UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September~~March 3031, ~~2018~~2019



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

For the transition period from to

Commission File Number: 333-185443

________________________________________________________________________

Aleris Corporation

(Exact name of registrant as specified in its charter)

________________________________________________________________________



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

25825 Science Park Drive, Suite 400 Cleveland, Ohio 44122-7392
(Address of principal executive offices) (Zip Code)

(216) 910-3400

(Registrant’s telephone number, including area code)

________________________________________________________________________

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 þ

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	þ	Smaller reporting company	¨

		Emerging Growth Company	¨

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

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

Securities registered pursuant to Section 12(b) of the Act: None

There were 32,380,867 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of March 31, 2019.

ALERIS CORPORATION

QUARTERLY REPORT ON FORM 10-Q

~~September~~March 3031, ~~2018~~2019

TABLE OF CONTENTS

		Page No.
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheet (Unaudited) as of September 30, 2018 and December 31, 2017	3
	Consolidated Balance Sheet (Unaudited) as of March 31, 2019 and December 31, 2018	3
	Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017	4
	Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018	4
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2018 and 2017	5
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018	5
	Notes to Consolidated Financial Statements (Unaudited)	6
	Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 4.	Controls and Procedures	57
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	48
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	5848
Item 1A.	Risk Factors	5848
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5848
Item 3.	Defaults Upon Senior Securities	5848
Item 4.	Mine Safety Disclosures	5848
Item 5.	Other Information	5848
Item 6.	Exhibits	5949
Signatures		6050

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

ALERIS CORPORATION

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(in millions, except share and per share data)

ASSETS	~~September~~March 3031, ~~2018~~2019			December 31, ~~2017~~2018
Current Assets
Cash and cash equivalents	$	5679.78		$	~~102~~108.46
Accounts receivable, net	~~412~~414.10			~~245~~308.78
Inventories	~~729~~762.17			~~631~~772.29
Prepaid expenses and other current assets	3037.80			3662.17
Total Current Assets	1,~~228~~293.75			1,~~015~~253.40
Property, plant and equipment, net	1,~~396~~370.29			1,~~470~~395.90
Intangible assets, net	3332.10			3432.75
Deferred income taxes	6960.52			7060.72
Other long-term assets	4760.75			5238.7
Total Assets	$	2,~~775~~817.21		$	2,~~644~~779.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	~~365~~352.72		$	~~299~~374.28
Accrued liabilities	~~168~~173.95			~~197~~198.41
Current portion of long-term debt	2123.65			921.19
Total Current Liabilities	~~556~~549.2			~~505~~594.78
Long-term debt	12,~~904~~017.0			1,~~771~~906.4
Deferred revenue	6861.06			1765.0
Deferred income taxes	93.3			4.0.9
Accrued pension benefits	160.36			~~170~~163.27
Accrued postretirement benefits	3329.13			3429.36
Other long-term liabilities	4559.13			4946.1
Total Long-Term Liabilities	2,~~219~~331.81			2,~~046~~211.07
Stockholders’ Equity
Common stock; par value $.01; 45,000,000 shares authorized; 32,223,271 and 32,001,318 shares issued at September 30, 2018 and December 31, 2017, respectively	0.3			0.3
Common stock; par value $.01; 45,000,000 shares authorized; 32,380,867 shares issued at March 31, 2019 and December 31, 2018	0.3			0.3
Preferred stock; par value $.01; 1,000,000 shares authorized; none issued	—			—
Additional paid-in capital	~~427~~431.68			~~436~~431.38
Retained deficit	(~~269~~325.06		)	(~~203~~292.42		)
Accumulated other comprehensive loss	(~~159~~169.7		)	(~~140~~167.50		)
Total Equity	(063.82		)	92(27.71		)
Total Liabilities and Equity	$	2,~~775~~817.21		$	2,~~644~~779.4

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

ALERIS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(in millions)

	For the three months ended						~~For the nine months ended~~
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
Revenues	$	~~911~~877.30		$	~~712~~802.83		$	~~2,644.2~~		$	~~2,163.2~~
Cost of sales	~~845~~799.60			~~674~~739.68			~~2,414.6~~			~~1,953.2~~
Gross profit	6578.70			3862.25			~~229.6~~			~~210.0~~
Selling, general and administrative expenses	5352.2			4950.26			~~153.7~~			~~152.7~~
Restructuring charges	01.20			0.9			~~2.0~~			~~2.1~~
(Gains) losses on derivative financial instruments	(6.3		)	14.9			(19.0		)	30.6
Losses (gains) on derivative financial instruments	6.7			(33.9		)
Other operating expense, net	0.85			2.0.7			~~1.9~~			~~4.0~~
Operating income (loss)	17.8			(28.8		)	91.0			20.6
Operating income	17.6			44.2
Interest expense, net	3739.53			3233.08			~~106.0~~			~~90.4~~
Debt extinguishment costs	—			—			48.9			—
Other expense, net	0.2			0.4
Other expense (income), net	0.9			3.3			(10.2		)	8.4
(Loss) income before income taxes	(21.9		)	10.0
Loss before income taxes	(20.6		)	(64.1		)	(53.7		)	(78.2		)
Provision for income taxes	11.5			5.4
Provision for income taxes	5.4			1.6			14.7			25.1
Net (loss) income	$	(33.4	)	$	4.6
Net loss	$	(26.0	)	$	(65.7	)	$	(68.4	)	$	(103.3	)
Comprehensive (loss) income	$	(36.1	)	$	25.1
Comprehensive loss	$	(35.1	)	$	(40.9	)	$	(87.6	)	$	(29.0	)

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

ALERIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in millions)

	For the nine months ended
	For the three months ended
	September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
Operating activities
Net loss	$	(68.4	)	$	(103.3	)
Net (loss) income	$	(33.4	)	$	4.6
Adjustments to reconcile net loss to net cash used by operating activities:
Adjustments to reconcile net (loss) income to net cash used by operating activities:
Depreciation and amortization	~~103~~34.86			8234.07
Provision for deferred income taxes	52.02			131.96
Stock-based compensation expense	~~2.8~~—			10.53
Unrealized (gains) losses on derivative financial instruments	(3.2		)	1.5
Unrealized losses (gains) on derivative financial instruments	30.8			(33.7		)
Amortization of debt issuance costs	32.63			20.17
Loss on extinguishment of debt	48.9			—
Other	(0.7		)	(0.4		)
Non-cash gain (see Note 6)	(11.1		)	—
Other	5.1			9.1
Changes in operating assets and liabilities:
Change in accounts receivable	(~~146~~108.04		)	(6084.24		)
Change in inventories	~~(135~~5.78		)	(5360.09		)
Change in other assets	4(3.79		)	6(18.24		)
Change in accounts payable	~~76.~~(9.8		)	3544.89
Change in accrued and other liabilities	46(32.20		)	3176.91
Net cash used by operating activities	(67112.45		)	(3234.59		)
Investing activities
Payments for property, plant and equipment	(7633.37		)	(~~174~~30.91		)
Other	~~(0.6~~—		)	(20.52		)
Net cash used by investing activities	(7633.97		)	(~~177~~30.43		)
Financing activities
Proceeds from revolving credit facilities	~~220~~136.3			~~401~~133.79
Payments on revolving credit facilities	(~~284~~11.43		)	(~~429~~90.20		)
Proceeds from senior secured debt, net of discounts	1,483.0			263.8
Payments on term loan	(2.8		)	—
Payments on senior notes, including premiums	(1,289.5		)	—
Net payments on other long-term debt and finance leases	(4.5		)	(3.8		)
Net payments on other long-term debt	(8.6		)	(5.5		)
Net cash provided by financing activities	117.7			40.1
Debt issuance costs	(20.4		)	(2.5		)
Effect of exchange rate differences on cash, cash equivalents and restricted cash	(0.1		)	1.9
Other	(0.2		)	(1.5		)
Net decrease in cash, cash equivalents and restricted cash	(28.6		)	(23.2		)
Net cash provided by financing activities	100.2			226.8
Cash, cash equivalents and restricted cash at beginning of period	115.6			108.0
Effect of exchange rate differences on cash, cash equivalents and restricted cash	(1.9		)	3.0
Cash, cash equivalents and restricted cash at end of period	$	87.0		$	84.8
Net (decrease) increase in cash, cash equivalents and restricted cash	(46.0		)	19.9
Cash and cash equivalents	$	79.8		$	79.1
Cash, cash equivalents and restricted cash at beginning of period	108.0			55.6
Restricted cash (included in “Prepaid expenses and other current assets”)	7.2			5.7
Cash, cash equivalents and restricted cash at end of period	$	62.0		$	75.5
Cash, cash equivalents and restricted cash	$	87.0		$	84.8
Cash and cash equivalents	$	56.7		$	71.9
Restricted cash (included in “Prepaid expenses and other current assets”)	5.3			3.6
Cash, cash equivalents and restricted cash	$	62.0		$	75.5

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

ALERIS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in millions)



	Common stock		Additional paid-in capital		Retained deficit			Accumulated other comprehensive loss			Total Equity
Balance at January 1, 2018	$	0.3	$	436.3	$	(203.4	)	$	(140.5	)	92.7
Net income	—		—		4.6			—			4.6
Other comprehensive income	—		—		—			20.5			20.5
Stock-based compensation activity	—		0.3		—			—			0.3
Adoption of accounting standard	—		—		2.8			—			2.8
Balance at March 31, 2018	$	0.3	$	436.6	$	(196.0	)	$	(120.0	)	$	120.9

Balance at January 1, 2019	$	0.3	$	431.8	$	(292.2	)	$	(167.0	)	(27.1		)
Net loss	—		—		(33.4		)	—			(33.4		)
Other comprehensive loss	—		—		—			(2.7		)	(2.7		)
Balance at March 31, 2019	$	0.3	$	431.8	$	(325.6	)	$	(169.7	)	$	(63.2	)

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

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

1. BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for interim periods contained herein are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The accompanying Consolidated Financial Statements include the accounts of Aleris Corporation and all of its subsidiaries (collectively, except where the context otherwise requires, referred to as “Aleris,” “we,” “us,” “our,” “Company” or similar terms). Aleris Corporation is a holding company and currently conducts its business and operations through its direct wholly owned subsidiary, Aleris International, Inc. and its consolidated subsidiaries. Aleris International, Inc. is referred to herein as “Aleris International.”

Recent Accounting Pronouncements

In ~~January~~June ~~2018~~2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2018~~2016-0213, ~~“Income~~Financial ~~Statement~~Instruments - ~~Reporting~~Credit ~~Comprehensive~~Losses ~~Income~~ (Topic ~~220~~326): ~~Reclassification~~Measurement of ~~Certain~~Credit ~~Tax~~Losses ~~Effects~~on ~~from~~Financial ~~Accumulated~~Instruments ~~Other Comprehensive Income”~~ (“ASU ~~2018~~2016-0213”). ~~This~~ASU ~~guidance~~2016-13 ~~gives~~changes ~~entities~~ the ~~option~~impairment tomodel ~~reclassify~~for tomost ~~retained~~financial ~~earnings~~instruments. ~~tax~~Current ~~effects~~guidance ~~resulting~~requires ~~from~~ the ~~Tax~~recognition ~~Cuts~~of ~~and~~credit ~~Jobs~~losses ~~Act~~based ofon ~~2017~~an (incurred loss impairment methodology that reflects losses once the ~~“Tax~~losses ~~Act”)~~are ~~related~~probable. Under ASU 2016-13, we will be required to ~~items~~use ina ~~accumulated~~current ~~other~~expected ~~comprehensive~~credit ~~income~~loss model (~~“AOCI”~~CECL) that ~~the~~will ~~FASB~~immediately ~~refers~~recognize toan asestimate ~~having~~of ~~been~~credit ~~stranded~~losses inthat ~~AOCI.~~are ~~The~~expected ~~new~~to ~~guidance~~occur ~~may~~over bethe ~~applied~~life ~~retrospectively~~of tothe ~~each~~financial ~~period~~instruments inthat ~~which~~are in the ~~effect~~scope of ~~the~~this ~~Tax~~update, ~~Act~~including istrade ~~recognized,~~receivables. orThe CECL model uses a broader range of reasonable and supportable information in the ~~period~~development of ~~adoption~~credit loss estimates than our current model. WeThis ~~elected~~guidance tobecomes ~~early~~effective ~~adopt~~for ~~ASU~~us ~~2018-02~~on inJanuary 1, 2020, including the ~~first~~interim ~~quarter~~periods ofin ~~2018~~the year. AsWe weare ~~maintain~~currently aevaluating ~~full~~the ~~valuation~~impact ~~allowance~~that ~~against~~the ~~our~~adoption ~~U.S.~~of ~~deferred~~this ~~tax~~ASU ~~assets,~~will ~~there~~have ~~was~~on nothe ~~net~~consolidated ~~impact~~financial onstatements ~~retained~~and ~~earnings.~~related disclosures

In ~~March~~February ~~2017~~2016, the FASB issued ASU No. ~~2017~~2016-0702, “~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~Leases” (“ASU ~~2017~~2016-0702”). This guidance requires ~~the~~lessees ~~presentation~~to ofput ~~all~~most ~~components~~leases ofon ~~net~~their ~~periodic~~balance ~~benefit~~sheets ~~cost,~~but ~~other~~recognize ~~than~~expense ~~service~~on ~~costs,~~the ~~outside~~income ofstatement ~~operating~~in ~~income.~~a ~~Upon~~manner ~~adoption,~~similar ~~only~~to the ~~service~~previous ~~cost~~guidance. ~~component~~We ofadopted ~~periodic~~ASU ~~benefit~~2016-02 ~~costs~~on ~~are~~January ~~included~~1, in2019 ~~operating~~using ~~income~~a ~~and~~modified ~~eligible~~retrospective ~~for~~approach, ~~capitalization~~applying inthe ~~assets.~~standard’s ~~This~~transition ~~guidance~~provisions ~~was~~at ~~adopted in~~ the ~~first~~beginning ~~quarter~~ of ~~2018,~~the ~~and~~period ~~$1.7~~of ~~and $0~~adoption.9 ofASU ~~pension~~2016-02 ~~and~~provided ~~postretirement~~for ~~benefit~~certain ~~expenses~~practical ~~were~~expedients ~~reclassified~~when ~~from~~adopting ~~“Cost~~the ofguidance. ~~sales”~~We ~~and~~elected ~~“Selling,~~the ~~general~~package ~~and~~of ~~administrative~~practical ~~expenses,”~~expedients ~~respectively,~~allowing us to ~~“Other~~not ~~expense~~reassess (~~income~~i), ~~net”~~whether inany ~~the~~expired ~~Consolidated~~or ~~Statements~~existing ofcontracts ~~Comprehensive~~are, ~~Loss~~or ~~for~~contain, leases, (ii) the ~~nine~~lease ~~months~~classification ~~ended~~for ~~September 30,~~any ~~2017.~~expired ~~The~~or ~~adoption~~existing ~~had~~leases noor ~~impact~~(iii) oninitial ~~reported~~direct ~~net~~costs ~~income~~for any expired or ~~retained~~existing ~~earnings~~leases.

InUpon ~~February 2016~~adoption, ~~the~~we ~~FASB~~recorded ~~issued~~operating ~~ASU~~lease ~~No. 2016~~right-~~02, “Leases” (“ASU 2016~~of-~~02”).~~use ~~This~~assets ~~guidance~~of ~~requires lessees to put most leases on their balance sheets but recognize expense on the income statement in a manner similar to current guidance~~$10.8, ~~The~~representing ~~guidance is effective for~~ the ~~Company~~present ~~for~~value ~~fiscal~~of ~~years~~future ~~beginning~~lease ~~after~~payments ~~December~~under ~~15,~~operating ~~2018, and a modified retrospective approach is required for~~ leases ~~that~~with ~~exist~~terms ~~or are entered into after the beginning~~ of ~~the~~greater ~~earliest~~than ~~comparative~~twelve ~~period in the financial statements~~months. ~~The~~We ~~Company~~also ~~has~~recorded ~~developed~~corresponding aoperating ~~project~~lease ~~plan~~liabilities ~~to guide the implementation~~ of ~~the standard~~$11. ~~The project plan includes analyzing the Company’s purchasing contracts, drafting and updated accounting policy and evaluating new disclosure requirements~~5. In addition, the ~~Company~~prior iscapital ~~identifying~~lease ~~and~~balances ~~implementing~~of ~~appropriate~~$10.4, ~~changes~~$4.0 ~~to its business processes~~ and ~~controls to support the accounting and disclosure under the new guidance~~$6.2 Wepreviously ~~continue~~reported toin ~~evaluate~~fixed ~~the~~assets, ~~impact~~current ~~the~~maturities ~~application~~ of ~~ASU 2016~~long-02term ~~will~~debt ~~have~~and onlong-term ~~the~~debt, ~~Company’s Consolidated Financial Statements. In addition~~respectively, wewere ~~are~~reclassified ~~evaluating~~into ~~certain~~separately ~~practical~~classified ~~expedients. We expect that the adoption will result in an increase to our long~~right-~~term~~of-use ~~assets~~asset and ~~long-term~~lease ~~liabilities~~obligation asaccounts. aThe ~~result~~adoption ofhad ~~substantially~~no ~~all~~impact ~~operating~~on ~~leases~~reported ~~existing~~net asincome ofor ~~the~~loss ~~adoption~~or ~~date~~retained ~~being~~deficit. ~~capitalized~~See ~~along~~Note ~~with~~13, ~~the~~“Leases” ~~associated~~for ~~obligations~~additional information.

~~In May 2014, the FASB issued ASU No~~2. ~~2014-09,~~REVENUE ~~“Revenue~~FROM ~~from~~CONTRACTS ~~Contracts~~WITH with Customers (Topic 606)” (“ASU 2014-09” or “ASC 606”), which was the result of a joint project by the FASB and International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. Subsequent accounting standard updates have been issued which amend and/or clarify the application of ASU 2014-09. The Company adopted ASU 2014-09 in the first quarter of 2018. In evaluating the impact of the standard, management has concluded that control has transferred on some of the inventory held on consignment at customer locations or CUSTOMERS

6We generate substantially all of our revenue from the manufacture and shipment of aluminum products to our customers. Sales, value add and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Revenue is recognized when obligations under the terms of a contract (as defined by ASC 606) with our customer are satisfied, which occurs at a point in time when control of the product transfers to the customer. Control may transfer to the customer at various points in the delivery process. In North America, most revenue is recognized at the point of shipment. In Europe and China, the timing of revenue recognition varies depending on individual customer arrangements, and may include point of shipment, delivery to port, final delivery to customer or another point in the delivery process.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

in third-party warehouses. Subsequent to adoption of the standard, revenue has been recognized on such consignment inventory when it is delivered into consignment. We adopted this standard using the modified retrospective approach. The January 1, 2018 adoption of the standard resulted in an increase to accounts receivable, accrued liabilities and deferred income tax liabilities of $28.6, $1.6 and $1.2, respectively, and a decrease in inventory of $23.0. The net impact was recorded as a decrease to retained deficit of $2.8.

The pre-tax impact of the adoption of ASU 2014-09 on our Consolidated Balance Sheet at September 30, 2018 and our Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2018 is as follows:

	Increase (decrease)
Consolidated Balance Sheet
Accounts receivable	$	26.9
Inventories	(23.3		)
Accrued liabilities	1.6
Consolidated Statements of Comprehensive Loss
Revenues	$	(0.6	)
Cost of goods sold	(0.3		)

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

We generate substantially all of our revenue from the manufacture and shipment of aluminum products to our customers. Sales, value add and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Revenue is recognized when obligations under the terms of a contract (as defined by ASC 606) with our customer are satisfied, which occurs at a point in time when control of the product transfers to the customer. Control may transfer to the customer at various points in the delivery process. In North America, most revenue is recognized at the point of shipment. In Europe and China, the timing of revenue recognition varies depending on individual customer arrangements, and may include point of shipment, delivery to port, final delivery to customer or another point in the delivery process.

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

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

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

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

The following table discloses the disaggregated revenue from our contracts with customers by major end-use:



	For the three months ended March 31, 2019
	North America		Europe		Asia Pacific		Intra-entity sales			Total
Aerospace	$	—	$	89.8	$	32.7	$	—		$	122.5
Automotive	124.7		95.3		—		(5.2		)	214.8
Heat exchanger	—		54.7		—		—			54.7
Building and construction	177.8		27.7		—		—			205.5
Truck trailer	62.2		7.4		—		—			69.6
Distribution	78.3		21.8		10.7		—			110.8
Regional plate and sheet	—		42.7		—		—			42.7
Other	47.0		8.2		1.2		—			56.4
	$	490.0	$	347.6	$	44.6	$	(5.2	)	$	877.0



	For the three months ended March 31, 2018
	North America		Europe		Asia Pacific		Intra-entity sales			Total
Aerospace	$	—	$	70.8	$	14.8	$	—		$	85.6
Automotive	26.8		101.3		—		(9.0		)	119.1
Heat exchanger	—		66.0		—		—			66.0
Building and construction	189.2		—		—		—			189.2
Truck trailer	43.8		—		—		—			43.8
Distribution	107.0		—		15.9		—			122.9
Regional plate and sheet	—		109.1		—		—			109.1
Other	47.8		17.9		0.9		—			66.6
	$	414.6	$	365.1	$	31.6	$	(9.0	)	$	802.3

We occasionally receive advance payments to secure product to be delivered in future periods. These advance payments are recorded as deferred revenue, and revenue is recognized as our performance obligations are satisfied throughout the term of the applicable contract. We may also purchase aluminum on our customer’s behalf, sell the unprocessed aluminum to our customer and then process and ship the material, charging a processing fee at the time of shipment. For these arrangements, a

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

	For the three months ended September 30, 2018
	North America		Europe		Asia Pacific		Intra-entity sales			Total
Aerospace	$	—	$	73.2	$	21.5	$	—		$	94.7
Automotive	77.8		97.5		—		(4.9		)	170.4
Heat exchanger	—		69.7		—		—			69.7
Building and construction	230.5		—		—		—			230.5
Truck trailer	52.5		—		—		—			52.5
Distribution	118.0		—		12.5		(0.4		)	130.1
Regional plate and sheet	—		94.2		—		—			94.2
Other	53.6		14.2		1.5		(0.1		)	69.2
	$	532.4	$	348.8	$	35.5	$	(5.4	)	$	911.3

single performance obligation exists, and, as a result, amounts invoiced to our customers for the aluminum purchased on their behalf is recorded as deferred revenue until the aluminum is processed and shipped.

	For the nine months ended September 30, 2018
	North America		Europe		Asia Pacific		Intra-entity sales			Total
Aerospace	$	—	$	216.0	$	60.3	$	—		$	276.3
Automotive	136.6		305.9		—		(20.7		)	421.8
Heat exchanger	—		208.1		—		—			208.1
Building and construction	657.4		—		—		—			657.4
Truck trailer	149.0		—		—		—			149.0
Distribution	369.9		—		46.1		(0.8		)	415.2
Regional plate and sheet	—		312.5		—		—			312.5
Other	159.0		42.2		3.0		(0.3		)	203.9
	$	1,471.9	$	1,084.7	$	109.4	$	(21.8	)	$	2,644.2

The following table details the deferred revenue for which our performance obligations have not been satisfied:

	Total Deferred Revenue
Deferred revenue at January 1, 2018	$	21.4		(a)
Deferred revenue at January 1, 2019	$	81.9		(a)
Payments received	734.17
Revenue recognized	(149.50		)
Adoption of ASC 606	1.6
Currency and other	(0.1		)
Currency and other	(0.2		)
Deferred revenue at March 31, 2019	$	77.5		(a)
Deferred revenue at September 30, 2018	$	81.4		(a)

(a) Deferred revenue is included in “Deferred revenue” and “Accrued liabilities” in the Consolidated Balance Sheet.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

3. INVENTORIES

The components of our “Inventories” as of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows:

	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
Raw materials	$	~~247~~278.51	$	~~207~~283.68
Work in process	~~301~~289.74		~~210~~284.85
Finished goods	~~145~~159.61		~~181~~169.61
Supplies	3436.31		3135.25
Total inventories	$	~~729~~762.17	$	~~631~~772.29

4. LONG-TERM DEBT

Our debt as of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018 is summarized as follows:

	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
ABL Facility	$	~~251~~377.03	$	~~319~~253.37
First Lien Term Loan due 2023, net of discount and deferred issuance costs of $25.4 at September 30, 2018	1,071.9		—
First Lien Term Loan due 2023, net of discount and deferred issuance costs of $22.9 and $24.3 at March 31, 2019 and December 31, 2018, respectively	1,068.8		1,070.2
10.75% Senior Secured Junior Priority Notes due 2023, net of discount and deferred issuance costs of $7.7 at September 30, 2018	392.3		—
10.75% Senior Secured Junior Priority Notes due 2023, net of discount and deferred issuance costs of $7.1 and $7.5 at March 31, 2019 and December 31, 2018, respectively	392.9		392.5
7 7/8% Senior Notes due 2020, net of discount and deferred issuance costs of $3.3 at December 31, 2017	—		436.7
Exchangeable Notes, net of discount of $0.2 at March 31, 2019 and December 31, 2018	44.6		44.6
9 1/2% Senior Secured Notes due 2021, inclusive of net premiums and deferred issuance costs of $0.8 at December 31, 2017	—		800.8
Zhenjiang Term Loans, net of discount of $0.4 at March 31, 2019 and December 31, 2018	156.9		157.2
Exchangeable Notes, net of discount of $0.2 and $0.3 at September 30, 2018 and December 31, 2017, respectively	44.6		44.5
Other	—		10.1
Zhenjiang Term Loans, net of discount of $0.4 and $0.5 at September 30, 2018 and December 31, 2017	157.4		169.8
Total debt	2,040.5		1,928.3
Other	8.4		9.4
Less: Current portion of long-term debt	23.5		21.9
Total debt	1,925.6		1,780.5
Total long-term debt	$	2,017.0	$	1,906.4
Less: Current portion of long-term debt	21.6		9.1
Total long-term debt	$	1,904.0	$	1,771.4

Restricted cash

At ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, respectively, $57.32 and $57.60 of cash was restricted for payments of the Zhenjiang Term Loans, all of which was included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheet.

Debt refinancing

On June 25, 2018, Aleris International completed debt refinancing transactions, pursuant to which Aleris International (i) raised $1,500.0 in new debt financing (the “New Financing”), consisting of (A) a new senior secured first lien term loan in an aggregate principal amount of $1,100.0 (the “Term Loan Facility”) and (B) $400.0 aggregate principal amount of newly issued 10.75% senior secured junior priority notes due 2023 (the “2023 Junior Priority Notes”), (ii) amended its existing ABL Facility (as defined below) (the “ABL Amendment”), and (iii) used the net proceeds of the New Financing to (A) redeem all of its Existing Senior Notes (as defined below), (B) repay a portion of its outstanding borrowings under the ABL Facility and (C) pay related fees and expenses.

As a result of the debt refinancing transactions, we recorded debt extinguishment costs of $48.9, consisting primarily of the redemption costs for the Existing Senior Notes and expensing the net unamortized discounts and debt issuance costs of the Existing Senior Notes.

Term Loan Facility

The Term Loan Facility consists of a $1,100.0 first lien senior secured term loan facility, which will mature on February 27, 2023. Aleris International’s obligations under the Term Loan Facility are guaranteed by Aleris Corporation and Aleris

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

International’s domestic restricted subsidiaries that guarantee Aleris International’s existing obligations under its asset-based revolving credit facility (the “ABL Facility”) and the 2023 Junior Priority Notes (the “Guarantor Subsidiaries” and, together with Aleris Corporation, the “Guarantors”).

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

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

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

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

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

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

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

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

The Term Loan Facility contains a number of covenants that, subject to certain exceptions, impose restrictions on Aleris International and certain of its subsidiaries, including, without limitation, restrictions on the ability to, among other things, incur additional debt, grant liens or security interests on assets, merge, consolidate or sell assets, make investments, loans and acquisitions, pay dividends and make restricted payments, modify terms of junior indebtedness or enter into affiliate transactions. The Term Loan Facility also contains certain customary affirmative covenants and events of default. Aleris International was in compliance with all covenants set forth in the Term Loan Facility as of September 30, 2018.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

2023 Junior Priority Notes

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

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

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

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

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

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

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

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

remaining proceeds of such asset sales, as well as the proceeds of certain events of loss with respect to the Collateral, as the case may be, to make an offer to purchase a principal amount of the 2023 Junior Priority Notes at a price of 100.00% of the principal amount thereof, plus accrued and unpaid interest, to the extent such proceeds are not invested or used to permanently reduce certain debt within a specified period of time.

The 2023 Junior Priority Notes Indenture contains covenants, subject to certain limitations and exceptions, limiting the ability of Aleris International and its restricted subsidiaries to, among other things: incur additional debt; pay dividends or distributions on Aleris International’s capital stock or redeem, repurchase or retire Aleris International’s capital stock or subordinated debt; issue preferred stock of restricted subsidiaries; make certain investments; create liens on Aleris International’s or its Guarantor Subsidiaries’ assets to secure debt; enter into sale and leaseback transactions; create restrictions on the payment of dividends or other amounts to Aleris International from the restricted subsidiaries that are not guarantors of the 2023 Junior Priority Notes; enter into transactions with affiliates; merge or consolidate with another company; and sell assets, including capital stock of Aleris International’s subsidiaries. The 2023 Junior Priority Notes Indenture also contains customary events of default. Aleris International was in compliance with all covenants set forth in the 2023 Junior Priority Notes Indenture as of September 30, 2018.

ABL Amendment

On June 25, 2018, Aleris International entered into the ABL Amendment, which amended the credit agreement governing its existing asset-based revolving credit facility, dated as of June 15, 2015 (as amended, the “ABL Facility”), among Aleris International, the other borrowers party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent for the lenders (the “ABL Administrative Agent”), and J.P. Morgan Europe Limited, as the European agent for the lenders.

The terms of the ABL Amendment increase the size of the ABL Facility $150.0, thereby increasing its size from $600.0 to $750.0, subject to applicable borrowing bases. The ABL Facility, as amended by the ABL Amendment, also provides for an accordion pursuant to which the available commitments thereunder may be further increased by up to an additional $300.0, subject to applicable borrowing bases.

In addition to increasing the size of the ABL Facility, the terms of the ABL Amendment, among other things, (i) extended the maturity date of the ABL Facility from June 15, 2020 to the earliest of (x) June 25, 2023, (y) the date that is 60 days prior to the scheduled maturity date of the term loans under the Term Loan Facility (currently February 27, 2023) and (z) the date that is 60 days prior to the scheduled maturity date of the 2023 Junior Priority Notes (currently July 15, 2023), (ii) removed a previous borrowing base reserve on Belgian finished goods inventory, (iii) permitted the incurrence of the Term Loan Facility and the 2023 Junior Priority Notes and (iv) amended certain covenants and other provisions consistent with the corresponding terms of the Term Loan Facility and the 2023 Junior Priority Notes.

Concurrently with the effectiveness of the ABL Amendment, the ABL Facility continues to be secured by a first-priority lien over the ABL Collateral and is also secured by a third-priority lien (ranking junior to the lien therein in favor of the Term Loan Facility and the 2023 Junior Priority Notes) over the Term Loan Collateral, in each case excluding certain assets and subject to permitted liens.

Redemption of Senior Notes

As part of the debt refinancing transactions, Aleris International redeemed in full the aggregate principal amount of its former 77/8% senior notes due 2020 (the “2020 Notes”) and 9½% senior secured notes due 2021 (the “2021 Notes” and, together with the 2020 Notes, the “Existing Senior Notes”). The 2020 Notes were redeemed at a redemption price equal to 101.969% of the principal amount thereof, plus accrued and unpaid interest to June 25, 2018, and the 2021 Notes were redeemed at a redemption price equal to 104.750% of the principal amount thereof, plus accrued and unpaid interest to June 25, 2018.

5. COMMITMENTS AND CONTINGENCIES

Environmental Proceedings

Our operations are subject to environmental laws and regulations governing air emissions, wastewater discharges, the handling, storage, disposal and remediation of hazardous substances and wastes and employee health and safety. These laws can impose joint and several liability for releases or threatened releases of hazardous substances upon statutorily defined parties, including us, regardless of fault or the lawfulness of the original activity or disposal. Given the changing nature of environmental legal requirements, we may be required, from time to time, to take environmental control measures at some of our facilities to meet future requirements.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

impose joint and several liability for releases or threatened releases of hazardous substances upon statutorily defined parties, including us, regardless of fault or the lawfulness of the original activity or disposal. Given the changing nature of environmental legal requirements, we may be required, from time to time, to take environmental control measures at some of our facilities to meet future requirements.

We have been named as a potentially responsible party in certain proceedings initiated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes and may be named a potentially responsible party in other similar proceedings in the future. It is not anticipated that the costs incurred in connection with the presently pending proceedings will, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows.

We are performing operations and maintenance at two Superfund sites for matters arising out of past waste disposal activity associated with closed facilities. We are also under orders to perform environmental remediation by agencies in four states and one non-U.S. country at seven sites.

Our reserves for environmental remediation liabilities totaled $2125.26 ~~and $22.1~~ at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, ~~respectively,~~ and have been classified as “Other long-term liabilities” and “Accrued liabilities” in the Consolidated Balance Sheet. Of the environmental liabilities recorded at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, $911.56 and $1011.29, respectively, are subject to indemnification by third parties.

In addition to environmental liabilities, we have recorded asset retirement obligations associated with legal requirements related to the retirement of certain assets. Our total asset retirement obligations were $56.8 ~~and $6.1~~ at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017, respectively~~2018. The amounts represent the most probable costs of remedial actions. We estimate the costs related to currently identified remedial actions will be paid out primarily over the next 10 years.

Legal Proceedings

We are party to routine litigation and proceedings as part of the ordinary course of business and do not believe that the outcome of any existing proceedings would have a material adverse effect on our financial position, results of operations or cash flows. We have established accruals for those loss contingencies, including litigation and environmental contingencies, for which it has been determined that a loss is probable; none of such loss contingencies is material. For those loss contingencies, including litigation and environmental contingencies, which have been determined to be reasonably possible, an estimate of the possible loss or range of loss cannot be determined because the claims, amount claimed, facts or legal status are not sufficiently developed or advanced in order to make such a determination. While we cannot estimate the loss or range of loss at this time, we do not believe that the outcome of any of these existing proceedings would be material to our financial position, results of operations or cash flows.

6. STOCKHOLDERS’ EQUITY

The following table ~~summarizes~~shows ~~the~~changes ~~activity~~in ~~within~~the ~~stockholders’~~number ~~equity~~of ~~for~~our ~~the~~issued ~~nine~~and ~~months~~outstanding ~~ended~~shares ~~September 30,~~of ~~2018~~common stock:

	Total Equity
	For the three months ended,
Total equity at January 1, 2018	$	92.7
Issued and outstanding shares of common stock	March 31, 2019			March 31, 2018
Net loss	(68.4		)
Balance at the beginning of the period	32,380,867			32,001,318
Other comprehensive loss	(19.2		)
Issuance associated with vested restricted stock units	—			218,210
Dividends	(11.3		)
Balance at the end of the period	32,380,867			32,219,528
Stock-based compensation activity	2.6
Adoption of ASC 606	2.8
Total equity at September 30, 2018	$	(0.8	)

1310

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

The following table shows changes in the number of our issued and outstanding shares of common stock:

	Issued and outstanding shares of common stock
Balance at January 1, 2018	32,001,318
Issuance associated with vested restricted stock units	225,371
Shares cancelled	(3,418	)
Balance at September 30, 2018	32,223,271

Dividends Paid

In connection with the 2015 sale of our former recycling and specification alloys business, we received shares of Real Industry Inc.’s Series B non-participating preferred stock. In 2017, Real Industry, Inc. filed for Chapter 11 bankruptcy protection, at which time we recorded an impairment charge of $22.8 to reduce the carrying value of the preferred shares to zero. In the second quarter of 2018, the bankruptcy reorganization was finalized, and we received shares of the reorganized company’s common stock with an estimated fair value of $11.1. The receipt of these shares, as well as additional net cash considerations, resulted in a gain of $12.2 that was recorded in “Other expense (income), net” in the Consolidated Statements of Comprehensive Loss. Upon receipt, these shares were distributed pro rata to our stockholders. In addition, dividend equivalent right payments of approximately $0.2 were paid in cash to holders of unvested restricted stock units.

7. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table summarizes the activity within accumulated other comprehensive loss for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019:

	Currency translation			Pension and other postretirement			Total
Balance at January 1, 2018	$	(64.2	)	$	(76.3	)	$	(140.5	)
Balance at January 1, 2019	$	(93.3	)	$	(73.7	)	$	(167.0	)
Current period currency translation adjustments	(234.05		)	10.29			(213.86		)
Amortization of net actuarial losses and prior service costs, net of tax	—			20.69			20.69
Balance at September 30, 2018	$	(87.2	)	$	(72.5	)	$	(159.7	)
Balance at March 31, 2019	$	(97.8	)	$	(71.9	)	$	(169.7	)

A summary of reclassifications out of accumulated other comprehensive loss for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 is provided below:

Description of reclassifications out of accumulated other comprehensive loss	Amount reclassified
Amortization of net actuarial losses and prior service costs (recorded in “Other operating expense, net”)	$	(31.31	)
Deferred tax benefit on pension and other postretirement liability adjustments	0.72
Losses reclassified into earnings, net of tax	$	(20.69	)

8. SEGMENT INFORMATION

We report three operating segments based on the organizational structure that is used by ~~the~~our chief operating decision maker to evaluate performance, make decisions on resource allocation and for which discrete financial information is available. ~~The~~Our ~~Company’s~~ operating segments are North America, Europe and Asia Pacific.

Measurement of Segment Income or Loss and Segment Assets

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the Consolidated Financial Statements for the year ended December 31, ~~2017~~2018. Our measure of profitability for our operating segments is referred to as segment income. Segment income includes gross profits, segment specific realized gains and losses on derivative financial instruments, segment specific other income and expense, segment specific selling, general and administrative (“SG&A”) expense and an allocation of certain functional SG&A expenses. Segment income excludes provisions for and benefits from income taxes, restructuring items, interest, depreciation and amortization, unrealized and certain realized gains and losses on derivative financial instruments, corporate general and administrative costs, start-up costs, gains and losses on asset sales, currency exchange gains and losses on debt and certain other gains and losses. Intra-entity sales and transfers are recorded at market value. Consolidated cash, restricted cash, net capitalized debt costs, deferred tax assets and assets related to our headquarters offices are not allocated to the segments.

1411

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

profitability for our operating segments is referred to as segment income. Segment income includes gross profits, segment specific realized gains and losses on derivative financial instruments, segment specific other income and expense, segment specific selling, general and administrative (“SG&A”) expense and an allocation of certain functional SG&A expenses. Segment income excludes provisions for and benefits from income taxes, restructuring items, interest, depreciation and amortization, unrealized and certain realized gains and losses on derivative financial instruments, corporate general and administrative costs, start-up costs, gains and losses on asset sales, currency exchange gains and losses on debt and certain other gains and losses. Intra-entity sales and transfers are recorded at market value. Consolidated cash, restricted cash, net capitalized debt costs, deferred tax assets and assets related to our headquarters offices are not allocated to the segments.

Reportable Segment Information

The following table shows our revenues and segment income for our reportable segments for the periods presented in our Consolidated Statements of Comprehensive (Loss) Income:

Three months ended September 30, 2018	North America		Europe		Asia Pacific		Intra-entity Revenues			Total
Three months ended March 31, 2019	North America		Europe		Asia Pacific		Intra-entity Revenues			Total
Revenues to external customers	$	~~532~~490.40	$	~~343~~342.84	$	3544.16				$	~~911~~877.30
Intra-entity revenues	—		5.02		~~0.4~~—		$	(5.42	)	—
Total revenues	$	~~532~~490.40	$	~~348~~347.86	$	3544.56	$	(5.42	)	$	~~911~~877.30
Segment income	$	5257.40	$	3036.46	$	78.04				$	89102.80
Three months ended September 30, 2017	North America		Europe		Asia Pacific		Intra-entity Revenues			Total
Three months ended March 31, 2018	North America		Europe		Asia Pacific		Intra-entity Revenues			Total
Revenues to external customers	$	~~364~~414.46	$	~~318~~356.41	$	3031.06				$	~~712~~802.83
Intra-entity revenues	—		5.9.0		~~2.2~~—		$	(89.10	)	—
Total revenues	$	~~364~~414.46	$	~~324~~365.31	$	3231.26	$	(89.10	)	$	~~712~~802.83
Segment income	$	1941.95	$	28.43	$	42.3				$	5272.61
Nine months ended September 30, 2018	North America		Europe		Asia Pacific		Intra-entity Revenues			Total
Revenues to external customers	$	1,471.9	$	1,063.8	$	108.5				$	2,644.2
Intra-entity revenues	—		20.9		0.9		$	(21.8	)	—
Total revenues	$	1,471.9	$	1,084.7	$	109.4	$	(21.8	)	$	2,644.2
Segment income	$	165.5	$	101.0	$	16.1				$	282.6
Nine months ended September 30, 2017	North America		Europe		Asia Pacific		Intra-entity Revenues			Total
Revenues to external customers	$	1,129.0	$	951.9	$	82.3				$	2,163.2
Intra-entity revenues	—		17.3		4.8		$	(22.1	)	—
Total revenues	$	1,129.0	$	969.2	$	87.1	$	(22.1	)	$	2,163.2
Segment income	$	75.2	$	101.7	$	10.0				$	186.9

15The following table reconciles total segment income to “(Loss) income before income taxes” as reported in our Consolidated Statements of Comprehensive (Loss) Income:



	For the three months ended
	March 31, 2019			March 31, 2018
Total segment income	$	102.0		$	72.1
Unallocated amounts:
Depreciation and amortization	(34.6		)	(34.7		)
Other corporate general and administrative expenses	(14.9		)	(11.2		)
Restructuring charges	(1.0		)	(0.9		)
Interest expense, net	(39.3		)	(33.8		)
Unallocated (losses) gains on derivative financial instruments	(31.0		)	33.7
Unallocated currency exchange gains	0.7			1.2
Start-up costs	(3.3		)	(16.0		)
Other expense, net	(0.5		)	(0.4		)
(Loss) income before income taxes	$	(21.9	)	$	10.0

The following table shows our reportable segment assets as of March 31, 2019 and December 31, 2018:



	March 31, 2019		December 31, 2018
Assets
North America	$	1,512.8	$	1,460.0
Europe	757.4		736.4
Asia Pacific	353.7		340.2
Unallocated assets	193.2		242.8
Total consolidated assets	$	2,817.1	$	2,779.4

9. STOCK-BASED COMPENSATION

On June 1, 2010, the Board of Directors of Aleris Corporation approved the Aleris Corporation 2010 Equity Incentive Plan, (as amended from time to time, the “2010 Equity Plan”). Stock options, restricted stock units and restricted shares have been granted under the 2010 Equity Plan to certain members of management of the Company and directors. All stock options granted have a life not to exceed ten years and generally vest over a period not to exceed four years. Shares of common stock

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

are issued upon stock option exercises from available shares of common stock. The ~~following~~restricted ~~table~~stock ~~reconciles~~units ~~total~~also ~~segment~~vest ~~income~~over a period not to ~~“Loss~~exceed ~~before~~four ~~income~~years. ~~taxes”~~A portion of the stock options, as ~~reported~~well as a portion of the restricted stock units, may vest upon a change in control event should the event occur prior to full vesting of these awards, depending on the amount of vesting that has already occurred at the time of the event in comparison to the change in our ~~Consolidated~~largest ~~Statements~~stockholders’ overall level of ~~Comprehensive~~beneficial ~~Loss:~~ownership that results from the event.

	For the three months ended						For the nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Total segment income	$	89.8		$	52.6		$	282.6		$	186.9
Unallocated amounts:
Depreciation and amortization	(35.0		)	(30.5		)	(103.8		)	(82.0		)
Other corporate general and administrative expenses	(15.3		)	(8.9		)	(37.9		)	(32.1		)
Restructuring charges	(0.2		)	(0.9		)	(2.0		)	(2.1		)
Interest expense, net	(37.5		)	(32.0		)	(106.0		)	(90.4		)
Unallocated (losses) gains on derivative financial instruments	(10.5		)	(18.4		)	3.0			(1.0		)
Unallocated currency exchange losses	(1.1		)	(2.0		)	(2.4		)	(3.7		)
Start-up costs	(9.8		)	(22.8		)	(48.7		)	(52.6		)
Loss on extinguishment of debt	—			—			(48.9		)	—
Other (expense) income, net	(1.0		)	(1.2		)	10.4			(1.2		)
Loss before income taxes	$	(20.6	)	$	(64.1	)	$	(53.7	)	$	(78.2	)

During the three months ended March 31, 2019, no stock options or restricted stock units were granted. We recorded no stock-based compensation expense for the three months ended March 31, 2019 and $0.3 for the three months ended March 31, 2018.

The following table shows our reportable segment assets as of September 30, 2018 and December 31, 2017:

	September 30, 2018		December 31, 2017
Assets
North America	$	1,472.0	$	1,309.9
Europe	774.5		738.4
Asia Pacific	352.3		371.4
Unallocated assets	176.4		224.7
Total consolidated assets	$	2,775.2	$	2,644.4

9. STOCK-BASED COMPENSATION

On June 1, 2010, the Board of Directors of Aleris Corporation approved the Aleris Corporation 2010 Equity Incentive Plan, which has been amended from time to time (the “2010 Equity Plan”). Stock options, restricted stock units and restricted shares have been granted under the 2010 Equity Plan to certain members of management of the Company and directors. All stock options granted have a life not to exceed ten years and generally vest over a period not to exceed four years. Shares of common stock are issued upon stock option exercises from available shares. The restricted stock units also vest over a period not to exceed four years. A portion of the stock options, as well as a portion of the restricted stock units, may vest upon a change in control event should the event occur prior to full vesting of these awards, depending on the amount of vesting that has already occurred at the time of the event in comparison to the change in our largest stockholders’ overall level of beneficial ownership that results from the event.

During the nine months ended September 30, 2018, no stock options or restricted stock units were granted. We recorded stock-based compensation expense of $2.1 and $2.8 for the three and nine months ended September 30, 2018, respectively, and $0.4 and $1.5 for the three and nine months ended September 30, 2017, respectively.

10. INCOME TAXES

OnThe ~~December~~effective ~~22,~~tax ~~2017,~~rates ~~Staff~~for ~~Accounting~~the ~~Bulletin~~three ~~No.~~months ~~118~~ended ~~(“SAB~~March 31, ~~118”)~~2019 ~~was~~and ~~issued~~2018 todiffered ~~address~~from the ~~application~~federal ofstatutory ~~GAAP~~rate inapplied ~~situations~~to ~~when~~income aand ~~registrant~~losses ~~does~~before ~~not~~income ~~have~~taxes ~~the~~primarily ~~necessary~~as ~~information~~a ~~available,~~result ~~prepared,~~of orthe ~~analyzed~~mix ~~(including~~of ~~computations)~~income, inlosses ~~reasonable~~and ~~detail~~tax torates ~~complete~~between ~~the accounting for certain income~~ tax ~~effects~~jurisdictions, ofvaluation ~~the~~allowances ~~Tax Cuts~~ and, ~~Jobs~~for ~~Act (~~the ~~“Tax~~three ~~Act”).~~months ~~Pursuant~~ended toMarch ~~the~~31, ~~guidance~~2019, ~~we recognized~~ the ~~provisional~~results ~~effects~~ of ~~the~~an ~~enactment~~examination ofby ~~the~~a ~~Tax Act for which measurement could be reasonably estimated~~non-U.S. Wetaxing ~~continue~~jurisdiction to(discussed ~~monitor certain aspects of the Tax Act and may refine our~~ below).

16We have valuation allowances recorded to reduce certain deferred tax assets to amounts that are more likely than not to be realized. The valuation allowances relate to the potential inability to realize our deferred tax assets associated with amortization, net operating losses and interest expense carryforwards in the U.S. and net operating loss carryforwards in non-U.S. jurisdictions. We intend to maintain our valuation allowances until sufficient positive evidence exists (such as cumulative positive earnings and estimated future taxable income) to support their reversal.

As of March 31, 2019, we had $9.1 of unrecognized tax benefits. $8.2 of the gross unrecognized tax benefits, if recognized, would affect the annual effective tax rate. We recognize interest and penalties related to uncertain tax positions within “Provision for income taxes” in the Consolidated Statements of Comprehensive (Loss) Income. As of March 31, 2019, we had approximately $1.8 of accrued interest related to uncertain tax positions.

The 2009 through 2017 tax years remain open to examination. During the fourth quarter of 2013, a non-U.S. taxing jurisdiction commenced an examination of our tax returns for the tax years ended December 31, 2012, 2011, 2010 and 2009. During the first quarter of 2019, the non-U.S. taxing jurisdiction proposed certain significant adjustments to the Company’s transfer pricing tax position. The final audit report was not received during the quarter. However, the Company expects additional tax of $5.3 along with additional interest of approximately $0.8. Both amounts were expensed in the first quarter of 2019. During the third quarter of 2018, the same jurisdiction notified us regarding an examination of our tax returns for the tax years ended December 31, 2016, 2015, 2014 and 2013.

During the third quarter of 2018, a non-U.S. taxing jurisdiction notified us regarding an examination of our tax returns for the tax years ended December 31, 2016, 2015, 2014 and 2013 that is anticipated to be completed within three months of the reporting date.

During the first quarter of 2019, a non-U.S. taxing jurisdiction notified us regarding an examination of our tax returns for the tax years ended December 31, 2017 and 2016 that is anticipated to be completed within twelve months of the reporting date.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

assessment as a result of any further related regulatory guidance that may be issued by the U.S. Treasury. Pursuant to SAB 118, adjustments to the provisional amounts recorded as of December 31, 2017 that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined. We have recognized no measurement period adjustments during the three and nine months ended September 30, 2018.

The effective tax rates for the three and nine months ended September 30, 2018 and 2017 differed from the federal statutory rate applied to income and losses before income taxes primarily as a result of the mix of income, losses and tax rates between tax jurisdictions and valuation allowances.

We have valuation allowances recorded to reduce certain deferred tax assets to amounts that are more likely than not to be realized. The valuation allowances relate to the potential inability to realize our deferred tax assets associated with amortization and net operating loss carryforwards in the U.S. and net operating loss carryforwards in non-U.S. jurisdictions. We intend to maintain our valuation allowances until sufficient positive evidence exists (such as cumulative positive earnings and estimated future taxable income) to support their reversal.

As of September 30, 2018, we had $4.1 of unrecognized tax benefits. $3.1 of the gross unrecognized tax benefits, if recognized, would affect the annual effective tax rate. We recognize interest and penalties related to uncertain tax positions within “Provision for income taxes” in the Consolidated Statements of Comprehensive Loss. As of September 30, 2018, we had approximately $0.9 of accrued interest related to uncertain tax positions.

The 2009 through 2016 tax years remain open to examination. During the fourth quarter of 2013, a non-U.S. taxing jurisdiction commenced an examination of our tax returns for the tax years ended December 31, 2012, 2011, 2010 and 2009 that is anticipated to be completed within six months of the reporting date. During the third quarter of 2018, the same jurisdiction notified us regarding an examination of our tax returns for the tax years ended December 31, 2016, 2015, 2014 and 2013.

During the second quarter of 2018, a non-U.S. taxing jurisdiction completed an examination of our tax return for tax year ended December 31, 2015, which it commenced during the second quarter of 2017. The results of the examination did not impact the financial position, results of operations or cash flows for the three or nine months ended September 30, 2018.

11. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans

The service cost component of net periodic benefit expense is included in “Operating income,” while all other components of net periodic benefit expense are included in “Other expense ~~(income)~~, net” in the Consolidated Statements of Comprehensive (Loss) Income. The components of the net periodic benefit expense are as follows:

	U.S. pension benefits
	For the three months ended						~~For the nine months ended~~
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
Service cost	$	1.1		$	1.01		$	~~3.3~~		$	~~2.9~~
Interest cost	1.46			1.4			~~4.3~~			~~4.4~~
Amortization of net actuarial losses	0.56			0.5			~~1.4~~			~~1.4~~
Amortization of prior service cost	0.1			0.1			~~0.2~~			~~0.2~~
Expected return on plan assets	(2.63		)	(2.6		)	~~(7.7~~		)	~~(7.7~~		)
Net periodic benefit expense	$	01.51		$	0.45		$	~~1.5~~		$	~~1.2~~



	Non U.S. pension benefits
	For the three months ended
	March 31, 2019		March 31, 2018
Service cost	$	0.6	$	0.7
Interest cost	0.5		0.5
Amortization of net actuarial losses	0.6		0.7
Net periodic benefit expense	$	1.7	$	1.9

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

	Non U.S. pension benefits
	For the three months ended				For the nine months ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Service cost	$	0.6	$	0.9	$	1.9	$	2.7
Interest cost	0.5		0.4		1.5		1.3
Amortization of net actuarial losses	0.7		0.7		2.1		2.1
Net periodic benefit expense	$	1.8	$	2.0	$	5.5	$	6.1

Other Postretirement Benefit Plans

The service cost component of net postretirement benefit expense is included in “Operating income,” while all other components of net postretirement benefit expense are included in “Other expense ~~(income)~~, net” in the Consolidated Statements of Comprehensive (Loss) Income. The components of net postretirement benefit expense are as follows:

	For the three months ended						~~For the nine months ended~~
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
Service cost	$	0.1		$	—0.1		$	~~0.3~~		$	~~0.1~~
Interest cost	0.23			0.32			~~0.8~~			~~0.9~~
Amortization of net actuarial gains	(0.23		)	(0.12		)	~~(0.6~~		)	~~(0.4~~		)
Amortization of prior service cost	0.1			—0.1			~~0.2~~			—
Net postretirement benefit expense	$	0.2		$	0.2		$	~~0.7~~		$	~~0.6~~

12. DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS

We use forward contracts, options and ~~options~~swaps, as well as contractual price escalators, to reduce the risks associated with our metal, natural gas and other supply requirements, as well as fuel costs and certain currency and interest rate exposures. Generally, we enter into master netting arrangements with our counterparties and offset net derivative positions with the same counterparties against amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those arrangements in our Consolidated Balance Sheet. For classification purposes, we record the net fair value of each type of derivative position that is expected to settle in less than one year with each counterparty as a net current asset or liability and each type of long-term position as a net long-term asset or liability. At ~~September~~March 3031, ~~2018~~2019, ~~$0.2~~no of cash collateral was posted. NoAt December 31, 2018, $0.2 of cash collateral was posted ~~at December 31, 2017~~. The amounts shown in the table below represent the gross amounts of recognized assets and liabilities, the amounts offset in the Consolidated Balance Sheet and the net amounts of assets and liabilities presented therein. As of September 30, 2018 and December 31, 2017, there were no amounts subject to an enforceable master netting arrangement or similar agreement that have not been offset in the Consolidated Balance Sheet.

	Fair Value of Derivatives as of
	September 30, 2018						December 31, 2017
Derivatives by Type	Asset			Liability			Asset			Liability
Metal	$	12.1		$	(7.5	)	$	33.5		$	(36.0	)
Energy	0.6			—			0.2			(0.1		)
Interest rate	—			(0.1		)	—			—
Currency	0.1			(2.7		)	1.6			(0.1		)
Total	12.8			(10.3		)	35.3			(36.2		)
Effect of counterparty netting	(7.0		)	7.0			(27.2		)	27.2
Effect of cash collateral	—			0.2			—			—
Net derivatives as classified in the balance sheet	$	5.8		$	(3.1	)	$	8.1		$	(9.0	)

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

~~The~~liabilities ~~fair~~presented ~~value~~therein. As of ~~our derivative financial instruments at September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, ~~are~~there ~~recorded~~were no amounts subject to an enforceable master netting arrangement or similar agreement that have not been offset in the Consolidated Balance Sheet ~~as follows:~~ .

Asset Derivatives	Balance Sheet Location		September 30, 2018				December 31, 2017
	Fair Value of Derivatives as of
Metal	Prepaid expenses and other current assets		$	4.8			$	2.2
	March 31, 2019								December 31, 2018
	Other long-term assets		0.4				4.3
Derivatives by Type	Asset				Liability				Asset			Liability
Energy	Prepaid expenses and other current assets		0.6				0.1
Metal	$	10.1			$	(13.1	)		$	52.3		$	(24.3	)
Currency	Prepaid expenses and other current assets		—				0.8
Energy	0.4				(0.2		)		0.2			(1.6		)
	Other long-term assets		—				0.7
Interest rate	—				(0.4		)		—			(0.4		)
Total			$	5.8			$	8.1
Currency	0.5				(6.1		)		0.4			(4.5		)
Liability Derivatives	Balance Sheet Location		September 30, 2018				December 31, 2017
Total	11.0				(19.8		)		52.9			(30.8		)
Metal	Accrued liabilities		$	—			$	9.0
Effect of counterparty netting	(9.8		)		9.8				(23.5		)	23.5
	Other long-term liabilities		0.3				—
Effect of cash collateral	—				—				—			0.2
Interest Rate	Accrued liabilities		0.1				—
Net derivatives as classified in the balance sheet	$	1.2			$	(10.0	)		$	29.4		$	(7.1	)
Currency	Accrued liabilities		2.1				—
	Other long-term liabilities		0.6				—
Total			$	3.1			$	9.0

~~With~~The ~~the~~fair ~~exception~~value of ~~the~~our ~~interest~~derivative ~~rate~~financial ~~derivatives~~instruments ~~(for~~at ~~which~~March 31, ~~realized~~2019 ~~gains~~and ~~will be included within “Interest expense~~December 31, ~~net”),~~2018 ~~both realized and unrealized gains and losses on derivative financial instruments~~ are ~~included~~recorded ~~within “(Gains) losses on derivative financial instruments”~~ in the Consolidated ~~Statements~~Balance ofSheet ~~Comprehensive~~as ~~Loss. Realized (gains) and losses on derivative financial instruments totaled the following~~follows:

	For the three months ended								For the nine months ended
Asset Derivatives	Balance Sheet Location		March 31, 2019				December 31, 2018
	September 30, 2018				September 30, 2017				September 30, 2018			September 30, 2017
Metal	Prepaid expenses and other current assets		$	0.2			$	29.3
Metal	$	(17.2	)		$	(3.6	)		$	(15.2	)	$	28.2
	Other long-term assets		0.8				—
Energy	~~(0.1~~Prepaid expenses and other current assets		)0.2		~~0.3~~		0.1		~~(0.4~~		)	~~0.8~~
Currency	0.5				(0.6		)		(0.3		)	—
Total			$	1.2			$	29.4
Liability Derivatives	Balance Sheet Location		March 31, 2019				December 31, 2018
Metal	Accrued liabilities		$	3.9			$	—
	Other long-term liabilities		—				1.2
Energy	Accrued liabilities		—				1.4
Interest Rate	Accrued liabilities		0.4				0.4
Currency	Accrued liabilities		4.1				3.0
	Other long-term liabilities		1.6				1.1
Total			$	10.0			$	7.1

With the exception of the interest rate derivative financial instruments (for which, realized gains are included within “Interest expense, net” in the Consolidated Statements of Operations), both realized and unrealized gains and losses on derivative financial instruments are included within “Losses (gains) on derivative financial instruments” in the Consolidated Statements of Comprehensive (Loss) Income. Realized (gains) and losses on derivative financial instruments totaled the following:



	For the three months ended
	March 31, 2019			March 31, 2018
Metal	$	(25.1	)	$	1.0
Energy	—			(0.2		)
Currency	1.0			(1.0		)
Interest	0.1			—

Metal Hedging

The selling prices of the majority of the orders for our products are established at the time of order entry or, for certain customers, under long-term contracts. As the related raw materials used to produce these orders can be purchased several months or years after the selling prices are fixed, margins are subject to the risk of changes in the purchase price of the raw materials used for these fixed price sales. In order to manage this transactional exposure, future, swaps or forward purchase contracts are purchased at the time the selling prices are fixed. As metal is purchased to fill these fixed price sales orders, future, swaps or forward contracts are then sold. We also maintain a significant amount of inventory on-hand to meet anticipated and unpriced future sales. In order to preserve the value of this inventory, future or forward contracts are sold at the time inventory is purchased. As sales orders are priced, future or forward contracts are purchased. These derivatives generally settle within three months. We can also use call option contracts, which function in a manner similar to the natural gas call option contracts discussed below, and put option contracts for managing metal price exposures. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Upon settlement of a put option contract, we receive cash and recognize a related gain if the closing price is less than the strike price of the put option. If the put option strike price is less than the closing price, no amount is paid and the option expires. As of September 30, 2018 we had 160.0 thousand metric tons and 275.0 thousand metric tons of metal buy and metal sell derivative contracts, respectively. As of December 31, 2017, we had 147.9 thousand metric tons and 249.7 thousand metric tons of metal buy and metal sell derivative contracts, respectively.

1915

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

materials used for these fixed price sales. In order to manage this transactional exposure, future, swaps or forward purchase contracts are purchased at the time the selling prices are fixed. As metal is purchased to fill these fixed price sales orders, future, swaps or forward contracts are then sold. We also maintain a significant amount of inventory on-hand to meet anticipated and unpriced future sales. In order to preserve the value of this inventory, future or forward contracts are sold at the time inventory is purchased. As sales orders are priced, future or forward contracts are purchased. These derivatives generally settle within three months. We can also use call option contracts, which function in a manner similar to the natural gas call option contracts discussed below, and put option contracts for managing metal price exposures. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Upon settlement of a put option contract, we receive cash and recognize a related gain if the closing price is less than the strike price of the put option. If the put option strike price is less than the closing price, no amount is paid and the option expires. As of March 31, 2019 we had 157.0 thousand metric tons and 298.0 thousand metric tons of metal buy and metal sell derivative contracts, respectively. As of December 31, 2018, we had 165.0 thousand metric tons and 293.0 thousand metric tons of metal buy and metal sell derivative contracts, respectively.

Energy Hedging

To manage our price exposure for natural gas purchases, we fix the future price of a portion of our natural gas requirements by entering into financial hedge agreements. Under these agreements, payments are made or received based on the differential between the monthly closing price on the New York Mercantile Exchange (“NYMEX”) and the contractual hedge price. We can also use a combination of call option contracts and put option contracts for managing the exposure to increasing natural gas prices while maintaining our ability to benefit from declining prices. Upon settlement of call option contracts, we receive cash and recognize a related gain if the NYMEX closing price exceeds the strike price of the call option. If the call option strike price exceeds the NYMEX closing price, no amount is received and the option expires unexercised. Upon settlement of a put option contract, we pay cash and recognize a related loss if the NYMEX closing price is lower than the strike price of the put option. If the put option strike price is less than the NYMEX closing price, no amount is paid and the option expires unexercised. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Natural gas cost can also be managed through the use of cost escalators included in some of our long-term supply contracts with customers, which limits exposure to natural gas price risk. As of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, we had 43.02 trillion and 34.56 trillion of British thermal unit forward buy contracts, respectively.

We use independent freight carriers to deliver our products. As part of the total freight charge, these carriers include a per mile diesel surcharge based on the Department of Energy, Energy Information Administration’s (“DOE”) Weekly Retail Automotive Diesel National Average Price. From time to time we may enter into over-the-counter DOE diesel fuel swaps with financial counterparties to mitigate the impact of the volatility of diesel fuel prices on our freight costs. Under these swap agreements, we pay a fixed price per gallon of diesel fuel determined at the time the agreements were executed and receive a floating rate payment that is determined on a monthly basis based on the average price of the DOE Diesel Fuel Index during the applicable month. The swaps are designed to offset increases or decreases in fuel surcharges that we pay to our carriers. All swaps are financially settled. There is no possibility of physical settlement. As of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, we had 13.13 million gallons and 14.53 million gallons of diesel fuel swap contracts, respectively.

Currency Hedging

Our aerospace and heat exchanger businesses expose the U.S. dollar operating results of our European operations to fluctuations in the euro as the sales contracts are generally in U.S. dollars while the costs of production are in euros. In order to mitigate the risk that fluctuations in the euro may have on our business, we have entered into forward currency contracts. As of September 30, 2018 and December 31, 2017, we had euro forward contracts covering a notional amount of €69.1 million and €100.8 million, respectively.

Interest Rate Risk

As a result of the completion of the ~~New~~debt ~~Financing~~refinancing ~~discussed~~transactions ~~above~~we completed in the second quarter of 2018, we are exposed to variable interest rate risk on the Term Loan Facility. We have entered into interest rate swaps to fix the LIBOR interest rate on $700.0 the Term Loan Facility for the period of October 31, 2018 through June 28, 2019.

~~Credit~~Currency ~~Risk~~Hedging

WeOur ~~are~~aerospace ~~exposed~~and toheat ~~losses~~exchanger inbusinesses expose the ~~event~~U.S. ofdollar ~~non-performance~~operating byresults ~~the~~of ~~counterparties~~our European operations to ~~the~~fluctuations ~~derivative~~in ~~financial~~the ~~instruments~~euro ~~discussed~~as ~~above;~~the ~~however,~~sales wecontracts doare ~~not~~generally ~~anticipate~~in ~~any~~U.S. ~~non-performance~~dollars bywhile the ~~counterparties.~~costs ~~The~~of ~~counterparties~~production are ~~evaluated~~in ~~for~~euros. ~~creditworthiness~~In ~~and~~order to mitigate the risk ~~assessment~~that ~~prior~~fluctuations toin ~~initiating~~the ~~trading~~euro ~~activities~~may ~~with~~have ~~the~~on ~~brokers~~our business, we have entered into forward currency contracts. As of March 31, 2019 and ~~periodically~~December 31, ~~throughout~~2018, ~~each~~we ~~year~~had ~~while~~euro ~~actively~~forward ~~trading~~contracts covering a notional amount of €67.1 million and €77.6 million, respectively.

~~Recurring Fair Value Measurements~~16

Derivative contracts are recorded at fair value using quoted market prices and significant other observable inputs. Fair value is defined by FASB Accounting Standards Codification 820, “Fair Value Measurements and Disclosures,” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

~~identical~~Credit ~~assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:~~ Risk

We are exposed to losses in the event of non-performance by the counterparties to the derivative financial instruments discussed above; however, we do not anticipate any non-performance by the counterparties. The counterparties are evaluated for creditworthiness and risk assessment prior to initiating trading activities with the brokers and periodically throughout each year while actively trading.

Recurring Fair Value Measurements

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3—Inputs that are both significant to the fair value measurement and unobservable.

We endeavor to use the best available information in measuring fair value. Where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations. Such adjustments are generally based on available market evidence and unobservable inputs. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, all of our derivative assets and liabilities represent Level 2 fair value measurements.

Other Financial Instruments

The carrying amount, fair values and level in the fair value hierarchy of our other financial instruments at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows:

	September 30, 2018					December 31, 2017
	March 31, 2019					December 31, 2018
	CarryingAmount		FairValue		Level in the Fair Value Hierarchy	CarryingAmount		FairValue		Level in the Fair Value Hierarchy
Cash and cash equivalents	$	5679.78	$	5679.78	Level 1	$	~~102~~108.46	$	~~102~~108.46	Level 1
Restricted cash	57.32		57.32		Level 1	57.60		57.60		Level 1
ABL Facility	~~251~~377.03		~~251~~377.03		Level 2	~~319~~253.37		~~319~~253.37		Level 2
First Lien Term Loan	1,~~071~~068.98		1,~~118~~093.62		Level 1	—1,070.2		—1,088.2		~~N/A~~Level 1
10.75% Senior Secured Junior Priority Notes	392.39		~~426~~420.80		Level 1	—392.5		—410.1		~~N/A~~Level 1
7 7/8% Senior Notes	—		—		N/A	436.7		438.1		Level 1
Exchangeable Notes	44.6		60.7		Level 3	44.6		60.7		Level 3
9 ½ % Senior Secured Notes	—		—		N/A	800.8		847.3		Level 1
Zhenjiang Term Loans	156.9		157.2		Level 3	157.2		157.6		Level 3
Exchangeable Notes	44.6		60.7		Level 3	44.5		45.4		Level 3
Zhenjiang Term Loans	157.4		157.8		Level 3	169.8		170.3		Level 3

The principal amount of the ABL Facility approximates fair value because the interest rate paid is variable and there have been no significant changes in the credit risk of Aleris International subsequent to the borrowings. The fair values of the First Lien Term Loan and the 2023 Junior Priority Notes were estimated using market quotations. The fair value of Aleris International’s Exchangeable Notes was estimated using a binomial lattice pricing model based on the fair value of our common stock, a risk-free interest rate of 2.7% and 1.9% as of September 30, 2018 and December 31, 2017, respectively and expected equity volatility of 70% and 60% as of September 30, 2018 and December 31, 2017. Expected equity volatility was determined based on historical stock prices and implied and stated volatilities of our peer companies. The principal amount of the Zhenjiang Term Loans approximates fair value because the interest rate paid is variable, is set for periods of six months or less and there have been no significant changes in the credit risk of Aleris Zhenjiang subsequent to the inception of the Zhenjiang Term Loans.

~~13. POTENTIAL ACQUISITION OF ALERIS CORPORATION~~17

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

~~subject~~International’s toExchangeable ~~customary~~Notes ~~regulatory~~was ~~approvals~~estimated using a binomial lattice pricing model based on the fair value of our common stock, a risk-free interest rate of 2.4% and ~~closing~~2.6% ~~conditions~~as of March 31, 2019 and December 31, 2018, respectively and expected equity volatility of 60% as of March 31, 2019 and December 31, 2018. ~~There~~Expected ~~can~~equity bevolatility nowas ~~assurance~~determined ~~that~~based on historical stock prices and implied and stated volatilities of our peer companies. The principal amount of the ~~Merger~~Zhenjiang ~~will~~Term beLoans ~~consummated~~approximates onfair value because the ~~expected~~interest ~~timing~~rate paid is variable, is set for periods of six months or atless ~~all~~and there have been no significant changes in the credit risk of Aleris Zhenjiang subsequent to the inception of the Zhenjiang Term Loans.

1413. ~~CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~LEASES

~~Aleris~~We Corporation, the direct parent of Aleris International, and the Guarantor Subsidiaries are guarantors of the indebtedness under the 2023 Junior Priority Notes. Aleris Corporation and each of the Guarantor Subsidiaries have ~~fully~~leases ~~and~~for ~~unconditionally~~office ~~guaranteed (subject~~space, ~~in the case of the Guarantor Subsidiaries~~warehousing, ~~to customary release provisions as described below)~~vehicles, onmobile aequipment ~~joint~~ and ~~several~~certain ~~basis,~~other toequipment ~~pay~~in ~~principal~~our ~~and~~production ~~interest related to the 2023 Junior Priority Notes and Aleris International and each of the Guarantor Subsidiaries are directly or indirectly 100% owned subsidiaries of Aleris Corporation~~facilities. ~~For~~Certain ~~purposes~~ of ~~complying~~these ~~with~~lease ~~the~~agreements ~~reporting~~provide ~~requirements~~rights ofto ~~Aleris~~extend ~~International~~or ~~and~~terminate the ~~Guarantor~~contract ~~Subsidiaries,~~which ~~presented~~have ~~below~~been ~~are~~evaluated ~~condensed~~in ~~consolidating~~estimating ~~financial statements of Aleris Corporation, Aleris International,~~ the ~~Guarantor~~lease ~~Subsidiaries,~~term. ~~and~~Most ~~those other subsidiaries~~ of ~~Aleris~~our ~~Corporation~~lease ~~that~~contracts ~~are~~do not ~~guaranteeing~~provide ~~the~~a ~~indebtedness~~readily ~~under~~determinable ~~the~~implicit ~~2023 Junior Priority Notes (the “Non-Guarantor Subsidiaries”)~~rate. ~~Aleris~~For ~~Corporation~~these ~~and the Guarantor Subsidiaries are also guarantors under the Term Loan Facility. The condensed consolidating balance sheets are presented as of September 30~~contracts, ~~2018~~our ~~and~~estimated ~~December 31,~~incremental ~~2017.~~borrowing ~~The~~rate ~~condensed~~is ~~consolidating~~based ~~statements~~on ofinformation ~~comprehensive~~available ~~(loss)~~at ~~income are presented for~~ the ~~three~~inception ~~and nine months ended September 30, 2018 and 2017. The condensed consolidating statements~~ of ~~cash flows are presented for~~ the ~~nine months ended September 30, 2018 and 2017~~lease.

Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheet. Lease expense for these leases is recognized on a straight-line basis over the term of the lease.

The components of lease expense were as follows:



	For the three months ended
	March 31, 2019
Operating lease expense	$	1.2

Finance lease expense
Amortization of right-of-use assets	$	1.0
Interest on lease liabilities	0.1
Total finance lease expense	$	1.1

Short term lease expense	$	0.6

Supplemental cash flow information related to leases was as follows:



	For the three months ended
	March 31, 2019
Cash paid for amounts included in the measurement of liabilities:
Operating cash flows from operating leases	$	(1.2	)
Operating cash flows from finance leases	(0.1		)
Financing cash flows from finance leases	(1.0		)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	2.4
Finance leases	0.4

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

Supplemental balance sheet information related to leases was as follows:



	March 31, 2019
Operating leases
Operating lease right-of-use assets (a)	$	12.3

Current operating lease liabilities	$	4.3
Long-term operating lease liabilities (a)	8.8
Total operating lease liabilities (a)	$	13.1

Finance leases
Finance lease right-of-use asset, gross	$	17.4
Finance lease right-of-use asset, accumulated amortization	(8.2		)
Finance lease right-of-use asset, net (a)	$	9.2

Current finance lease liabilities (a)	$	3.8
Long-term finance lease liabilities (a)	5.5
Total finance lease liabilities	$	9.3

Weighted average remaining lease term
Operating leases	3.7 years
Finance leases	3.4 years

Weighted average discount rate
Operating leases	5.8		%
Finance leases	2.4		%

(a) Operating and finance lease right-of-use assets are included in “Other long-term assets” in the Consolidated Balance Sheet. Current operating and finance lease obligations are included in “Accrued liabilities” in the Consolidated Balance Sheet. Long-term operating and finance lease obligations are included in “Other long-term liabilities” in the Consolidated Balance Sheet.

Maturities of lease liabilities were as follows:



	Operating Leases			Finance Leases
Period ending December 31,
2019 (excluding the three months ended March 31, 2019)	$	3.7		$	3.3
2020	4.3			3.2
2021	3.1			1.4
2022	1.3			0.7
2023	1.2			0.5
Thereafter	0.8			0.6
Total lease payments	14.4			9.7
Less imputed interest	(1.3		)	(0.4		)
Total	$	13.1		$	9.3

As of March 31, 2019, we have an additional finance lease that has not yet commenced. This finance lease is expected to commence in the second quarter of 2019 at which time we expect to record an additional right-of-use asset and finance lease liability of approximately $15.0.

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

14. POTENTIAL ACQUISITION OF ALERIS CORPORATION

On July 26, 2018, we announced that we entered into a definitive agreement to be acquired by Novelis Inc., a subsidiary of Hindalco Industries Limited, for approximately $2,600.0, including the assumption of the Company’s outstanding indebtedness (the “Merger”). The Merger is expected to close within fifteen months from the date of the definitive agreement, subject to customary regulatory approvals and closing conditions. There can be no assurance that the Merger will be consummated on the expected timing or at all.

15. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Aleris Corporation, the direct parent of Aleris International, and the Guarantor Subsidiaries are guarantors of the indebtedness under the 2023 Junior Priority Notes. Aleris Corporation and each of the Guarantor Subsidiaries have fully and unconditionally guaranteed (subject, in the case of the Guarantor Subsidiaries, to customary release provisions as described below), on a joint and several basis, to pay principal and interest related to the 2023 Junior Priority Notes and Aleris International and each of the Guarantor Subsidiaries are directly or indirectly 100% owned subsidiaries of Aleris Corporation. For purposes of complying with the reporting requirements of Aleris International and the Guarantor Subsidiaries, presented below are condensed consolidating financial statements of Aleris Corporation, Aleris International, the Guarantor Subsidiaries, and those other subsidiaries of Aleris Corporation that are not guaranteeing the indebtedness under the 2023 Junior Priority Notes (the “Non-Guarantor Subsidiaries”). Aleris Corporation and the Guarantor Subsidiaries are also guarantors under the Term Loan Facility. The condensed consolidating balance sheets are presented as of March 31, 2019 and December 31, 2018. The condensed consolidating statements of comprehensive (loss) income are presented for the three months ended March 31, 2019 and 2018. The condensed consolidating statements of cash flows are presented for the three months ended March 31, 2019 and 2018.

The guarantee of a Guarantor Subsidiary will be automatically and unconditionally released and discharged in the event of:


▪	any sale of the Guarantor Subsidiary or of all or substantially all of its assets;


▪	a Guarantor Subsidiary being designated as an “unrestricted subsidiary” in accordance with the indenture governing the 2023 Junior Priority Notes;


▪	the release or discharge of a Guarantor Subsidiary from its guarantee under the Term Loan Facility, the ABL Facility or other indebtedness that resulted in the obligation of the Guarantor Subsidiary under the indenture governing the 2023 Junior Priority Notes; and


▪	the requirements for legal defeasance or covenant defeasance or discharge of the indenture governing the 2023 Junior Priority Notes having been satisfied.

2220

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

	As of September 30, 2018
	As of March 31, 2019
	Aleris Corporation (Parent)			Aleris International, Inc.			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	—		$	420.26		$	—	$	5460.85	$	(21.3	)	$	5679.78
Accounts receivable, net	—			—			~~198~~194.40		~~213~~220.70		—			~~412~~414.10
Inventories	—			—			~~377~~430.29		~~351~~331.98		—			~~729~~762.17
Prepaid expenses and other current assets	—			45.3			712.10		19.47		—			3037.80
Intercompany receivables	—			~~433~~794.86			~~234~~375.54		834.16		(~~676~~1,204.46		)	—
Total Current Assets	—			~~442~~820.35			~~817~~1,012.23		~~647~~666.96		(~~678~~1,205.79		)	1,~~228~~293.75
Property, plant and equipment, net	—			01.40			~~863~~846.60		~~532~~523.29		—			1,~~396~~370.29
Intangible assets, net	—			—			1716.21		15.9		—			3332.10
Deferred income taxes	—			—			—		6960.52		—			6960.52
Other long-term assets	—			813.26			4.8.3		3438.76		—			4760.75
Investments in subsidiaries	29(31.02		)	1,~~490~~365.85			4.18		—		(1,~~523~~339.91		)	—
Total Assets	$	29(31.02	)	$	12,~~941~~200.76		$	1,~~706~~887.95	$	1,~~300~~305.2	$	(2,~~202~~545.60	)	$	2,~~775~~817.21
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	—		$	5.10		$	~~212~~172.80	$	~~150~~176.15	$	(21.3	)	$	~~365~~352.72
Accrued liabilities				3330.5			5854.91		7688.59		—			~~168~~173.95
Current portion of long-term debt	—			11.0			~~1.0~~—		912.65		—			2123.65
Intercompany payables	2932.80			~~226~~371.61			~~396~~756.42		2345.63		(~~676~~1,204.46		)	—
Total Current Liabilities	2932.80			~~276~~417.26			~~669~~982.13		~~259~~323.82		(~~678~~1,205.79		)	~~556~~549.2
Long-term debt	—			1,~~632~~805.94			~~0.7~~—		~~270~~211.46		—			12,~~904~~017.0
Deferred revenue	—			—			6861.06		—		—			6861.06
Deferred income taxes	—			—			—		93.3		—			93.3
Accrued pension benefits	—			—			3843.9		~~121~~116.47		—			160.36
Accrued postretirement benefits	—			—			3329.13		—		—			3329.13
Other long-term liabilities	—			38.68			1316.7		2733.8		—			4559.13
Total Long-Term Liabilities	—			1,~~636~~814.52			~~154~~151.45		~~428~~365.94		—			2,~~219~~331.81
Total equity	(063.82		)	29(31.02		)	~~883~~753.47		~~611~~616.56		(1,~~523~~339.91		)	(063.82		)
Total Liabilities and Equity	$	29(31.02	)	$	12,~~941~~200.76		$	1,~~706~~887.95	$	1,~~300~~305.2	$	(2,~~202~~545.60	)	$	2,~~775~~817.21

2321

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

	As of December 31, 2017
	As of December 31, 2018
	Aleris Corporation (Parent)			Aleris International, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	—		$	4032.35	$	—	$	6476.28	$	(20.17	)	$	~~102~~108.46
Accounts receivable, net	—			~~0.2~~—		83133.05		~~162~~175.53		—			~~245~~308.78
Inventories	—			—		~~286~~427.69		~~344~~345.60		—			~~631~~772.29
Prepaid expenses and other current assets	—			3.43		1012.0		2247.74		—			3662.17
Intercompany receivables	—			~~134~~628.61		46333.06		3217.45		(~~213~~979.02		)	—
Total Current Assets	—			~~178~~663.59		~~425~~907.60		~~626~~662.40		(~~215~~979.19		)	1,~~015~~253.40
Property, plant and equipment, net	—			—0.9		~~903~~860.79		~~567~~533.2		—			1,~~470~~395.90
Intangible assets, net	—			—		1816.86		15.9		—			3432.75
Deferred income taxes	—			—		—		7060.72		—			7060.72
Other long-term assets	—			38.40		83.09		4126.38		—			5238.7
Investments in subsidiaries	964.38			1,~~514~~395.49		4.54		—		(1,~~615~~405.21		)	—
Total Assets	$	964.38		$	12,~~696~~068.37	$	1,~~360~~792.68	$	1,~~321~~298.51	$	(12,~~830~~385.30	)	$	2,~~644~~779.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	—		$	45.39	$	~~140~~199.74	$	~~156~~170.32	$	(20.17	)	$	~~299~~374.28
Accrued liabilities	—			4354.90		7564.81		7780.70		—			~~197~~198.41
Current portion of long-term debt	—			—11.0		1.0		89.19		—			921.19
Intercompany payables	331.69			54308.80		~~137~~589.82		1650.81		(~~213~~979.02		)	—
Total Current Liabilities	331.69			~~103~~378.09		~~355~~853.37		~~258~~310.92		(~~215~~979.19		)	~~505~~594.78
Long-term debt	—			1,~~497~~681.04		1.0.5		~~273~~224.45		—			1,~~771~~906.4
Deferred revenue	—			—		1765.0		—		—			1765.0
Deferred income taxes	—			—		0.21		30.8		—			4.0.9
Accrued pension benefits	—			—		4544.29		~~125~~118.08		—			~~170~~163.27
Accrued postretirement benefits	—			—		3429.36		—		—			3429.36
Other long-term liabilities	—			—3.6		1714.29		3127.96		—			4946.1
Total Long-Term Liabilities	—			1,~~497~~685.0		~~114~~155.90		~~434~~371.17		—			2,~~046~~211.07
Total equity	92(27.71		)	964.38		~~890~~784.41		~~628~~616.52		(1,~~615~~405.21		)	92(27.71		)
Total Liabilities and Equity	$	964.38		$	12,~~696~~068.37	$	1,~~360~~792.68	$	1,~~321~~298.51	$	(12,~~830~~385.30	)	$	2,~~644~~779.4

2422

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

	For the three months ended September 30, 2018
	For the three months ended March 31, 2019
	Aleris Corporation (Parent)			Aleris International, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	—		$	~~532~~490.50		$	~~383~~392.72		$	(45.92	)	$	~~911~~877.30
Cost of sales	—			—			~~514~~460.08			~~336~~343.54			(45.92		)	~~845~~799.60
Gross profit	—			—			1829.52			4748.28			—			6578.70
Selling, general and administrative expenses	~~0.1~~—			13.39			1716.98			21.95			—			5352.2
Restructuring charges	—			—			0.38			(0.12		)	—			01.20
(Gains) losses on derivative financial instruments	—			—			(7.3		)	1.0			—			(6.3		)
Losses on derivative financial instruments	—			—			4.2			2.5			—			6.7
Other operating expense, net	—			—			0.8			—			—			0.8
Other operating expense (income), net	—			—			0.6			(0.1		)	—			0.5
Operating (loss) income	~~(0.1~~—		)	(13.39		)	6.8			24.47			—			17.86
Interest expense, net	—			5.1.2			2430.8			7.63			—			3739.53
Other (income) expense, net	—			(49.04		)	28.74			21.2			—			0.92
Equity in net loss (earnings) of affiliates	2533.94			1127.57			(0.46		)	—			(3760.05		)	—
(Loss) income before income taxes	(2633.04		)	(2533.94		)	(2031.38		)	1416.62			3760.05			(2021.69		)
Provision for income taxes	—			—			0.2			5.2						5.4
(Benefit from) provision for income taxes	—			—			(0.3		)	11.8						11.5
Net (loss) income	$	(2633.04	)	$	(2533.94	)	$	(2031.5	)	$	94.4		$	3760.05		$	(2633.04	)
Comprehensive (loss) income	$	(3536.1	)	$	(3536.01	)	$	(2030.78	)	$	01.50		$	5565.29		$	(3536.1	)

	For the three months ended September 30, 2017
	For the three months ended March 31, 2018
	Aleris Corporation (Parent)			Aleris International, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	—		$	~~364~~414.46		$	~~354~~396.27		$	(59.80	)	$	~~712~~802.83
Cost of sales	—			—			~~361~~390.14			~~319~~358.34			(59.80		)	~~674~~739.68
Gross profit	—			—			324.32			3438.93			—			3862.25
Selling, general and administrative expenses	—			59.60			2217.64			2124.02			—			4950.26
Restructuring charges	—			—			0.27			0.72						0.9
Gains on derivative financial instruments	—			—			13(22.78		)	1(11.21		)	—			14(33.9		)
Other operating expense, net	—			—			2.0.7			—			—			2.0.7
Operating (loss) income	—			(59.60		)	~~(35~~28.2		)	1225.0			—			~~(28~~44.82		)
Interest expense, net	—			—			2426.93			7.15			—			3233.08
Other (income) expense, net	—			(13.27		)	(02.47		)	41.94			—			30.34
Equity in net loss of affiliates	65.7			61.2			0.3			—			(127.2		)	—
Equity in net earnings of affiliates	(4.6		)	(9.9		)	(0.7		)	—			15.2			—
Loss before income taxes	(65.7		)	(65.6		)	(60.0		)	—			127.2			(64.1		)
Income (loss) before income taxes	4.6			4.6			(0.1		)	16.1			(15.2		)	10.0
Provision for income taxes	—			~~0.1~~—			0.12			15.42			—			15.64
Net loss	$	(65.7	)	$	(65.7	)	$	(60.1	)	$	(1.4	)	$	127.2		$	(65.7	)
Net income (loss)	$	4.6		$	4.6		$	(0.3	)	$	10.9		$	(15.2	)	$	4.6
Comprehensive (loss) income	$	(40.9	)	$	(40.9	)	$	(59.3	)	$	22.6		$	77.6		$	(40.9	)
Comprehensive income	$	25.1		$	25.1		$	1.1		$	30.1		$	(56.3	)	$	25.1

2523

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

	For the nine months ended September 30, 2018
	For the three months ended March 31, 2019
	Aleris Corporation (Parent)			Aleris International, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	—		$	1,471.9		$	1,193.0		$	(20.7	)	$	2,644.2
Net cash (used) provided by operating activities	$	—		$	(133.8	)	$	22.6		$	(0.5	)	$	(0.8	)	$	(112.5	)
Cost of sales	—			—			1,380.7			1,054.6			(20.7		)	2,414.6
Investing activities
Gross profit	—			—			91.2			138.4			—			229.6
Payments for property, plant and equipment	—			(0.3		)	(22.3		)	(11.1		)	—			(33.7		)
Selling, general and administrative expenses	0.1			32.0			52.8			68.8			—			153.7
Other	—			—			(0.1		)	0.1			—			—
Restructuring charges	—			—			1.3			0.7			—			2.0
Net cash used by investing activities	—			(0.3		)	(22.4		)	(11.0		)	—			(33.7		)
(Gains) losses on derivative financial instruments	—			—			(23.3		)	4.3			—			(19.0		)
Financing activities
Other operating expense, net	—			—			1.9			—			—			1.9
Proceeds from the revolving credit facilities	—			125.0			—			11.3			—			136.3
Operating (loss) income	(0.1		)	(32.0		)	58.5			64.6			—			91.0
Payments on the revolving credit facilities	—			—			—			(11.3		)	—			(11.3		)
Interest expense, net	3.7			6.7			74.1			21.5			—			106.0
Payments on term loans	—			(2.8		)	—			—			—			(2.8		)
Debt extinguishment costs	—			48.9			—			—			—			48.9
Payments on other long-term debt and finance leases	—			—			(0.2		)	(4.3		)	—			(4.5		)
Other expense (income), net	11.0			(25.2		)	8.1			(4.1		)	—			(10.2		)
Dividends paid	—			—			—			(0.2		)	0.2			—
Equity in net loss (earnings) of affiliates	53.6			(8.9		)	(1.7		)	—			(43.0		)	—
Net cash provided (used) by financing activities	—			122.2			(0.2		)	(4.5		)	0.2			117.7
(Loss) income before income taxes	(68.4		)	(53.5		)	(22.0		)	47.2			43.0			(53.7		)
Effect of exchange rate differences on cash, cash equivalents and restricted cash	—			—			—			(0.1		)	—			(0.1		)
Provision for (benefit from) income taxes	—			0.1			(0.6		)	15.2			—			14.7
Net decrease in cash, cash equivalents and restricted cash	—			(11.9		)	—			(16.1		)	(0.6		)	(28.6		)
Net (loss) income	$	(68.4	)	$	(53.6	)	$	(21.4	)	$	32.0		$	43.0		$	(68.4	)
Cash, cash equivalents and restricted cash at beginning of period	—			32.5			—			83.8			(0.7		)	115.6
Comprehensive (loss) income	$	(87.6	)	$	(72.8	)	$	(21.5	)	$	12.9		$	81.4		$	(87.6	)
Cash, cash equivalents and restricted cash at end of period	$	—		$	20.6		$	—		$	67.7		$	(1.3	)	$	87.0
Cash and cash equivalents	$	—		$	20.6		$	—		$	60.5		$	(1.3	)	$	79.8
Restricted cash (included in “Other current assets”)	—			—			—			7.2			—			7.2
Cash, cash equivalents and restricted cash	$	—		$	20.6		$	—		$	67.7		$	(1.3	)	$	87.0

	For the nine months ended September 30, 2017
	Aleris Corporation (Parent)			Aleris International, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues	$	—		$	—		$	1,129.0		$	1,051.3	$	(17.1	)	$	2,163.2
Cost of sales	—			—			1,073.3			897.0		(17.1		)	1,953.2
Gross profit	—			—			55.7			154.3		—			210.0
Selling, general and administrative expenses	—			5.7			84.1			62.9		—			152.7
Restructuring charges	—			—			1.3			0.8					2.1
Losses on derivative financial instruments	—			—			30.5			0.1		—			30.6
Other operating expense, net	—			—			3.9			0.1		—			4.0
Operating (loss) income	—			(5.7		)	(64.1		)	90.4		—			20.6
Interest expense, net	—			—			70.2			20.2		—			90.4
Other (income) expense, net	—			(2.0		)	(3.1		)	13.5		—			8.4
Equity in net loss of affiliates	103.3			99.5			0.7			—		(203.5		)	—
(Loss) income before income taxes	(103.3		)	(103.2		)	(131.9		)	56.7		203.5			(78.2		)
Provision for income taxes	—			0.1			—			25.0		—			25.1
Net (loss) income	(103.3		)	(103.3		)	(131.9		)	31.7		203.5			(103.3		)
Comprehensive (loss) income	$	(29.0	)	$	(29.0	)	$	(129.5	)	$	103.7	$	54.8		$	(29.0	)

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

	For the nine months ended September 30, 2018
	For the three months ended March 31, 2018
	Aleris Corporation (Parent)			Aleris International, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided (used) by operating activities	$	0.21		$	(922.69	)	$	356.39		$	312.75		$	(4241.05	)	$	(6734.49	)
Investing activities
Payments for property, plant and equipment	—			~~(0.2~~—		)	(4517.38		)	(3012.83		)	—			(7630.31		)
Disbursements of intercompany loans	—			—			—			(25.40		)	25.40			—
Repayments from intercompany loans	—			—			—			39.5			(39.5		)	—
Equity contributions in subsidiaries	—			(2313.2		)	~~(0.5~~—		)	—			2313.72			—
Return of investment in subsidiaries	—			—			0.1			—			(0.1		)	—
Return of investments in subsidiaries	—			—			0.1			—			(0.1		)	—
Other	—			—			(10.13		)	0.51			—			(0.62		)
Net cash used by investing activities	—			(23.4		)	(46.8		)	(16.2		)	9.5			(76.9		)
Net cash (used) provided by investing activities	—			(13.2		)	(18.0		)	2.3			(1.4		)	(30.3		)
Financing activities
Proceeds from the revolving credit facilities	—			125.0			—			95.3						220.3
Proceeds from revolving credit facilities	—			80.0			—			53.9			—			133.9
Payments on the revolving credit facilities	—			(205.0		)	—			(79.4		)				(284.4		)
Payments on revolving credit facilities	—			(55.0		)	—			(35.0		)	—			(90.0		)
Proceeds from senior secured debt, net of discounts	—			1,483.0			—			—						1,483.0
Payments on other long-term debt	—			—			(0.3		)	(3.5		)	—			(3.8		)
Payments on senior notes, including premiums	—			(1,289.5		)	—			—						(1,289.5		)
Proceeds from intercompany loans	—			25.0			—			—			(25.0		)	—
Payments on other long-term debt	—			—			(0.9		)	(7.7		)				(8.6		)
Debt issuance costs	—			(19.5		)	—			(0.9		)				(20.4		)
Proceeds from intercompany loans	—			25.4			—			—			(25.4		)	—
Repayments on intercompany loans	—			(39.5		)	—			—			39.5			—
Proceeds from intercompany equity contributions	—			—			13.72			~~10.0~~—			(2313.72		)	—
Dividends paid	—			—			(2.0		)	(4039.06		)	4241.06			—
Other	(0.21		)	—			0.72			(0.71		)	—			~~(0.2~~—		)
Net cash (used) provided by financing activities	(0.21		)	7910.95			11.51			(2324.43		)	3242.49			~~100~~40.21
Effect of exchange rate differences on cash, cash equivalents and restricted cash	—			—			—			(1.9		)	—			(1.9		)
Net decrease in cash, cash equivalents and restricted cash	—			(36.1		)	—			(9.8		)	(0.1		)	(46.0		)
Net (decrease) increase in cash, cash equivalents and restricted cash	—			(5.6		)	—			(17.6		)	—			(23.2		)
Cash, cash equivalents and restricted cash at beginning of period	—			40.3			—			69.97			(2.20		)	108.0
Cash, cash equivalents and restricted cash at end of period	$	—		$	434.27		$	—		$	6052.1		$	(2.30	)	$	6284.08
Cash and cash equivalents	$	—		$	434.27		$	—		$	5446.84		$	(2.30	)	$79.1	~~56.7~~
Restricted cash (included in “Other current assets”)	—			—			—			5.37			—			5.37
Cash, cash equivalents and restricted cash	$	—		$	434.27		$	—		$	6052.1		$	(2.30	)	$	6284.08

2725

ALERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in millions)

	For the nine months ended September 30, 2017
	Aleris Corporation (Parent)			Aleris International, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided (used) by operating activities	$	1.3		$	299.2		$	(247.8	)	$	61.8		$	(147.0	)	$	(32.5	)
Investing activities
Payments for property, plant and equipment	—			—			(150.9		)	(24.0		)	—			(174.9		)
Repayments from intercompany loans	—			—			—			135.0			(135.0		)	—
Equity contributions in subsidiaries	—			(426.6		)	(1.0		)	—			427.6			—
Return of investments in subsidiaries	—			8.3			5.8			—			(14.1		)	—
Other	—			—			(2.5		)	—			—			(2.5		)
Net cash (used) provided by investing activities	—			(418.3		)	(148.6		)	111.0			278.5			(177.4		)
Financing activities
Proceeds from revolving credit facilities	—			215.0			—			186.7			—			401.7
Payments on revolving credit facilities	—			(185.0		)	—			(244.2		)	—			(429.2		)
Proceeds from senior secured notes, net of discount				263.8			—			—						263.8
Payments on other long-term debt	—			—			(0.5		)	(5.0		)	—			(5.5		)
Debt issuance costs				(2.5		)	—			—			—			(2.5		)
Repayments on intercompany loans	—			(135.0		)	—			—			135.0			—
Proceeds from intercompany equity contributions	—			—			(7.1		)	(153.6		)	160.7			—
Dividends paid	—			—			403.6			24.0			(427.6		)	—
Other	(1.3		)	—			0.4			(0.6		)	—			(1.5		)
Net cash (used) provided by financing activities	(1.3		)	156.3			396.4			(192.7		)	(131.9		)	226.8
Effect of exchange rate differences on cash, cash equivalents and restricted cash	—			—			—			3.0			—			3.0
Net increase (decrease) in cash, cash equivalents and restricted cash	—			37.2			—			(16.9		)	(0.4		)	19.9
Cash, cash equivalents and restricted cash at beginning of period	—			5.5			—			53.3			(3.2		)	55.6
Cash, cash equivalents and restricted cash at end of period	$	—		$	42.7		$	—		$	36.4		$	(3.6	)	$	75.5
Cash and cash equivalents	$	—		$	42.7		$	—		$	32.8		$	(3.6	)	71.9
Restricted cash (included in “Other current assets”)	—			—			—			3.6			—			3.6
Cash, cash equivalents and restricted cash	$	—		$	42.7		$	—		$	36.4		$	(3.6	)	$	75.5



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our operations as well as the industry in which we operate. Our MD&A is designed to provide a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

Basis of Presentation

The financial information included in this quarterly report on Form 10-Q represents our consolidated financial position as of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, our consolidated results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018 and our consolidated cash flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018.

Our MD&A includes the following sections:


▪	Our Business - a general description of our operations, our critical measures of financial performance, our segments, and the aluminum industry;


▪	Seasonality and Management Outlook - a brief discussion of the material trends and uncertainties that may impact our business in the future;

▪ Results of Operations - an analysis and discussion of our consolidated and segment operating results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018 presented in our unaudited consolidated financial statements;

▪ Liquidity and Capital Resources - an analysis and discussion of our cash flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018, as well as a brief discussion of our current sources of capital;


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


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


▪	Off-Balance Sheet Transactions.

This discussion should be read in conjunction with our unaudited consolidated financial statements and notes included elsewhere in this report. The discussions of our financial condition and results of operations also include various forward-looking statements about our industry, the demand for our products and services and our projected results. These statements are based on certain assumptions that we consider reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below, particularly under the caption “–Forward-Looking Statements.”

Potential Acquisition of Aleris Corporation

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

2926

Our Business

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

London Metal Exchange (“LME”) aluminum prices and regional premium differentials (referred to as “Midwest Premium” in the U.S. and “Rotterdam Premium” in Europe) serve as the pricing mechanisms for both the aluminum we purchase and the products we sell. In addition, we depend on scrap for our operations, which is typically priced in relation to prevailing LME prices, but may also be priced at a discount to LME aluminum (depending upon the quality of the material supplied). Aluminum and other metal costs represented approximately 6965% of our costs of sales for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019. Aluminum prices are determined by worldwide forces of supply and demand and, as a result, aluminum prices are volatile. Average LME aluminum prices per ton for the three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018 were $21,~~056~~859 and $2,~~011~~159, respectively, which represents ana ~~increase~~decrease of approximately 214%. ~~Average LME aluminum prices per ton for the nine months ended September 30, 2018 and 2017 were $2,158 and $1,924, respectively, which represents an increase of approximately 12%.~~ As our invoiced prices are, in most cases, established months prior to physical delivery, the impact of aluminum price changes on our revenues may not correspond to LME and regional premium price changes for the applicable period.

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

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

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

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

Critical Measures of Our Financial Performance

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


▪	volumes;


▪	commercial margins; and


▪	cash conversion costs.

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

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

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

In order to reduce these exposures, we focus on reducing working capital and offsetting future physical purchases and sales. We also use various derivative financial instruments designed to reduce the impact of changing primary aluminum prices on these net physical purchases and sales and on inventory for which a fixed sale price has not yet been determined. Our risk management practices reduce but do not eliminate our exposure to changing primary aluminum prices. In addition, exchanges have only recently begun to offer derivative financial instruments to hedge premium differentials. These markets are becoming more liquid and we are beginning to use these markets in our risk management practices. At this time, however, derivative financial instruments are not available to effectively hedge against changing scrap prices. While we have limited our exposure to unfavorable aluminum price changes, we have also limited our ability to benefit from favorable price changes. Further, our counterparties may require that we post cash collateral if the fair value of our derivative liabilities exceed the amount of credit granted by each counterparty, thereby reducing our liquidity. At ~~September~~March 3031, ~~2018~~2019, ~~$0.2~~no of cash collateral was posted. NoAt December 31, 2018, $0.2 million of cash collateral was posted ~~at December 31, 2017~~.

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

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

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produce our products, we benefit when primary aluminum price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminum price increases, our commercial margin will be negatively impacted. The difference between the price of primary aluminum and scrap prices is referred to as the “scrap spread” and is impacted by the effectiveness of our scrap purchasing activities, the supply of scrap available and movements in the terminal commodity markets, such as the price of aluminum.

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

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

Our Segments

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

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

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

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

North America

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

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

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commissioning of the facility’s second CALP. We have also invested in upgrades to other key non-ABS equipment at the facility, including upgrading our ingot scalper and pre-heating furnaces and widening the hot mill, to capture additional opportunities. The Lewisport facility has been shipping autobody sheet and wide non-autobody sheet to customers using the re-engineered hot mill, the new wide cold mill and the first of the two CALPs since the fourth quarter of 2017. The investments position us to meet significant growth in demand for ABS in North America as the automotive industry pursues broader aluminum use for the production of lighter, more fuel-efficient vehicles.

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

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

	For the three months ended						~~For the nine months ended~~
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
North America	(dollars in millions, except per ton measures, volume in thousands of tons)
Metric tons of finished product shipped	~~138~~127.78			~~114~~119.5			~~398.5~~			~~360.4~~
Revenues	$	~~532~~490.40		$	~~364~~414.46		$	~~1,471.9~~		$	~~1,129.0~~
Hedged cost of metal	(~~316~~274.31		)	(~~224~~244.19		)	~~(871.4~~		)	~~(685.3~~		)
(Favorable) unfavorable metal price lag	(10.7		)	1.6			(35.1		)	5.9
Favorable metal price lag	(6.8		)	(7.4		)
Commercial margin	$	~~205~~209.41		$	~~141~~162.93		$	~~565.4~~		$	~~449.6~~
Commercial margin per metric ton shipped	$	1,~~480~~636.87		$	1,~~239~~357.26		$	~~1,419.0~~		$	~~1,247.3~~
Segment income	$	5257.40		$	1941.95		$	~~165.5~~		$	~~75.2~~
(Favorable) unfavorable metal price lag	(10.7		)	1.6			(35.1		)	5.9
Favorable metal price lag	(6.8		)	(7.4		)
Segment Adjusted EBITDA (1)	$	4150.63		$	2134.41		$	~~130.4~~		$	~~81.1~~
Segment Adjusted EBITDA per metric ton shipped	$	~~300~~393.04		$	~~187~~285.01		$	~~327.3~~		$	~~225.0~~
Start-up costs	$	73.53		$	2114.25		$	~~41.8~~		$	~~48.1~~


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

Europe

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

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

	For the three months ended						~~For the nine months ended~~
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
Europe	(dollars in millions, except per ton measures, volume in thousands of tons)
Metric tons of finished product shipped	8085.89			7885.24			~~253.5~~			~~240.4~~
Revenues	$	~~348~~347.86		$	~~324~~365.31		$	~~1,084.7~~		$	~~969.2~~
Hedged cost of metal	(~~204~~189.93		)	(~~192~~213.64		)	~~(630.4~~		)	~~(550.4~~		)
Unfavorable (favorable) metal price lag	7.1			0.1			(2.9		)	(0.5		)
Favorable metal price lag	(0.8		)	(1.4		)
Commercial margin	$	~~151~~157.05		$	~~131~~150.83		$	~~451.4~~		$	~~418.3~~
Commercial margin per metric ton shipped	$	1,~~868~~833.13		$	1,~~686~~760.43		$	~~1,780.8~~		$	~~1,740.2~~
Segment income	$	3036.46		$	28.43		$	~~101.0~~		$	~~101.7~~
Unfavorable (favorable) metal price lag	7.1			0.1			(2.9		)	(0.5		)
Favorable metal price lag	(0.8		)	(1.4		)
Segment Adjusted EBITDA (1)	$	3735.58		$	2826.59		$	~~98.1~~		$	~~101.2~~
Segment Adjusted EBITDA per metric ton shipped	$	~~464~~416.04		$	~~364~~315.71		$	~~386.8~~		$	~~420.8~~


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

Asia Pacific

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

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

	For the three months ended						~~For the nine months ended~~
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
Asia Pacific	(dollars in millions, except per ton measures, volume in thousands of tons)
Metric tons of finished product shipped	68.97			76.14			~~21.9~~			~~19.4~~
Revenues	$	3544.56		$	3231.26		$	~~109.4~~		$	~~87.1~~
Hedged cost of metal	(1823.67		)	(1718.05		)	~~(59.3~~		)	~~(45.5~~		)
Favorable metal price lag	(0.7		)	(0.6		)	(1.2		)	(1.8		)
Unfavorable (favorable) metal price lag	0.2			(0.2		)
Commercial margin	$	1621.21		$	1412.69		$	~~48.9~~		$	~~39.8~~
Commercial margin per metric ton shipped	$	2,~~342~~418.70		$	21,~~061~~997.42		$	~~2,237.0~~		$	~~2,050.0~~
Segment income	$	78.04		$	42.3		$	~~16.1~~		$	~~10.0~~
Favorable metal price lag	(0.7		)	(0.6		)	(1.2		)	(1.8		)
Unfavorable (favorable) metal price lag	0.2			(0.2		)
Segment Adjusted EBITDA (1)	$	68.36		$	32.71		$	~~14.8~~		$	~~8.3~~
Segment Adjusted EBITDA per metric ton shipped	$	~~912~~990.6		$	~~525~~333.56		$	~~678.3~~		$	~~425.0~~

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

The Aluminum Industry

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

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

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

Seasonality and Management Outlook

Demand for certain end-uses we serve, particularly building and construction, is seasonal. This typically results in higher operating income in our second and third quarters, followed by our first and fourth quarters.

We estimate that segment income and Adjusted EBITDA for the ~~fourth~~second quarter of ~~2018~~2019 will be higher sequentially ~~lower~~and ~~but~~ higher than the ~~fourth~~second quarter of ~~2017~~2018. Factors influencing anticipated performance include:

▪ ~~commercial~~global ~~shipments~~aerospace ~~from~~volumes ~~new North America automotive assets are~~ expected to ~~continue~~increase, continuing to ~~increase~~benefit ~~based~~from onour ~~committed~~new ~~volumes; start~~multi-upyear ~~costs are expected to continue to decline~~contracts;

▪ ~~global~~commercial ~~aerospace~~shipments ~~volumes~~from ~~are~~North America automotive assets expected to ~~benefit~~continue ~~from~~to ~~higher~~grow ~~aircraft~~based ~~production~~on ~~rates~~committed volumes;

▪ European automotive ~~volume~~and isheat-exchanger ~~expected~~end-uses toshowing ~~continue~~signs toof ~~benefit from new model launches~~softness;

▪ favorable year-over-year metal spreads and rolling margins ~~are~~ expected in North America; and

▪ continued inflationary cost pressure is expected~~, particularly in North America freight~~.

We expect ~~2018~~2019 capital spending of approximately $~~115~~120.0 million to $~~125~~140.0 million excluding capitalized interest, including $7633.37 million spent through the ~~third~~first quarter of ~~2018~~2019.

Results of Operations

Three Months Ended ~~September~~March 3031, ~~2018~~2019 Compared to the Three Months Ended ~~September~~March 3031, ~~2017~~2018

Revenues for the three months ended ~~September~~March 3031, ~~2018~~2019 increased $~~198~~74.57 million when compared to the prior year period. A 146% increase in volumes increased revenues approximately $~~110~~99.0 million. InOur ~~North~~global ~~America,~~ automotive volumes increased ~~more~~approximately ~~than 400~~81% ~~as production on the first Lewisport CALP ramped-up during the quarter~~, ~~distribution volumes increased 20%~~ as ~~prior~~increasing ~~year~~shipments ~~sales~~of ~~were~~autobody ~~affected~~sheet byfrom ~~an extended planned outage at~~ our Lewisport facility ~~and~~more ~~building~~than ~~and~~offset ~~construction~~softness ~~volumes~~in ~~increased~~automotive ~~9% as a result of favorable~~ demand ~~and~~in ~~improved operating performance~~Europe. InOur ~~Europe,~~global ~~improved automotive demand, resulting from recent multi-year supply agreements and customer model launches, increased automotive volumes 19% and~~ aerospace volumes increased 14approximately 47%, asbenefiting ~~supply~~from ~~chain~~a ~~destocking~~return ~~ends and we are returning~~ to normal demand patterns and ~~benefiting from~~ our ~~recent~~ multi-year supply agreements. In ~~Asia Pacific~~addition, ~~aerospace~~improved ~~volumes~~rolling margins increased ~~51%~~revenues approximately $16.0 ~~The~~million. ~~higher~~These increases were partially offset by the lower average price of aluminum included in our invoiced prices ~~increased~~that decreased revenues approximately $7924.0 million and ~~improved~~a ~~rolling~~stronger ~~margins~~average ~~increased~~U.S. dollar that unfavorably impacted the translation of our Europe and Asia-Pacific-based revenues, decreasing revenue approximately $521.0 million.

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The following table presents the estimated impact of key factors that resulted in the 289% increase in our consolidated ~~third~~first quarter revenues from ~~2017~~2018 to ~~2018~~2019:

	North America					Europe					Asia Pacific					Consolidated
	$			%		$			%		$			%		$			%
	(dollars in millions)
LME / aluminum pass-through	$	66(7.0	)	18(2	)%	$	11(16.0	)	3(4	)%	$	2(1.0	)	6(3	)%	$	79(24.0	)	11(3	)%
Commercial price	616.0			24		~~(1.0~~—		)	—		—			—		516.0			12
Volume / mix	9366.0			2616		1519.0			5		214.0			644		~~110~~99.0			1512
Currency	—			—		(221.0		)	(16	)	~~1.0~~—			3—		(121.0		)	—(3	)
Other	3.0.4			1—		10.5			—		~~(1.7~~—		)	(5—	)	20.89			—
Total	$	~~168~~75.04		4618	%	$	24(17.5	)	8(5	)%	$	313.30		1041	%	$	~~195~~70.89		279	%
Intra-entity revenues																23.78			—
Total																$	~~198~~74.57		289	%

Gross profit for the three months ended ~~September~~March 3031, ~~2018~~2019 was $6578.70 million compared to $3862.25 million for the three months ended ~~September~~March 3031, ~~2017~~2018. Improved rolling margins and favorable metal spreads increased gross profit approximately $2731.0 million, improved volumes and a favorable mix of products sold increased gross profit approximately $1413.0 million and start-up expenses decreased $6.7.8 million as the North America ABS Project substantially exited the start-up phase for the first CALP during the third quarter of 2018 (costs previously classified as start-up expenses continue to be incurred, however, they are now considered in the discussions of volume and productivity).

These increases were partially offset by metal price lag, which had an estimated $827.37 million unfavorable impact on gross profit for the three months ended ~~September~~March 3031, ~~2018~~2019 when compared to the three months ended ~~September~~March 3031, ~~2017~~2018. The unfavorable impact from metal price lag excludes the realized gains and losses on metal derivative financial instruments, which are classified separately on the Consolidated Statements of Comprehensive (Loss) Income. The following table presents the estimated impact of metal price lag on our Consolidated Statements of Comprehensive (Loss) Income for the three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018:

		For the three months ended
		September 30, 2018			September 30, 2017			Change
		March 31, 2019			March 31, 2018			Change
Location in consolidated statements of comprehensive loss		(dollars in millions)
Location in consolidated statements of comprehensive (loss) income		(dollars in millions)
Gross profit	(Unfavorable) favorable metal price lag	$	(1217.97	)	$	(410.60	)	$	(827.37	)
(Gains) losses on derivative financial instruments	Realized gains on metal derivatives	17.2			3.6			13.6
Losses (gains) on derivative financial instruments	Realized gains (losses) on metal derivatives	25.1			(1.0		)	26.1
	Favorable (unfavorable) metal price lag net of realized derivative losses	$	47.34		$	(19.0	)	$	5(1.36	)

In addition, ~~favorable~~inflation ~~productivity in Europe~~ and ~~the~~unfavorable ~~North~~productivity ~~America~~combined ~~continuous~~to ~~cast~~decrease ~~business~~gross ~~was~~profit ~~more~~approximately ~~than~~$11.0 ~~offset~~million. byThe ~~the~~unfavorable ~~impact~~productivity ofresulted from the ramp-up of automotive production and the higher cost structure of the Lewisport facility, ~~labor~~as ~~cost~~costs ~~inflation,~~previously ~~energy~~considered ~~price~~start-up ~~increases and significantly higher North America freight. These factors combined to decrease gross profit approximately $8.0 million. Depreciation~~ expense ~~also~~are ~~increased~~now ~~$4.2~~considered ~~million,~~within assegment ~~substantially~~operating ~~all of the assets related to the North America ABS Project have been placed into service~~results.

Selling, general and administrative (“SG&A”) expenses were $5352.2 million for the three months ended ~~September~~March 3031, ~~2018~~2019 compared to $4950.26 million for the three months ended ~~September~~March 3031, ~~2017~~2018. The $41.06 million increase resulted from the following:

▪ a $53.7 million increase in business development and professional fees, primarily related to the Merger ~~discussed above~~; and

▪ a $23.76 million increase in labor costs, primarily due to ~~wage~~increased ~~inflation and~~ incentive compensation expense; and costs previously considered start-up expenses being recorded within segment SG&A expense in the first quarter of 2019.

▪These increases were partially offset by a $15.70 million ~~increase~~decrease in ~~stock~~SG&A start-~~based~~up ~~compensation~~costs, ~~expense~~primarily related to labor, consulting and other expenses associated with the North America ABS Project. Many of these costs continued to be incurred but contributed to the increase in SG&A labor costs discussed above.

~~These~~During ~~increases~~the ~~were~~three ~~partially~~months ~~offset~~ended byMarch 31, a2019 and 2018, we recorded realized gains on derivative financial instruments of $624.31 million ~~decrease~~and in$0.2 ~~SG&A~~million, ~~start-up~~respectively, ~~costs~~and ~~associated~~unrealized ~~with~~losses ~~the~~(gains) ~~North~~of ~~America~~$30.9 ~~ABS~~million ~~Project~~and $(33.7) million, respectively. Generally, our realized gains or losses represent the cash paid or received upon settlement of our derivative financial

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~~During the three months ended September 30, 2018 and 2017, we recorded realized gains on derivative financial~~ instruments ~~of $16~~.7 million and $3.9 million, respectively, and unrealized losses of $10.4 million and $18.8 million, respectively. Generally, our realized gains or losses represent the cash paid or received upon settlement of our derivative financial instruments. Unrealized gains or losses reflect the change in the fair value of derivative financial instruments from the later of the end of the prior period or our entering into the derivative instrument as well as the reversal of previously recorded unrealized gains or losses for derivatives that settled during the period.

Net interest expense increased $5.5 million primarily from increased ~~borrowings~~debt ~~related~~as toa result of the refinancing completed in the second quarter of 2018 ~~(discussed further below) and decreased capitalized interest~~.

Our effective tax rates were (2652.16)% and (254.5)0% for the three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018, respectively. The effective tax rates for the three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018 differed from the federal statutory rate applied to income and losses before income taxes primarily as a result of the mix of income, losses and tax rates between tax jurisdictions, ~~and~~ valuation allowances and, for the three months ended March 31, 2019, the results of an examination by a non-U.S. taxing jurisdiction.

The following table presents key financial and operating data on a consolidated basis for the three months ended March 31, 2019 and 2018:



	For the three months ended
	March 31, 2019			March 31, 2018			Change			% Change
	(dollars in millions)
Revenues	$	877.0		$	802.3		$	74.7		9	%
Cost of sales	799.0			739.8			59.2			8
Gross profit	78.0			62.5			15.5			25
Gross profit as a percentage of revenues	8.9		%	7.8		%	1.1		%	14
Selling, general and administrative expenses	52.2			50.6			1.6			3
Restructuring charges	1.0			0.9			0.1			11
Losses (gains) on derivative financial instruments	6.7			(33.9		)	40.6			(120	)
Other operating expense, net	0.5			0.7			(0.2		)	(29	)
Operating income	17.6			44.2			(26.6		)	(60	)
Interest expense, net	39.3			33.8			5.5			16
Other expense, net	0.2			0.4			(0.2		)	(50	)
(Loss) income before income taxes	(21.9		)	10.0			(31.9		)	(319	)
Provision for income taxes	11.5			5.4			6.1			113
Net (loss) income	$	(33.4	)	$	4.6		$	(38.0	)	(826	)%

Total segment income	$	102.0		$	72.1		$	29.9		41	%
Depreciation and amortization	(34.6		)	(34.7		)	0.1			—
Other corporate general and administrative expenses	(14.9		)	(11.2		)	(3.7		)	33
Restructuring charges	(1.0		)	(0.9		)	(0.1		)	11
Interest expense, net	(39.3		)	(33.8		)	(5.5		)	16
Unallocated (losses) gains on derivative financial instruments	(31.0		)	33.7			(64.7		)	(192	)
Unallocated currency exchange gains	0.7			1.2			(0.5		)	(42	)
Start-up costs	(3.3		)	(16.0		)	12.7			(79	)
Other expense, net	(0.5		)	(0.4		)	(0.1		)	25
(Loss) income before income taxes	$	(21.9	)	$	10.0		$	(31.9	)	(319	)%

~~The following table presents key financial and operating data on a consolidated basis for the three months ended September 30, 2018 and 2017:~~34

	For the three months ended
	September 30, 2018			September 30, 2017			Change			% Change
	(dollars in millions)
Revenues	$	911.3		$	712.8		$	198.5		28	%
Cost of sales	845.6			674.6			171.0			25
Gross profit	65.7			38.2			27.5			72
Gross profit as a percentage of revenues	7.2		%	5.4		%	1.8		%	33
Selling, general and administrative expenses	53.2			49.2			4.0			8
Restructuring charges	0.2			0.9			(0.7		)	(78	)
(Gains) losses on derivative financial instruments	(6.3		)	14.9			(21.2		)	(142	)
Other operating expense, net	0.8			2.0			(1.2		)	(60	)
Operating income (loss)	17.8			(28.8		)	46.6			(162	)
Interest expense, net	37.5			32.0			5.5			17
Other expense, net	0.9			3.3			(2.4		)	(73	)
Loss before income taxes	(20.6		)	(64.1		)	43.5			(68	)
Provision for income taxes	5.4			1.6			3.8			238
Net loss	$	(26.0	)	$	(65.7	)	$	39.7		(60	)%
Total segment income	$	89.8		$	52.6		$	37.2		71	%
Depreciation and amortization	(35.0		)	(30.5		)	(4.5		)	15
Other corporate general and administrative expenses	(15.3		)	(8.9		)	(6.4		)	72
Restructuring charges	(0.2		)	(0.9		)	0.7			(78	)
Interest expense, net	(37.5		)	(32.0		)	(5.5		)	17
Unallocated losses on derivative financial instruments	(10.5		)	(18.4		)	7.9			(43	)
Unallocated currency exchange losses	(1.1		)	(2.0		)	0.9			(45	)
Start-up costs	(9.8		)	(22.8		)	13.0			(57	)
Other expense, net	(1.0		)	(1.2		)	0.2			*
Loss before income taxes	$	(20.6	)	$	(64.1	)	$	43.5		(68	)%

Segment Revenues and Shipments

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



	For the three months ended
	March 31, 2019			March 31, 2018			Change			% Change
Revenues:	(dollars in millions, metric tons in thousands)
North America	$	490.0		$	414.6		$	75.4		18	%
Europe	347.6			365.1			(17.5		)	(5	)
Asia Pacific	44.6			31.6			13.0			41
Intra-entity revenues	(5.2		)	(9.0		)	3.8			(42	)
Consolidated revenues	$	877.0		$	802.3		$	74.7		9	%

Metric tons of finished product shipped:
North America	127.8			119.5			8.3			7	%
Europe	85.9			85.4			0.5			1
Asia Pacific	8.7			6.4			2.3			36
Intra-entity shipments	(1.0		)	(2.0		)	1.0			(50	)
Total metric tons of finished product shipped	221.4			209.3			12.1			6	%

	For the three months ended
	September 30, 2018			September 30, 2017			Change			% Change
Revenues:	(dollars in millions, metric tons in thousands)
North America	$	532.4		$	364.4		$	168.0		46	%
Europe	348.8			324.3			24.5			8
Asia Pacific	35.5			32.2			3.3			10
Intra-entity revenues	(5.4		)	(8.1		)	2.7			(33	)
Consolidated revenues	$	911.3		$	712.8		$	198.5		28	%
Metric tons of finished product shipped:
North America	138.7			114.5			24.2			21	%
Europe	80.8			78.2			2.6			3
Asia Pacific	6.9			7.1			(0.2		)	(3	)
Intra-entity shipments	(1.1		)	(1.8		)	0.7			(39	)
Total metric tons of finished product shipped	225.3			198.0			27.3			14	%

North America Revenues

North America revenues for the three months ended ~~September~~March 3031, ~~2018~~2019 increased $~~168~~75.04 million compared to the three months ended ~~September~~March 3031, ~~2017~~2018. This increase was primarily due to the following:

▪ a 217% increase in volumes increased revenues approximately $9366.0 million. Automotive volumes were up ~~over~~significantly ~~400%~~ as ~~production~~shipments onof ~~the~~autobody ~~first~~sheet from our Lewisport ~~CALP~~facility ~~ramped-up~~continue ~~during~~to ~~the~~increase ~~quarter.~~and ~~Distribution~~truck trailer volumes increased 2025% ason ~~prior~~favorable ~~year~~demand. ~~sales~~These increases were ~~affected~~partially offset by ana ~~extended~~34% ~~planned~~decrease ~~outage~~in atdistribution ~~our~~volumes, ~~Lewisport~~which ~~facility.~~were ~~Building~~replaced ~~and~~by ~~construction~~automotive volumes ~~increased~~in Lewisport, and a 9% decrease in building and construction volumes as awe ~~result~~continue ofto ~~favorable~~see ~~demand~~choppiness ~~and~~in ~~improved~~the ~~operating~~housing ~~performance~~market; and

▪ ~~higher~~improved ~~aluminum~~rolling ~~prices~~margins ~~included in the invoiced price of products sold~~ increased revenues approximately $6616.0 million~~; and~~.

▪These ~~improved~~increases ~~rolling~~were ~~margins~~partially ~~increased~~offset by lower aluminum prices included in the invoiced price of products sold that decreased revenues approximately $67.0 million.

Europe Revenues

Europe revenues for the three months ended ~~September~~March 3031, ~~2018~~2019 ~~increased~~decreased $2417.5 million compared to the three months ended ~~September~~March 3031, ~~2017~~2018. This ~~increase~~decrease was primarily due to the following:

▪ a 3%stronger ~~increase~~average inU.S. ~~volumes~~dollar ~~and~~that anunfavorably ~~improved~~impacted ~~mix~~the translation of ~~aerospace~~revenues ~~products~~decreased ~~sold~~revenue ~~increased revenues~~ approximately $1521.0 million. Automotive volumes increased 19% resulting from recent multi-year supply agreements as well as model launches. Aerospace volumes increased 14% as supply chain destocking has ended and we have returned to normal demand patterns, and are benefiting from our recent multi-year supply agreements; and

▪ ~~higher~~lower aluminum prices included in the invoiced price of products sold ~~increased~~decreased revenues approximately $1116.0 million.

These ~~increases~~decreases were partially offset by ~~lower~~an ~~rolling~~improved ~~margins~~mix of products sold that ~~decreased~~increased revenues approximately $119.0 million. The favorable product mix resulted primarily from a 28% increase in aerospace volumes, as well as an improved mix of aerospace products sold. The increase in aerospace volumes more than offset 10% and 2% decreases in heat exchanger and automotive volumes, respectively, where we have seen some weakness in demand.

Asia Pacific Revenues

Asia Pacific revenues for the three months ended ~~September~~March 3031, ~~2018~~2019 increased $313.30 million compared to the three months ended ~~September~~March 3031, ~~2017~~2018. This increase was primarily due to an improved mix of products sold, resulting from a 128% increase in aerospace shipments, that increased revenues approximately $14.0 million. This increase was partially offset by lower aluminum prices included in the ~~following:~~invoiced price of products sold that decreased revenues approximately $1.0 million.

~~▪ an improved mix of products sold, resulting from a 51% increase in aerospace shipments, increased revenues approximately $2.0 million; and~~35

▪ higher aluminum prices included in the invoiced price of products sold increased revenues approximately $2.0 million.

Segment Income and Gross Profit

For the three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018, segment income and our reconciliation of segment income to gross profit are presented below:

	For the three months ended
	September 30, 2018			September 30, 2017			Change			% Change
	March 31, 2019			March 31, 2018			Change			% Change
Segment income:	(dollars in millions)
North America	$	5257.40		$	1941.95		$	3215.5		~~163~~37	%
Europe	3036.46			28.43			28.03			729
Asia Pacific	78.04			42.3			26.71			63265
Total segment income	89102.80			5272.61			3729.29			7141
Items excluded from segment income and included in gross profit:
Depreciation	(32.0		)	(27.8		)	(4.2		)	15
Depreciation and amortization	(32.1		)	(31.8		)	(0.3		)	1
Start-up costs	(62.69		)	(1310.36		)	67.7			(5073	)
Items included in segment income and excluded from gross profit:
Segment selling, general and administrative expenses	3134.7			2831.21			3.56			12
Realized gains on derivative financial instruments	(1624.82		)	(30.62		)	(1324.20		)	~~367~~*
Other	(0.45		)	2.1.9			(21.54		)	(~~119~~74	)
Gross profit	$	6578.70		$	3862.25		$	2715.5		7225	%

* Result is not meaningful

North America Segment Income

North America segment income for the three months ended ~~September~~March 3031, ~~2018~~2019 increased $3215.5 million compared to the three months ended ~~September~~March 3031, ~~2017~~2018. The increase was primarily due to ~~the~~improved ~~following:~~rolling margins, favorable metal spreads and scrap availability that increased segment income approximately $30.0 million.

▪This ~~improved~~increase ~~rolling~~was ~~margins,~~partially ~~favorable~~offset ~~metal spreads and scrap availability increased segment income approximately $25.0 million;~~by:

▪ athe ~~favorable~~absorption ~~change~~of incosts ~~metal~~that ~~price~~were ~~lag~~previously considered start-up costs impacted segment income approximately $11.2 million compared to the prior year period, ~~increased~~and more than offset productivity in our continuous cast operations. Net productivity and inflation, primarily in wages, combined to decrease segment income approximately $1210.30 million; and

▪ an unfavorable year-over-year change in absorption of approximately $6.0 million more than offset the higher volumes ~~increased~~and decreased segment income approximately $84.0 million. The prior year period’s results benefited from an inventory build at our Lewisport facility as part of the automotive ramp-up which led to improved manufacturing cost absorption. As inventory levels have normalized, we did not recognize such favorable absorption in the current year period.

These increases were partially offset by the impact of inflation and net unfavorable productivity that decreased segment income approximately $12.0 million. Our non-Lewisport operations delivered solid productivity gains and improved operational performance. However, these improvements were more than offset by wage inflation, significantly higher freight costs and unfavorable productivity at our Lewisport facility. Productivity at the Lewisport facility was affected by the automotive ramp-up, the absorption of costs previously classified as start-up and a cost structure designed for a manufacturing rate at which the facility is not yet producing.

Europe Segment Income

Europe segment income for the three months ended ~~September~~March 3031, ~~2018~~2019 increased $28.03 million compared to the three months ended ~~September~~March 3031, ~~2017~~2018. The increase was primarily due to the following:

▪ ~~increased automotive and aerospace volumes, as well as~~ an improved mix of ~~aerospace~~ products sold, increased segment income approximately $49.0 million; and

▪ ~~productivity~~a ~~gains~~stronger ~~from~~U.S. ~~improved~~dollar ~~operational~~had ~~stability~~a favorable impact on margins and ~~cost~~the ~~optimization~~translation ~~more~~of ~~than~~U.S. ~~offset~~denominated ~~inflation~~working ~~increased~~capital balances, increasing segment income approximately $23.0 million;.

▪These ~~improved~~increases ~~scrap usage and lower hardener costs~~ were partially offset by ~~unfavorable~~cost ~~rolling~~inflation, ~~margins~~primarily wages, ~~increasing~~that decreased segment income approximately $23.0 million;. ~~and~~

▪ the net impact of foreign currency changes increased segment income approximately $1.0 million.

These increases were partially offset by an unfavorable change in metal price lag compared to the prior year period that decreased segment income approximately $7.0 million.

Asia Pacific Segment Income

Asia Pacific segment income for the three months ended ~~September~~March 3031, ~~2018~~2019 increased $26.71 million compared to the three months ended ~~September~~March 3031, ~~2017~~2018. This increase was primarily due to an improved mix of products sold, resulting from ~~higher~~a ~~aerospace~~128% ~~volumes.~~

~~Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017~~ 36

~~Revenues~~increase ~~for~~in ~~the~~aerospace ~~nine months ended September 30~~shipments, ~~2018~~that increased ~~$481.0~~segment ~~million~~Adjusted ~~when~~EBITDA ~~compared to the prior year period. A 9% increase in volumes increased revenues~~ approximately $~~185~~5.0 million. Inand ~~North America, automotive volumes increased 159% as production on~~ the ~~first~~net ~~Lewisport~~impact ~~CALP ramped-up, distribution volumes increased 15% as prior year sales were impacted by an extended planned outage at our Lewisport, as well as the strategic build~~ of ~~inventory~~currency inchanges ~~advance of~~ that ~~outage and building and construction volumes~~ increased 6%segment asAdjusted aEBITDA result of favorable demand and improved operating performance. In Europe, improved automotive demand, resulting from recent multi-year supply agreements and customer model launches, increased volumes 23%. In Asia Pacific, increased shipments and an improved mix of products sold resulted from a 47% increase in aerospace volumes. In addition, the higher average aluminum prices included in our invoiced prices increased revenues approximately $~~231~~1.0 million, a weaker average U.S. dollar favorably impacted the translation of our Europe and Asia-Pacific-based revenues, increasing revenues approximately $53.0 million, and improved rolling margins increased revenues approximately $6.0 million.

The following table presents the estimated impact of key factors that resulted in the 22% increase in our consolidated revenues from the first nine months of 2017 to the first nine months of 2018:

	North America				Europe					Asia Pacific				Consolidated
	$		%		$			%		$		%		$		%
	(dollars in millions)
LME / aluminum pass-through	$	180.0	16	%	$	46.0		5	%	$	5.0	6	%	$	231.0	11	%
Commercial price	12.0		1		(6.0		)	(1	)	—		—		6.0		—
Volume / mix	145.0		13		23.0			2		17.0		20		185.0		9
Currency	—		—		53.0			5		—		—		53.0		2
Other	5.9		1		(0.5		)	—		0.3		—		5.7		—
Total	$	342.9	30	%	$	115.5		12	%	$	22.3	26	%	$	480.7	22	%
Intra-entity revenues														0.3		—
Total														$	481.0	22	%

Gross profit for the nine months ended September 30, 2018 was $229.6 million compared to $210.0 million for the nine months ended September 30, 2017. Gross profit was favorably impacted by improved rolling margins and favorable metal spreads that increased gross profit approximately $48.0 million and improved volumes that increased gross profit approximately $17.0 million. These favorable impacts were partially offset by the following:

▪ a $20.6 million increase in depreciation expense, as substantially all of the assets related to the North America ABS Project have been placed into service;

▪ an unfavorable $10.0 million impact related to inflation and net productivity, as favorable productivity in Europe and the North America continuous cast business was more than offset by the impact of the ramp-up of automotive production and the higher cost structure of the Lewisport facility, labor cost inflation, energy price increases and significantly higher North America freight costs; and

▪ a $9.6 million increase in start-up costs, primarily attributable to the North America ABS Project.

Metal price lag had an estimated $0.5 million unfavorable impact on gross profit for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The unfavorable impact from metal price lag excludes the realized gains and losses on metal derivative financial instruments, which are classified separately on the Consolidated Statements of Comprehensive Loss. The following table presents the estimated impact of metal price lag on our Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2018 and 2017:

		For the nine months ended
		September 30, 2018		September 30, 2017			Change
Location in consolidated statements of comprehensive loss		(dollars in millions)
Gross profit	Favorable metal price lag	$	24.1	$	24.6		$	(0.5	)
(Gains) losses on derivative financial instruments	Realized gains (losses) on metal derivatives	15.2		(28.2		)	43.4
	Favorable (unfavorable) metal price lag net of realized derivative losses	$	39.3	$	(3.6	)	$	42.9

Selling, general and administrative expenses were $153.7 million for the nine months ended September 30, 2018 as compared to $152.7 million for the nine months ended September 30, 2017. The $1.0 million increase included:

• a $6.6 million increase in professional fees and business development expenses, primarily related to the Merger;

• an increase in wages of approximately $5.9 million, primarily due to inflation; and

• a $1.3 million increase in stock-based compensation expense.

These increases were substantially offset by a $13.7 million decrease in start-up costs.

During the nine months ended September 30, 2018 and 2017, we recorded realized (gains) losses on derivative financial instruments of $(15.9) million and $29.0 million, respectively, and unrealized (gains) losses of $(3.1) million and $1.5 million, respectively. Generally, our realized gains or losses represent the cash paid or received upon settlement of our derivative financial instruments. Unrealized gains or losses reflect the change in the fair value of derivative financial instruments from the later of the end of the prior period or our entering into the derivative instrument as well as the reversal of previously recorded unrealized gains or losses for derivatives that settled during the period.

Net interest expense increased $15.6 million resulting from increased term debt as a result of refinancing activities completed in the second quarter of 2018 and the first quarter of 2017, additional average borrowings on the ABL Facility and a decrease in capitalized interest.

We recorded debt extinguishment costs of $48.9 million during the second quarter of 2018 related to the debt refinancing transactions described further below. These costs consisted primarily of the redemption costs for the Existing Senior Notes and expensing the net unamortized discounts and debt issuance costs of the Existing Senior Notes.

We recorded other income, net of $10.2 million that primarily related to the settlement received in the second quarter of 2018 in connection with Real Industry, Inc.’s bankruptcy reorganization. In connection with the 2015 sale of our former recycling and specification alloys business, we received shares of Real Industry Inc.’s Series B non-participating preferred stock, which were held in escrow to secure certain indemnification obligations under the sale agreement. In 2017, Real Industry, Inc. filed for Chapter 11 bankruptcy protection, at which time, we recorded an impairment charge reducing the carrying value of the receivables related to the preferred shares held in escrow to zero. In the second quarter of 2018, the bankruptcy reorganization was finalized, and we received shares of the reorganized company’s common stock with an estimated fair value of $11.1 million (which shares were distributed to our stockholders through a property dividend of such common stock). The receipt of these shares of common stock, as well as additional net cash considerations, resulted in a gain of $12.2 million.

Our effective tax rates were (27.5)% and (32.1)% for the nine months ended September 30, 2018 and 2017, respectively. The effective tax rate for the nine months ended September 30, 2018 and 2017 differed from the federal statutory rate applied to income and losses before income taxes primarily as a result of the mix of income, losses and tax rates between tax jurisdictions and valuation allowances.

The following table presents key financial and operating data on a consolidated basis for the nine months ended September 30, 2018 and 2017:

	For the nine months ended
	September 30, 2018			September 30, 2017			Change			% Change
	(dollars in millions)
Revenues	$	2,644.2		$	2,163.2		$	481.0		22	%
Cost of sales	2,414.6			1,953.2			461.4			24
Gross profit	229.6			210.0			19.6			9
Gross profit as a percentage of revenues	8.7		%	9.7		%	(1.0		)%	(10	)
Selling, general and administrative expenses	153.7			152.7			1.0			1
Restructuring charges	2.0			2.1			(0.1		)	(5	)
(Gains) losses on derivative financial instruments	(19.0		)	30.6			(49.6		)	(162	)
Other operating expense, net	1.9			4.0			(2.1		)	(53	)
Operating income	91.0			20.6			70.4			342
Interest expense, net	106.0			90.4			15.6			17
Debt extinguishment costs	48.9			—			48.9			*
Other (income) expense, net	(10.2		)	8.4			(18.6		)	(221	)
Loss before income taxes	(53.7		)	(78.2		)	24.5			(31	)
Provision for income taxes	14.7			25.1			(10.4		)	(41	)
Net loss	$	(68.4	)	$	(103.3	)	$	34.9		(34	)%
Total segment income	$	282.6		$	186.9		$	95.7		51	%
Depreciation and amortization	(103.8		)	(82.0		)	(21.8		)	27
Other corporate general and administrative expenses	(37.9		)	(32.1		)	(5.8		)	18
Restructuring charges	(2.0		)	(2.1		)	0.1			(5	)
Interest expense, net	(106.0		)	(90.4		)	(15.6		)	17
Unallocated gains (losses) on derivative financial instruments	3.0			(1.0		)	4.0			(400	)
Unallocated currency exchange losses	(2.4		)	(3.7		)	1.3			(35	)
Start-up costs	(48.7		)	(52.6		)	3.9			(7	)
Loss on extinguishment of debt	(48.9		)	—			(48.9		)	*
Other income (loss), net	10.4			(1.2		)	11.6			*
Loss before income taxes	$	(53.7	)	$	(78.2	)	$	24.5		(31	)%

Segment Revenues and Shipments

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

	For the nine months ended
	September 30, 2018			September 30, 2017			Change		% Change
Revenues:	(dollars in millions, metric tons in thousands)
North America	$	1,471.9		$	1,129.0		$	342.9	30	%
Europe	1,084.7			969.2			115.5		12
Asia Pacific	109.4			87.1			22.3		26
Intra-entity revenues	(21.8		)	(22.1		)	0.3		(1	)
Consolidated revenues	$	2,644.2		$	2,163.2		$	481.0	22	%
Metric tons of finished product shipped:
North America	398.5			360.4			38.1		11	%
Europe	253.5			240.4			13.1		5
Asia Pacific	21.9			19.4			2.5		13
Intra-entity shipments	(4.1		)	(4.4		)	0.3		(7	)
Total metric tons of finished product shipped	669.8			615.8			54.0		9	%

North America Revenues

North America revenues for the nine months ended September 30, 2018 increased $342.9 million compared to the nine months ended September 30, 2017. This increase was primarily due to the following:

• higher aluminum prices included in the invoiced price of products sold increased revenues approximately $180.0 million;

• an 11% increase in volumes increased revenues approximately $145.0 million. Automotive volumes were up 159%, primarily due to the ramp-up of commercial shipments from the first CALP in Lewisport. Distribution volumes increased 15% as prior year sales were impacted by an extended planned outage at our Lewisport, as well as the strategic build of inventory in advance of that outage. Building and construction volumes increased 6% as a result of favorable demand and improved operating performance; and

• improved rolling margins increased revenues approximately $12.0 million.

Europe Revenues

Europe revenues for the nine months ended September 30, 2018 increased $115.5 million compared to the nine months ended September 30, 2017. This increase was primarily due to the following:

▪ a weaker average U.S. dollar favorably impacted the translation of euro-based revenues approximately $53.0 million;

▪ higher aluminum prices included in the invoiced price of products sold increased revenues approximately $46.0 million; and

▪ a 5% increase in volumes increased revenues approximately $23.0 million. Recent multi-year supply agreements as well as model launches resulted in a 23% increase in automotive volumes. The impact of aerospace supply chain destocking in the first half of the year was substantially offset by a return to normal demand patterns in the third quarter of 2018 and the benefit received from our recent multi-year supply agreements.

These increases were partially offset by lower rolling margins that decreased revenues approximately $6.0 million. The lower rolling margins resulted from pricing pressure in the aerospace spot market and the contractual pricing in our multi-year automotive and aerospace supply agreements.

Asia Pacific Revenues

Asia Pacific revenues for the nine months ended September 30, 2018 increased $22.3 million compared to the nine months ended September 30, 2017. This increase was primarily due to the following:

▪ a 13% increase in volumes, including a 47% increase in aerospace shipments, increased revenues approximately $17.0 million; and

▪ higher aluminum prices included in the invoiced price of products sold increased revenues approximately$5.0 million.

Segment Income and Gross Profit

For the nine months ended September 30, 2018 and 2017, segment income and our reconciliation of segment income to gross profit are presented below:

	For the nine months ended
	September 30, 2018			September 30, 2017			Change			% Change
Segment income:	(dollars in millions)
North America	$	165.5		$	75.2		$	90.3		120	%
Europe	101.0			101.7			(0.7		)	(1	)
Asia Pacific	16.1			10.0			6.1			61
Total segment income	282.6			186.9			95.7			51
Items excluded from segment income and included in gross profit:
Depreciation	(95.1		)	(74.5		)	(20.6		)	28
Start-up costs	(33.4		)	(23.8		)	(9.6		)	40
Other	—			0.9			(0.9		)	(100	)
Items included in segment income and excluded from gross profit:
Segment selling, general and administrative expenses	91.7			84.3			7.4			9
Realized (gains) losses on derivative financial instruments	(16.0		)	29.5			(45.5		)	(154	)
Other	(0.2		)	6.7			(6.9		)	(103	)
Gross profit	$	229.6		$	210.0		$	19.6		9	%

North America Segment Income

North America segment income for the nine months ended September 30, 2018 increased $90.3 million compared to the nine months ended September 30, 2017. This increase was primarily due to the following:

▪ improved rolling margins and favorable metal spreads, which resulted from rising aluminum prices, improved scrap availability and strategic metal purchasing decisions, increased segment income approximately $56.0 million;

▪ a favorable change in metal price lag compared to the prior year period increased segment income approximately $41.0 million. 2018 metal lag was impacted by a substantially higher Midwest Premium; and

▪ an increase in volumes increased segment income approximately $14.0 million.

These increases were partially offset by inflation and net productivity that decreased segment income approximately $20.0 million. The non-Lewisport operations delivered solid productivity gains and improved operational performance. However, these improvements were more than offset by wage inflation, significantly higher freight costs and unfavorable productivity at our Lewisport facility. Productivity at the Lewisport facility was affected by the automotive ramp-up and a cost structure designed for a manufacturing rate at which the facility is not yet producing.

Europe Segment Income

Europe segment income for the nine months ended September 30, 2018 decreased $0.7 million compared to the nine months ended September 30, 2017. This decrease was primarily due to the following:

▪ lower rolling margins and increased slab costs, resulting from having sourced purchases from other suppliers as a result of the Rusal sanctions, and higher hardener costs decreased segment income approximately $8.0 million; and

▪ a weaker mix of aerospace products sold in the first half of the year offset the impact of improved automotive volumes. In addition, better operating performance drove successful working capital initiatives that continued to reduce finished good inventory levels, resulting in unfavorable cost absorption. Volume, mix and absorption changes decreased segment income approximately $4.0 million.

These decreases were substantially offset by the following:

▪ productivity gains from improved operational stability and cost optimization more than offset inflation, resulting in increased segment income of approximately $8.0 million; and

▪ a favorable change in metal price lag compared to the prior year period increased segment income approximately $2.4 million.

Asia Pacific Segment Income

Asia Pacific segment income for the nine months ended September 30, 2018 increased $6.1 million compared to the nine months ended September 30, 2017. This increase was primarily due to the following:

▪ higher volumes and an improved mix of aerospace shipments increased segment income approximately $7.0 million; and

▪ improved productivity more than offset inflation, resulting in increased segment income of approximately $1.0 million.

These increases were partially offset by the net impact of a weaker U.S. dollar which negatively impacted aerospace margins and decreased segment income approximately $1.0 million.

Liquidity and Capital Resources

Liquidity at ~~September~~March 3031, ~~2018~~2019 was $~~475~~384.4 million, which consisted of $~~413~~297.4 million of availability under the ABL Facility (as defined below), $5679.78 million of cash and $57.32 million of cash restricted for payments of the China Loan Facility. Both our borrowing base and ABL Facility utilization may fluctuate on a monthly basis due, in part, to changes in seasonal working capital and aluminum prices.

Based on our current and anticipated levels of operations and the condition in the industries we serve, we believe that our cash on hand, cash flows from operations and availability under the ABL Facility will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for the foreseeable future. However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with the covenants under our indebtedness, including borrowing base limitations under the ABL Facility and debt incurrence restrictions in our debt agreements, depends on our future operating performance and cash flows and many factors outside of our control, including the costs of raw materials, our ability to access the capital and credit markets, the state of the overall industry and financial and economic conditions and other factors, including those described under Item 1A. – “Risk Factors” in our ~~Annual~~annual ~~Report~~report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018. Any future investments, acquisitions, joint ventures or other similar transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all.

OnWe ~~June 25,~~will ~~2018,~~need ~~Aleris International, Inc. (“Aleris International”) completed debt refinancing transactions, pursuant~~ to ~~which~~refinance ~~Aleris~~all ~~International~~or ~~(i) raised $1,500.0 million in new debt financing (the “New Financing”), consisting of (A)~~ a ~~new~~portion ~~senior secured first lien term loan in an aggregate principal amount~~ of ~~$1,100.0~~our ~~million~~indebtedness ~~(the~~on ~~“Term~~or ~~Loan~~before ~~Facility”) and (B) $400~~maturity.0 ~~million~~We ~~aggregate~~cannot ~~principal~~assure ~~amount~~you ofthat ~~newly~~we ~~issued~~will ~~10.75%~~be ~~senior~~able ~~secured junior priority notes due 2023 (the “2023 Junior Priority Notes”), (ii) amended the ABL Facility (the “ABL Amendment”), and (iii) used the net proceeds of the New Financing~~ to ~~(A)~~refinance ~~redeem~~any ~~all~~ of ~~its~~our ~~Existing~~indebtedness ~~Senior~~on ~~Notes~~attractive ~~(as~~terms ~~defined~~on ~~below),~~or ~~(B)~~before ~~repay~~maturity aor ~~portion~~on ofcommercially ~~its~~reasonable ~~outstanding~~terms ~~borrowings~~at ~~under the ABL Facility (as defined below) and (C) pay related fees and expenses~~all.

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

Cash Flows

The following table summarizes our net cash (used) provided by operating, investing and financing activities for the three months ended March 31, 2019 and 2018.

	For the nine months ended
	For the three months ended
	September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
Net cash (used) provided by:	(in millions)
Operating activities	$	(67112.45	)	$	(3234.59	)
Investing activities	(7633.97		)	(~~177~~30.43		)
Financing activities	~~100~~117.27			~~226~~40.81

Cash Flows from Operating Activities

Cash flows used by operating activities were $67112.45 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, which resulted from $8635.48 million of cash from earnings and a $~~153~~148.93 million use of cash related to an increase in net operating assets. The significant components of the change in net operating assets included ~~increases~~an increase of $~~146~~108.04 million, in accounts receivable and decreases of $~~135~~32.70 million, and $~~76.~~9.8 million in accrued and other liabilities and accounts payable, respectively. These changes were partially offset by a $465.28 million decrease in inventory. The increase in accounts receivable, ~~inventory~~was due primarily to increased seasonal sales volume. While our average days sales outstanding (“DSO”) for the twelve months ended March 31, ~~accounts~~2019 ~~payable~~remained ~~and~~consistent ~~accrued~~with ~~and~~the ~~other~~average ~~liabilities~~DSO for the year ended December 31, ~~respectively~~2018, the revenues in the month of March 2019 were approximately $89.3 ~~The~~million ~~increases~~higher than the month of December 2018, leading to an increase in accounts receivable. ~~and~~The ~~accounts~~decrease ~~payable~~in ~~were~~accrued ~~due~~liabilities was primarily attributable to ~~increased~~interest ~~seasonal~~payments ~~sales~~during ~~volume~~the quarter and ~~higher~~the payment of incentive compensation accrued at year-end. Our average days payables outstanding (“DPO”) for the twelve months ended March 31, 2019 remained consistent with the average DPO for the year ended December 31, 2018. Our average days inventory outstanding (“DIO”) for the twelve months ended March 31, 2019 remained consistent with the average DIO for the year ended December 31, 2018.

46Cash flows used by operating activities were $34.9 million for the three months ended March 31, 2018, which resulted from $7.8 million of cash from earnings and a $42.7 million use of cash related to an increase in net operating assets. The significant components of the change in net operating assets included increases of $84.4 million, $60.9 million, $18.4 million, $44.9 million and $76.1 million in accounts receivable, inventory, other assets, accounts payable and accrued and other

aluminum prices. Our average days sales outstanding (“DSO”) for the twelve months ended September 30, 2018 increased by two days compared with the average DSO for the year ended December 31, 2017 and revenues in the month of September 2018 were approximately $105.3 million higher than the month of December 2017, leading to an increase in accounts receivable. While our average days payables outstanding (“DPO”) for the twelve months ended September 30, 2018 remained consistent with the average DPO for the year ended December 31, 2017, the sanctions levied against United Company Rusal Plc have recently shortened the payment terms on accounts payable in Europe. The increase in inventory was primarily due to the seasonal build of inventory, an increase in aluminum prices and increased inventory in North America related to the ramp-up of automotive production, partially offset by working capital optimization efforts in Europe. Our average days inventory outstanding (“DIO”) for the twelve months ended September 30, 2018 decreased approximately five days from the average DIO for the year ended December 31, 2017. The increase in accrued and other liabilities was primarily due to deferred revenue associated with $60.0 million of capacity reservation fees received in the first half of 2018, partially offset by interest payments. 37

Cash flows used by operating activities were $32.5 million for the nine months ended September 30, 2017, which resulted from $6.8 million of cash from earnings and a $39.3 million use of cash related to an increase in net operating assets. The significant components of the change in net operating assets included increases of $60.2 million, $53.0 million, $35.8 million and $31.9 million in accounts receivable, inventory, accounts payable and accrued liabilities, respectively. The increases in accounts receivable and accounts payable were due primarily to increased seasonal sales volume and higher aluminum prices. While our average DSO for the twelve months ended ~~September~~March 3031, ~~2017~~2018 remained consistent with the average DSO for the year ended December 31, ~~2016~~2017, revenues in the month of ~~September~~March 2017 were approximately $7398.9 million higher than the month of December ~~2016~~2017, leading to an increase in accounts receivable. Our average DPO for the twelve months ended ~~September~~March 3031, ~~2017~~ 2018 remained consistent with the average DPO for the year ended December 31, ~~2016~~2017. The increase in ~~inventory~~other ~~was~~assets ~~primarily~~is due to ana ~~increase in aluminum prices~~$20.0 ~~Our~~million ~~average~~receivable ~~DIO~~recorded for the ~~twelve~~final ~~months~~capacity ~~ended September 30,~~reservation ~~2017increased~~fee ~~from~~that ~~the~~was ~~average~~received ~~DIO~~in ~~for~~April ~~the~~2018. ~~year~~The ~~ended December 31,~~increase ~~2016~~ in inventory was primarily due to the ~~rising~~seasonal ~~aluminum~~build ~~prices~~of inventory as well as ~~lower~~an ~~shipment~~increase ~~volumes~~in ~~and~~aluminum prices, partially offset by the ~~strategic~~working ~~build~~capital ofoptimization ~~inventory~~efforts in ~~North~~Europe. ~~America~~Our inaverage ~~preparation~~DIO for the ~~production~~twelve ~~outage~~months atended March 31, ~~our~~2018 remained ~~Lewisport~~consistent ~~facility~~with the average DIO for the year ended December 31, 2017. The increase in accrued and other liabilities was primarily due to ~~increased~~$60.0 ~~accrued~~million ~~interest,~~of ~~resulting~~deferred ~~from~~revenue ~~the~~associated ~~additional~~with ~~9½%~~the ~~Senior~~capacity ~~Secured~~reservation ~~Notes~~fees ~~issued~~recorded ~~during~~in the ~~year~~first asquarter ~~well~~of as2018 ~~the~~and ~~timing~~increased ofaccrued interest ~~payments~~.

Cash Flows from Investing Activities

Cash flows used by investing activities were $7633.97 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, primarily related to capital expenditures.

Cash flows used by investing activities were $~~177~~30.43 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, and included $~~174~~30.91 million of capital expenditures~~, primarily resulting from the North America ABS Project and related non-ABS equipment upgrades at our Lewisport facility~~.

Cash Flows from Financing Activities

Cash flows provided by financing activities were $~~100~~117.27 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, which resulted from ~~net~~an ~~cash~~additional ~~proceeds of~~ $~~1,483~~125.0 million ~~from~~of ~~the~~net ~~New~~borrowings ~~Financing.~~under ~~These~~the ~~proceeds~~ABL ~~were~~Facility, partially offset by ~~the redemption of the Existing Senior Notes, which totaled~~ $~~1,289~~3.5 million ~~including the prepayment premiums, net cash repayments~~ of ~~$64.1~~scheduled ~~million~~repayment on ~~outstanding~~the ~~borrowings~~Zhenjiang ~~under~~Term ~~the~~Loans ~~ABL~~and ~~Facility,~~a $202.48 million ofscheduled ~~debt~~repayment ~~issuance costs related to the New Financing and $5.5 million~~ of ~~payments on~~ the ~~China~~Term Loan Facility.

Cash flows provided by financing activities were $~~226~~40.81 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, which resulted from net cash ~~proceeds~~borrowings of $~~263~~43.89 million ~~from~~against the ~~issuance~~ABL ofFacility, ~~additional 9½% Senior Secured Notes. These proceeds were~~ partially offset by $192.58 million of ~~payments~~scheduled onrepayment ~~the China Loan Facility (as defined below), net cash repayments of $11.5 million~~ on ~~borrowings against~~ the ~~2015~~Zhenjiang ~~ABL~~Term ~~Facility and $2~~Loans.~~5 million of debt issuance costs related to the issuance of the additional 9½% Senior Secured Notes.~~

Description of Indebtedness

On June 25, 2018, Aleris International completed debt refinancing transactions, pursuant to which Aleris International (i) raised $1,500.0 million in new debt financing, consisting of (A) a new senior secured first lien term loan in an aggregate principal amount of $1,100.0 million (the “Term Loan Facility”) and (B) $400.0 million aggregate principal amount of newly issued 10.75% senior secured junior priority notes due 2023 (the “2023 Junior Priority Notes”), (ii) amended its existing ABL Facility (the “ABL Amendment”), and (iii) used the net proceeds of the new debt financing to (A) redeem all of its Prior Notes (as defined below), (B) repay a portion of its outstanding borrowings under the ABL Facility and (C) pay related fees and expenses.

Term Loan Facility

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

Facility and the 2023 Junior Priority Notes (as defined below) (the “Subsidiary Guarantors” and, together with Aleris Corp, the “Guarantors”).

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

The Term Loan Facility ~~bears~~is ~~interest~~secured by (i) a first-priority lien on substantially all of Aleris International’s and the ~~unpaid~~Guarantors’ ~~principal~~assets ~~amount~~(excluding atthe aABL ~~rate~~Collateral ~~equal~~(as todefined below)), atincluding, without limitation, all owned and material U.S. real property, equipment, intellectual property and stock of Aleris International’s ~~option,~~and ~~either:~~the Guarantors (other than Aleris Corporation) and other subsidiaries (including 100% of the outstanding non-voting stock (if any) and 65% of the outstanding

▪voting stock of certain “first tier” foreign subsidiaries and certain “first tier” foreign subsidiary holding companies), which assets secure the 2023 Junior Priority Notes on a ~~LIBOR~~second ~~rate~~priority ~~determined~~basis byand ~~reference~~secure the ABL Facility on a third priority basis (the “Term Loan Collateral”) and (ii) a second-priority lien on all of Aleris International’s and the Guarantors’ (other than Aleris Corporation) inventory, accounts receivable, deposit accounts and related assets (subject to certain exceptions), which assets secure the ~~London~~ABL ~~interbank~~Facility ~~offered~~on ~~rate~~a ~~for~~first ~~dollars~~priority ~~for~~basis and secure the ~~relevant~~2023 ~~interest~~Junior ~~period~~Priority Notes on a third priority basis (the “ABL Collateral” and, ~~adjusted~~together ~~for~~with ~~statutory~~the ~~reserve~~Term ~~requirements~~Loan Collateral, ~~plus~~the ~~4.75%.~~“Collateral”), ~~The~~in ~~LIBOR~~each ~~rate~~case ~~will~~excluding becertain assets and subject to apermitted 0liens.~~00% rate floor.~~

~~Amounts~~The ~~borrowed under the~~ Term Loan Facility ~~amortize~~contains ina ~~equal~~number ~~quarterly~~of ~~installments~~covenants inthat, ~~aggregate~~subject ~~annual~~to ~~amounts~~certain ~~equal~~exceptions, toimpose ~~1.00%~~restrictions on Aleris International and certain of its subsidiaries, including, without limitation, restrictions on the ~~original~~ability ~~principal~~to, ~~amount~~among other things, incur additional debt, grant liens or security interests on assets, merge, consolidate or sell assets, make investments, loans and acquisitions, pay dividends and make restricted payments, modify terms of ~~the~~junior indebtedness or enter into affiliate transactions. The Term Loan Facility, ~~with~~also ~~the~~contains ~~balance~~certain ~~payable~~customary onaffirmative ~~the~~covenants ~~maturity~~and ~~date~~events of default. Aleris International was in compliance with all covenants set forth in the Term Loan Facility. as of March 31, 2019.

2023 Junior Priority Notes

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

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

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

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

49The 2023 Junior Priority Notes Indenture contains covenants, subject to certain limitations and exceptions, limiting the ability of Aleris International and its restricted subsidiaries to, among other things: incur additional debt; pay dividends or distributions on Aleris International’s capital stock or redeem, repurchase or retire Aleris International’s capital stock or subordinated debt; issue preferred stock of restricted subsidiaries; make certain investments; create liens on Aleris International’s or its Guarantor Subsidiaries’ assets to secure debt; enter into sale and leaseback transactions; create restrictions on the payment of dividends or other amounts to Aleris International from the restricted subsidiaries that are not guarantors of the 2023 Junior Priority Notes; enter into transactions with affiliates; merge or consolidate with another company; and sell assets, including capital stock of Aleris International’s subsidiaries. The 2023 Junior Priority Notes Indenture also contains customary events of default. Aleris International was in compliance with all covenants set forth in the 2023 Junior Priority Notes Indenture as of March 31, 2019.

The 2023 Junior Priority Notes Indenture contains covenants, subject to certain limitations and exceptions, limiting the ability of Aleris International and its restricted subsidiaries to, among other things: incur additional debt; pay dividends or distributions on Aleris International’s capital stock or redeem, repurchase or retire Aleris International’s capital stock or subordinated debt; issue preferred stock of restricted subsidiaries; make certain investments; create liens on Aleris International’s or its Subsidiary Guarantors’ assets to secure debt; enter into sale and leaseback transactions; create restrictions on the payment of dividends or other amounts to Aleris International from the restricted subsidiaries that are not guarantors of the 2023 Junior Priority Notes; enter into transactions with affiliates; merge or consolidate with another company; and sell assets, including capital stock of Aleris International’s subsidiaries. The 2023 Junior Priority Notes Indenture also contains customary events of default. Aleris International was in compliance with all covenants set forth in the 2023 Junior Priority Notes Indenture as of September 30, 2018.

ABL Facility

The terms of the ABL Amendment increased the size of the ABL Facility by $150.0 million. As amended, the ABL Facility permits multi-currency borrowings up to $750.0 million by Aleris International and its U.S. subsidiaries and up to a combined $375.0 million by Aleris Switzerland GmbH, a wholly owned Swiss subsidiary, Aleris Aluminum Duffel BVBA, a wholly owned Belgian subsidiary, Aleris Rolled Products Germany GmbH, a wholly owned German subsidiary and, upon its accession to the credit agreement, Aleris Casthouse Germany GmbH, a wholly owned German subsidiary (but limited to $750.0 million in total). The availability of funds to the borrowers located in each jurisdiction is subject to a borrowing base for that jurisdiction and the jurisdictions in which certain subsidiaries of such borrowers are located. Both the borrowing base and the ABL Facility utilization may fluctuate on a monthly basis. Our borrowing base may also fluctuate due to, in part, seasonal working capital increases and increased aluminum prices. The ABL Facility provides for the issuance of up to $125.0 million of letters of credit. The credit agreement provides that commitments under the ABL Facility may be increased at any time by an additional $300.0 million, subject to certain conditions.

As of ~~September~~March 3031, ~~2018~~2019, we estimate that the borrowing base would have supported borrowings of up to $~~690~~699.05 million. We had outstanding borrowings of $~~251~~377.03 million under the ABL Facility as of ~~September~~March 3031, ~~2018~~2019. After giving effect to outstanding borrowings and letters of credit, Aleris International had $~~413~~297.4 million available for borrowing under the ABL Facility.

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

Although the credit agreement governing the ABL Facility generally does not require Aleris International to comply with any financial ratio maintenance covenants, if combined availability is less than the greater of (a) 10% of the lesser of the combined borrowing base and the combined commitments and (b) $40.0 million, a minimum fixed charge coverage ratio (as defined in the credit agreement) of at least 1.0 to 1.0 will apply. The credit agreement also contains certain customary affirmative covenants and events of default. Aleris International was in compliance with all of the covenants set forth in the credit agreement as of ~~September~~March 3031, ~~2018~~2019.

In addition to increasing the size of the ABL Facility, the terms of the ABL Amendment, among other things, (i) extended the maturity date of the ABL Facility from June 15, 2020 to the earliest of (x) June 25, 2023, (y) the date that is 60 days prior to the scheduled maturity date of the term loans under the Term Loan Facility (currently February 27, 2023) and (z) the date that is 60 days prior to the scheduled maturity date of the 2023 Junior Priority Notes (currently July 15, 2023), (ii) removed a previous borrowing base reserve on Belgian finished goods inventory, (iii) permitted the incurrence of the Term Loan Facility and the 2023 Notes and (iv) amended certain covenants and other provisions consistent with the corresponding terms of the Term Loan Facility and the 2023 Junior Priority Notes.

50Redemption of Prior Notes

~~2023~~As part of the debt refinancing transactions discussed above, Aleris International redeemed in full the aggregate principal amount of its former 77/8% senior notes due 2020 (the “2020 Notes”) and 9½% senior secured notes due 2021 (~~iv) amended~~the ~~certain~~“2021 ~~covenants~~Notes” and, ~~other~~together ~~provisions~~with ~~consistent~~the ~~with~~2020 Notes, the ~~corresponding~~“Prior ~~terms~~Notes”). The 2020 Notes were redeemed at a redemption price equal to 101.969% of the ~~Term~~principal ~~Loan~~amount ~~Facility~~thereof, plus accrued and ~~the~~unpaid ~~2023~~interest ~~Junior~~to ~~Priority~~June 25, 2018, and the 2021 Notes were redeemed at a redemption price equal to 104.750% of the principal amount thereof, plus accrued and unpaid interest to June 25, 2018.

Redemption of Senior Notes

As part of the debt refinancing transactions discussed above, Aleris International redeemed in full the aggregate principal amount of its former 77/8% senior notes due 2020 (the “2020 Notes”) and 9½% senior secured notes due 2021 (the “2021 Notes” and, together with the 2020 Notes, the “Existing Senior Notes”). The 2020 Notes were redeemed at a redemption price equal to 101.969% of the principal amount thereof, plus accrued and unpaid interest to June 25, 2018, and the 2021 Notes were redeemed at a redemption price equal to 104.750% of the principal amount thereof, plus accrued and unpaid interest to June 25, 2018.

Exchangeable Notes

Aleris International issued $45.0 million aggregate principal amount of 6% senior subordinated exchangeable notes (the “Exchangeable Notes”) in June 2010. The Exchangeable Notes are scheduled to mature on June 1, 2020. The Exchangeable Notes have exchange rights at the holder’s option and are exchangeable at any time for our common stock at a rate equivalent to 60.58 shares of our common stock per $1,000 principal amount of the Exchangeable Notes (after adjustment for the payments of dividends), subject to further adjustment. The Exchangeable Notes may currently be redeemed at Aleris International’s option at specified redemption prices.

China Loan Facility

Our wholly owned subsidiary, Aleris Aluminum (Zhenjiang) Co., Ltd. (“Aleris Zhenjiang”), maintains a loan agreement comprised of non-recourse multi-currency secured term loan facilities and a revolving facility (collectively, as amended and supplemented from time to time, the “China Loan Facility”). The China Loan Facility consists of a $3029.60 million U.S. dollar term loan facility, an RMB ~~873~~860.85 million (or equivalent to approximately $~~127~~128.2 million as of ~~September~~March 3031, ~~2018~~2019) term loan facility (collectively referred to as the “Zhenjiang Term Loans”) and an RMB 410.0 million (or equivalent to approximately $5961.71 million as of ~~September~~March 3031, ~~2018~~2019) revolving facility (referred to as the “Zhenjiang Revolver”). The Zhenjiang Revolver has certain restrictions that have limited our ability to borrow funds on the Zhenjiang Revolver and will continue to limit our ability to borrow funds in the future.

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

Aleris Zhenjiang was in compliance with all of the covenants set forth in the China Loan Facility as of ~~September~~March 3031, ~~2018~~2019. Aleris Zhenjiang has had delays in its ability to make timely draws of amounts committed under the China Loan Facility in the ~~past and we cannot be certain that Aleris Zhenjiang will be able to draw any amounts committed under the Zhenjiang Revolver in the future or as to the timing or cost of any such draws.~~

past and we cannot be certain that Aleris Zhenjiang will be able to draw any amounts committed under the Zhenjiang Revolver in the future or as to the timing or cost of any such draws.

Non-GAAP Financial Measures

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

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

51Our EBITDA calculations represent net income and loss before interest income and expense, provision for and benefit from income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding metal price lag, unrealized gains and losses on derivative financial instruments, restructuring charges, currency exchange gains and losses on debt, stock-based compensation expense, start-up costs, loss on extinguishment of debt and certain other gains and losses. Segment Adjusted EBITDA represents Adjusted EBITDA on a per segment basis. EBITDA as defined in the credit agreement governing the Term Loan Facility and the indenture governing the 2023 Junior Priority Notes also limits the amount of adjustments for cost savings, operational improvement and synergies for the purpose of determining our compliance with such covenants. Adjusted EBITDA as defined under the ABL Facility also limits the amount of adjustments for restructuring charges and requires additional adjustments be made if certain annual pension funding levels are exceeded. Commercial margin represents revenues less the hedged cost of metal and the effects of metal price lag.

~~also~~EBITDA, ~~uses~~Adjusted EBITDA, segment Adjusted EBITDA and commercial margin (collectively, the “Non-GAAP Measures”), as awe ~~performance~~use ~~metric~~them ~~and~~may ~~believes~~not ~~that~~be itcomparable ~~provides~~to ~~useful~~similarly ~~information~~titled ~~regarding~~measures used by other companies. We calculate the ~~performance~~Non-GAAP Measures by eliminating the impact of a number of items we do not consider indicative of our ~~segments~~ongoing ~~because~~operating performance and certain other items. You are encouraged to evaluate each adjustment and the reasons we consider it ~~measures~~appropriate for supplemental analysis. However, the ~~price~~Non-GAAP atMeasures ~~which~~are wenot ~~sell~~financial measurements recognized under GAAP, and when analyzing our ~~aluminum~~operating ~~products~~performance, ~~above~~investors should use the ~~hedged~~Non-GAAP ~~cost~~Measures ofin ~~the~~addition ~~metal~~to, and ~~the~~not ~~effects~~as ofan ~~metal~~alternative ~~price~~for, ~~lag~~net income and loss, ~~thereby~~operating ~~reflecting~~income ~~the~~and ~~value-added~~loss, ~~components~~or any other performance measure derived in accordance with GAAP, or in addition to, and not as an alternative for, cash flow from operating activities as a measure of our ~~commercial~~liquidity. ~~activities~~The ~~independent~~Non-GAAP Measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for, or superior to, our measures of ~~aluminum~~financial ~~prices~~performance ~~which~~prepared wein ~~cannot~~accordance ~~control~~with GAAP. These limitations include:

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

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


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


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


▪	They do not reflect interest expense or cash requirements necessary to service interest expense or principal payments under our outstanding indebtedness;


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


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


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

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

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

52For the three months ended March 31, 2019 and 2018, our reconciliation of Adjusted EBITDA to net loss and net cash used by operating activities is presented below.

For the three and nine months ended September 30, 2018 and 2017, our reconciliation of Adjusted EBITDA to net loss and net cash provided (used) by operating activities is presented below.



	For the three months ended
	March 31, 2019			March 31, 2018
	(in millions)
Adjusted EBITDA	$	84.7		$	53.6
Unrealized (losses) gains on derivative financial instruments	(30.9		)	33.7
Restructuring charges	(1.0		)	(0.9		)
Unallocated currency exchange gains on debt	0.7			1.1
Stock-based compensation expense	—			(0.3		)
Start-up costs	(3.3		)	(16.0		)
Favorable metal price lag	7.4			9.0
Other	(5.6		)	(1.7		)
EBITDA	52.0			78.5
Interest expense, net	(39.3		)	(33.8		)
Provision for income taxes	(11.5		)	(5.4		)
Depreciation and amortization	(34.6		)	(34.7		)
Net (loss) income	(33.4		)	4.6
Depreciation and amortization	34.6			34.7
Provision for deferred income taxes	2.2			1.6
Stock-based compensation expense	—			0.3
Unrealized losses (gains) on derivative financial instruments	30.8			(33.7		)
Amortization of debt issuance costs	2.3			0.7
Other	(0.7		)	(0.4		)
Change in operating assets and liabilities:
Change in accounts receivable	(108.4		)	(84.4		)
Change in inventories	5.8			(60.9		)
Change in other assets	(3.9		)	(18.4		)
Change in accounts payable	(9.8		)	44.9
Change in accrued and other liabilities	(32.0		)	76.1
Net cash used by operating activities	$	(112.5	)	$	(34.9	)

	For the three months ended						For the nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	(in millions)
Adjusted EBITDA	$	77.0		$	45.5		$	215.5		$	163.7
Unrealized (losses) gains on derivative financial instruments	(10.4		)	(18.8		)	3.1			(1.5		)
Restructuring charges	(0.2		)	(0.9		)	(2.0		)	(2.1		)
Unallocated currency exchange losses on debt	(1.2		)	(1.8		)	(2.5		)	(3.1		)
Stock-based compensation expense	(2.1		)	(0.4		)	(2.8		)	(1.5		)
Start-up costs	(9.8		)	(22.8		)	(48.7		)	(52.6		)
Favorable (unfavorable) metal price lag	4.3			(1.0		)	39.3			(3.6		)
Loss on extinguishment of debt	—			—			(48.9		)	—
Other	(5.7		)	(1.4		)	3.1			(5.1		)
EBITDA	51.9			(1.6		)	156.1			94.2
Interest expense, net	(37.5		)	(32.0		)	(106.0		)	(90.4		)
Provision for income taxes	(5.4		)	(1.6		)	(14.7		)	(25.1		)
Depreciation and amortization	(35.0		)	(30.5		)	(103.8		)	(82.0		)
Net loss	(26.0		)	(65.7		)	(68.4		)	(103.3		)
Depreciation and amortization	35.0			30.5			103.8			82.0
Provision for (benefit from) deferred income taxes	3.2			(0.5		)	5.0			13.9
Stock-based compensation expense	2.1			0.4			2.8			1.5
Unrealized losses (gains) on derivative financial instruments	10.3			18.8			(3.2		)	1.5
Amortization of debt issuance costs	2.2			0.7			3.6			2.1
Loss on extinguishment of debt	—			—			48.9			—
Non-cash gain	—			—			(11.1		)	—
Other	2.6			4.2			5.1			9.1
Change in operating assets and liabilities:
Change in accounts receivable	(11.4		)	7.6			(146.0		)	(60.2		)
Change in inventories	(31.7		)	5.3			(135.7		)	(53.0		)
Change in other assets	3.1			0.2			4.7			6.2
Change in accounts payable	35.2			11.5			76.9			35.8
Change in accrued and other liabilities	14.8			29.5			46.2			31.9
Net cash provided (used) by operating activities	$	39.4		$	42.5		$	(67.4	)	$	(32.5	)

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018, our reconciliation of revenues to commercial margin is as follows:

	For the three months ended						~~For the nine months ended~~
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	March 31, 2019			March 31, 2018
	(in millions)
Revenues	$	~~911~~877.30		$	~~712~~802.83		$	~~2,644.2~~		$	~~2,163.2~~
Hedged cost of metal	(~~534~~481.49		)	(~~425~~467.29		)	~~(1,539.3~~		)	~~(1,258.7~~		)
(Favorable) unfavorable metal price lag	(4.3		)	1.0			(39.3		)	3.6
Favorable metal price lag	(7.4		)	(9.0		)
Commercial margin	$	~~372~~387.67		$	~~288~~325.64		$	~~1,065.6~~		$	~~908.1~~

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including, among others, those related to the valuation of inventory, property and equipment and intangible assets, allowances related to doubtful accounts, income taxes, pensions and other postretirement benefits and environmental liabilities. Our management bases its estimates on historical experience, actuarial valuations and other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates.

A summary of our significant accounting policies and estimates is included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 208, ~~2018~~2019 for the year ended December 31, ~~2017~~2018. Also see Note 213, “~~Revenue from contracts with customers~~Leases” to our unaudited consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for a discussion of the Company’s updated accounting policies on ~~Revenue~~leases ~~Recognition~~ subsequent to the adoption of ASC ~~606~~842, “~~Revenue from Contracts with Customers~~Leases.”

Off-Balance Sheet Transactions

We had no off-balance sheet arrangements at ~~September~~March 3031, ~~2018~~2019.

Forward-Looking Statements

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

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

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


•	our ability to successfully implement our business strategy;


•	the success of past and future acquisitions or divestitures;


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


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


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


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


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


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


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


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


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


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


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


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


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


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


•	our ability to access credit or capital markets;


•	the possibility that we may incur additional indebtedness in the future;


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


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

The above list is not exhaustive. Some of these factors and additional risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in our public filings with the Securities and Exchange Commission, including the sections entitled “Risk Factors” included therein and herein.

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

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

Available Information

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



Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

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

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

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

Metal Hedging

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

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

As of ~~September~~March 3031, ~~2018~~2019, we had ~~160~~157.0 thousand metric tons and ~~275~~298.0 thousand metric tons of metal buy and metal sell derivative contracts, respectively. As of December 31, ~~2017~~2018, we had ~~147~~165.90 thousand metric tons and ~~249~~293.70 thousand metric tons of metal buy and metal sell derivative contracts, respectively.

Energy Hedging

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

Under our natural gas derivative contracts, payments are made or received based on the differential between the monthly closing price on the New York Mercantile Exchange (“NYMEX”) and the contractual hedge price. We can also use a combination of call option contracts and put option contracts for managing the exposure to increasing natural gas prices while maintaining the benefit from declining prices. Upon settlement of call option contracts, we receive cash and recognize a related gain if the NYMEX closing price exceeds the strike price of the call option. If the call option strike price exceeds the NYMEX closing price, no amount is received and the option expires unexercised. Upon settlement of a put option contract, we pay cash and recognize a related loss if the NYMEX closing price is lower than the strike price of the put option. If the put option strike price is less than the NYMEX closing price, no amount is paid and the option expires unexercised. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Natural gas cost can also be managed through the use of cost escalators included in some of our long-term supply contracts with customers,

5646

maintaining the benefit from declining prices. Upon settlement of call option contracts, we receive cash and recognize a related gain if the NYMEX closing price exceeds the strike price of the call option. If the call option strike price exceeds the NYMEX closing price, no amount is received and the option expires unexercised. Upon settlement of a put option contract, we pay cash and recognize a related loss if the NYMEX closing price is lower than the strike price of the put option. If the put option strike price is less than the NYMEX closing price, no amount is paid and the option expires unexercised. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Natural gas cost can also be managed through the use of cost escalators included in some of our long-term supply contracts with customers, which limits exposure to natural gas price risk. As of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, we had 43.02 trillion and 34.56 trillion of British thermal unit forward buy contracts, respectively.

We use independent freight carriers to deliver our products. As part of the total freight charge, these carriers include a per mile diesel surcharge based on the Department of Energy, Energy Information Administration’s (“DOE”) Weekly Retail Automotive Diesel National Average Price. From time to time, we enter into over-the-counter DOE diesel fuel swaps with financial counterparties to mitigate the impact of the volatility of diesel fuel prices on our freight costs. Under these swap agreements, we pay a fixed price per gallon of diesel fuel determined at the time the agreements were executed and receive a floating rate payment that is determined on a monthly basis based on the average price of the DOE Diesel Fuel Index during the applicable month. The swaps are designed to offset increases or decreases in fuel surcharges that we pay to our carriers. All swaps are financially settled. There is no possibility of physical settlement. As of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, we had 13.13 million and 14.53 million gallons of diesel fuel swap contracts outstanding, respectively.

Currency Hedging and Exchange Risks

The financial condition and results of operations of some of our operating entities are reported in various currencies and then translated into U.S. dollars at the applicable exchange rate for inclusion in our unaudited consolidated financial statements. As a result, appreciation of the U.S. dollar against these currencies will have a negative impact on reported revenues and operating profit, while depreciation of the U.S. dollar against these currencies will generally have a positive effect on reported revenues and operating profit. In addition, our aerospace and heat exchanger businesses expose the U.S. dollar operating results of our European operations to fluctuations in the euro as sales contracts are generally in U.S. dollars while the costs of production are in euros. As a result, appreciation in the U.S. dollar will have a positive impact on earnings while depreciation of the U.S. dollar will have a negative impact on earnings. In order to mitigate the risk that fluctuations in the euro may have on our business we have entered into forward currency contracts. As of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, we had euro forward contracts covering a notional amount of €6967.1 million and €~~100~~77.86 million, respectively.

Interest Rate Risks

As of ~~September~~March 3031, ~~2018~~2019, ~~subsequent to the debt refinancing transactions discussed above,~~ approximately 7779% of our debt obligations had variable interest rates. We are subject to interest rate risk related to the Term Loan Facility, the ABL Facility and the China Loan Facility, to the extent borrowings are outstanding under these facilities. As of ~~September~~March 3031, ~~2018~~2019, Aleris International had $1,~~097~~091.38 million and $~~251~~377.03 million of borrowings under the Term Loan Facility and the ABL Facility, respectively, and Aleris Zhenjiang had $157.82 million of borrowings under the Zhenjiang Term Loans. In the third quarter of 2018, we entered into an interest rate swap to fix the LIBOR interest rate on $700.0 million of the Term Loan Facility for the period of October 31, 2018 through June 28, 2019, thus significantly offsetting our exposure to changes in interest rates. We estimate that if the market interest rates would have increased by 10%, our interest expense for the three months ended March 31, 2019 would have increased by approximately $0.8 million, excluding the impact of any interest rate derivative instruments.

Fair Values and Sensitivity Analysis

The following table shows the fair values of outstanding derivative contracts at ~~September~~March 3031, ~~2018~~2019 and the effect on the fair value of a hypothetical adverse change in the market prices that existed at ~~September~~March 3031, ~~2018~~2019:

				Impact of
(in millions)	Fair			10% Adverse
Derivative	Value			Price Change
Metal	$	4(2.79	)	$	(2528.52	)
Energy	0.62			(1.59		)
Currency	(25.76		)	(86.30		)

The disclosures above do not take into account the underlying commitments or anticipated transactions. If the underlying items were included in the analysis, the gains or losses on our derivative instruments would be offset by gains and losses realized on the purchase of the physical commodities. Actual results will be determined by a number of factors outside of our control and could vary significantly from the amounts disclosed. For additional information on derivative financial instruments, see Note 12, “Derivative and Other Financial Instruments,” to our unaudited consolidated financial statements included elsewhere in this report on Form 10-Q. 47



Item 4.	Controls and Procedures.

Disclosure Controls and Procedures

During the fiscal period covered by this report, the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the fiscal period covered by this report, the disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the ~~Securities and Exchange Commission~~SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

~~There~~Beginning ~~were~~January no1, 2019, we implemented ASC 842, “Leases.” With the implementation we made changes into ~~internal~~our ~~control~~processes ~~over~~related ~~financial~~to ~~reporting~~lease ~~during~~accounting and the ~~quarter~~control ~~ended~~activities ~~September 30,~~within ~~2018~~them. ~~that~~These ~~have~~included ~~materially~~the ~~affected,~~development orof ~~are~~new ~~reasonably~~policies, ~~likely~~new totraining, ~~materially~~ongoing ~~affect,~~contract ~~our~~review ~~internal~~requirements ~~control~~and ~~over~~gathering ~~financial~~information ~~reporting~~provided for disclosures.

PART II – OTHER INFORMATION



Item 1.	Legal Proceedings.

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



Item 1A.	Risk Factors.

~~You~~There ~~should~~have ~~carefully~~been ~~consider~~no material changes to the ~~risks~~risk ~~disclosed~~factors ~~under~~included ~~Item~~in ~~1A,~~the “Risk Factors” section in our ~~Annual~~annual ~~Report~~report on Form 10-K for the fiscal year ended December 31, ~~2017 in addition to the other information set forth in our Quarterly Report on Form 10-Q for the period ending June 30,~~ 2018.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

None.



Item 3.	Defaults Upon Senior Securities.

None.



Item 4.	Mine Safety Disclosures.

None.



Item 5.	Other Information.

None.

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Item 6.	Exhibits.

ExhibitNumber		Description
2.1		Agreement and Plan of Merger, dated as of July 26, 2018, among Aleris Corporation, Novelis Inc., Novelis Acquisitions LLC and OCM Opportunities ALS Holdings, L.P. (filed as Exhibit 2.1 to Aleris Corporation’s Current Report on Form 8-K (File No. 001-35499) filed on July 27, 2018 and incorporated herein by reference).
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Aleris Corporation’s Chief Executive Officer.
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Aleris Corporation’s Chief Financial Officer.
32.1*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS		XBRL Instance Document
*101.SCH		XBRL Taxonomy Extension Schema
*101.CAL		XBRL Taxonomy Extension Calculation Linkbase
*101.DEF		XBRL Taxonomy Extension Definition Linkbase
*101.LAB		XBRL Taxonomy Extension Label Linkbase
*101.PRE		XBRL Taxonomy Extension Presentation Linkbase


*	Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ALERIS CORPORATION
Date:	~~November~~May 78, ~~2018~~2019	By:	/s/ ERIC M. RYCHEL
		Name:	Eric M. Rychel
		Title:	Executive Vice President, ChiefFinancial Officer and Treasurer (Principal Financial Officer)

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