and compliance obligations. Nevertheless, new regulations or other unforeseen increases in the number of our non-compliant situations may impose costs on us that may have a material adverse effect on our financial condition, results of operations or liquidity.

Our operations also result in the emission of substantial quantities of carbon dioxide, a greenhouse gas that is regulated under the EU’s Emissions Trading System (“ETS”). Although compliance with ETS to date has not resulted in material costs to our business, compliance with ETS requirements currently being developed for the 2018-2020 period, and increased energy costs due to ETS requirements imposed on our energy suppliers, could have a material adverse effect on our business, financial condition or results of operations. We may also be liable for personal injury claims or workers’ compensation claims relating to exposure to hazardous substances. In addition, we are, from time to time, subject to environmental reviews and investigations by relevant governmental authorities.

E.U. Directive 2010/75 titled “Industrial Emissions” regulates some of our European activities as recycling or melting/casting. With the revision of the Best Available Technics Reference of Non Ferrous Metals in 2016, which defines associated emissions limits values for these activities applicable in 2020 at the latest, staying in compliance with the law, could require significant expenditures to tune our processes or implement abatement installations.

 

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Additionally, some of the chemicals we use in our fabrication processes are subject to REACH in the EU. Under REACH, we are required to register some of the substances contained in our products with the European Chemicals Agency, and this process could cause significant delays or costs. We are currently compliant with REACH, and expect to stay in compliance, but if the nature of the regulation changes in the future, or if the perimeter of REACH is changing (e.g. Brexit) or if substances we use currently in our process, considered as Substances of Very High Concern, fall under need of authorization for use, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance. Future noncompliance could also subject us to significant fines or other civil and criminal penalties. Obtaining regulatory approvals for chemical products used in our facilities is an important part of our operations.

We accrue for costs associated with environmental investigations and remedial efforts when it becomes probable that we are liable and the associated costs can be reasonably estimated. The aggregate close down and environmental remediation costs provisions at December 31, 2018 were €83 million. All accrued amounts have been recorded without giving effect to any possible future recoveries. With respect to ongoing environmental compliance costs, including maintenance and monitoring, we expense the costs when incurred.

We have incurred, and in the future will continue to incur, operating expenses related to environmental compliance. As part of the general capital expenditure plan, we expect to incur capital expenditures for other capital projects that may, in addition to improving operations, reduce certain environmental impacts as energy consumption, air emissions, water releases, waste streams optimization.

Litigation and Legal Proceedings

The Company is involved, and may become involved, in various lawsuits, claims and proceedings relating to customer claims, product liability, and other commercial matters. The Company records provisions for pending litigation matters when it determines that it is probable that an outflow of resources will be required to settle the obligation, and such amounts can be reasonably estimated. In some proceedings, the issues raised are or can be highly complex and subject to significant uncertainties and amounts claimed are and can be substantial. As a result, the probability of loss and an estimation of damages are and can be difficult to ascertain. The Company is currently subject to an arbitration by a customer claiming that Constellium supplied defective products as a result of which the customer alleges it has suffered significant damages. The Company considers that the claim is without merit on both technical and legal grounds and is vigorously defending the action. For this matter and in respect of others which the Company considers are without merit, while it is possible that an unfavorable outcome may result, after assessing the information available, the Company has concluded that it is not probable that a loss has been incurred. From time to time, asbestos-related claims are also filed against us, relating to historic asbestos exposure in our production process. We have made reserves for potential occupational disease claims for a total of €4 million as of December 31, 2018. It is not anticipated that any of our currently pending litigation and proceedings will have a material effect on the future results of the Company.

 

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C.

Organizational Structure

The following diagram reflects our simplified corporate legal entity structure as of January 31, 2019. Percentages reflect ownership interest where ownership interest is less than 100%. The country listed for each legal entity below depicts such entity’s jurisdiction of incorporation.

 

LOGO

 

D.

Property, Plants and Equipment

At December 31, 2018, we operated 26 manufacturing facilities serving both global and local customers, two R&D centers, one in Europe and one in the United States, and one university technology center in London. In addition, we are building new facilities in Vigo, Spain, Zilina, Slovakia and Nanjing, China. Among our production sites, we have seven major facilities (Muscle Shoals, Neuf-Brisach, Issoire, Ravenswood, Singen, Déčín and Sierre) catering to the needs of our Aerospace & Transportation, Packaging & Automotive Rolled Products and Automotive Structures & Industry operating segments:

 

   

The Muscle Shoals, Alabama facility operates one of the largest and most efficient can reclamation facilities in the world. In addition, the facility utilizes multi-station electromagnetic casting, houses the widest hot line in North America and has the fastest can end stock coating line in the world. Production capabilities include body stock, tab stock, and end stock. In addition, we have started producing automotive cold coils for body sheet. We have invested approximately €60 million in the facility in the year ended December 31, 2017 and €44 million in the facility for the year ended December 31, 2018.

 

   

The Neuf-Brisach, France facility is an integrated aluminium rolling, finishing and recycling facility in Europe. Our investments in a can body stock slitter and recycling furnace has enabled us to secure long-term can stock contracts. Additionally, our latest investment in a new state-of-the-art automotive finishing line has further strengthened the plant’s position as a significant supplier of aluminium Auto Body Sheet in the automotive market. We invested €37 million in the facility in the year ended December 31, 2017 and €32 million in the facility in the year ended December 31, 2018.

 

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The Issoire, France facility is one of the world’s two leading aerospace plate mills based on volumes. The plant operates two Airware® industrial casthouses and currently uses recycling capabilities to take back scrap along the entire fabrication chain. Issoire works as an integrated platform with Ravenswood, West Virginia and Sierre, Switzerland, providing a significant competitive advantage for us as a global supplier to the aerospace industry. We invested €36 million in the facility in the year ended December 31, 2017 and €32 million in the facility in the year ended December 31, 2018.

 

   

The Ravenswood, West Virginia facility has significant assets for producing aerospace plates and is a recognized supplier to the defense industry. The facility has stretchers and wide-coil capabilities that make it one of the few facilities in the world capable of producing plates of a size needed for the largest commercial airplanes. We invested approximately €28 million in the year ended December 31, 2017 and €28 million for the year ended December 31, 2018 on significant equipment upgrades.

 

   

The Singen, Germany rolling plant has more than 100 years’ experience, industry leading cycle times and high-grade cold mills with special surfaces capabilities to serve automotive and other markets. The extrusion part has one of the largest extrusion presses in Europe as well as advanced and highly productive integrated automotive bumper manufacturing lines. A dedicated unit allows the production of crash management applications, battery enclosures for electric vehicles as well as other automotive structural parts ready for the OEM assembly lines. We invested €36 million in the facility in the year ended December 31, 2017 and €45 million in the facility in the year ended December 31, 2018.

 

   

The Děčín, Czech Republic facility is a large extrusion facility, mainly focusing on hard alloy extrusions for automotive and industrial applications, with significant recycling capabilities. It is located near the German border, strategically positioning it to supply the German, Czech and French Tier1s and OEMs. Its integrated casthouse allows it to offer high value-add customized hard alloys to our customers. We invested €16 million in the facility in the year ended December 31, 2017 and €21 million in the facility in the year ended December 31, 2018.

 

   

The Sierre, Switzerland facility is dedicated to precision plates for general engineering, aerospace plates and slabs and is a leading supplier of extruded products for high-speed train railway manufacturers and a wide range of applications. The Sierre facility includes the Steg casthouse that produces automotive, general engineering and aerospace slabs and the Chippis casthouse that has the capacity to produce non-standard billets for a wide range of extrusions. Its qualification as an aerospace plate and slabs plant increases our aerospace production capabilities. We invested €14 million in the facility in the year ended December 31, 2017 and €12 million in the facility in the year ended December 31, 2018.

Our current production facilities are listed below by operating segment:

 

Operating Segment(1)

  

Location

  

Country

  

Owned/
Leased

Packaging & Automotive Rolled Products

   Biesheim, Neuf-Brisach    France    Owned

Packaging & Automotive Rolled Products

   Singen    Germany    Owned

Packaging & Automotive Rolled Products

   Muscle Shoals, AL    United States    Owned

Aerospace & Transportation

   Ravenswood, WV    United States    Owned

Aerospace & Transportation

   Issoire    France    Owned

Aerospace & Transportation

   Montreuil-Juigné    France    Owned

Aerospace & Transportation

   Ussel    France    Owned

Aerospace & Transportation

   Steg    Switzerland    Owned

Aerospace & Transportation

   Sierre    Switzerland    Owned

Automotive Structures & Industry

   Van Buren, MI    United States    Leased

Automotive Structures & Industry

   Changchun, Jilin Province (JV)    China    Leased

Automotive Structures & Industry

   Děčín    Czech Republic    Owned

Automotive Structures & Industry

   Nuits-Saint-Georges    France    Owned

Automotive Structures & Industry

   Burg    Germany    Owned

Automotive Structures & Industry

   Crailsheim    Germany    Owned

 

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Operating Segment(1)

  

Location

  

Country

  

Owned/
Leased

Automotive Structures & Industry

   Neckarsulm    Germany    Owned

Automotive Structures & Industry

   Gottmadingen    Germany    Owned

Automotive Structures & Industry

   Landau/Pfalz    Germany    Owned

Automotive Structures & Industry

   Singen    Germany    Owned

Automotive Structures & Industry

   Levice    Slovakia    Owned

Automotive Structures & Industry

   Chippis    Switzerland    Owned

Automotive Structures & Industry

   Sierre    Switzerland    Owned

Automotive Structures & Industry

   White, GA    United States    Leased

Automotive Structures & Industry

   Lakeshore, Ontario (JV)(2)    Canada    Leased

Automotive Structures & Industry

   San Luis Potosi    Mexico    Leased

 

(1)

For our Packaging & Automotive Rolled Products operating segment, this table does not include our Joint Venture in Bowling Green, Kentucky, USA, with UACJ Corporation, which is 51% owned by Constellium as of December 31, 2018 and accounted for under the equity method. On January 10, 2019, Constellium acquired the remaining 49% of the equity in the joint venture.

(2)

Constellium Joint Venture with Can Art Aluminum Extrusion Inc.

The production capacity and utilization rate for our main plants are listed below as of December 31, 2018:

 

Plant

   Capacity    Utilization Rate

Neuf-Brisach

   450 kt    95-100%

Muscle Shoals

   500-550 kt    75%

Issoire

   110 kt    90%

Ravenswood

   175 kt    90-95%

Děčín

   92 kt    84%

Singen

   290-310 kt    85-90%

Sierre

   70-75 kt    50%

 

Production capacity and utilization rates presented above are estimates based in a theoretical output capacity assuming the plant operates with currently operating equipment and current staffing levels and product mix.

For information concerning the material plans to construct, expand or improve facilities, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

The following discussion and analysis is based principally on our audited Consolidated Financial Statements as of December 31, 2018 and 2017 and for each of the three years in the period ended December 31, 2018 included elsewhere in this Annual Report and is provided to supplement the audited Consolidated Financial Statements and the related notes to help provide an understanding of our financial condition, changes in financial condition, results of our operations, and liquidity. The following discussion is to be read in conjunction with Selected Financial Data and our audited Consolidated Financial Statements and the notes thereto, included elsewhere in this Annual Report.

The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ

 

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materially from those expressed or implied by our forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report. See in particular “Special Note about Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors.”

Company Overview

We are a global leader in the development, manufacture and sale of a broad range of highly engineered, value-added specialty rolled and extruded aluminium products to the packaging, aerospace, automotive, other transportation and industrial end-markets. As of December 31, 2018, we had approximately 13,000 employees, 26 production facilities (including the Bowling Green facility, which is operated through our joint venture with UACJ), three administrative centers, and three R&D centers.

Our Operating Segments

We serve a diverse set of customers across a broad range of end-markets with very different product needs, specifications and requirements. As a result, we have organized our business into three segments to better serve our customer base.

Packaging & Automotive Rolled Products Segment

Our Packaging & Automotive Rolled Products segment produces aluminium sheet and coils. Approximately 77% of segment volume for the year ended December 31, 2018 was packaging rolled products, which primarily includes beverage and food can stock as well as closure stock and foil stock. Approximately 19% of the segment volume for this period was automotive rolled products and the balance of the segment volume was specialty and other thin-rolled products. Our Packaging & Automotive Rolled Products segment accounted for 54% of revenue and 49%4 of Adjusted EBITDA for the year ended December 31, 2018.

Aerospace & Transportation Segment

Our Aerospace & Transportation segment has market leadership positions in technologically advanced aluminium and specialty materials products with applications across the global aerospace, defense, transportation, and industrial sectors. We offer a wide range of products, including plate and sheet. Approximately 45% of the segment volume for the year ended December 31, 2018 was aerospace rolled products and approximately 55% was transportation industry and other rolled products. Our Aerospace & Transportation segment accounted for 23% of revenue and 31%4 of Adjusted EBITDA for the year ended December 31, 2018.

Automotive Structures & Industry Segment

Our Automotive Structures & Industry segment produces technologically advanced structures for the automotive industry, (including crash management systems, side impact beams and cockpit carriers), soft and hard alloy extrusions and large extruded profiles for automotive, railroad, energy, building and industrial applications. Approximately 46% of the segment volume for the year ended December 31, 2018 was automotive extruded products and approximately 54% was other extruded products. Our Automotive Structures & Industry segment accounted for 23% of revenue and 25%4 of Adjusted EBITDA for the year ended December 31, 2018.

Discontinued Operations and Disposals

In July 2018, we completed the sale of the North Building Assets of our Sierre plant in Switzerland, which have been leased to and operated by Novelis since 2005. We contributed the plant’s shared infrastructure to a 50-

 

4 

The difference between the sum of reported segment Adjusted EBITDA and the Company’s Adjusted EBITDA is related to Holdings and Corporate.

 

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50 joint venture with Novelis in exchange for cash consideration of €200 million. This transaction also resulted in the termination of the existing lease agreement. The total purchase price for the transactions amounted to €200 million and generated a €190 million net gain. We continue to own and operate our cast houses, plate and extrusion manufacturing plants and other manufacturing assets at Sierre. As part of this agreement, we also entered into long-term production and metal supply agreements with Novelis.

In 2015, we decided to dispose of our plant in Carquefou (France) which was part of our A&T operating segment and it was classified as held for sale at December 31, 2015, accordingly. An €8 million charge was recorded upon the write-down of the related assets to their net realizable value. The sale was completed in February 2016 and no gain was recognized upon disposal.

Key Factors Influencing Constellium’s Financial Condition and Results from Operations

The financial performance of our operations is dependent on several factors, the most critical of which are as follows:

Economic Conditions and Markets

We are directly impacted by the economic conditions that affect our customers and the markets in which they operate. General economic conditions such as the level of disposable income, the level of inflation, the rate of economic growth, the rate of unemployment, exchange rates and currency devaluation or revaluation—influence consumer confidence and consumer purchasing power. These factors, in turn, influence the demand for our products in terms of total volumes and prices that can be charged. In some cases we are able to mitigate the risk of a downturn in our customers’ businesses by building committed minimum volume thresholds into our commercial contracts. We further seek to mitigate the risk of a downturn by utilizing a temporary workforce for certain operations, which allows us to match our resources with the demand for our services.

Although the metals industry and our end-markets are cyclical in nature and expose us to related risks, we believe that our portfolio is relatively resilient to these economic cycles in each of our three main end-markets of packaging, aerospace and automotive:

 

   

Can packaging tends not to be highly correlated to the general economic cycle. In addition, we believe European canstock has an attractive long-term growth outlook due to ongoing trends in (i) growth in beer, soft drinks and energy drinks consumption, (ii) increasing use of cans versus glass in the beer market, and (iii) increasing penetration of aluminium in canstock at the expense of steel.

 

   

We believe that the aerospace industry is currently insulated from economic cycles by a combination of growth drivers. These drivers include increasing passenger traffic and the fleet replacement towards newer and more fuel efficient aircrafts. These factors have materialized in the form of historically high backlogs for the aircraft manufacturers. The combined order backlog for Boeing and Airbus represents approximately eight-to nine-years of manufacturing at current build rates.

 

   

Although the automotive industry is a cyclical industry, its demand for aluminium has been increasing in recent years. This has been triggered by a light-weighting trend for new car models and electric vehicles, which drives substitution of heavier metals in favor of aluminium.

Aluminium Consumption

The aluminium industry is cyclical and is affected by global economic conditions, industry competition and product development. Aluminium is increasingly seen as the material of choice in a number of applications, including packaging, aerospace and automotive. Aluminium is lightweight, has a high strength-to-weight ratio and is resistant to corrosion. It compares favorably to several alternative materials, such as steel, in these respects. Aluminium is also unique in that it recycles repeatedly without any material decline in performance or quality. The recycling of aluminium delivers energy and capital investment savings relative to the cost of

 

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producing both primary aluminium and many other competing materials. Due to these qualities, the penetration of aluminium into a wide variety of applications continues to increase. We believe that long-term growth in aluminium consumption generally, and demand for those products we produce specifically, will be supported by factors that include growing populations, greater purchasing power and increasing focus on sustainability and environmental issues, globally.

Aluminium Prices

Aluminium prices are determined by worldwide forces of supply and demand and, as a result they are volatile. The average LME transaction price, Midwest Premium and Rotterdam Premium per ton of primary aluminium in the years ended December 31, 2018, 2017 and 2016 are presented below:

Average quarterly LME per ton using U.S. dollar prices converted to Euros using the applicable European Central Bank rates:

 

(Euros/ton)    2018      2017      2016  

First Quarter

     1,757        1,737        1,374  

Second Quarter

     1,896        1,736        1,393  

Third Quarter

     1,769        1,714        1,451  

Fourth Quarter

     1,726        1,786        1,588  

Average for the year

     1,786        1,743        1,452  

Average quarterly Midwest Premium per ton using U.S. dollar prices converted to Euros using the applicable European Central Bank rates:

 

(Euros/ton)    2018      2017      2016  

First Quarter

     246        198        173  

Second Quarter

     404        180        153  

Third Quarter

     390        144        125  

Fourth Quarter

     376        176        154  

Average for the year

     354        175        151  

Average quarterly Rotterdam Premium per ton using U.S. dollar prices converted to Euros using the applicable European Central Bank rates:

 

(Euros/ton)    2018      2017      2016  

First Quarter

     134        137        133  

Second Quarter

     170        131        117  

Third Quarter

     135        120        107  

Fourth Quarter

     116        135        121  

Average for the year

     139        131        119  

The price we pay for aluminium includes regional premiums, such as the Rotterdam premium for metal purchased in Europe or the Midwest premium for metal purchased in the U.S. The regional premiums, which had historically been fairly stable, have been more volatile in recent years. Notably, regional premiums increased significantly in 2013 and 2014, with the Rotterdam premium and the Midwest premium reaching unprecedented levels in the fourth quarter of 2014. During the second half of 2015, both the Rotterdam and Midwest premiums returned to levels seen prior to 2013. Although our business model seeks to minimize the impact of aluminium price fluctuations on our net income and cash flows, we are not always able to pass through the cost of regional premiums to our customers or adequately hedge the impact of regional premium differentials. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Industry—Our financial results could be adversely affected by the volatility in aluminium prices.”

 

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We believe our cash flows are largely protected from variations in LME prices due to the fact that we hedge our sales based on their replacement cost, by setting the maturity of our futures on the delivery date to our customers. As a result, when LME prices increase, we have limited additional cash requirements to finance the increased replacement cost of our inventory.

Product Price and Margin

Our products are typically priced based on three components: (i) LME, (ii) regional premiums and (iii) a conversion margin. We seek to minimize the impact of aluminium price fluctuations in order to protect our cash flows against the LME and regional price fluctuations with the following methods:

 

   

In cases where we are able to align the price and quantity of physical aluminium purchases with that of physical aluminium sales to customers, we enter back-to-back arrangements with our customers.

 

   

However, when we are unable to align the price and quantity of physical aluminium purchases with that of physical aluminium sales to our customers, we enter into derivative financial instruments to pass through the exposure to financial institutions at the time the price is set.

 

   

For a small portion of our volumes, the aluminium we process is owned by our customers and we bear no aluminium price risk.

Our risk management practices aim to reduce, but do not entirely eliminate, our exposure to changing primary aluminium and regional premium prices. Moreover, while we limit our exposure to unfavorable price changes, we also limit our ability to benefit from favorable price changes. As we do not apply hedge accounting for the derivative instruments entered into to hedge our exposure to changes in metal prices, mark-to-market movements for these instruments are recognized in “Other (losses)/gains—net.”

Our results are also impacted by differences between changes in the prices of primary and scrap aluminium. As we price our product using the prevailing price of primary aluminium but purchase large amounts of scrap aluminium to manufacture our products, we benefit when primary aluminium price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminium price increases, our results are negatively impacted. The difference between the price of primary aluminium and scrap prices is referred to as the “scrap spread” and is impacted by the effectiveness of our scrap purchasing activities, the supply of scrap available and movements in the terminal commodity markets.

The conversion margin is the margin we earn over the cost of our metal inputs. We seek to maximize our conversion margins based on the value-added product capabilities we provide and the supply/demand dynamics in the market.

Volumes

The profitability of our businesses is determined, in part, by the volume of tons processed and sold. Increased production volumes will generally result in lower per unit costs, while higher sold volumes will generally result in additional revenue and associated margins.

Personnel Costs

Our operations are labor intensive and, as a result, our personnel costs represent 17%, 18% and 20% of our cost of sales, selling and administrative expenses and R&D expenses for the years ended December 31, 2018, 2017, and 2016, respectively.

Personnel costs generally increase and decrease proportionately with the expansion, addition or closing of operating facilities. Personnel costs include the salaries, wages and benefits of our employees, as well as costs related to temporary labor. During our seasonal peaks and especially during the summer months, we have historically increased our temporary workforce to compensate for staff on vacation and increased volume of activity.

 

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Currency

We are a global company with operations in France, the United States, Germany, Switzerland, the Czech Republic, Slovakia, Mexico, Canada and China, as of December 31, 2018. As a result, our revenue and earnings have exposure to a number of currencies, primarily the euro, the U.S. dollar and the Swiss Franc. As our presentation currency is the euro, and the functional currencies of the businesses located outside of the Eurozone are primarily the U.S. dollar and the Swiss franc, the results of the businesses located outside of the Eurozone must be translated each period to euros. Accordingly, fluctuations in the exchange rate of the functional currencies of our businesses located outside of the Eurozone against the euro impacts our results of operations.

We engage in significant hedging activity to attempt to mitigate the effects of foreign transaction currency fluctuations on our profitability. Transaction impacts arise when our businesses transact in a currency other than their own functional currency. As a result, we are exposed to foreign exchange risk on payments and receipts in multiple currencies. In Europe, a portion of our revenue are denominated in U.S. dollars while the majority of our costs incurred are denominated in local currencies. Where we have multiple-year sale agreements for the sale of fabricated metal products in U.S. dollars by euro-functional currency entities, we have entered into derivative contracts to forward sell U.S. dollars to match these future sales. With the exception of certain derivative instruments entered into to hedge the foreign currency risk associated with the cash flows of certain highly probable forecasted sales, which we have designated for hedge accounting, hedge accounting is not applied to such ongoing commercial transactions and therefore the mark-to-market impact is recorded in “Other gains/(losses)—net”.

 

Results

of Operations

Results of Operations for the years ended December 31, 2018 and 2017

 

     For the year ended December 31,  
     2018     2017  
     (€ in millions and as a % of revenue)  
            %           %  

Revenue

     5,686        100     5,237       100

Cost of sales

     (5,148      91     (4,682     89
  

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     538        9     555       11
  

 

 

    

 

 

   

 

 

   

 

 

 

Selling and administrative expenses

     (247      4     (247     5

Research and development expenses

     (40      1     (36     1

Restructuring costs

     (1      —       (4     —  

Other gains net

     154        3     70       1
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from operations

     404        7     338       6

Finance costs, net

     (149      3     (260     5

Share of loss of joint ventures

     (33      1     (29     1
  

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     222        4     49       1

Income tax expense

     (32      1     (80     2
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income / (loss)

     190        3     (31     1
  

 

 

    

 

 

   

 

 

   

 

 

 

Shipment volumes (in kt)

     1,534        n/a       1,482       n/a  

Revenue per ton (€ per ton)

     3,707        n/a       3,534       n/a  

Revenue

Revenue increased by 9% or €449 million to €5,686 million for the year ended December 31, 2018, from €5,237 million for the year ended December 31, 2017. This increase reflects a 3% increase in shipments and higher average revenue per ton.

 

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Sales volumes increased by 3%, or 52 kt, to 1,534 kt for the year ended December 31, 2018 compared to 1,482 kt for the year ended December 31, 2017. This increase is driven by higher shipment volumes across all of our three segments.

Average sales prices increased by €173 per ton, or 5%, from €3,534 to €3,707, mainly attributable to the year-over-year increase in aluminium market prices, coupled with the rise in regional premium primarily in North America.

Our revenue is discussed in more detail in the “Segment Results” section.

Cost of Sales

Cost of sales increased by 10%, or €466 million, to €5,148 million for the year ended December 31, 2018, from €4,682 million for the year ended December 31, 2017. This increase in cost of sales was primarily driven by an increase of €364 million, or 11%, in the total cost of raw material and consumables used primarily as a result of higher LME prices and regional premiums, compared to the prior year, a €24 million increase in depreciation, a €17 million increase in labor costs and a €19 million increase in freight out costs.

Selling and Administrative Expenses

Selling and administrative expenses were stable and amounted to €247 million for the years ended December 31, 2018 and December 31, 2017.

Research and Development Expenses

Research and development expenses increased by 11% or €4 million, to €40 million for the year ended December 31, 2018, from €36 million for the year ended December 31, 2017. Research and development expenses are presented net of €10 million and €11 million of research and development tax credits received in France for the years ended December 31, 2018 and 2017, respectively. Research and development expenses, excluding tax credits received were €18 million, €21 million, and €11 million for the P&ARP, A&T, and AS&I segments, respectively, in the year ended December 31, 2018.

Restructuring Costs

In the year ended December 31, 2018, restructuring costs amounted to €1 million and were primarily related to our restructuring activities of German operations. Restructuring costs amounted to €4 million in the year ended December 31, 2017, and were primarily incurred in connection with restructuring activities at our German and Swiss operations.

Other Gains, net

 

     For the year ended December 31,  
     2018     2017  
(€ in millions)             

Realized gains on derivatives

     14       —    

Unrealized (losses)/gains on derivatives at fair value through profit and loss—net

     (84     57  

Unrealized exchange (losses) from the remeasurement of monetary assets and liabilities—net

     —         (4

Gains on pension plan amendments

     36       20  

Gains /(losses) on disposal

     186       (3

Other—net

     2       —    
  

 

 

   

 

 

 

Total other gains, net

     154       70  
  

 

 

   

 

 

 

 

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Other gains—net were €154 million for the year ended December 31, 2018 compared to Other gains—net of €70 million for the year ended December 31, 2017. Realized gains recognized upon the settlement of derivative instruments amounted to €14 million and €0 million in the years ended December 31, 2018 and 2017, respectively. Of these, realized gains on metal derivatives were €7 million and €16 million for the year ended December 31, 2018 and 2017 respectively and realized gains on foreign exchange derivatives were €7 million in the years ended December 31, 2018 compared to realized losses of €16 million in the year ended December 31, 2017.

Unrealized losses on derivative instruments amounted to €84 million in the year ended December 31, 2018 and were primarily comprised of €1 million of losses related to foreign exchange derivatives and €83 million of losses related to metal derivatives. Unrealized gains on derivative instruments amounted to €57 million in the year ended December 31, 2017 and were primarily comprised of €16 million of gains related to foreign exchange derivatives and €41 million of gains related to metal derivatives.

In the year ended December 31, 2018, we recognized a €36 million net gain relating to an OPEB plan amendment in the United States. In the year ended December 31, 2017, we recognized a €20 million net gain relating to benefit plan amendments in Switzerland and in the United States.

Gains on disposal recognized in the year ended December 31, 2018 primarily related to the sale of North Building Assets of our Sierre plant in Switzerland. Losses on disposal recognized in the year ended December 31, 2017 primarily related to the write-off of abandoned development projects in the A&T segment.

Finance Costs, net

Finance costs, net decreased by €111 million, to €149 million for the year ended December 31, 2018, from €260 million for the year ended December 31, 2017. This decrease primarily reflects benefits of lower interest rates from the refinancing transactions of 2017 for €29 million and €91 million of net loss on settlement of debt incurred in February 2017 and November 2017 in connection with these refinancing transactions.

In the year ended December 31, 2018, foreign exchange net losses from the revaluation of the portion of our U.S. dollar-denominated debt held by Euro functional currency entities amounted to €22 million and were offset by gains on derivative instruments entered into to hedge this exposure. In the year ended December 31, 2017, foreign exchange net gains from the revaluation of the portion of our U.S. dollar-denominated debt held by Euro functional currency entities amounted to €91 million and were largely offset by losses on derivative instruments entered into to hedge this exposure.

Share of loss of joint-ventures

Our share of loss of joint-ventures for the year ended December 31, 2018 amounted to €33 million compared to €29 million for the year ended December 31, 2017 and is comprised primarily of our share in the net results of Constellium-UACJ ABS LLC, which is accounted for under the equity method. On January 10, 2019, we acquired the 49% of Constellium-UACJ ABS LLC that we did not previously own and as result we are expecting to consolidate this entity in our financial statements in fiscal year 2019. See note 33 to our audited consolidated financial statements.

Income Tax

Income tax was an expense of €32 million for the year ended December 31, 2018 compared to an income tax expense of €80 million for the year ended December 31, 2017.

Our effective tax rate represented 14% of our income before income tax for the year ended December 31, 2018 and 163% of our income before tax for the year ended December 31, 2017. This change in our effective tax rate primarily reflects a decrease in the composite statutory tax rate applicable by tax jurisdiction (the “blended tax rate”), from 32% in 2017 to 24% in 2018 and the impact of significant reconciling items in both years.

 

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Our blended tax rate decreased by approximately 8 percentage points in the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily as a result of the sale of the North Building in Sierre plant in Switzerland.

The change in our blended rate mainly results from changes in the geographical mix of our pre-tax results, the decrease of the U.S. tax rate from 40% in 2017 to 26% in 2018 and decrease in the tax rate in France from 39.2% in 2017 to 34.4% for fiscal year 2018.

The effective tax rate for the year ended December 31, 2018 applies to €222 million of pre-tax income and is lower than our blended statutory tax rate primarily as a result of the favorable effect of the use of previously unrecognized tax losses carried forward in Switzerland offsetting the significant taxable profit generated by the sale of the North Building in Sierre plant and the termination of the existing lease agreement.

The effective tax rate for the year ended December 31, 2017 applies to €49 million of pre-tax income and is significantly higher than our projected blended statutory tax rate primarily as a result of the unfavorable effect of unrecognized tax benefits for losses in jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses and a €16 million unfavorable impact from the U.S. tax reform on deferred taxes.

Net Income / loss

As a result of the above factors, we recognized a net income of €190 million, in the year ended December 31, 2018 compared to a net loss of €31 million in the year ended December 31, 2017.

Results of Operations for the years ended December 31, 2017 and 2016

 

     For the year ended December 31,  
     2017     2016  
     (€ in millions and as a % of revenue)  
            %            %  

Revenue

     5,237        100     4,743        100

Cost of sales

     (4,682      89     (4,208      89
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     555        11     535        11
  

 

 

    

 

 

   

 

 

    

 

 

 

Selling and administrative expenses

     (247      5     (253      5

Research and development expenses

     (36      1     (31      1

Restructuring costs

     (4      —       (5      —  

Other gains net

     70        1     21        —  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations

     338        6     267        6

Finance costs, net

     (260      5     (188      4

Share of loss of joint ventures

     (29      1     (14      —  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before income taxes

     49        1     65        1

Income tax expense

     (80      2     (69      1
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss

     (31      1     (4      —  
  

 

 

    

 

 

   

 

 

    

 

 

 

Shipment volumes (in kt)

     1,482        n/a       1,470        n/a  

Revenue per ton (€ per ton)

     3,534        n/a       3,227        n/a  

Revenue

Revenue increased by 10% or €494 million to €5,237 million for the year ended December 31, 2017, from €4,743 million for the year ended December 31, 2016. This increase reflects a slight increase in shipments and higher average revenue per ton.

 

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Sales volumes increased by 1%, or 12 kt, to 1,482 kt for the year ended December 31, 2017 compared to 1,470 kt for the year ended December 31, 2016. This increase is primarily driven by higher shipment volumes in our AS&I segment offset by slightly lower year-over-year shipments in our P&ARP and A&T segments.

Average sales prices increased by €307 per ton, or 10%, from €3,227 to €3,534, mainly attributable to the year-over-year increase in aluminium market prices, coupled with the rise in regional premium both in Europe and North America.

Our revenue is discussed in more detail in the “Segment Results” section.

Cost of Sales

Cost of sales increased by 11%, or €474 million, to €4,682 million for the year ended December 31, 2017, from €4,208 million for the year ended December 31, 2016. This increase in cost of sales was primarily driven by an increase of €405 million, or 15%, in the total cost of raw material and consumables used primarily as a result of higher LME prices and regional premiums, compared to the prior year, a €34 million increase in labor costs and a €13 million increase in depreciation.

Selling and Administrative Expenses

Selling and administrative expenses decreased by 2%, or €6 million, to €247 million for the year ended December 31, 2017 from €253 million for the year ended December 31, 2016, reflecting a decrease in professional fees and other non-labor expense; partially offset by an increase in labor cost primarily as a result of inflation.

Research and Development Expenses

Research and development expenses increased by 16% or €5 million, to €36 million for the year ended December 31, 2017, from €31 million for the year ended December 31, 2016. Research and development expenses are presented net of €11 million and €10 million of research and development tax credits received in France for the years ended December 31, 2017 and 2016, respectively. Research and development expenses, excluding tax credits received were €17 million, €18 million, and €12 million for the P&ARP, A&T, and AS&I segments, respectively, in the year ended December 31, 2017.

Restructuring Costs

In the year ended December 31, 2017, restructuring costs amounted to €4 million and were primarily related to our restructuring activities of German and Swiss operations. Restructuring costs amounted to €5 million in the year ended December 31, 2016, and were primarily incurred in connection with restructuring activities at our Valais Switzerland and Muscle Shoals, Alabama operations.

 

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Other Gains, net

 

    

For the year ended December 31,

 
     2017     2016  
(€ in millions)             

Realized losses on derivatives

     —       (62

Unrealized gains on derivatives at fair value through profit and loss—net

     57       71  

Unrealized exchange losses/(gains) from the remeasurement of monetary assets and liabilities—net

     (4     3  

Gains on pension plan amendments

     20       —  

Wise purchase price adjustment

     —       20  

Losses on disposal

     (3     (10

Other—net

     —       (1
  

 

 

   

 

 

 

Total other gains, net

     70       21  
  

 

 

   

 

 

 

Other gains—net were €70 million for the year ended December 31, 2017 compared to Other gains—net of €21 million for the year ended December 31, 2016. Realized losses recognized upon the settlement of derivative instruments amounted to €0 million and €62 million in the years ended December 31, 2017 and 2016, respectively. Of these, realized gains on metal derivatives were €16 million for the year ended December 31, 2017 compared to realized losses €16 million in the year ended December 31, 2016 and realized losses on foreign exchange derivatives were €16 million and €46 million in the years ended December 31, 2017 and 2016, respectively.

Unrealized gains on derivative instruments amounted to €57 million in the year ended December 31, 2017 and were primarily comprised of €16 million of gains related to foreign exchange derivatives and €41 million of gains related to metal derivatives. Unrealized gains on derivative instruments amounted to €71 million in the year ended December 31, 2016 and were comprised of €40 million of gains related to foreign exchange derivatives and €31 million of gains related to metal derivatives.

In the year ended December 31, 2017, we recognized a €20 million net gain relating to benefit plan amendments in Switzerland and in the United States.

In the year ended December 31, 2016, we recognized a €20 million gain related to the finalization of the contractual price adjustment for the acquisition of Wise Metals.

Losses on disposal recognized in the year ended December 31, 2017 primarily related to the write-off of abandoned development projects in the A&T segment. Losses on disposal recognized in the year ended December 31, 2016 primarily related to the write-off of abandoned development projects in the P&ARP segment.

Finance Costs, net

Finance costs, net increased by €72 million, to €260 million for the year ended December 31, 2017, from €188 million for the year ended December 31, 2016. This increase primarily reflects €91 million of net loss on settlement of debt incurred in connection with the refinancing, in February 2017, of the $650 Wise Senior Secured Notes due 2018 and the refinancing, in November 2017, of i) our $425 million—8.750% Senior Secured Notes due 2021, ii) our $400 million—7.875% Senior Notes due 2023 and iii) our €240 million—7.875% Senior Notes due 2023. The increase from these refinancing one-off costs was partially offset by lower interest costs resulting primarily from the refinancing of the Wise Senior Secured Notes in February 2017 and to a lesser extent to the refinancing of the Wise PIK Toggle Notes in December 2016.

In the year ended December 31, 2017, foreign exchange net gains from the revaluation of the portion of our U.S. dollar-denominated debt held by Euro functional currency entities amounted to €91 million and were largely

 

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offset by losses on derivative instruments entered into to hedge this exposure. In the year ended December 31, 2016, foreign exchange net losses from the revaluation of the portion of our U.S. dollar-denominated debt held by Euro functional currency entities amounted to €42 million and was offset by gains on derivative instruments entered into to hedge this exposure.

Share of loss of joint-ventures

Our share of loss of joint-ventures for the year ended December 31, 2017 amounted to €29 million compared to €14 million for the year ended December 31, 2016 and is comprised primarily of our share in the net results of Constellium-UACJ ABS LLC, which is accounted for under the equity method. We expect Constellium-UACJ ABS LLC to continue to incur losses over the next 12 to 24 months as it completes the ramp-up of its activities and the partners to make additional contributions to fund its operations.

Income Tax

Income tax for the year ended December 31, 2017 was an expense of €80 million for the year ended December 31, 2017 compared to an income tax expense of €69 million for the year ended December 31, 2016.

Our effective tax rate represented 163% of our income before income tax for the year ended December 31, 2017 and 106% of our income before tax for the year ended December 31, 2016. This change in our effective tax rate primarily reflects an increase in the composite statutory tax rate applicable by tax jurisdiction (the “blended tax rate”), from 25% in 2016 to 32% in 2017 and the impact of significant reconciling items in both years.

Our blended tax rate increased by approximately 7 percentage points in the year ended December 31, 2017 compared to the year ended December 31, 2016 as a result of changes in the geographical mix of our pre-tax results and a temporary increase the tax rate in France from 34.4% to 39.2% for fiscal year 2017.

The effective tax rate for the year ended December 31, 2017 applies to €49 million of pre-tax income and is significantly higher than our blended statutory tax rate primarily as a result of the unfavorable effect of unrecognized tax benefits for losses in jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses and a €16 million unfavorable impact from the U.S. tax reform on deferred taxes.

The effective tax rate for the year ended December 31, 2016 applies to €65 million of pre-tax income and is significantly higher than our projected blended statutory tax rate primarily as a result of the unfavorable effect of unrecognized tax benefits for losses in jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses.

Net Loss

As a result of the above factors, we recognized a net loss of €31 million, in the year ended December 31, 2017 compared to a net loss of €4 million in the year ended December 31, 2016.

 

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Segment Results

Segment Revenue

The following table sets forth the revenue for our operating segments for the periods presented:

 

     For the year ended December 31,  
     2018     2017     2016  
     (millions of € and as a % of revenue)  

P&ARP

     3,059        54     2,812        54     2,498        52

A&T

     1,389        23     1,335        25     1,302        27

AS&I

     1,290        23     1,123        21     1,002        21

Holdings and Corporate

     10        0     13        0     (11      0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Inter-segment eliminations

     (62            (46            (48       
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

     5,686        100     5,237        100     4,743        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

P&ARP. Revenue in our P&ARP segment increased by 9%, or €247 million, to €3,059 million in the year ended December 31, 2018, from €2,812 million for the year ended December 31, 2017, reflecting primarily higher shipments and revenue per ton driven by higher metal prices. P&ARP shipments were up 31 kt, reflecting a 38 kt, or 24%, increase in Automotive rolled products shipments offsetting lower shipments in Packaging rolled products. Revenue per ton increased by 6% to €2,944 per ton in the year ended December 31, 2018 from €2,789 per ton in the year ended December 31, 2017, primarily as a result of higher LME and premium prices.

Revenue in our P&ARP segment increased by 13%, or €314 million, to €2,812 million in the year ended December 31, 2017, from €2,498 million for the year ended December 31, 2016, reflecting primarily higher revenue per ton driven by higher metal prices and relatively stable shipments. P&ARP shipments were in line with the prior year with a 5kt decrease, reflecting lower shipments in Packaging rolled products partially offset by a 45kt, or 40%, increase in Automotive rolled products shipments. Revenue per ton increased by 13% to €2,789 per ton in the year ended December 31, 2017 from €2,466 per ton in the year ended December 31, 2016, primarily as a result of higher LME and premium prices.

A&T. Revenue at our A&T segment increased by €54 million, or 4% to €1,389 million in the year ended December 31, 2018 from €1,335 million in the year ended December 31, 2017, reflecting increasing shipments and higher revenue per ton driven by higher metal prices. A&T shipments increased by 3% or 8kt, reflecting a 5kt increase in Aerospace rolled products shipments and a 3kt increase in shipments in Transportation, industry and other rolled products. Revenue per ton increased by 1% to €5,646 per ton in the year ended December 31, 2018 from €5,618 per ton in the year ended December 31, 2017, primarily reflecting higher LME and premium prices, and higher volumes partially offset by foreign exchange translation.

Revenue at our A&T segment increased by €33 million, or 3% to €1,335 million in the year ended December 31, 2017 from €1,302 million in the year ended December 31, 2016, reflecting relatively stable shipments and higher revenue per ton driven by higher metal prices. A&T shipments decreased by 2% or 5kt, reflecting a 12kt decrease in Aerospace rolled products shipments partially offset by higher shipments in Transportation, industry and other rolled products. Revenue per ton increased by 5% to €5,618 per ton in the year ended December 31, 2017 from €5,360 per ton in the year ended December 31, 2016, primarily reflecting higher LME and premium prices, partially offset by product mix effects.

AS&I. Revenue in our AS&I segment increased by 15%, or €167 million, to €1,290 million for the year ended December 31, 2018, from €1,123 million for the year ended December 31, 2017, reflecting higher shipments and higher revenue per ton driven by improved price and mix. AS&I shipments increased 6%, or 13kt, reflecting a 5% or 5kt increase in Automotive extruded products shipments and a 7% or 8kt increase in Other extruded products shipments. Revenue per ton increased by 9% to €5,181 per ton in the year ended December 31,

 

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2018 from €4,756 per ton in the year ended December 31, 2017, reflecting higher LME and premium prices, and improved product mix.

Revenue in our AS&I segment increased by 12%, or €121 million, to €1,123 million for the year ended December 31, 2017, from €1,002 million for the year ended December 31, 2016, reflecting higher shipments and higher revenue per ton driven by higher metal price. AS&I shipments increased 9%, or 19kt, reflecting a 10% or 10kt increase in Automotive extruded products shipments and an 8% or 9kt increase in Other extruded products shipments. Revenue per ton increased by 3% to €4,756 per ton in the year ended December 31, 2017 from €4,608 per ton in the year ended December 31, 2016, reflecting higher LME and premium prices, partially offset by product mix effects.

Holdings and Corporate. Revenue in the Holdings and Corporate segment for the years ended December 31, 2018 and 2017 are primarily related to metal sales to third parties. Revenue in the Holdings and Corporate segment for the year ended December 31, 2016, include a €20 million one-time payment recorded as reduction of revenue related to renegotiation of a contract with one of Wise’s customers, partially offset by metal sales to third parties.

Adjusted EBITDA

Adjusted EBITDA is not a measure defined by IFRS. We believe the most directly comparable IFRS measure to Adjusted EBITDA is our net income or loss for the relevant period.

In considering the financial performance of the business, management analyzes the primary financial performance measure of Adjusted EBITDA in all of our business segments. Our Chief Operating Decision Maker (“CODM”) measures the profitability and financial performance of our operating segments based on Adjusted EBITDA. Adjusted EBITDA is defined as income/(loss) from continuing operations before income taxes, results from joint ventures, net finance costs, other expenses and depreciation and amortization as adjusted to exclude restructuring costs, impairment charges, unrealized gains or losses on derivatives and on foreign exchange differences on transactions that do not qualify for hedge accounting, metal price lag, share-based compensation expense, effects of certain purchase accounting adjustments, start-up and development costs or acquisition, integration and separation costs, certain incremental costs and other exceptional, unusual or generally non-recurring items.

We believe Adjusted EBITDA, as defined above, is useful to investors as it illustrates the underlying performance of continuing operations by excluding non-recurring and non-operating items. Similar concepts of adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in their evaluation of our company and in comparison to other companies, many of which present an adjusted EBITDA-related performance measure when reporting their results.

Adjusted EBITDA has limitations as an analytical tool. It is not a measure defined by IFRS and therefore does not purport to be an alternative to operating profit or net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Adjusted EBITDA is not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider these performance measures in isolation from, or as a substitute analysis for, our results of operations.

 

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The following table shows Constellium’s consolidated Adjusted EBITDA for the years ended December 31, 2018, 2017 and 2016:

 

     For the year ended December 31,  
     2018     2017     2016  
     (millions of € and as a % of revenue)  

P&ARP

     243        8     204        7     204        8

A&T

     152        11     146        11     118        9

AS&I

     125        10     120        11     104        10

Holdings and Corporate

     (22      n.m.       (22      n.m.       (28      n.m.  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Adjusted EBITDA

     498        9     448        8     398        8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

n.m. not meaningful

Total Adjusted EBITDA for the year ended December 31, 2018 was €498 million, which represented a €50 million, or 11% increase compared to €448 million of total Adjusted EBITDA for the year ended December 31, 2017. This increase mainly reflected improved results in each of our three business segments.

Total Adjusted EBITDA for the year ended December 31, 2017 was €448 million, which represented a €50 million, or 13% increase compared to €398 million of total Adjusted EBITDA for the year ended December 31, 2016. This increase mainly reflected improved results at our A&T and AS&I segments.

The following table presents the primary drivers for changes in Adjusted EBITDA from the year ended December 31, 2017 to the year ended December 31, 2018 for each one of our three segments:

 

     P&ARP      A&T      AS&I  
     (millions of €)  

Adjusted EBITDA for the year ended December 31, 2017

     204        146        120  

Volume

     14        14        14  

Price and product mix

     17        (2      11  

Costs

     7        (3      (21

Foreign exchange, premium and other

     1        (3      1
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA for the year ended December 31, 2018

     243        152        125  
  

 

 

    

 

 

    

 

 

 

The following table presents the primary drivers for changes in Adjusted EBITDA from the year ended December 31, 2016 to the year ended December 31, 2017 for each one of our three segments:

 

     P&ARP      A&T      AS&I  
     (millions of €)  

Adjusted EBITDA for the year ended December 31, 2016

     204        118        104  

Volume

     (1      (13      27  

Price and product mix

     17        40        (12

Costs

     (11      8        1  

Foreign exchange, premium and other

     (5      (7     
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA for the year ended December 31, 2017

     204        146        120  
  

 

 

    

 

 

    

 

 

 

P&ARP. Adjusted EBITDA at our P&ARP segment was €243 million for the year ended December 31, 2018, a 19% increase from €204 million in the year ended December 31, 2017. Adjusted EBITDA per metric ton for the year ended December 31, 2018 was 16% higher at €234 for the year ended December 31, 2018 compared to €202 for the year ended December 31, 2017, reflecting primarily higher volumes and better price and mix, favorable metal costs partially offset by incremental costs from maintenance and by the ramp up of our automotive programs.

 

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Adjusted EBITDA at our P&ARP segment was €204 million for the year ended December 31, 2017 was comparable to €204 million in the year ended December 31, 2016. Adjusted EBITDA per metric ton for the year ended December 31, 2017 was relatively stable at €202 for the year ended December 31, 2017 compared to €201 for the year ended December 31, 2016, reflecting better price and mix offset by the impact of our ABS program in the US.

A&T. Adjusted EBITDA was €152 million for the year ended December 31, 2018, an increase of 4% from the year ended December 31, 2017 and Adjusted EBITDA per metric ton increased 1% to €619 from €614 in the year ended December 31, 2017, primarily reflecting higher shipments and strong management of operating costs, partially offset by weaker price and mix.

Adjusted EBITDA was €146 million for the year ended December 31, 2017, an increase of 24% from the year ended December 31, 2016 and Adjusted EBITDA per metric ton increased 26% to €614 from €487 in the year ended December 31, 2016, primarily reflecting better price and mix and strong management of operating costs, partially offset by the impact of lower Aerospace rolled product volumes and foreign exchange and premium effects.

AS&I. Adjusted EBITDA was €125 million for the year ended December 31, 2018, a 4% increase from the same period in the prior year, reflecting higher volumes and improved price and mix partially offset by higher costs largely related to maintenance, new product launches and our footprint expansion. Adjusted EBITDA per ton decreased 2% to €502 per ton in the year ended December 31, 2018 as compared to the prior year.

Adjusted EBITDA was €120 million for the year ended December 31, 2017, a 15% increase from the same period in the prior year, reflecting higher volumes and solid cost control. Adjusted EBITDA per ton increased 6% to €510 per ton in the year ended December 31, 2017 as compared to the prior year.

Holdings and Corporate. Our Holdings and Corporate segment generated Adjusted EBITDA losses of €22 million, €22 million and €28 million in the year ended December 31, 2018, 2017 and 2016, respectively. The decrease in Holdings and Corporate costs from period to period is notably attributable to additional costs incurred in 2016, in connection with changes in the executive management team.

 

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The following table reconciles our net income / (loss) for each of the three years in the period ending December 31, 2018 to our Adjusted EBITDA for the years presented:

 

     For the year ended December 31,  
     2018     2017     2016  
(€ in millions)                   

Net income / (loss)

     190       (31     (4

Net income from discontinued operations

     —       —       —  

Income tax expense

     32       80       69  

Finance costs, net

     149       260       188  

Share of loss of joint ventures

     33       29       14  

Depreciation and amortization

     197       171       155  

Restructuring costs

     1       4       5  

Unrealized losses / (gains) on derivatives

     84       (57     (71

Unrealized exchange losses / (gains) from remeasurement of monetary assets and liabilities—net

     —       4       (3

Gains on pension plan amendments(a)

     (36     (20     —  

Share-based compensation

     12       8       6  

Metal price lag(b)

     —       (22     (4

Start-up and development costs(c)

     21       17       25  

Manufacturing system and process transformation costs

     —       2       5  

Wise integration and acquisition costs

     —       —       2  

Wise one-time costs(d)

     —       —       20  

Wise purchase price adjustment(e)

     —       —       (20

(Gains) / Losses on disposals(f)

     (186     3       10  

Other(g)

     1     —       1  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     498       448       398  
  

 

 

   

 

 

   

 

 

 

 

(a)

For the year ended December 31, 2018, the Company amended one of its OPEB plans in the US, which resulted in a €36 million gain. For the year ended December 31, 2017, amendments to certain Swiss pension plans, US pension plans and OPEB resulted in a €20 million net gain.

(b)

Metal price lag represents the financial impact of the timing difference between when aluminium prices included within Constellium revenue are established and when aluminium purchase prices included in Cost of sales are established. The Company accounts for inventory using a weighted average price basis and this adjustment aims to remove the effect of volatility in LME prices. The calculation of the Company’s metal price lag adjustment is based on an internal standardized methodology calculated at each of Constellium’s manufacturing sites and is primarily calculated as the average value of product recorded in inventory, which approximates the spot price in the market, less the average value transferred out of inventory, which is the weighted average of the metal element of cost of sales, based on the quantity sold in the period.

(c)

For the years ended December 31, 2018 and 2017, start-up and development costs include €21 million and €16 million, respectively, related to new projects in our AS&I operating segment. For the year ended December 31, 2016, start-up and development costs included €20 million related to ABS growth projects both in Europe and the United States.

(d)

For the year ended December 31, 2016, Wise one-time costs related to a one-time payment of €20 million, recorded as a reduction of revenue, in relation to the re-negotiation of payment terms, pass through of Midwest premium amounts and other pricing mechanisms in a contract with one of Wise’s customers. We entered into the re-negotiation of these terms in order to align the terms of this contract, acquired during the acquisition of Wise, with Constellium’s normal business terms.

(e)

The contractual price adjustment relating to the acquisition of Wise Metals Intermediate Holdings was finalized in 2016. We received a cash payment of €21 million and recorded a €20 million net gain.

(f)

In July 2018, Constellium completed the sale of the North Building assets of its Sierre plant in Switzerland to Novelis and contributed the Sierre site shared infrastructure to a joint-venture with Novelis, in exchange

 

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  for cash consideration of €200 million. This transaction also resulted in the termination of the existing lease agreement for the North Building assets which had been leased and operated by Novelis since 2005. For the year ended December 31, 2018, the transaction generated a €190 million net gain.
(g)

For the year ended December 31, 2017, other includes €3 million of legal fees and lump-sum payments in connection with the renegotiation of a new 5-year collective bargaining agreement offset by accrual reversals of unused provisions related to one-time loss contingencies. For the year ended December 31, 2016, other includes individually immaterial other adjustments offset by €4 million of insurance proceeds.

Liquidity and Capital Resources

Our primary sources of cash flow have historically been cash flows from operating activities and funding or borrowings from external parties.

Based on our current and anticipated levels of operations, and the condition in our markets and industry, we believe that our cash flows from operations, cash on hand, new debt issuances or refinancing of existing debt facilities, and availability under our factoring and revolving credit facilities will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for the foreseeable future. However, our ability to fund working capital needs, debt payments and other obligations depends on our future operating performance and cash flows and many factors outside of our control, including the costs of raw materials, the state of the overall industry and financial and economic conditions and other factors, including those described under the following risk factors within “Item 3. Key Information—D. Risk Factors.”

 

   

We have substantial leverage and may be unable to obtain sufficient liquidity to operate our business and service our indebtedness;

 

   

A deterioration in our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs, lead to our inability to access liquidity facilities, and adversely affect our business relationships;

 

   

The terms of our indebtedness contain covenants that restrict our current and future operations, and a failure by us to comply with those covenants may materially adversely affect our business, results of operations and financial condition; and

 

   

Our results of operations, cash flows and liquidity could be adversely affected if we are unable to execute on our hedging policy, if counterparties to our derivative instruments fail to honor their agreements or if we are unable to purchase derivative instruments.

It is our policy to hedge all highly probable or committed foreign currency operating cash flows. As we have significant third party future receivables denominated in U.S. dollars, we generally enter into combinations of forward contracts with financial institutions, selling forward U.S. dollars against Euros. In addition, as discussed in “Item 4. Information on the Company—B. Business Overview—Managing our Metal Price Exposure,” when we are unable to align the price and quantity of physical aluminium purchases with that of physical aluminium sales, we enter into derivative financial instruments to pass through the exposure to metal price fluctuations to financial institutions at the time the price is set. As the U.S. dollar appreciates versus the Euro or the LME price for aluminium falls, the derivative contracts related to transactional hedging entered into with financial institution counterparties will have a negative mark-to-market. We borrow in a combination of Euros and U.S. Dollars. When the external currency mix of our debt does not match exactly the mix of our assets, we use a combination of cross-currency swaps and forwards to balance the risk. We have bought forward significant U.S. Dollars versus the Euro for this purpose. As the U.S. Dollar depreciates against the Euro, the derivative contracts entered into with financial institutions will have a negative mark-to-market. Our financial institution counterparties may require margin calls should our negative mark-to-market exceed a pre-agreed contractual limit. In order to protect the Company from the potential margin calls for significant market movements, we maintain additional cash or

 

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availability under our various borrowing facilities, we enter into derivatives with a large number of financial counterparties and we monitor margin requirements on a daily basis for adverse movements in the U.S. dollar versus the Euro and in aluminium prices. A €5 million margin call was posted at December 31, 2018. No margins were posted at December 31, 2017 or December 31, 2016.

At December 31, 2018, we had €669 million of total liquidity, comprised of €164 million in cash and cash equivalents, €255 million of undrawn credit facilities under our Pan-U.S. ABL Facility, €80 million of undrawn credit facilities under our French Inventory Facility (as defined below), €160 million available under our factoring arrangements, and €10 million credit facility with BPI France, a related party.

At December 31, 2017, we had €531 million of total liquidity, comprised of €269 million in cash and cash equivalents, €136 million of undrawn credit facilities under our Pan-U.S. ABL Facility, €71 million of undrawn credit facilities under our French Inventory Facility, and €55 million available under our factoring arrangements.

At December 31, 2016, we had €537 million of total liquidity, comprised of €347 million in cash and cash equivalents, €150 million of undrawn credit facilities under our ABL facilities, €33 million available under our factoring arrangements, and €7 million under a revolving credit facility.

Cash Flows

The following table summarizes our operating, investing and financing activities for the years ended December 31, 2018, 2017 and 2016:

 

     For the year ended December 31,  
     2018     2017     2016  
     (€ in millions)  

Net Cash Flows from/(used) in:

      

Operating activities

     66       160       88  

Investing activities

     (91     (292     (365

Financing activities

     (82     61       145  
  

 

 

   

 

 

   

 

 

 

Net decrease in cash and cash equivalents, excluding the effect of exchange rate changes

     (107     (71     (132
  

 

 

   

 

 

   

 

 

 

Net cash Flows from Operating Activities

Net cash flows from operating activities in the year ended December 31, 2018 decreased by €94 million to €66 million, from €160 million in the year ended December 31, 2017. The year over year decrease in operating cash flows is attributable to a €67 million increase in cash flow from operating activities before working capital changes partially offset by a €161 million increase in cash flows used in working capital.

Net cash flows from operating activities in the year ended December 31, 2017 increased by €72 million to €160 million, from an inflow of €88 million in the year ended December 31, 2016. The year over year increase in operating cash flows is attributable to an €108 million increase in cash flow from operating activities before working capital changes partially offset by a €36 million increase in cash flows used in working capital.

In the year ended December 31, 2018, cash flows used in working capital amounted to €239 million reflecting a €212 million increase in working capital before factoring and a €27 million negative cash effect from the reduction in non-recourse factoring in the period.

In the year ended December 31, 2017, cash flows used in working capital amounted to €78 million reflecting a €19 million increase in working capital before factoring and a €59 million negative cash effect from the reduction in non-recourse factoring in the period.

 

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In the year ended December 31, 2016, cash flows used in working capital amounted to €42 million reflecting an €179 million increase in working capital before factoring, partially offset by €137 million of additional non-recourse factoring in the period.

Net Cash Flows used in Investing Activities

Cash flows used in investing activities in the year ended December 31, 2018 decreased by €201 million to €91 million from €292 million for the year ended December 31, 2017, mainly driven by the proceeds from the sale of our assets in Sierre in July 2018. Capital expenditures of €277 million for the year ended December 31, 2018 were stable from €276 million for the year ended December 31, 2017 and related primarily to recurring investment in our manufacturing facilities and our growth projects. Cash flows used in investing activities in the year ended December 31, 2018 also included €24 million of equity contributions and loans to joint ventures, related to Constellium – UACJ ABS LLC, our joint venture with UACJ.

Cash flows used in investing activities in the year ended December 31, 2017 decreased by €73 million to €292 million from €365 million for the year ended December 31, 2016, mainly driven by lower capital expenditures. Capital expenditures of €276 million for the year ended December 31, 2017 decreased by €79 million from €355 million for the year ended December 31, 2016 and related primarily to recurring investment in our manufacturing facilities and our growth projects. Cash flows used in investing activities in the year ended December 31, 2017 also included €41 million of equity contributions and loans to joint ventures, related to Constellium – UACJ ABS LLC, our joint venture with UACJ.

Cash flows used in investing activities in the year ended December 31, 2016 decreased by €357 million to €365 million from €722 million for the year ended December 31, 2015. The main driver of the difference was the net consideration of €348 million paid in connection with the Wise Acquisition. Capital expenditures of €355 million were stable compared to the prior year. Cash flows used in investing activities in the year ended December 31, 2016 also included €37 million of equity contributions and loans to joint ventures, related to Constellium – UACJ ABS LLC, our joint venture with UACJ.

For further details on capital expenditures projects, see the “—Historical Capital Expenditures” section below.

Net Cash flows from / (used in) Financing Activities

Net cash flows used in financing activities were €82 million for the year ended December 31, 2018, compared to cash inflows of €61 million for the year ended December 31, 2017.

The €143 million change results from the 2017 refinancing operations described below. In 2018, net cash used in financing activities reflected €68 million in repayments made on the Pan-US ABL Facility and other loans.

Net cash flows from financing activities were €61 million for the year ended December 31, 2017, compared to €145 million for the year ended December 31, 2016.

Net cash flows from financing activities in the year ended December 31, 2017 reflect i) €610 million of net proceeds from the issuance, in February 2017, of our $650 million 6.625% Senior Notes due 2025, ii) €830 million of net proceeds from the issuance, in November 2017, of our $500 million 5.875% Senior Notes due 2026 and our €400 million 4,250% Senior Notes due 2026 and iv) €259 of net proceeds from the issuance of shares in November 2017. The net proceeds received from these transactions were partially offset by i) a €610 million outflow from the redemption in February 2017 of the $650 million 8.750% Wise Senior Secured Notes due 2018, ii)a €949 million outflow from the redemption, in November 2017, of the $425 million 7.875%

 

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Senior Secured Notes due 2021, the $400 million 8.000% Senior Notes due 2023 and the €240 million 7.000% Senior Notes due 2023 and iii) deferred financing costs and exit fees relating to these transactions for an amount of €118 million.

Net cash flows from financing activities in the year ended December 31, 2016 increased by €310 million to €145 million from an outflow of €165 million for the year ended December 31, 2015. Net cash provided by financing activities reflected the net impact of €375 million in proceeds from the issuance of the Constellium N.V. Senior Secured Notes in March 2016 and a €148 million outflow relating to the redemption of the Wise Senior PIK Toggle Notes in the fourth quarter of 2016. The outflow in the year ended December 31, 2016 also included €69 million in repayments made on the Wise ABL Facility (as defined below) and other loans.

Historical Capital Expenditures

The following table provides a breakdown of the historical capital expenditures by segment for the periods indicated:

 

     For the year ended December 31,  
     2018      2017      2016  
     (€ in millions)  

P&ARP

     97        115        166  

A&T

     70        73        96  

AS&I

     105        83        84  

Holdings and Corporate

     5        5        9  
  

 

 

    

 

 

    

 

 

 

Total capital expenditures

     277        276        355  
  

 

 

    

 

 

    

 

 

 

Our capital expenditures for the year ended December 31, 2018 reflected primarily our investments in automotive growth projects for both P&ARP and AS&I as well as sustaining projects across all segments.

The main projects undertaken during the year ended December 31, 2018 include our ABS investments in Europe and in the U.S., within the P&ARP segment, investments in our AS&I segment in response to OEM demand and capital investments projects, mainly at our Issoire and Ravenswood, West Virginia facilities, to support manufacturing efficiency within the A&T segment.

As at December 31, 2018, we had €194 million of construction in progress which primarily related to our continued maintenance, modernization and expansion projects at our Děčín, Muscle Shoals, Neuf Brisach, Ravenswood, Issoire, Singen and Van Buren facilities.

As at December 31, 2017, we had €198 million of construction in progress which primarily related to our continued maintenance, modernization and expansion projects at our Muscle Shoals, Ravenswood, Neuf Brisach, Singen, Van Buren, Děčín, and Issoire facilities.

Our capital expenditures are expected to total approximately €1,400 million in the years ended December 31, 2019 to 2023, in the aggregate. We currently expect all of our capital expenditures to be financed with cash on hand and external financing.

Covenant Compliance

The indentures governing our outstanding debt securities contain no maintenance covenants but contain customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our subsidiaries, to incur or guarantee indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations and make dividends and other restricted payments.

 

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The Pan-U.S. ABL Facility contains a financial covenant that provides that at any time during which borrowing availability thereunder is below 10% of the aggregate commitments under the Pan-U.S. ABL Facility, we will be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 and a minimum Borrower EBITDA Contribution of 25%, in each case calculated on a trailing twelve month basis. “Borrower EBITDA Contribution” means, for any period, the ratio of (x) the combined EBITDA of the borrowers under the Pan-U.S. ABL Facility and their subsidiaries for such period, to (y) the consolidated EBITDA of the Company and its subsidiaries for such period. The Pan-U.S. ABL Facility also contains customary negative covenants on liens, investments and restricted payments related to Ravenswood, Muscle Shoals, and Bowling Green.

The Wise Factoring Facility contains customary covenants and the factors’ commitment to purchase the receivables is subject to the maintainance of certain credit rating levels.

The European Factoring Facilities contain customary covenants.

We were in compliance with our covenants at and for the years ended December 31, 2018 and 2017.

See “Item 10. Additional Information—C. Material Contracts” for a description of our significant financing arrangements.

Off-Balance Sheet Arrangements

As of December 31, 2018, except as otherwise disclosed in our consolidated financial statements we have no significant off-balance sheet arrangements.

Contractual Obligations

The following table summarizes our estimated material contractual cash obligations and other commercial commitments at December 31, 2018:

 

            Cash payments due by period  
     Total      Less
than
1 year
     1-3
years
     3-5
years
     After 5
years
 
     (unaudited, € in millions)  

Borrowings(1)

     2,075        6        311        4        1,754  

Interest(2)

     709        114        221        201        173  

Derivatives relating to currencies and metal

     91        56        30        5        0  

Operating lease obligations(3)

     133        24        24        39        46  

Capital expenditures

     124        112        12        0        0  

Finance leases

     86        20        16        34        16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total(4)

     3,218        332        614        283        1,989  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Borrowings include our Pan-U.S. ABL Facility which are considered short-term in nature and is included in the category “Less than 1 year.”

(2)

Interests accrue under the May 2014 Notes denominated in U.S. dollars at a rate of 5.750% per annum, under the May 2014 Notes denominated in euros at a rate of 4.625% per annum, under the February 2017 Notes at a rate of 6.625% per annum, under the November 2017 Notes denominated in U.S. dollars at a rate of 5.875%, per annum, and under the November 2017 Notes denominated in euros at a rate of 4.250% per annum.

(3)

Operating leases relate to buildings, machinery and equipment.

(4)

Retirement benefit obligations of €610 million are not presented above as the timing of the settlement of this obligation is uncertain.

 

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Environmental Contingencies

Our operations, like those of many other basic industries, are subject to federal, state, local and international laws, regulations and ordinances. These laws and regulations (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as waste handling and disposal practices and (ii) impose liability for costs of cleaning up, and certain damages resulting from, spills, disposals or other releases or regulated materials. From time to time, our operations have resulted, or may result, in certain noncompliance with applicable requirements under such environmental laws. To date, any such noncompliance with such environmental laws has not had a material adverse effect on our financial position or results of operations.

Pension Obligations

Constellium operates various pension plans for the benefit of its employees across a number of countries. Some of these plans are defined benefit plans and others are defined contribution plans. The largest of these plans are in the United States, Switzerland, Germany and France. Pension benefits are generally based on the employee’s service and highest average eligible compensation before retirement, and are periodically adjusted for cost of living increases, either by practice, collective agreement or statutory requirement.

We also provide health and life insurance benefits to retired employees and in some cases to their beneficiaries and covered dependents. These plans are predominantly in the United States.

Finally, we also participate in various multi-employer pension plans in one of our facilities in the United States.

For the year ended December 31, 2018, the total expense recognized in the income statement in relation to all our pension and post-retirement benefits was €5 million (compared to €24 million for the year ended December 31, 2017). In 2018, we amended one of our OPEB plans in the U.S. which resulted in the recognition of a €36 million gain. In 2017, we amended some pension plans in Switzerland and in the U.S. which resulted in the recognition of a €20 million gain. At December 31, 2018, the fair value of the plans assets was €380 million (compared to €387 million as of December 31, 2017). At December 31, 2018, the present value of our obligations amounted to €990 million (compared to €1,051 million as of December 31, 2017), resulting in an aggregate plan deficit of €610 million and €664 million as of December 31, 2018 and 2017, respectively.

Our estimated funding for our funded pension plans and other post-retirement benefit plans is based on actuarial estimates using benefit assumptions for discount rates, rates of compensation increases, and health care cost trend rates. The deficit related to the funded pension plan and the present value of the unfunded obligations as of December 31, 2018 were €294 million and €316 million, respectively. The deficit related to funded pension plan and other benefits and the present value of the unfunded obligations as of December 31, 2017 were €304 million and €360 million, respectively. Estimating when the obligations will require settlement is not practicable and therefore these have not been included in the Contractual Obligations table above.

Contributions to pension and other benefit plans totaled €46 million for the year ended December 31, 2018, compared to €47 million for the year ended December 31, 2017.

Contributions to our multi-employer plans amounted to approximately €2 million and €3 million for the years ended December 31, 2018 and 2017, respectively.

Principal Accounting Policies, Critical Accounting Estimates and Key Judgments

Our principal accounting policies are set out in Note 2 to the audited Consolidated Financial Statements, which appear elsewhere in this Annual Report. New standards and interpretations not yet adopted are also disclosed in Note 2.3 to our audited Consolidated Financial Statements.

 

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Item 6. Directors, Senior Management and Employees

 

A.

Directors and Senior Management

The following table provides information regarding the members of our board of directors as of the date of this Annual Report (ages are given as of December 31, 2018). The business address of each of our directors listed below is c/o Constellium, Tupolevlaan 41-61, 1119 NW Schiphol-Rijk, the Netherlands.

 

Name

   Age     

Position

  

Date of Appointment

   Current Term

Richard B. Evans

     71      Chairman    January 5, 2011    2016-2019

Guy Maugis

     65      Director    January 5, 2011    2017-2019

Philippe Guillemot

     59      Director    May 21, 2013    2018-2019

Werner P. Paschke

     68      Director    May 21, 2013    2017-2019

Michiel Brandjes

     64      Director    June 11, 2014    2018-2019

Peter F. Hartman

     69      Director    June 11, 2014    2018-2019

John Ormerod

     69      Director    June 11, 2014    2018-2019

Lori A. Walker

     61      Director    June 11, 2014    2018-2019

Martha Brooks

     59      Director    June 15, 2016    2018-2019

Jean-Marc Germain

     52      Director    June 15, 2016    2017-2020

Stéphanie Frachet

     42      Director    May 24, 2018    2018-2019

Pursuant to a shareholders agreement between the Company and Bpifrance, Ms. Frachet was selected to serve as a director by Bpifrance in 2018. Mr. Manardo no longer serves in that capacity.

Richard B. Evans. Mr. Evans has served as a director since January 2011 and as our Chairman since December 2012. Mr. Evans is currently an independent director of CGI, an IT consulting and outsourcing company. In 2016, Mr. Evans resigned as a non-Executive Director of Noranda Aluminum Holding Corporation following its successful liquidation through the Chapter 11 bankruptcy process. He retired in May 2013 as non-executive Chairman of Resolute Forest Products, a Forest Products company based in Montreal. He retired in April 2009 as an executive director of London-based Rio Tinto plc and Melbourne-based Rio Tinto Ltd., and as Chief Executive Officer of Rio Tinto Alcan Inc., a wholly owned subsidiary of Rio Tinto. Previously, Mr. Evans was President and Chief Executive Officer of Montreal based Alcan Inc. from March 2006 to October 2007, and led the negotiation of the acquisition of Alcan by Rio Tinto in October 2007. He was Alcan’s Executive Vice President and Chief Operating Officer from September 2005 to March 2006. Prior to joining Alcan in 1997, he held various senior management positions with Kaiser Aluminum and Chemical Company during his 27 years with that company. Mr. Evans is a past Chairman of the International Aluminum Institute (IAI) and is a past Chairman of the Washington, DC-based U.S. Aluminum Association. He previously served as Co-Chairman of the Environmental and Climate Change Committee of the Canadian Council of Chief Executives and as a member of the Board of USCAP, a Washington, DC-based coalition concerned with climate change.

Guy Maugis. Mr. Maugis has served as a non-executive director since 2011. Mr. Maugis served as advisor of the Board of Robert Bosch GmbH from 2016 to 2018, after being President of Robert Bosch France SAS for 12 years. The French subsidiary covers all the activities of the Bosch Group, a leader in the domains of the Automotive Equipments, Industrial Techniques and Consumer Goods and Building Techniques. He is President of the French-German Chamber of Commerce and Industry. Mr. Maugis is a former graduate of Ecole Polytechnique, Engineer of “Corps des Ponts et Chaussées” and worked for several years at the Equipment Ministry. At Pechiney, he managed the flat rolled products factory of Rhenalu Neuf-Brisach. At PPG Industries, he became President of the European Flat Glass activities. With the purchase of PPG Glass Europe by ASAHI Glass, Mr. Maugis assumed the function of Vice-President in charge of the business development and European activities of the automotive branch of the Japanese group.

Philippe Guillemot. Mr. Guillemot has served as a non-executive director since May 2013. He has nearly thirty-five years of experience in Automotive, Energy and the Telecom industry, where he held CEO and COO

 

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positions leading many successful transformations. In December 2017, Mr. Guillemot was appointed CEO of Elior Group, a concession and contract catering leader. Prior to that, Mr. Guillemot served as Chief Operating Officer of Alcatel-Lucent until a successful turnaround led to Nokia’s full acquisition at the end of 2016. From April 2010 to February 2012, he served as Chief Executive Officer of Europcar Group. Since July 2017, Mr. Guillemot has served as a Director of the Sonoco Board and as a member of its Audit Committee. From 2010 to 2012, Mr. Guillemot served as a director and audit committee member of Visteon Corp. Mr. Guillemot served as Chairman and CEO of Areva T&D from 2004 to 2010, and as division Vice President at Valeo and then Faurecia from 1998 to 2003. Mr. Guillemot began his career at Michelin, where he held various positions in quality and production at sites in Canada, France and Italy. He was a member of Booz Allen Hamilton’s Automotive Practice from 1991 to 1993 before returning to Michelin to serve as an operations manager, director of Michelin Group’s restructuring in 1995-1996, Group Quality Executive Vice-President, Chief Information Officer and member of the Group Executive Committee. Mr. Guillemot received his undergraduate degree in 1982 from Ecole des Mines in Nancy and received his MBA from Harvard Business School in Cambridge, MA in 1991.

Werner P. Paschke. Mr. Paschke has served as a non-executive director since May 2013. From 2008 until April 2017, he served as an independent director of Braas Monier Building Group, Luxembourg, where he chaired the Audit Committee. He is an Advisory Board Member for Weber Automotive GmbH. In previous years, he served on the Supervisory Boards of Conergy Aktiengesellschaft, Hamburg, Coperion GmbH, Stuttgart and several smaller companies. From 2003 to 2006, he was Managing Director and Chief Financial Officer of Demag Holding in Luxembourg, where he actively enhanced the value of seven former Siemens and Mannesmann Units. From 1992 to 2003, he worked for Continental Aktiengesellschaft in Hannover/Germany, and since 1993 as Generalbevollmächtigter responsible for corporate controlling plus later, accounting. From 1989 to 1992, he served as Chief Financial Officer for General Tire Inc., in Akron/Ohio, USA. From 1973 to 1987, he held different positions at Continental AG in finance, distribution, marketing and controlling. Mr. Paschke studied economics at Universities Hannover, Hamburg and Münster/Westphalia, where he graduated as Diplomkaufmann in 1973. He is a 1993 graduate of the International Senior Management Program at Harvard Business School.

Michiel Brandjes. Mr. Brandjes has served as a non-executive director since June 2014. He served as Company Secretary and General Counsel Corporate of Royal Dutch Shell plc from 2005 to 2017. Mr. Brandjes formerly served as Company Secretary and General Counsel Corporate of Royal Dutch Petroleum Company. He served for 25 years on numerous legal and non-legal jobs in the Shell Group within the Netherlands and abroad, including as head of the legal department in Singapore and as head of the legal department for North East Asia based in Beijing and Hong Kong. Before he joined Shell, Mr. Brandjes worked at a law firm in Chicago after graduating from law school at the University of Rotterdam and at Berkeley, California. He has published a number of articles on legal and business topics, is a regular speaker on corporate legal and governance topics and serves in a number of advisory and non-executive director positions not related to Shell or Constellium.

Peter F. Hartman. Mr. Hartman has served as a non-executive director since June 2014. He served as Vice Chairman of Air France KLM from July 2013 until May 2017. He serves as member of the supervisory boards of Fokker Technologies Group B.V since 2013 (chairman since 2016), Air France KLM S.A. since 2010 (member of the audit committee from July 2016 until May 2017), Royal KPN N.V. since April 2015 (chairman of the remuneration committee) and Texel Airport N.V. since mid-2013 (chairman since January 2014). Previously, Mr. Hartman served as President and CEO of KLM Royal Dutch Airlines from 2007 to 2013, and as member of the supervisory boards of Kenya Airways from 2004 to 2013, Stork B.V. from 2008 to 2013, CAI Compagnia Aerea Italiana S.p.A. from 2009 to January 2014, Delta Lloyd Group N.V. from 2010 to May 2014 and Royal Ten Cate N.V. from July 2013 to February 2016. Mr. Hartman received a Bachelor’s degree in Mechanical Engineering from HTS Amsterdam, Amsterdam and a Master’s degree in Business Economics from Erasmus University, Rotterdam.

John Ormerod. Mr. Ormerod has served as a non-executive director since June 2014. Mr. Ormerod is a chartered accountant and worked for over 30 years in public accounting firms. He served for 32 years at Arthur

 

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Andersen, serving in various client service and management positions, with last positions held from 2001 to 2002 serving as Regional Managing Partner UK and Ireland, and Managing Partner (UK). From 2002 to 2004, he was Practice Senior Partner for London at Deloitte (UK) and was member of the UK executives and Board. Mr. Ormerod is a graduate of Oxford University. Until May 2018, Mr. Ormerod served in the following director positions: since 2006, as non-executive director of the audit committee of Gemalto N.V., where he also served as its Chairman until September 2017, and as member of the compensation committee; since 2008, as non-executive director of ITV plc, and as member of the remuneration and nominations committees, and as Chairman of the audit committee since 2010. Until December 31, 2015, Mr. Ormerod served as a non-executive director of Tribal Group plc., as member of the audit, remuneration and nominations committees and as Chairman of the board. Mr. Ormerod served as non-executive director and Chairman of the audit committee of Computacenter plc., and as member of the remuneration and nominations committees until April 1, 2015. Mr. Ormerod also served as a senior independent director of Misys plc. from 2006 to 2012, and as Chairman of the audit committee from 2005 to 2012.

Lori A. Walker. Ms. Walker has served as a non-executive director since June 2014. Ms. Walker currently serves as the audit committee chair of Southwire since 2014, and as a member of the audit and compensation committees of Compass Minerals since 2015. In August 2016, Ms. Walker was appointed to the Audit Committee Chair at Compass Minerals. Ms. Walker previously served as Chief Financial Officer and Senior Vice President of The Valspar Corporation from 2008 to 2013, where she led the Finance, IT and Communications teams. Prior to that position, Ms. Walker served as Valspar’s Vice President, Controller and Treasurer from 2004 to 2008, and as Vice President and Controller from 2001 to 2004. Prior to joining Valspar, Ms. Walker held a number of roles with progressively increasing responsibility at Honeywell Inc. during a 20-year tenure, with her last position there serving as director of Global Financial Risk Management. Ms. Walker holds a Bachelor of Science of Finance from Arizona State University and attended the Executive Institute Program and the Director’s College at Stanford University.

Martha Brooks. Ms. Brooks has served as a non-executive director since June 2016. Ms. Brooks was until her retirement in May 2009, President and Chief Operating Officer of Novelis, Inc, where she held senior positions since 2005. From 2002 to 2005, she served as Corporate Senior Vice President and President and Chief Executive Officer of Alcan Rolled Products, Americas and Asia. Before she joined Alcan, Ms. Brooks served 16 years with Cummins, the global leader in diesel engine and power generation from 1986 to 2002, ultimately running the truck and bus engine business. She is currently a member of the Boards of Directors of Bombardier Inc. and Jabil Circuit Inc. and has previously served as a director of Harley Davidson and International Paper. Ms. Brooks holds a BA in Economics and Political Science and a Master’s in Public and Private Management from Yale University.

Jean-Marc Germain. Mr. Germain has served as an executive director since June 2016 and as our Chief Executive Officer since July 2016. Prior to joining Constellium, Mr. Germain was Chief Executive Officer of Algeco Scotsman, a Baltimore-based leading global business services provider focused on modular space and secure portable storages. Previously, Mr. Germain held numerous leadership positions in the aluminium industry, including senior executive roles in operations, sales & marketing, financial planning and strategy with Pechiney, Alcan and Novelis. His last position with Novelis from 2008 to 2012 was as President for North American operations. Earlier in his career, he held a number of international positions with Bain & Company and GE Capital. Mr. Germain is a graduate of Ecole Polytechnique in Paris, France and a dual French and American citizen.

Stéphanie Frachet. Ms. Frachet was appointed as a non-executive director of Constellium in May 2018. Ms. Frachet is currently Managing Director and member of the Mid & Large Cap Executive committee at Bpifrance Investissement that she joined in 2009. Ms. Frachet is also, as permanent representative of Bpifrance, a Director of Eutelsat Communications, and an observer on the Board of Paprec and Horizon Parent Holdings Sarl. Previously, Ms. Frachet served for Bpifrance as a member of the Board of Carso (from 2013 to 2016), Cylande (from 2010 to 2017) and Sarenza (from 2014 to 2018), and as an Independent Director of Eurosic (from 2015 to

 

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2017). From 2002 to 2009, Ms. Frachet held various positions in auditing and financial consulting on mergers & acquisitions and LBOs at Ernst &Young, Pricewaterhouse Coopers and Société Générale CIB in Paris. Ms. Frachet graduated from ESSEC Business School in Paris in 2002.

The following persons are our executive officers as of the date of this Annual Report (ages are given as of December 31, 2018). The business address of each of our officers listed below is c/o Constellium, Tupolevlaan 41-61, 1119 NW Schiphol-Rijk, the Netherlands.

 

Name

   Age     

Title

Jean-Marc Germain

     52      Chief Executive Officer

Peter R. Matt

     56      Executive Vice President and Chief Financial Officer

Peter Basten

     43      President, Packaging and Automotive Rolled Products business unit

Ingrid Joerg

     49      President, Aerospace and Transportation business unit

Paul Warton

     57      President, Automotive Structures and Industry business unit

Jack Clark

     59      Senior Vice President Manufacturing Excellence and Chief Technical Officer

Philip Ryan Jurkovic

     47      Senior Vice President and Chief Human Resources Officer

Nicolas Brun

     52      Senior Vice President, Public Affairs, Communications and Sustainability

Jeremy Leach

     56      Senior Vice President and Group General Counsel

The following paragraphs set forth biographical information regarding our officers (other than Mr. Germain, whose biographical information is set forth above in the description of biographical information of our directors):

Peter R. Matt. Mr. Matt has served as our Executive Vice President and Chief Financial Officer since January 1, 2017. Prior to that, he served as our Chief Financial Officer Designate since November 2016. Prior to joining Constellium, he spent 30 years in investment banking at First Boston/Credit Suisse where he built leading Metals and Diversified Industrials coverage practices. From 2010-2015, he was the Managing Director and Group Head at First Boston/Credit Suisse responsible for managing the firm’s Global Industrials business in the Americas. Throughout his career, Mr. Matt has worked closely with management teams across a broad range of competencies including business strategy, capital structure, capital allocation, investor communications, treasury and mergers and acquisitions. He is a graduate of Amherst College.

Peter Basten. Mr. Basten has served as President of our Packaging and Automotive Rolled Products business unit since September 2017. He previously served as our Executive Vice President, Strategy, Business Development, Research & Development since 2016, and prior to that as our Vice President, Strategy and Business Planning, the Managing Director of Soft Alloys Europe at our Automotive Structures and Industry Business Unit and our Vice President Strategic Planning & Business Development. Mr. Basten joined Alcan in 2005 as the Director of Strategy and Business Planning at Alcan Specialty Sheet, and became Director of Sales and Marketing in 2008, responsible for the aluminium packaging applications markets. Prior to joining Alcan, Mr. Basten worked as a consultant at Monitor Group, a Strategy Consulting firm. His assignments ranged from developing marketing, corporate, pricing and competitive strategy to M&A and optimizing manufacturing operations. Mr. Basten holds degrees in Applied Physics (Delft University of Technology, Netherlands) and Economics & Corporate Management (ENSPM, France).

Ingrid Joerg. Ms. Joerg has served as President of our Aerospace and Transportation business unit since June 2015. Previously, Ms. Joerg served as Chief Executive Officer of Aleris Rolled Products Europe. Prior to joining Aleris, Ms. Joerg held leadership positions with Alcoa where she was President of its European and Latin American Mill Products business unit, and commercial positions with Amag Austria. Ingrid Joerg received a Master’s Degree in Business Administration from the University of Linz, Austria.

Paul Warton. Mr. Warton has served as President of our Automotive Structures & Industry business unit since January 2011, and previously held the same role at Alcan Engineered Products since November 2009. Mr. Warton joined Alcan Engineered Aluminum Products in November 2009. Following manufacturing, sales

 

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and management positions in the automotive and construction industries, he spent 17 years managing aluminium extrusion companies across Europe and in China. He has held the positions of President Sapa Building Systems & President Sapa North Europe Extrusions during the integration process with Alcoa soft alloy extrusions. Mr. Warton served on the Building Board of the European Aluminium Association (“EAA”) and was Chairman of the EAA Extruders Division. He holds an MBA from London Business School.

Jack Clark. Mr. Clark has served as our Senior Vice President Manufacturing Excellence and Chief Technical Officer since October 2016. In this role, Mr. Clark is responsible for research and technology at Constellium and supervises all EHS, Lean Continuous Improvement activities as well as Engineering, Reliability and CAPEX planning and execution. Prior to joining Constellium, Mr. Clark was Senior Vice President and Chief Technical Officer of Novelis. Mr. Clark graduated from Purdue University in Engineering and has more than 30 years of industry experience with Alcoa and Novelis on three continents.

Philip Ryan Jurkovic. Mr. Jurkovic has served as our Senior Vice President and Chief Human Resources Officer since November 2016. Prior to joining Constellium, Mr. Jurkovic was Senior Vice President and Chief Human Resources Officer of Algeco Scotsman. He started his career as a financial analyst before taking on various HR leadership roles in Europe, Asia and the U.S. with United Technologies and Novelis. Mr. Jurkovic has a BS from Allegheny College and an MBA from Purdue University.

Nicolas Brun. Mr. Brun has served as our Senior Vice President, Public Affairs, Communications and Sustainability since January 2018. Prior to that, he served as Senior Vice President, Public Affairs and Communications from September 2017 to January 2018, and as Vice President, Communications from January 2011 to January 2017. He previously held the same role at Alcan Engineered Products since June 2008. From 2005 through June 2008, Mr. Brun served in the roles of Vice President, Communications for Thales Alenia Space and also as Head of Communications for Thales’ Space division. Prior to 2005, Mr. Brun held senior global communications positions as Vice President External Communications with Alcatel, Vice President Communications Framatome ANP/AREVA, and with the Carlson Wagonlit Travel Group. Mr. Brun serves as President of Constellium Neuf Brisach SAS since October 2014, and as head of the French Branch of Constellium N.V. since May 2018. Mr. Brun attended University of Paris-La Sorbonne and received a degree in economics. He has a master’s degree in corporate communications from Ecole Française des Attachés de Presse and a certificate in marketing management for distribution networks from the Ecole Supérieure de Commerce in Paris.

Jeremy Leach. Mr. Leach has served as our Senior Vice President and Group General Counsel and Secretary to the Board of Constellium since January 2011 and previously was Vice President and General Counsel at Alcan Engineered Products. Mr. Leach joined Pechiney in 1991 from the international law firm Richards Butler (now Reed Smith). Prior to becoming General Counsel at Alcan Engineered Products, he was the General Counsel of Alcan Packaging and held various senior legal positions in Rio Tinto, Alcan and Pechiney. He has been admitted in a number of jurisdictions, holds a law degree from Oxford University (MA Jurisprudence) and an MBA from the London Business School.

 

B.

Compensation

Non-Executive Director Compensation

For 2018, each of our non-executive directors was paid an annual retainer of €60,000 and received €2,000 for each meeting of the board of directors they attended in person and €1,000 for each meeting they attended by telephone.

In addition, Mr. Evans, as Chairman of the Board received an additional annual retainer of €60,000; the Chairman of the Audit Committee received an additional annual retainer of €15,000; and the Chairman of each of the Human Resources and Remuneration Committee, the EHS and the Nominating and Governance Committee received an additional annual retainer of €8,000.

 

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On May 25, 2018, our non-executive directors received a grant of Restricted Stock Units (an “RSU”) having a grant date fair value equal to $50,000 for the Chairman of the Board and $40,000 for each other non-executive director.

Fifty percent (50%) of the RSUs (“Tranche I”) will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

Fifty percent (50%) of the RSUs (“Tranche II”) will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

The non-executive directors of the Board have not entered into any service contracts with the Company that provide either for benefits upon termination of employment or pension-related benefits.

The following table sets forth the remuneration due in respect of our 2018 fiscal year to our non-executive directors:

 

Name

   Annual
Director
Fees
     Board/
Committee
Attendance
Fees
     Equity
Award 2018
Grant(1)
     Total  

Richard B. Evans

   128,000      26,000      42,635      196,635  

Guy Maugis

   68,000      18,000      34,108      120,108  

Philippe Guillemot

   60,000      14,000      34,108      108,108  

Michiel Brandjes

   60,000      17,000      34,108      111,108  

Werner P. Paschke

   75,000      18,000      34,108      127,108  

Peter F. Hartman

   68,000      19,000      34,108      121,108  

John Ormerod

   60,000      26,000      34,108      120,108  

Lori A. Walker

   60,000      22,000      34,108      116,108  

Martha Brooks

   60,000      24,000      34,108      118,108  

Stéphanie Frachet(2)

   —        —        —        —    

Total

   639,000      184,000      315,499      1,138,499  

 

(1)

The amount reported in this column represents the grant date fair value of RSU awards granted on May 25, 2018, computed in accordance with IFRS 2. On May 25, 2018, Mr. Evans was granted 4,149 RSUs and all other non-executive directors, except for Mrs. Frachet, were granted 3,320 RSUs each. 50% of the RSUs (“Tranche I”) will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service. 50% of the RSUs (“Tranche II”) will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service. Amounts have been converted to Euros based on an exchange rate of 0.8527 Dollars to Euros to reflect the equivalent of $ 50,000 for the Chairman and $ 40,000 for each other non-executive directors, except for Mrs. Frachet. See also Note 30 of the Consolidated Financial Statements.

(2)

Ms. Frachet did not receive any fees for her services.

 

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Officer Compensation

The table below sets forth the remuneration paid during our 2018 fiscal year to certain of our executive officers. They include Jean-Marc Germain, our Chief Executive Officer, Peter Matt, our Chief Financial Officer, Paul Warton, our President Automotive Structures & Industry, Ingrid Joerg, our President Aerospace & Transportation and Peter Basten, our President Packaging & Automotive Rolled Products. The remuneration information for our executive officers other than our Chief Executive Officer Jean-Marc Germain is presented on an aggregate basis in the row “Other Executive Officers” in the table below.

 

Name

   Base
Salary
Paid
     Bonus
EPA
Paid
     Equity
Awards(1)
     Pension(2)      Other
Compensation(3)
     Total(4)  

Jean-Marc Germain

   868,772      1,335,654      4,058,577      20,978      32,916      6,316,897  

Other Executive Officers (Peter Matt, Paul Warton, Ingrid Joerg, and Peter Basten)

   2,005,327      2,176,363      3,519,030      184,944      85,468      7,971,132  

 

(1)

The amount reported as Equity Awards represents the grant date fair value of the awards granted in 2018, computed in accordance with IFRS 2. Jean-Marc Germain was granted the following in May 2018: (a) 197,531 performance-based restricted stock units (“PSUs”) (which can become a maximum of 395,062 shares); and (b) 100,765 RSUs. Our other executive officers listed were granted, in the aggregate, 171,287 PSUs (which can become a maximum of 342,574) and 87,378 RSUs. The PSUs vest on the third anniversary of the date of grant, subject to continued service and certain market-related performance conditions being satisfied, and have a vesting range of 0—200%. RSUs vest 100% on the third anniversary of the date of grant, subject to continued service. See hereafter “2018 Long-Term Incentive Plan” for description of market-related performance conditions. See also Note 30 of the Consolidated Financial Statements for more information.

(2)

Pension represents amounts contributed by the Company during the 2018 fiscal year to the U.S. and Swiss governments as part of the employer overall pension requirements apportioned to the base salary of these individuals.

(3)

Other compensation for Jean-Marc Germain includes car allowance, parking and premium for health, life and long-term disability insurance. Other compensation for Ms. Joerg as well as for Messrs. Matt, Warton and Basten includes flights (including for family members), car allowance, lunch allowance, tax and medical services, relocation and premiums for life and long-term disability insurance.

(4)

The total remuneration paid to such executive officers, including Mr. Germain and Mr. Matt, during our 2018 fiscal year amounted to €6,710,422, consisting of (i) an aggregate base salary of €2,874,099, (ii) aggregate short-term incentive compensation of €3,512,017, and (iii) aggregate other compensation in an amount equal to €118,384. The total amount contributed to the value of the pensions for such executive officers was €205,922.

Below is a brief description of the compensation and benefit plans as well as share ownership guidelines in which our executive officers participate.

Share Ownership Guidelines for Executive Officers

In 2018, we adopted Share-Ownership Guidelines (SOGs) for our executive officers to further encourage minimum levels of ownership and to further foster alignment between the Executive Committee and shareholder interests. The SOGs are as follows:

 

   

400% of base salary             CEO

 

   

200% of base salary             CFO and Business Unit Presidents

 

   

100% of base salary             Other executive officers

 

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The SOGs give the executive officers five years from appointment to achieve guideline percentages. It is expected that, depending on Constellium share price, all of our executive officers will reach the SOGs in advance of the five-year requirement.

2018 Employee Performance Award Plan

Each of our executive officers, among other selected employees, participates in the Employee Performance Award Plan (which we refer to as the “EPA”). The EPA is an annual cash bonus plan intended to provide performance-related award opportunities to employees contributing substantially to the success of Constellium. Under the EPA, participants are provided opportunities to earn cash bonuses (expressed as a percentage of base salary, and paid in the year following the performance period) based on the level of achievement of certain Financial and EHS Objectives as approved by our human resources and remuneration committee for the applicable annual performance period, as well as Individual Objectives established by the applicable participant’s supervisor (as described below).

The three components of bonuses awarded under the EPA for 2018 had the following weights:

 

   

Financial Objectives—70%;

 

   

EHS Objective—10%; and

 

   

Individual Objectives—20%.

The Financial Objectives are calculated on an annual basis and take into account two components as defined and reported by the Company’s corporate controller: Adjusted EBITDA (50%) and Trade Working Capital Days (20%). To promote synergies throughout the Company, the EPA is designed to encourage individual plants, business units and our corporate division to work closely together to achieve common strategic, operating and financial goals. Therefore, the Financial Objectives are defined, depending on the level of the employee, as a combination of the financial results of the Company, the business unit and / or operating unit/site. The threshold performance level for the Financial Objectives is set at 80% of the target level. If threshold performance is not achieved, there is no payout for the Financial Objectives. Between threshold performance and target performance, payouts increase linearly from 0% to 100%. The maximum performance level is set at 120% of the target level. Achieving 120% of the target level results in a payout of 200%, with linear interpolation (meaning each percentage point higher than 100% adds additional payout of 5%).

The EHS Objective is measured on a quarterly basis for Constellium and its subsidiaries. In case of a fatality or type I (major) environmental event, the payout for the EHS Objective is zero for (i) employees of the operating site, (ii) the associated business unit leadership as well as (iii) the members of the Executive Committee. This substantial impact on EPA payout reflects the fact that the safety for our employees is our number one priority. Payout for EHS Objectives can range from 0% to 200%.

The Individual Objectives are evaluated annually via the Performance Management Program, and achievement against these objectives is used to determine the percentage attained of the Individual Objectives target.

The payout scale defines the performance levels and resulting payouts. Achieving target performance results in a payout at 100% of the target amount. Overall payout can range from 0% to 150% of the target amount.

The EPA 2018 was applicable to approximately 1,900 employees worldwide. For its payout in 2019, the following results were earned by our employees:

 

   

Financial Objectives: The payout ranged from 0% to 200%.

 

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EHS Objective: The payout ranged from 0% to 187%.

 

   

Individual Objectives: The payout ranged from 0% to 150%. The payout for Mr. Germain was 125%.

Constellium N.V. 2013 Equity Incentive Plan

The Company adopted the Constellium N.V. 2013 Equity Incentive Plan (the “Constellium 2013 Equity Plan”). The principal purposes of this plan are to focus directors, officers and other employees and consultants on business performance to help create shareholder value, to encourage innovative approaches to the business of the Company and to encourage ownership of our ordinary shares by directors, officers and other employees and consultants. It is also intended to recognize and retain our key employees and high potentials needed to sustain and ensure our future and business competitiveness.

The Constellium 2013 Equity Plan provides for a variety of awards, including “incentive stock options” (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) (“ISOs”), nonqualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance units, other stock-based awards or any combination of those awards. The Constellium 2013 Equity Plan provides that awards may be made under the plan for 10 years. We have reserved a total of 14,292,291 ordinary shares (of which 7,292,291 ordinary shares originally reserved, as well as 7,000,000 ordinary shares newly reserved, as approved in the annual general meeting of shareholders in 2018) for issuance under the Constellium 2013 Equity Plan, subject to adjustment in certain circumstances to prevent dilution or enlargement.

Administration

The Constellium 2013 Equity Plan is administered by our human resources and remuneration committee. The board of directors or the human resources and remuneration committee may delegate administration to one or more members of our board of directors. The human resources and remuneration committee has the power to interpret the Constellium 2013 Equity Plan and to adopt rules for the administration, interpretation and application of the Constellium 2013 Equity Plan according to its terms. The human resources and remuneration committee determines the number of our ordinary shares that will be subject to each award granted under the Constellium 2013 Equity Plan and may take into account the recommendations of our senior management in determining the award recipients and the terms and conditions of such awards. Subject to certain exceptions as may be required pursuant to Rule 16b-3 under the Exchange Act, if applicable, our board of directors may, at any time and from time, to time exercise any and all rights and duties of the human resources and remuneration committee under the Constellium 2013 Equity Plan.

Eligibility

Certain directors, officers, employees and consultants are eligible to be granted awards under the Constellium 2013 Equity Plan. Our human resources and remuneration committee determines:

 

   

which directors, officers, employees and consultants are to be granted awards;

 

   

the type of award that is granted;

 

   

the number of our ordinary shares subject to the awards; and

 

   

the terms and conditions of such awards, consistent with the Constellium 2013 Equity Plan.

Our human resources and remuneration committee has the discretion, subject to the limitations of the Constellium 2013 Equity Plan and applicable laws, to grant awards under the plan (except that only our employees may be granted ISOs).

 

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Stock Options

Subject to the terms and provisions of the Constellium 2013 Equity Plan, stock options to purchase our ordinary shares may be granted to eligible individuals at any time and from time to time as determined by our human resources and remuneration committee. Stock options may be granted as ISOs, which are intended to qualify for favorable treatment to the recipient under U.S. federal tax law, or as nonqualified stock options, which do not qualify for this favorable tax treatment. Subject to the limits provided in the Constellium 2013 Equity Plan, our human resources and remuneration committee has the authority to determine the number of stock options granted to each recipient. Each stock option grant is evidenced by a stock option agreement that specifies the stock option exercise price, whether the stock options are intended to be incentive stock options or nonqualified stock options, the duration of the stock options, the number of shares to which the stock options pertain, and such additional limitations, terms and conditions as our human resources and remuneration committee may determine.

Our human resources and remuneration committee determines the exercise price for each stock option granted, except that the stock option exercise price may not be less than 100% of the fair market value of an ordinary share on the date of grant. All stock options granted under the Constellium 2013 Equity Plan expire no later than 10 years from the date of grant. Stock options are nontransferable except by will or by the laws of descent and distribution or, in the case of nonqualified stock options, as otherwise expressly permitted by our human resources and remuneration committee. The granting of a stock option does not accord the recipient the rights of a shareholder, and such rights accrue only after the exercise of a stock option and the registration of ordinary shares in the recipient’s name.

Stock Appreciation Rights

Our human resources and remuneration committee in its discretion may grant SARs under the Constellium 2013 Equity Plan. SARs may be “tandem SARs,” which are granted in conjunction with a stock option, or “free-standing SARs,” which are not granted in conjunction with a stock option. A SAR entitles the holder to receive from us, upon exercise, an amount equal to the excess, if any, of the aggregate fair market value of a specified number of our ordinary shares to which such SAR pertains over the aggregate exercise price for the underlying shares. The exercise price of a free-standing SAR may not be less than 100% of the fair market value of an ordinary share on the date of grant.

A tandem SAR may be granted at the grant date of the related stock option. A tandem SAR may be exercised only at such time or times and to the extent that the related stock option is exercisable and has the same exercise price as the related stock option. A tandem SAR terminates or is forfeited upon the exercise or forfeiture of the related stock option, and the related stock option terminates or is forfeited upon the exercise or forfeiture of the tandem SAR.

Each SAR is evidenced by an award agreement that specifies the exercise price, the number of ordinary shares to which the SAR pertains and such additional limitations, terms and conditions as our human resources and remuneration committee may determine. We may make payment of the amount to which the participant exercising the SARs is entitled by delivering ordinary shares, cash or a combination of stock and cash as set forth in the award agreement relating to the SARs. SARs are not transferable except by will or the laws of descent and distribution or, with respect to SARs that are not granted in “tandem” with a stock option, as expressly permitted by our human resources and remuneration committee.

Restricted Stock

The Constellium 2013 Equity Plan provides for the award of ordinary shares that are subject to forfeiture and restrictions on transferability to the extent permitted by applicable law and as set forth in the Constellium 2013 Equity Plan, the applicable award agreement and as may be otherwise determined by our human resources

 

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and remuneration committee. Except for these restrictions and any others imposed by our human resources and remuneration committee to the extent permitted by applicable law, upon the grant of restricted stock, the recipient will have rights of a shareholder with respect to the restricted stock, including the right to vote the restricted stock and to receive all dividends and other distributions paid or made with respect to the restricted stock on such terms as set forth in the applicable award agreement. During the restriction period set by our human resources and remuneration committee, the recipient is prohibited from selling, transferring, pledging, exchanging or otherwise encumbering the restricted stock to the extent permitted by applicable law.

Restricted Stock Units

The Constellium 2013 Equity Plan authorizes our human resources and remuneration committee to grant RSUs. RSUs are not ordinary shares and do not entitle the recipient to the rights of a shareholder, although the award agreement may provide for rights with respect to dividend equivalents. The recipient may not sell, transfer, pledge or otherwise encumber RSUs granted under the Constellium 2013 Equity Plan prior to their vesting. RSUs may be settled in cash, ordinary shares or a combination thereof as provided in the applicable award agreement, in an amount based on the fair market value of an ordinary share on the settlement date.

Performance-Based Restricted Stock Units

The Constellium 2013 Equity Plan provides for the award of PSUs that are valued by reference to a designated amount of cash or to property other than ordinary shares. The payment of the value of a PSU is conditioned upon the achievement of performance goals set by our human resources and remuneration committee in granting the PSU and may be paid in cash, ordinary shares, other property or a combination thereof. Any terms relating to the termination of a participant’s employment will be set forth in the applicable award agreement.

Other Stock-Based Awards

The Constellium 2013 Equity Plan also provides for the award of ordinary shares and other awards that are valued by reference to our ordinary shares, including unrestricted stock, dividend equivalents and convertible debentures.

Performance Goals

The Constellium 2013 Equity Plan provides that performance goals may be established by our human resources and remuneration committee in connection with the grant of any award under the Constellium 2013 Equity Plan.

Termination without Cause Following a Change in Control

Upon a termination of employment of a plan participant occurring upon or during the two years immediately following the date of a “change in control” (as defined in the Constellium 2013 Equity Plan) by the Company without “cause” (as defined in the Constellium 2013 Equity Plan), unless otherwise provided in the applicable award agreement, (i) all awards held by such participant will vest in full (in the case of any awards that are subject to performance goals, at target) and be free of restrictions, and (ii) any option or SAR held by the participant as of the date of the change in control that remains outstanding as of the date of such termination of employment may thereafter be exercised until (A) in the case of ISOs, the last date on which such ISOs would otherwise be exercisable or (B) in the case of nonqualified options and SARs, the later of (x) the last date on which such nonqualified option or SAR would otherwise be exercisable and (y) the earlier of (I) the second anniversary of such change in control and (II) the expiration of the term of such nonqualified option or SAR.

Amendments

Our board of directors or our human resources and remuneration committee may amend, alter or discontinue the Constellium 2013 Equity Plan, but no amendment, alteration or discontinuation will be made that would

 

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materially impair the rights of a participant with respect to a previously granted award without such participant’s consent, unless such an amendment is made to comply with applicable law, including, without limitation, Section 409A of the Code, stock exchange rules or accounting rules. In addition, no such amendment will be made without the approval of the Company’s shareholders to the extent such approval is required by applicable law or the listing standards of the applicable stock exchange.

2018 Long-Term Incentive Plan

The 2018 Long-Term Incentive Plan (which we refer to as the “2018 LTIP”) had mainly the same plan design as the 2017 Long-Term Incentive Plan. For our executive officers, as well as for other selected employees, awards consisted of PSUs and RSUs. These awards were granted on May 25, 2018, and are subject to a three-year cliff vesting period, subject to the participant’s continued service through the applicable vesting date, and for PSUs, certain market-related performance conditions being satisfied. For other selected employees, awards consisted of RSUs only.

With regard to PSUs, for the purposes of computing the Constellium Total Shareholder Return (the “Constellium TSR”), (i) the stock price at the beginning of the performance period is deemed to be the average closing share price for the 20 trading days preceding the grant date, and (ii) the stock price at the end of the performance period is deemed to be the average closing share price for the 20 trading days preceding the third anniversary of the grant date. Constellium measures itself against a peer group consisting of the S&P MidCap 400 Materials Index and the S&P SmallCap 600 Materials Index, which represents approximately 60 constituents. The 20-day average starting point of a Constellium share for the May 25, 2018 grant date is $11.70. The level of achievement shall be determined by comparing the Constellium TSR to the average of the TSRs of the two indices indicated above as follows:

 

   

If the Constellium TSR is below the average of the two median TSRs, no PSUs will vest.

 

   

If the Constellium TSR is at the average of the two median TSRs, 100% of the target PSUs will vest.

 

   

If the Constellium TSR is at or above the average of the two 75th percentile TSRs, 200% of the target PSUs will vest.

 

   

If the Constellium TSR is between the average of the two median TSRs and the average of the two 75th percentile TSRs, then the number of PSUs will be determined by linear interpolation on a straight line basis.

 

   

If the Constellium TSR is negative, the number of PSUs that vest will be capped at 100% of target.

For purposes of the 2018 LTIP, a double trigger was re-established with respect to the vesting of RSUs and PSUs upon a change in control (i.e., accelerated vesting requires two triggers: (i) change in control as well as (ii) termination of employment without cause or voluntary termination for good reason). In the event of such a double trigger being applied at any time prior to vesting, unvested RSUs and PSUs will be converted into cash-denominated rights that vest on the date of employment termination. For both RSUs and PSUs, the reference date for the share price will be the date immediately preceding the change in control. For PSUs, the rights will be based on the higher of (I) the base amount (i.e., at target) or (II) the measured TSR on the reference date.

For the 2018 LTIP, 701,109 PSUs (which can become 1,402,218) and 587,687 RSUs were granted on May 25, 2018. 90 participants were granted both PSUs and RSUs and an additional 74 participants were granted RSUs only. On December 31, 2018, 692,325 PSUs (which can become 1,384,650) and 572,618 RSUs were outstanding. 87 participants held both PSUs and RSUs and an additional 72 participants held RSUs only.

For the 2017 LTIP, 892,781 PSUs (which can become 1,785,562 shares) and 703,180 RSUs were granted on July 31, 2017. 82 participants were granted both PSUs and RSUs and an additional 32 participants were granted RSUs only. On December 31, 2018, 816,137 PSUs (which can become 1,632,274 shares) and 625,906 RSUs were outstanding. 74 participants held both PSUs and RSUs and an additional 27 participants held RSUs only.

 

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Employment and Service Arrangements

Constellium is party to employment or services agreements with each of its officers. In general, the Company may terminate its officers’ employment or services for “cause” upon advance written notice, without compensation, for certain acts of the officer. Each officer may terminate his or her employment at any time upon advance written notice to Constellium. In the event that the officer’s employment or services is terminated by Constellium without cause or, in the case of certain executives, by him for “good reason,” the officer is entitled to certain payments as provided by applicable laws or collective bargaining agreements or as otherwise provided under the applicable employment or services agreements. Except for the foregoing, our officers are not entitled to any severance payments upon the termination of their employment or services for any reason.

Under such employment and services agreements, each of the officers has also agreed not to engage or participate in any business activities that compete with Constellium or solicit its employees or customers for (depending on the officer) up to two years after the termination of the employment or services. The officers have further agreed not to use or disseminate any confidential information concerning Constellium as a result of performing their duties or using Constellium resources during their employment or services.

Contracts with certain of our executive officers are described below.

Employment Agreement with Jean-Marc Germain

The Company entered into an employment agreement with Jean-Marc Germain, dated April 25, 2016. The employment agreement with Mr. Germain provides for an annual base salary of $980,000 per year until March 31, 2018, which amount was raised to $1,040,000 per year as of April 1, 2018, a target annual bonus of 120% of base salary (equal to $1,248,000), and a maximum annual bonus of 180% of base salary (equal to $1,872,000). In addition, as described above, Mr. Germain was granted the following equity awards in May 2018: (1) 197,531 PSUs (which can become a maximum of 395,062 shares) and (2) 100,765 RSUs. The PSUs vest on the third anniversary of the grant date, subject to continued service and certain market-related performance conditions being satisfied, and have a vesting range of 0-200%. RSUs vest 100% on the third anniversary of the date of grant, subject to continued service.

If Mr. Germain is terminated by the Company without “cause” or he resigns for “good reason” (each as defined in the employment agreement), he will be entitled to receive, subject to his execution and non-revocation of a general release of claims, cash severance in an amount equal to the product of (1) one (two, if such termination occurs within the 12-month period following a “change in control” (as defined in the employment agreement)) multiplied by (2) the sum of his base salary and target annual bonus, which severance will be payable over the 12-month (24-month, in the case of a termination within the 12-month period following a change in control) period following his termination of employment. The employment agreement also includes a perpetual confidentiality covenant, a perpetual mutual non-disparagement covenant, and 12-month post-termination non-competition and non-solicitation covenants.

Employment Agreement with Peter Matt

The Company entered into an employment agreement with Peter Matt, dated as of October 26, 2016. The employment agreement with Mr. Matt provides for an annual base salary of $600,000 per year until March 31, 2018, which amount was raised to $625,000 per year as of April 1, 2018, a target annual bonus of 90% of base salary (equal to $562,500), and a maximum annual bonus of 135% (equal to $843,750) of base salary. In addition, Mr. Matt was granted the following equity awards in May 2018: (1) 67,901 (which can become a maximum of 135,802 shares) PSUs and (2) 34,638 RSUs. The PSUs vest on the third anniversary of the grant date, subject to continued service and certain market-related performance conditions being satisfied, and have a vesting range of 0-200%. RSUs vest 100% on the third anniversary of the date of grant, subject to continued service.

 

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If Mr. Matt is terminated by the Company without “cause” or he resigns for “good reason” (each as defined in the employment agreement), he will be entitled to receive, subject to his execution and non-revocation of a general release of claims, (1) cash severance in an amount equal to the sum of his base salary and target annual bonus and (2) six months of continued welfare benefits at the Company’s expense. The employment agreement also includes a perpetual confidentiality covenant and 12-month post-termination non-competition and non-solicitation covenants. If Mr. Matt’s employment is terminated without “cause,” the Company will also offer Mr. Matt an additional amount equal to 50% of the sum of his base salary, target annual bonus, and vacation pay in consideration for his agreeing to not compete.

 

C.

Board Practices

Our board of directors (the “Board”) currently consists of 11 directors, less than a majority of whom are citizens or residents of the United States. The Board held six meetings in 2018.

We currently have a one-tier Board consisting of one Executive Director and ten Non-Executive Directors (each, a “Director”). For a listing of the current terms of service of our Directors, see “—A. Directors and Senior Management” above. Under Dutch law, the Board is responsible for our policy making and day-to-day management. The Non-Executive Directors supervise and provide guidance to the Executive director. None of our Non-Executive Directors have an employment arrangement with the Company. Each Director owes a duty to us to properly perform the duties assigned to him/her and to act in our corporate interest. Under Dutch law, the corporate interest extends to the interests of all corporate stakeholders, such as shareholders, creditors, employees, customers and suppliers.

Constellium is required under the Dutch Civil Code to strive for a balanced composition of the Board to the effect that at least 30% of the positions on the Board are held by women and at least 30% by men. There is no legal sanction if the composition of the Board is not balanced in accordance with the Dutch Civil Code. An appointment contrary to these rules is therefore not null and void. However, if the seats on the Board are not apportioned as required, such deviation must be explained in its annual report. With respect to this requirement we refer you to “Item 16G. Corporate Governance—Diversity policy (Best practice provision 2.1.5)”.

Our Articles of Association provide that our shareholders acting at a general meeting (a “General Meeting”) appoint directors upon a binding nomination by the Board. The General Meeting may at all times overrule the binding nature of such nomination by a resolution adopted by a majority of at least two-thirds of the votes cast, provided that such majority represents more than 50% of our issued share capital. If the binding nomination is overruled, the Non-Executive Directors may then make a new nomination. If such a nomination has not been made or has not been made in time, this shall be stated in the notice and the General Meeting shall be free to appoint a director in its discretion. Such a resolution of the General Meeting must be adopted by at least two-thirds of the votes cast, provided that such majority represents more than 50% of our issued share capital.

The Directors may be suspended or dismissed at any time by the General Meeting. A resolution to suspend or dismiss a Director must be adopted by at least two-thirds of the votes cast, provided that such majority represents more than 50% of our issued share capital. If, however, the proposal to suspend or dismiss the Directors is made by the Board, the proposal must be adopted by a simple majority of the votes cast at the General Meeting. The Executive Director can at all times be suspended by the Board.

Director Independence

As a foreign private issuer under the NYSE rules, we are not required to have independent Directors on our Board, except to the extent that our audit committee is required to consist of independent Directors. However, our Board has determined that, under current NYSE listing standards regarding independence (which we are not currently subject to), and taking into account any applicable committee standards, as of December 31, 2018, Messrs. Evans, Brandjes, Guillemot, Hartman, Maugis, Ormerod, Paschke and Mmes. Walker, Brooks and

 

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Frachet are deemed independent directors. Under these standards, Mr. Germain is not deemed independent as he serves as the CEO of the Company.

Committees

Audit Committee

As of December 31, 2018, our audit committee consisted of four independent directors under the NYSE requirements: Werner Paschke (Chair), Martha Brooks, John Ormerod and Lori Walker. Our Board has determined that at least one member is an “audit committee financial expert” as defined by the SEC and also meets the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) under the Exchange Act. The audit committee held eight meetings in 2018.

The principal duties and responsibilities of our audit committee are to oversee and monitor the following:

 

   

our financial reporting process and internal control system;

 

   

the integrity of our consolidated financial statements;

 

   

the independence, qualifications and performance of our independent registered public accounting firm;

 

   

the performance of our internal audit function; and

 

   

our compliance with legal, ethical and regulatory matters.

Human Resources and Remuneration Committee

As of December 31, 2018, our human resources and remuneration committee consisted of four directors: Peter Hartman (Chair), Martha Brooks, Richard Evans and Guy Maugis. The human resources and remuneration committee held five meetings in 2018.

The principal duties of our human resources and remuneration committee are as follows:

 

   

to review, evaluate and make recommendations to the full Board regarding our compensation policies and establish performance-based incentives that support our long-term goals, objectives and interests;

 

   

to review and approve the compensation of our Chief Executive Officer, all employees who report directly to our Chief Executive Officer and other members of our senior management;

 

   

to review and approve the departure conditions of employees who reported directly to our CEO and who have left Constellium;

 

   

to review and approve compensation structure and level of any new employee who reports directly to our CEO;

 

   

to review and make recommendations to the Board with respect to our incentive compensation plans and equity-based compensation plans;

 

   

to set and review the compensation of and reimbursement policies for members of the Board;

 

   

to provide oversight concerning selection of officers, management succession planning, expense accounts, indemnification and insurance matters, and separation packages; and

 

   

to provide regular reports to the Board and take such other actions as are necessary and consistent with our Articles of Association.

Nominating/Governance Committee

As of December 31, 2018, our nominating/governance committee consisted of three directors: Richard Evans (Chair), Michiel Brandjes and John Ormerod. The nominating/governance committee held five meetings in 2018.

 

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The principal duties and responsibilities of the nominating/governance committee are as follows:

 

   

to establish criteria for Board and committee membership and recommend to our Board proposed nominees for election to the Board and for membership on committees of our Board; and

 

   

to make recommendations to our Board regarding board governance matters and practices; and

 

   

to review conflicts of interest, related party matters and director independence.

Environment, Health and Safety Committee

As of December 31, 2018, our environment, health and safety committee consisted of three directors: Guy Maugis (Chair), Philippe Guillemot and Lori Walker. The environment, health and safety committee held two meetings in 2018.

The principal duties and responsibilities of the environment, health and safety committee are to review and monitor the following:

 

   

the Company’s policies, practices and programs with respect to the management of EHS affairs, including sustainability;

 

   

the adequacy of the Company’s policies, practices and programs for ensuring compliance with EHS laws and regulations; and

 

   

any significant EHS litigation and regulatory proceedings in which the Company is or may become involved.

 

D.

Employees

As of December 31, 2018, we employed approximately 13,000 employees, including approximately 800 fixed-term contractors as well as approximately 800 temporary employees. 90% of our employees were engaged in production and maintenance activities and approximately 10% were employed in support functions. Approximately 37% of our permanent employees were employed in France, 28% in the United States, 20% in Germany, 6% in Switzerland, and 9% in Eastern Europe and other regions, which percentages are comparable to the distribution of employees geographically in 2017.

A vast majority of non-U.S. employees and approximately 46% of U.S. employees are covered by collective bargaining agreements. These agreements are negotiated on site, regionally or on a national level, and are of different durations.

 

E.

Share Ownership

Information with respect to share ownership of members of our board of directors and our senior management is included in “Item 7. Major Shareholders and Related Party Transactions.”

Equity Incentive Plans

The Company has adopted the Constellium 2013 Equity Plan and the 2018 LTIP thereunder pursuant to which certain of our directors, officers, employees, and consultants are eligible to receive equity awards. See “—Constellium N.V. 2013 Equity Incentive Plan” and “—2018 Long-Term Incentive Plan” above.

 

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Item 7. Major Shareholders and Related Party Transactions

 

A.

Major Shareholders

The following table sets forth the major shareholders of Constellium N.V. as known by us or ascertained from public filings made by our major shareholders (each person or group of affiliated persons who is known to be the beneficial owner of more than 5% of ordinary shares) and the number and percentage of ordinary shares owned by each such shareholder, in each case as of March 8, 2019.

Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of such securities as to which such person has voting or investment power.

The beneficial ownership percentages in this table have been calculated on the basis of the total number of Class A ordinary shares.

 

Name of beneficial owner

   Number of
Class A
ordinary shares
    Beneficial
ownership
percentage
 

Caisse des Dépôts (f/k/a Caisse des Dépôts et Consignations), Bpifrance Participations S.A., Bpifrance S.A. (f/k/a BPI-Groupe (bpifrance)), EPIC Bpifrance (f/k/a EPIC BPI-Groupe)

     16,393,903 (1)       12.1

Directors and Senior Management

    

Richard B. Evans

     230,468 (2)       *  

Guy Maugis

     18,198 (3)       *  

Philippe Guillemot

     19,356 (4)       *  

Werner P. Paschke

     100,000 (5)       *  

Michiel Brandjes

     32,366 (6)       *  

Peter F. Hartman

     22,173 (7)       *  

John Ormerod

     22,173 (8)       *  

Lori A. Walker

     19,673 (9)       *  

Martha Brooks

     24,041 (10)       *  

Stéphanie Frachet

     0 (11)       *  

Jean-Marc Germain

     160,976 (12)    

Peter R. Matt

     120,000 (13)       *  

Ingrid Joerg

     70,000 (14)       *  

Paul Warton

     215,575 (15)       *  

Peter Basten

     199,003 (16)       *  

 

*

Represents beneficial ownership of less than 1%.

(1)

This information is based on a Schedule 13D/A filed with the SEC on November 8, 2017. Bpifrance Participations S.A. (“Bpifrance”) is a French public investment fund specializing in the business of equity financing via direct investments or fund of funds and a wholly owned subsidiary of Bpifrance S.A. , a French financial institution (“Bpifrance S.A.”). Caisse des Dépôts (“CDC”) and EPIC Bpifrance (“EPIC”) each hold 50% of the share capital of Bpifrance S.A. and jointly control Bpifrance S.A. CDC is principally engaged in the business of long-term investments. EPIC is principally engaged in the business of banking finance. Bpifrance holds directly 16,393,903 ordinary shares. As of the date hereof, neither Bpifrance S.A., CDC nor EPIC holds any ordinary shares directly. Bpifrance S.A. may be deemed to be the beneficial owner of 16,393,903 ordinary shares, indirectly through its sole ownership of Bpifrance. CDC and EPIC may be deemed to be the beneficial owners of 16,393,903 ordinary shares, indirectly through their joint ownership

 

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  and control of Bpifrance S.A. The principal address for CDC is 56, rue de Lille, 75007 Paris, France and for Bpifrance, Bpifrance S.A. and EPIC is 27-31 avenue du Général Leclerc 94700 Maisons-Alfort, France.
(2)

Consists of 230,468 Class A ordinary shares held indirectly by Mr. Evans through the Evans Family Inter Vivos Revocable Trust. Excludes the remaining portions of previous grants: 3,676 Class A ordinary shares underlying unvested restricted stock units (“RSUs”) that will vest on June 15, 2019, 2,075 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 2,074 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

(3)

Consists of 18,198 Class A ordinary shares held directly by Mr. Maugis. Excludes the remaining portions of previous grants: 2,941 Class A ordinary shares underlying unvested RSUs that will vest on June 15, 2019, 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

(4)

Consists of 19,356 Class A ordinary shares held directly by Mr. Guillemot. Excludes the remaining portions of previous grants: 2,941 Class A ordinary shares underlying unvested RSUs that will vest on June 15, 2019, 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

(5)

Consists of 100,000 Class A ordinary shares held directly by Mr. Paschke. Excludes the remaining portions of previous grants: 2,941 Class A ordinary shares underlying unvested RSUs that will vest on June 15, 2019, 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

(6)

Consists of 32,366 Class A ordinary shares held directly by Mr. Brandjes. Excludes the remaining portions of previous grants: 2,941 Class A ordinary shares underlying unvested RSUs that will vest on June 15, 2019, 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

(7)

Consists of 22,173 Class A ordinary shares held directly by Mr. Hartman. Excludes the remaining portions of previous grants: 2,941 Class A ordinary shares underlying unvested RSUs that will vest on June 15, 2019, 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

(8)

Consists of 22,173 Class A ordinary shares held by Mr. Ormerod. Excludes the remaining portions of previous grants: 2,941 Class A ordinary shares underlying unvested RSUs that will vest on June 15, 2019, 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

(9)

Consists of 19,673 Class A ordinary shares held directly by Ms. Walker. Excludes the remaining portions of previous grants: 2,941 Class A ordinary shares underlying unvested RSUs that will vest on June 15, 2019, 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

 

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(10)

Consists of 24,041 Class A ordinary shares held directly by Ms. Brooks. Excludes the remaining portions of previous grants: 2,941 Class A ordinary shares underlying unvested RSUs that will vest on June 15, 2019, 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2019 or (ii) the date of the annual general meeting of shareholders of that year, and 1,660 Class A ordinary shares underlying unvested RSUs that will vest on the earlier of (i) May 25, 2020 or (ii) the date of the annual general meeting of shareholders of that year, subject to continued service.

(11)

No Class A ordinary shares are held directly by Ms. Frachet and no RSUs or PSUs were granted in 2018.

(12)

Consists of 160,976 Class A ordinary shares held directly by Mr. Germain. Excludes the remaining portions of previous grants: 100,000 Class A ordinary shares underlying unvested RSUs that will vest on August 4, 2019, subject to continued service; a target of 150,000 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 300% of target on August 4, 2019, subject to continued service and certain market-related performance conditions being satisfied at each anniversary during the three-year vesting period; 216,943 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on July 31, 2020, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; 110,667 Class A ordinary shares underlying unvested RSUs that will vest on July 31, 2020, subject to continued service; 197,531 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on May 25, 2021, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; and 100,765 Class A ordinary shares underlying unvested RSUs that will vest on May 25, 2021, subject to continued service.

(13)

Consists of 120,000 Class A ordinary shares held directly by Mr. Matt. Excludes the remaining portions of previous grants: 80,000 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 300% of target on November 14, 2019, subject to continued service and certain market-related performance conditions being satisfied at each anniversary during the three-year vesting period; 71,946 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on July 31, 2020, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; 36,701 Class A ordinary shares underlying unvested RSUs that will vest on July 31, 2020, subject to continued service; 67,901 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on May 25, 2021, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; and 34,638 Class A ordinary shares underlying unvested RSUs that will vest on May 25, 2021, subject to continued service.

(14)

Consists of 70,000 Class A ordinary shares held directly by Ms. Joerg. Excludes the remaining portions of previous grants: 60,000 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 300% of target on March 17, 2019, subject to continued service and certain market-related performance conditions being satisfied at each anniversary during the three-year vesting period; 47,214 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on July 31, 2020, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; 24,085 Class A ordinary shares underlying unvested RSUs that will vest on July 31, 2020, subject to continued service; 34,462 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on May 25, 2021, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; and 17,580 Class A ordinary shares underlying unvested RSUs that will vest on May 25, 2021, subject to continued service.

(15)

Consists of 215,575 Class A ordinary shares held directly by Mr. Warton. Excludes the remaining portions of previous grants: 50,000 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 300% of target on March 17, 2019, subject to continued service and certain market-related performance conditions being satisfied at each anniversary during the three-year vesting period; 42,170 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on July 31, 2020, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; 21,512 Class A ordinary shares underlying unvested RSUs that will vest on July 31, 2020, subject to continued service; 34,462 Class A ordinary shares

 

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  underlying unvested PSUs that could vest ranging from 0% to 200% of target on May 25, 2021, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; and 17,580 Class A ordinary shares underlying unvested RSUs that will vest on May 25, 2021, subject to continued service.
(16)

Consists of 199,003 Class A ordinary shares held directly by Mr. Basten. Excludes the remaining portions of previous grants: 35,000 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 300% of target on March 17, 2019, subject to continued service and certain market-related performance conditions being satisfied at each anniversary during the three-year vesting period; 35,000 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 300% of target on August 4, 2019, subject to continued service and certain market-related performance conditions being satisfied at each anniversary during the three-year vesting period; 31,485 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on July 31, 2020, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; 16,061 Class A ordinary shares underlying unvested RSUs that will vest on July 31, 2020, subject to continued service; 34,462 Class A ordinary shares underlying unvested PSUs that could vest ranging from 0% to 200% of target on May 25, 2021, subject to continued service and certain market-related performance conditions being satisfied at the end of the three-year vesting period; and 17,580 Class A ordinary shares underlying unvested RSUs that will vest on May 25, 2021, subject to continued service.

None of our principal shareholders have voting rights different from those of our other shareholders.

Over the last three years, the only significant changes of which we have been notified in the percentage ownership of our shares by our major shareholders described above were that prior to the IPO, immediately following the completion of the purchase of the EAP Business: Apollo Funds held 51% of our ordinary shares, Rio Tinto held 39% of our ordinary shares, and Bpifrance (f/k/a FSI) held 10% of our ordinary shares. As of the date of this Annual Report, Apollo Funds holds 0% of our ordinary shares, Rio Tinto holds 10 shares of our ordinary shares and Bpifrance holds 12.1% of our class A ordinary shares, respectively. See “Item 4. Information on the Company—A. History and Development of the Company.”

 

B.

Related Party Transactions

Amended and Restated Shareholders Agreement and Related Transactions

The Company, Apollo Omega, Rio Tinto and Bpifrance entered into an amended and restated shareholders agreement on May 29, 2013 (the “Shareholders Agreement”). The Shareholders Agreement terminated with respect to Apollo Omega and Rio Tinto in connection with certain of their respective sales of our ordinary shares described elsewhere in this Annual Report. The Shareholders Agreement provides for, among other things, piggyback registration rights and demand registration rights for Bpifrance for so long as Bpifrance owns any of our ordinary shares.

In addition, the Shareholders Agreement provides that, except as otherwise required by applicable law, Bpifrance will be entitled to designate for binding nomination one director to our board of directors so long as its percentage ownership interest is equal to or greater than 4% or it continues to hold all of the ordinary shares it subscribed for at the closing of the Acquisition (such share number adjusted for the pro rata share issuance). Our directors will be elected by our shareholders acting at a general meeting upon a binding nomination by the board of directors as described in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.” A shareholder’s percentage ownership interest is derived by dividing (i) the total number of ordinary shares owned by such shareholder and its affiliates by (ii) the total number of outstanding ordinary shares. The Company agreed to share financial and other information with Bpifrance to the extent reasonably required to comply with its tax, investor or regulatory obligations and with a view to keeping Bpifrance properly informed about the financial and business affairs of the Company. The Shareholders Agreement contains provisions to the effect that Bpifrance is obliged to treat all information provided to it as confidential, and to

 

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comply with all applicable rules and regulations in relation to the use and disclosure of such information. Stéphanie Frachet, who replaced Nicolas Manardo, was appointed as Non-Executive Director of the Company in May 2018, is currently Managing Director and member of the Mid & Large Cap Executive committee of Bpifrance Investissement that she joined in 2009. Ms. Frachet is also, as permanent representative of Bpifrance, a Director of Eutelsat Communications, and an observer on the Board of Paprec and Horizon Parent Holdings Sarl.

Bpifrance Investissement is an affiliate of Bpifrance, which is a wholly owned subsidiary of BPI-Groupe (bpifrance), a French financial institution jointly owned and controlled by the Caisse des Dépôts et Consignations, a French special public entity (établissement special) and EPIC BPI-Groupe, a French public institution of industrial and commercial nature. As of March 8, 2019, Bpifrance owns approximately 12.1% of the Company’s outstanding ordinary shares. In January 2015, Bpifrance Financement (“BPI Financement”), an affiliate of Bpifrance Investissement, entered into a three-year revolving credit facility with Constellium Issoire (f/k/a Constellium France) for an aggregate amount of €10 million. The facility was subject to automatic reduction of 33% of the aggregate amount per year. The facility was undrawn and in 2018 the amount available for drawing was €3.3 million, subject to a commitment fee of 1% per year. Should any amount have been drawn under this facility, it would have borne interest at a rate equal to 3 months Euribor plus 2.5%. This facility matured on January 12, 2018. On March 28, 2018, BPI Financement entered into a new three-year revolving credit facility with Constellium Issoire for an aggregate amount of €10 million for the purpose of financing various investments. As of December 31, 2018, the facility was undrawn and the amount available for drawing was €10 million, subject to a commitment fee of 1% per year. The maximum amount of authorized ceiling is to be reduced by €3,333,333.32 on March 31, 2019 and thereafter each quarter by €833,333.33. Any amount drawn under this facility will bear interest at a rate equal to 3 months Euribor (with a floor of 0%) plus 2.5%.

In January 2019, the full amount of the facility was drawn.

Transactions with Joint Venture

Constellium-UACJ ABS LLC, our joint venture with UACJ is a related party. See Note 18 and Note 29 in the Consolidated Financial Statements attached hereto starting on Page F-1 of this Annual Report for additional information about our transactions with Constellium-UACJ ABS LLC.

Management Equity Plan

Following the Acquisition, a management equity plan (the “MEP”) was established effective February 4, 2011, to facilitate investments by our officers and other members of management in Constellium. In connection with the MEP, a German limited partnership, Omega Management GmbH & Co. KG (“Management KG”), was formed.

Management KG was a vehicle that allowed current and former directors, officers and employees of Constellium who invested in the MEP (either directly or indirectly through one or more investment vehicles) (the “MEP Participants”) to hold a limited partnership interest in Management KG that corresponded to a portion of the shares in Constellium held by Management KG. Certain of our executive officers participated in the MEP. In connection with our IPO, the MEP was frozen and no other employees, officers or directors of Constellium were invited to become MEP Participants after 2013.

Following the advisory board resolution of Omega MEP GmbH (“GP GmbH”), the general partner of Management KG, dated November 6, 2015, it was resolved to wind-up the MEP. In connection with the wind-up of the MEP and with effect as of November 10, 2015, 2,410,357 Class A ordinary shares were transferred to the 34 MEP Participants in accordance with their respective share allocations under the MEP.

 

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Management KG no longer holds any shares in Constellium and the limited partnership interests no longer represent an indirect economical interest in Constellium; the Management KG was liquidated as of October 31, 2016.

 

C.

Interests of Experts and Counsel

Not applicable.

Item 8. Financial Information

 

A.

Consolidated Statements and Other Financial Information

Our Consolidated Financial Statements as of December 31, 2017 and 2018 and for the years ended December 31, 2016, 2017 and 2018 are included in this Annual Report at “Item 18. Financial Statements.”

Legal Proceedings

Legal proceedings are disclosed in “Item 4. Information on the Company—B. Business Overview—Litigation and Legal Proceedings.”

Dividend Policy

Our board of directors periodically explores the potential adoption of a dividend program; however, no assurances can be made that any future dividends will be paid on the ordinary shares. Any declaration and payment of future dividends to holders of our ordinary shares will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory future prospects and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. In general, any payment of dividends must be made in accordance with our Amended and Restated Articles of Association and the requirements of Dutch law. Under Dutch law, payment of dividends and other distributions to shareholders may be made only if our shareholders’ equity exceeds the sum of our called up and paid-in share capital plus the reserves required to be maintained by law and by our Amended and Restated Articles of Association.

Generally, we rely on dividends paid to Constellium N.V., or funds otherwise distributed or advanced to Constellium N.V. by its subsidiaries to fund the payment of dividends, if any, to our shareholders. In addition, restrictions contained in the agreements governing our outstanding indebtedness limit our ability to pay dividends on our ordinary shares and limit the ability of our subsidiaries to pay dividends to us. Future indebtedness that we may incur may contain similar restrictions.

 

B.

Significant Changes

Except as otherwise disclosed within this annual report, no significant change has occurred since the date of the Consolidated Financial Statements.

On February 20, 2019, we amended the Pan-U.S. ABL Facility to, among other things, (i) join Constellium Bowling Green LLC as an additional borrower and Constellium Property and Equipment Company LLC as an additional guarantor, (ii) increase the maximum commitments thereunder to $350 million, and (iii) make certain changes to the covenants, terms, and conditions thereof.

In January 2019, we acquired TAAH’s 49% stake in CUA for $100 million plus the assumption of 49% of approximately $80 million of third party debt at CUA. See “Item 4. Information on the Company—B. Business Overview—Recent Developments—Acquisition of UACJ’s Interest in Bowling Green Joint Venture” and in our audited consolidated financial statements included elsewhere in this Annual Report.

 

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Item 9. The Offer and Listing

 

A.

Offer and Listing Details

Our ordinary shares are listed on the NYSE under the symbol CSTM. We voluntarily delisted our ordinary shares from Euronext Paris on February 2, 2018.

 

B.

Plan of Distribution

Not applicable.

 

C.

Markets

We began trading on the NYSE on May 23, 2013 and on the professional segment of Euronext Paris on May 27, 2013 through a public offering in the United States. Trading on the NYSE is under the symbol “CSTM.” In February 2018, we voluntarily delisted our ordinary shares from Euronext Paris to reduce costs and complexity associated with listing in multiple jurisdictions. For more information on our shares see “Item 10. Additional Information—B. Memorandum and Articles of Association.”

 

D.

Selling Shareholders

Not applicable.

 

E.

Dilution

Not applicable.

 

F.

Expenses of the Issue

Not applicable.

Item 10. Additional Information

 

A.

Share Capital

Not applicable.

 

B.

Memorandum and Articles of Association

The information called for by this Item has been reported previously in our Registration Statement on Form F-3ASR (File No. 333-221221), filed with the SEC on October 30, 2017, under the heading “Description of Capital Stock,” and is incorporated by reference into this Annual Report, as supplemented by the following:

 

   

on November 3, 2017 the Company issued 25,000,000 Class A ordinary shares, each with a nominal value of €0.02;

 

   

on November 3, 2017 the Company issued 3,750,000 Class A ordinary shares, each with a nominal value of €0.02;

 

   

on November 15, 2017 the Company issued 25,000 Class A ordinary shares, each with a nominal value of €0.02;

 

   

on March 28, 2018 the Company issued 34,580 Class A ordinary shares, each with a nominal value of €0.02;

 

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on May 17, 2018 the Company issued 80,000 Class A ordinary shares, each with a nominal value of €0.02;

 

   

on June 20, 2018 the Company issued 68,136 Class A ordinary shares, each with a nominal value of €0.02;

 

   

on August 6, 2018 the Company issued 50,000 Class A ordinary shares, each with a nominal value of €0.02; and

 

   

on November 15, 2018 the Company issued 1,256,055 Class A ordinary shares, each with a nominal value of €0.02.

 

C.

Material Contracts

The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we are a party, for the two years immediately preceding the date of this Annual Report:

 

   

Employment Agreements and Benefit Plans. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership” for a description of the material terms of our employment agreements and benefits plans.

 

   

Amended and Restated Shareholders Agreement. See “Item 7. Major Shareholders and Related Party Transactions” for a description of material terms of this contract.

 

   

Notes, Pan-U.S. ABL Facility, French Inventory Facility and Factoring Agreements. As disclosed below.

 

   

Metal Supply Agreement. As disclosed below.

May 2014 Notes

On May 7, 2014, the Company completed a private offering of $400 million in aggregate principal amount of 5.750% Senior Notes due 2024 (the “2024 U.S. Dollar Notes”) and €300 million in aggregate principal amount of 4.625% Senior Notes due 2021 (the “2021 Euro Notes,” and together with the 2024 U.S. Dollar Notes, the “May 2014 Notes”) pursuant to indentures among the Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. A portion of the net proceeds of the May 2014 Notes were used to repay amounts outstanding under our senior secured term loan B facility, including related transaction fees, expenses, and prepayment premium thereon. We used the remaining net proceeds for general corporate purposes, including to put additional cash on our balance sheet.

Interest on the 2024 U.S. Dollar Notes and 2021 Euro Notes accrues at rates of 5.750% and 4.625% per annum, respectively, and is payable semi-annually beginning November 15, 2014. The 2024 U.S. Dollar Notes mature on May 15, 2024, and the 2021 Euro Notes mature on May 15, 2021.

Prior to May 15, 2019, we may redeem some or all of the 2024 U.S. Dollar Notes at a price equal to 100% of the principal amount of the 2024 U.S. Dollar Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after May 15, 2019, we may redeem the 2024 U.S. Dollar Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 102.875% during the 12-month period commencing on May 15, 2019, 101.917% during the 12-month period commencing on May 15, 2020, 100.958% during the 12-month period commencing on May 15, 2021, and par on or after May 15, 2022, in each case plus accrued and unpaid interest, if any, to the redemption date.

 

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Prior to May 15, 2017, we were permitted to redeem some or all of the 2021 Euro Notes at a price equal to 100% of the principal amount of the 2021 Euro Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after May 15, 2017, we may redeem the 2021 Euro Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 102.313% during the 12-month period commencing on May 15, 2017, 101.156% during the 12-month period commencing on May 15, 2018, and par on or after May 15, 2019, in each case plus accrued and unpaid interest, if any, to the redemption date.

In addition, at any time or from time to time prior to May 15, 2017, we were permitted to, within 90 days of a qualified equity offering, redeem May 2014 Notes of either series in an aggregate amount equal to up to 35% of the original aggregate principal amount of the May 2014 Notes of the applicable series (after giving effect to any issuance of additional May 2014 Notes of such series) at a redemption price equal to 100% of the principal amount thereof plus a premium (expressed as a percentage of the principal amount thereof) equal to 5.750% for the 2024 U.S. Dollar Notes and 4.625% for the 2021 Euro Notes, plus accrued and unpaid interest thereon (if any) to the redemption date, with the net cash proceeds of such qualified equity offering, provided that at least 50% of the original aggregate principal amount of May 2014 Notes of the series being redeemed would remain outstanding immediately after giving effect to such redemption.

Within 30 days of the occurrence of specific kinds of changes of control, the Company is required to make an offer to purchase all outstanding May 2014 Notes at a price in cash equal to 101% of the principal amount of the May 2014 Notes, plus accrued and unpaid interest, if any, to the purchase date.

The May 2014 Notes are senior unsecured obligations of Constellium and are guaranteed on a senior unsecured basis by Constellium International, Constellium France Holdco, Constellium Neuf Brisach, Constellium Issoire, Constellium Finance, Engineered Products International, Constellium W, Constellium Germany Holdco GmbH & Co. KG, Constellium Switzerland AG, Constellium US Holdings I, LLC, Ravenswood, Wise Metals Intermediate Holdings LLC (which has since been merged into Wise Metals Group LLC), Wise Metals Group LLC (since renamed Constellium Holdings Muscle Shoals LLC), and Wise Alloys LLC (since renamed Constellium Muscle Shoals LLC). Each of Constellium’s existing or future restricted subsidiaries (other than receivables subsidiaries) that guarantees certain indebtedness of Constellium or certain indebtedness of any of the guarantors of the May 2014 Notes must also guarantee the May 2014 Notes.

The indentures governing the May 2014 Notes contain customary terms and conditions, including, among other things, negative covenants limiting our and our restricted subsidiaries’ ability to incur debt, grant liens, enter into sale and lease-back transactions, make investments, loans and advances, make acquisitions, sell assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions.

The indentures governing the May 2014 Notes also contain customary events of default.

December 2014 Notes (Redeemed in November 2017)

On December 19, 2014, the Company completed a private offering of $400 million in aggregate principal amount of 8.00% Senior Notes due 2023 (the “2023 U.S. Dollar Notes”) and €240 million in aggregate principal amount of 7.00% Senior Notes due 2023 (the “2023 Euro Notes,” and together with the 2023 U.S. Dollar Notes, the “December 2014 Notes”) pursuant to indentures among the Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. A portion of the net proceeds of the December 2014 Notes were used to finance the Wise Acquisition, including related transaction fees and expenses. We used the remaining net proceeds for general corporate purposes.

In November 2017, we completed cash tender offers (the “Tender Offers”) for any and all of the 2023 Euro Notes, 2023 U.S. Dollar Notes, and Senior Secured Notes (as defined below, and together with the 2023 Euro

 

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Notes and the 2023 U.S. Dollar Notes, the “Tender Offer Notes”). We completed the redemption (the “Redemption”) of the Tender Offer Notes not purchased in the Tender Offers, at redemption prices equal to 100% of the principal amount of the respective series of Tender Offer Notes redeemed, plus the Applicable Premium (as defined under the relevant indenture), in each case plus accrued and unpaid interest, if any, to the redemption date, on November 29, 2017, in the case of the Senior Secured Notes and the 2023 U.S. Dollar Notes, and November 30, 2017 in the case of the 2023 Euro Notes.

Interest on the 2023 U.S. Dollar Notes and 2023 Euro Notes accrued at rates of 8.00% and 7.00% per annum, respectively, and was payable semi-annually beginning July 15, 2015. The 2023 U.S. Dollar Notes and 2023 Euro Notes had a stated maturity date of January 15, 2023.

Prior to January 15, 2018, we were permitted to redeem some or all of the 2023 U.S. Dollar Notes at a price equal to 100% of the principal amount of the 2023 U.S. Dollar Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after January 15, 2018, we were permitted to redeem the 2023 U.S. Dollar Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 106.000% during the 12-month period commencing on January 15, 2018, 104.000% during the 12-month period commencing on January 15, 2019, 102.000% during the 12-month period commencing on January 15, 2020, and par on or after January 15, 2021, in each case plus accrued and unpaid interest, if any, to the redemption date.

Prior to January 15, 2018, we were permitted to redeem some or all of the 2023 Euro Notes at a price equal to 100% of the principal amount of the 2023 Euro Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after January 15, 2018, we were permitted to redeem the 2023 Euro Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 105.250% during the 12-month period commencing on January 15, 2018, 103.500% during the 12-month period commencing on January 15, 2019, 101.750% during the 12-month period commencing on January 15, 2020, and par on or after January 15, 2021, in each case plus accrued and unpaid interest, if any, to the redemption date.

In addition, at any time or from time to time prior to January 15, 2018, we were permitted, within 90 days of a qualified equity offering, to redeem December 2014 Notes of either series in an aggregate amount equal to up to 35% of the original aggregate principal amount of the December 2014 Notes of the applicable series (after giving effect to any issuance of additional December 2014 Notes of such series) at a redemption price equal to 100% of the principal amount thereof plus a premium (expressed as a percentage of the principal amount thereof) equal to 8.00% for the 2023 U.S. Dollar Notes and 7.00% for the 2023 Euro Notes, plus accrued and unpaid interest thereon (if any) to the redemption date, with the net cash proceeds of such qualified equity offering, provided that at least 50% of the original aggregate principal amount of December 2014 Notes of the series being redeemed would remain outstanding immediately after giving effect to such redemption.

Within 30 days of the occurrence of specific kinds of changes of control, the Company was required to make an offer to purchase all outstanding December 2014 Notes at a price in cash equal to 101% of the principal amount of the December 2014 Notes, plus accrued and unpaid interest, if any, to the purchase date.

The December 2014 Notes were senior unsecured obligations of Constellium and were guaranteed on a senior unsecured basis by each of its restricted subsidiaries that guaranteed the May 2014 Notes. Each of Constellium’s existing or future restricted subsidiaries (other than receivables subsidiaries) that guaranteed certain indebtedness of Constellium or certain indebtedness of any of the guarantors of the December 2014 Notes was also required to guarantee the December 2014 Notes.

The indentures governing the December 2014 Notes contained customary terms and conditions, including, among other things, negative covenants limiting our and our restricted subsidiaries’ ability to incur debt, grant liens, enter into sale and lease-back transactions, make investments, loans and advances, make acquisitions, sell

 

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assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions.

The indentures governing the December 2014 Notes also contained customary events of default.

March 2016 Senior Secured Notes (Redeemed in November 2017)

On March 30, 2016, the Company completed a private offering of $425 million in aggregate principal amount of 7.875% Senior Secured Notes due 2021 (the “Senior Secured Notes”) pursuant to an indenture among the Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee and collateral agent. The Company invested €100 million of the net proceeds of the offering in Wise. We used the remaining net proceeds for general corporate purposes, including to put additional cash on our balance sheet. The Senior Secured Notes were redeemed on November 29, 2017 in connection with the Tender Offers and the Redemption.

Interest on the Senior Secured Notes accrued at a rate of 7.875% per annum and is payable semi-annually beginning October 1, 2016.

The Senior Secured Notes had a stated maturity date of April 1, 2021. In addition, each holder of Senior Secured Notes had the right to require the Company to repurchase all or any part of that holder’s Senior Secured Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase, if on the 136th day prior to May 15, 2021 (i.e., the final stated maturity of the 2021 Euro Notes) more than €30 million of the 2021 Euro Notes remained outstanding.

Prior to April 1, 2018, we were permitted to redeem some or all of the Senior Secured Notes at a price equal to 100% of the principal amount of the Senior Secured Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after April 1, 2018, we were permitted to redeem the Senior Secured Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 103.938% during the 12-month period commencing on April 1, 2018, 101.969% during the 12-month period commencing on April 1, 2019, and par on or after April 1, 2020, in each case plus accrued and unpaid interest, if any, to the redemption date.

In addition, at any time or from time to time prior to April 1, 2018, we were permitted, within 90 days of a qualified equity offering, to redeem Senior Secured Notes in an aggregate amount equal to up to 35% of the original aggregate principal amount of the Senior Secured Notes (after giving effect to any issuance of additional Senior Secured Notes) at a redemption price equal to 100% of the principal amount thereof plus a premium (expressed as a percentage of the principal amount thereof) equal to 7.875%, plus accrued and unpaid interest thereon (if any) to the redemption date, with the net cash proceeds of such qualified equity offering, provided that at least 50% of the original aggregate principal amount of Senior Secured Notes would remain outstanding immediately after giving effect to such redemption.

Within 30 days of the occurrence of specific kinds of changes of control, the Company was required to make an offer to purchase all outstanding Senior Secured Notes at a price in cash equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to the purchase date.

The Senior Secured Notes were senior secured obligations of Constellium and were guaranteed on a senior secured basis by each of its restricted subsidiaries that guaranteed the May 2014 Notes. In addition, the Company was required to cause (a) existing or future subsidiaries to guarantee the Senior Secured Notes from time to time so as to satisfy the Guarantor Coverage Test (as defined below), and (b) each existing or future subsidiary that directly or indirectly owned the capital stock of a guarantor of the Senior Secured Notes, or guaranteed certain indebtedness of Constellium or certain indebtedness of any of the guarantors of the Senior Secured Notes, to guarantee the Senior Secured Notes.

 

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The “Guarantor Coverage Test” required, on any one date between and including the date that the Company’s annual financial statements are delivered and the date that is forty-five (45) days following such delivery, that (a) the EBITDA of the Company and the guarantors of the Senior Secured Notes, taken together, represented not less than 80% of the EBITDA of the Company and its restricted subsidiaries, taken together, and (b) the consolidated total assets of the Company and the guarantors of the Senior Secured Notes, taken together, represented not less than 80% of the consolidated total assets of the Company and its restricted subsidiaries, taken together.

The indenture governing the Senior Secured Notes provided for the obligations of the Company and the guarantors with respect to the Senior Secured Notes and the guarantees thereof to be secured by (i) a pledge by Constellium N.V. of its shares in Constellium Holdco II B.V., (ii) a pledge by Holdco II of its shares in certain of its subsidiaries, (iii) a pledge by certain other guarantors of their shares in certain of their subsidiaries, (iv) subject to certain exceptions, a pledge of intercompany indebtedness owed to the Company and the guarantors and bank accounts owned by the Company and the guarantors, and (v) subject to certain exceptions, substantially all the assets of each guarantor organized in the U.S. The liens on the collateral securing the Senior Secured Notes and the guarantees thereof were required to be first-priority, provided that (x) the liens on the Ravenswood ABL Priority Collateral (as defined below) securing the Senior Secured Notes and the guarantees thereof were required to be junior in priority to the liens on the Ravenswood ABL Priority Collateral securing the obligations under the Ravenswood ABL Facility, and (y) the liens on certain property of Ravenswood securing the Senior Secured Notes and the guarantees thereof were required to be junior in priority to the liens on such property securing certain obligations of Ravenswood to the Pension Benefit Guaranty Corporation. The “Ravenswood ABL Priority Collateral” consisted of the following property owned by Ravenswood: (i) accounts and payment intangibles, (ii) inventory, (iii) deposit accounts and any cash, financial assets or other assets in such accounts, (iv) cash and cash equivalents, (v) all general intangibles, chattel paper, instruments, investment property and books and records pertaining to any of the foregoing, and (vi) all proceeds of the foregoing, in each case subject to certain exceptions.

The indenture governing the Senior Secured Notes contained customary terms and conditions, including, among other things, negative covenants limiting our and our restricted subsidiaries’ ability to incur debt, grant liens, enter into sale and lease-back transactions, make investments, loans and advances, make acquisitions, sell assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions.

The indenture governing the Senior Secured Notes also contained customary events of default.

February 2017 Notes

On February 16, 2017, the Company completed a private offering of $650 million in aggregate principal amount of 6.625% Senior Notes due 2025 (the “February 2017 Notes”) pursuant to an indenture among the Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. The Company used the net proceeds from the offering, together with cash on hand, to retire all of the outstanding Wise Senior Secured Notes and used the remaining net proceeds, if any, for general corporate purposes.

Interest on the February 2017 Notes accrues at rate of 6.625% per annum and is payable semi-annually beginning September 1, 2017. The February 2017 Notes mature on March 1, 2025.

Prior to March 1, 2020, we may redeem some or all of the February 2017 Notes at a price equal to 100% of the principal amount of the February 2017 Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after March 1, 2020, we may redeem the February 2017 Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 103.313% during the 12-month period commencing on March 1, 2020, 101.656% during the 12-month period commencing on March 1, 2021, and par on or after March 1, 2022, in each case plus accrued and unpaid interest, if any, to the redemption date.

 

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In addition, at any time or from time to time prior to March 1, 2020, we may, within 90 days of a qualified equity offering, redeem February 2017 Notes in an aggregate amount equal to up to 35% of the original aggregate principal amount thereof (after giving effect to any issuance of additional February 2017 Notes) at a redemption price equal to 100% of the principal amount thereof plus a premium (expressed as a percentage of the principal amount thereof) equal to 6.625%, plus accrued and unpaid interest thereon (if any) to the redemption date, with the net cash proceeds of such qualified equity offering, provided that at least 50% of the original aggregate principal amount of February 2017 Notes would remain outstanding immediately after giving effect to such redemption.

Within 30 days of the occurrence of specific kinds of changes of control, the Company is required to make an offer to purchase all outstanding February 2017 Notes at a price in cash equal to 101% of the principal amount of the February 2017 Notes, plus accrued and unpaid interest, if any, to the purchase date.

The February 2017 Notes are senior unsecured obligations of Constellium and are guaranteed on a senior unsecured basis by each of its restricted subsidiaries that guarantees the May 2014 Notes. Each of Constellium’s existing or future restricted subsidiaries (other than receivables subsidiaries) that guarantees certain indebtedness of Constellium (including the May 2014 Notes) or certain indebtedness of any of the guarantors of the February 2017 Notes must also guarantee the February 2017 Notes.

The indenture governing the February 2017 Notes contains customary terms and conditions, including, among other things, negative covenants limiting our and our restricted subsidiaries’ ability to incur debt, grant liens, enter into sale and lease-back transactions, make investments, loans and advances, make acquisitions, sell assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions.

The indenture governing the February 2017 Notes also contains customary events of default.

November 2017 Notes

On November 9, 2017, the Company completed a private offering (the “November 2017 Notes Offering”) of $500 million in aggregate principal amount of 5.875% Senior Notes due 2026 (the “2026 U.S. Dollar Notes”) and €400 million in aggregate principal amount of 4.250% Senior Notes due 2026 (the “2026 Euro Notes,” and together with the 2026 U.S. Dollar Notes, the “November 2017 Notes”; and the November 2017 Notes, together with the May 2014 Notes and the February 2017 Notes, the “Notes”) pursuant to indentures among the Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. The Company used the net proceeds from the Equity Offering (as defined below) and the November 2017 Notes Offering, together with cash on hand, to fund the Tender Offers and the Redemption, with the remaining net proceeds being used for general corporate purposes.

Interest on the 2026 U.S. Dollar Notes and 2026 Euro Notes accrues at rates of 5.875% and 4.250% per annum, respectively, and is payable semi-annually beginning February 15, 2018. The February 2017 Notes mature on February 15, 2026.

Prior to November 15, 2020, we may redeem some or all of the 2026 U.S. Dollar Notes at a price equal to 100% of the principal amount of the 2026 U.S. Dollar Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after November 15, 2020, we may redeem the 2026 U.S. Dollar Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 102.938% during the 12-month period commencing on November 15, 2020, 101.469% during the 12-month period commencing on November 15, 2021, and par on or after November 15, 2022, in each case plus accrued and unpaid interest, if any, to the redemption date.

Prior to November 15, 2020, we may redeem some or all of the 2026 Euro Notes at a price equal to 100% of the principal amount of the 2026 Euro Notes redeemed plus accrued and unpaid interest, if any, to the redemption

 

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date plus a “make-whole” premium. On or after November 15, 2020, we may redeem the 2026 Euro Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 102.125% during the 12-month period commencing on November 15, 2020, 101.063% during the 12-month period commencing on November 15, 2021, and par on or after November 15, 2022, in each case plus accrued and unpaid interest, if any, to the redemption date.

In addition, at any time or from time to time prior to November 15, 2020, we may, within 90 days of a qualified equity offering, redeem November 2017 Notes of either series in an aggregate amount equal to up to 35% of the original aggregate principal amount of the November 2017 Notes of the applicable series (after giving effect to any issuance of additional February 2017 Notes of such series) at a redemption price equal to 100% of the principal amount thereof plus a premium (expressed as a percentage of the principal amount thereof) equal to 5.875% for the 2026 U.S. Dollar Notes and 4.250% for the 2026 Euro Notes, plus accrued and unpaid interest thereon (if any) to the redemption date, with the net cash proceeds of such qualified equity offering, provided that at least 50% of the original aggregate principal amount of February 2017 Notes of the series being redeemed would remain outstanding immediately after giving effect to such redemption.

Within 30 days of the occurrence of specific kinds of changes of control, the Company is required to make an offer to purchase all outstanding February 2017 Notes at a price in cash equal to 101% of the principal amount of the February 2017 Notes, plus accrued and unpaid interest, if any, to the purchase date.

The February 2017 Notes are sen