UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~(Mark One)~~


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

For the Quarterly Period Ended March 31, ~~2020~~2021


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

Commission File Number 1-3610

HOWMET AEROSPACE INC.

(Exact name of registrant as specified in its charter)

Delaware

25-0317820

(State of incorporation)

(I.R.S. Employer Identification No.)

~~201 Isabella Street,~~

~~Suite 200,~~

~~Pittsburgh,~~

~~Pennsylvania~~

~~15212-5872~~

~~(Address of principal executive offices)~~

~~(Zip code)~~

201 Isabella Street, Suite 200, Pittsburgh, Pennsylvania 15212-5872

(Address of principal executive offices) (Zip code)

Investor Relations 412-553-1950

Office of the Secretary 412-553-1940

(Registrant’s telephone number including area code)

~~Arconic Inc.~~

~~(Former name, former address and former fiscal year, if changed since last report)~~

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading ~~Symbol(s)~~Symbol	Name of each exchange on which registered
Common Stock, par value $1.00 per share	HWM	New York Stock Exchange
$3.75 Cumulative Preferred Stock, par value ~~$100~~$100.00 per share	HWM PR	NYSE American

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of May ~~1, 2020,~~3, 2021, there were ~~436,103,413~~434,325,032 shares of common stock, par value $1.00 per share, of the registrant outstanding.

~~EXPLANATORY NOTE~~

On April 1, 2020, Arconic Inc. completed the separation of its business into two independent, publicly-traded companies: Howmet Aerospace Inc. (the new name for Arconic Inc.) and Arconic Corporation. The financial results of Howmet Aerospace Inc. prior to April 1, 2020 include the Global Rolled Products business (which became Arconic Corporation as of April 1, 2020).

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Howmet Aerospace Inc. and subsidiaries ~~(formerly known as Arconic Inc.)~~

Statement of Consolidated Operations (unaudited)

(U.S. dollars in millions, except per-share amounts)


		First quarter ended							First quarter ended
		March 31,							March 31,
		2020		2019			2021		2020
Sales (C)		$	3,209	$	3,541
Sales (D)						Sales (D)	$	1,209	$	1,634
Cost of goods sold (exclusive of expenses below)	Cost of goods sold (exclusive of expenses below)	2,476		2,818		Cost of goods sold (exclusive of expenses below)	873		1,183
Selling, general administrative, and other expenses	Selling, general administrative, and other expenses	169		178		Selling, general administrative, and other expenses	65		79
Research and development expenses	Research and development expenses	15		22		Research and development expenses	5		4
Provision for depreciation and amortization	Provision for depreciation and amortization	129		137		Provision for depreciation and amortization	68		71
Restructuring and other charges (D)		21		12
Restructuring and other charges (E)						Restructuring and other charges (E)	9		39
Operating income	Operating income	399		374		Operating income	189		258
Interest expense		91		85
Other expense, net (E)		17		32
Interest expense, net						Interest expense, net	72		84
Other expense (income), net (F)						Other expense (income), net (F)	4		(24)
Income before income taxes	Income before income taxes	291		257		Income before income taxes	113		198
Provision for income taxes (G)		76		70
Provision for income taxes (H)						Provision for income taxes (H)	33		45
Income from continuing operations after income taxes						Income from continuing operations after income taxes	80		153
Income from discontinued operations after income taxes (B)						Income from discontinued operations after income taxes (B)	0		62
Net income	Net income	$	215	$	187	Net income	$	80	$	215

Amounts Attributable to Howmet Aerospace Common Shareholders (H):
Amounts Attributable to Howmet Aerospace Common Shareholders (I):						Amounts Attributable to Howmet Aerospace Common Shareholders (I):
Net income	Net income	$	214	$	186	Net income	$	79	$	214
Earnings per share - basic	Earnings per share - basic	$	0.49	$	0.40	Earnings per share - basic
Continuing operations						Continuing operations	$	0.18	$	0.35
Discontinued operations						Discontinued operations	$	0	$	0.14
Earnings per share - diluted	Earnings per share - diluted	$	0.49	$	0.39	Earnings per share - diluted
Average Shares Outstanding (H):
Continuing operations						Continuing operations	$	0.18	$	0.35
Discontinued operations						Discontinued operations	$	0	$	0.14
Average Shares Outstanding (I):						Average Shares Outstanding (I):
Average shares outstanding - basic	Average shares outstanding - basic	435		471		Average shares outstanding - basic	434		435
Average shares outstanding - diluted	Average shares outstanding - diluted	440		489		Average shares outstanding - diluted	439		440

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

Howmet Aerospace Inc. and subsidiaries ~~(formerly known as Arconic Inc.)~~

Statement of Consolidated Comprehensive Income (unaudited)

(U.S. dollars in millions)

First quarter ended
March 31,
2020 2019
Net income $ 215 $ 187
Other comprehensive (loss) income, net of tax (I):
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits 37 40
Foreign currency translation adjustments (65) 26
Net change in unrealized gains on available-for-sale securities 1 3
Net change in unrecognized gains/losses on cash flow hedges (13) 7
Total Other comprehensive (loss) income, net of tax (40) 76
Comprehensive income $ 175 $ 263


	First quarter ended
	March 31,
	2021		2020
Net income	$	80	$	215
Other comprehensive income (loss), net of tax (J):
Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits	42		37
Foreign currency translation adjustments	(44)		(65)
Net change in unrealized gains on debt securities	0		1
Net change in unrecognized gains (losses) on cash flow hedges	4		(13)
Total Other comprehensive income (loss), net of tax	2		(40)
Comprehensive income	$	82	$	175

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

Howmet Aerospace Inc. and subsidiaries ~~(formerly known as Arconic Inc.)~~

Consolidated Balance Sheet (unaudited)

(U.S. dollars in millions)


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	2,591	$	1,648	Cash and cash equivalents	$	1,238	$	1,610
Receivables from customers, less allowances of $2 in 2020 and $3 in 2019 (J)		1,290		967
Other receivables (J)		244		484
Inventories (K)		2,512		2,429
Receivables from customers, less allowances of $1 in 2021 and $1 in 2020 (K)						Receivables from customers, less allowances of $1 in 2021 and $1 in 2020 (K)	339		328
Other receivables (K)						Other receivables (K)	96		29
Inventories (L)						Inventories (L)	1,453		1,488
Prepaid expenses and other current assets	Prepaid expenses and other current assets	311		314		Prepaid expenses and other current assets	202		217

Total current assets	Total current assets	6,948		5,842		Total current assets	3,328		3,672
Properties, plants, and equipment, net (L)		5,358		5,463
Goodwill (C)		4,457		4,493
Properties, plants, and equipment, net (M)						Properties, plants, and equipment, net (M)	2,524		2,592
Goodwill (D)						Goodwill (D)	4,086		4,102
Deferred income taxes	Deferred income taxes	553		608		Deferred income taxes	227		272
Intangibles, net	Intangibles, net	647		658		Intangibles, net	563		571
Other noncurrent assets (M)		502		514
Other noncurrent assets (N)						Other noncurrent assets (N)	243		234

Total assets	Total assets	$	18,465	$	17,578	Total assets	$	10,971	$	11,443
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable, trade	Accounts payable, trade	$	1,799	$	2,043	Accounts payable, trade	$	596	$	599
Accrued compensation and retirement costs	Accrued compensation and retirement costs	323		432		Accrued compensation and retirement costs	171		205
Taxes, including income taxes	Taxes, including income taxes	88		87		Taxes, including income taxes	93		102
Accrued interest payable	Accrued interest payable	102		112		Accrued interest payable	88		89
Other current liabilities (M)		453		418
Short-term debt (N)		1,342		1,034
Other current liabilities (N)						Other current liabilities (N)	243		289
Short-term debt (O)						Short-term debt (O)	489		376

Total current liabilities	Total current liabilities	4,107		4,126		Total current liabilities	1,680		1,660
Long-term debt, less amount due within one year (N and O)		5,777		4,906
Accrued pension benefits (F)		2,389		2,460
Accrued other postretirement benefits (F)		700		714
Other noncurrent liabilities and deferred credits (M)		695		751
Long-term debt, less amount due within one year (O and P)						Long-term debt, less amount due within one year (O and P)	4,224		4,699
Accrued pension benefits (G)						Accrued pension benefits (G)	941		985
Accrued other postretirement benefits (G)						Accrued other postretirement benefits (G)	159		198
Other noncurrent liabilities and deferred credits (N)						Other noncurrent liabilities and deferred credits (N)	305		324

Total liabilities	Total liabilities	13,668		12,957		Total liabilities	7,309		7,866
Contingencies and commitments (Q)
Contingencies and commitments (R)						Contingencies and commitments (R)	0		0
Equity	Equity					Equity
Howmet Aerospace shareholders’ equity:	Howmet Aerospace shareholders’ equity:					Howmet Aerospace shareholders’ equity:
Preferred stock	Preferred stock	55		55		Preferred stock	55		55
Common stock	Common stock	436		433		Common stock	434		433
Additional capital	Additional capital	7,326		7,319		Additional capital	4,671		4,668
Retained earnings	Retained earnings	335		129		Retained earnings	443		364
Accumulated other comprehensive loss (I)		(3,369)		(3,329)
Total Howmet Aerospace shareholders’ equity		4,783		4,607
Noncontrolling interests		14		14
Accumulated other comprehensive loss (J)						Accumulated other comprehensive loss (J)	(1,941)		(1,943)

Total equity	Total equity	4,797		4,621		Total equity	3,662		3,577
Total liabilities and equity	Total liabilities and equity	$	18,465	$	17,578	Total liabilities and equity	$	10,971	$	11,443

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

Howmet Aerospace Inc. and subsidiaries ~~(formerly known as Arconic Inc.)~~

Statement of Consolidated Cash Flows (unaudited)

(U.S. dollars in millions)


		Three months ended							First quarter ended
		March 31,							March 31,
		2020		2019			2021		2020
Operating activities	Operating activities					Operating activities
Net income	Net income	$	215	$	187	Net income	$	80	$	215
Adjustments to reconcile net income to cash used for operations:	Adjustments to reconcile net income to cash used for operations:					Adjustments to reconcile net income to cash used for operations:
Depreciation and amortization	Depreciation and amortization	129		137		Depreciation and amortization	68		129
Deferred income taxes	Deferred income taxes	19		8		Deferred income taxes	10		19
Restructuring and other charges	Restructuring and other charges	21		12		Restructuring and other charges	9		21
Net loss from investing activities—asset sales	Net loss from investing activities—asset sales	2		2		Net loss from investing activities—asset sales	3		2
Net periodic pension benefit cost (F)		26		29
Net periodic pension benefit cost (G)						Net periodic pension benefit cost (G)	4		26
Stock-based compensation	Stock-based compensation	13		10		Stock-based compensation	6		13
Other	Other	25		11		Other	14		25
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:	Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:					Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
(Increase) in receivables		(210)		(489)
(Increase) in inventories		(136)		(118)
(Increase) in prepaid expenses and other current assets		(2)		(14)
(Decrease) increase in accounts payable, trade		(215)		65
(Decrease) in accrued expenses		(173)		(69)
Increase in receivables						Increase in receivables	(144)		(210)
Decrease (increase) in inventories						Decrease (increase) in inventories	20		(136)
Decrease (increase) in prepaid expenses and other current assets						Decrease (increase) in prepaid expenses and other current assets	23		(2)
Increase (decrease) in accounts payable, trade (A)						Increase (decrease) in accounts payable, trade (A)	26		(132)
Decrease in accrued expenses						Decrease in accrued expenses	(92)		(173)
Increase in taxes, including income taxes	Increase in taxes, including income taxes	90		47		Increase in taxes, including income taxes	12		90
Pension contributions	Pension contributions	(56)		(55)		Pension contributions	(29)		(56)
(Increase) in noncurrent assets		—		(1)
(Decrease) in noncurrent liabilities		(39)		(20)
Increase in noncurrent assets						Increase in noncurrent assets	(2)		0
Decrease in noncurrent liabilities						Decrease in noncurrent liabilities	(14)		(39)
Cash used for operations	Cash used for operations	(291)		(258)		Cash used for operations	(6)		(208)
Financing Activities	Financing Activities					Financing Activities
Net change in short-term borrowings (original maturities of three months or less)	Net change in short-term borrowings (original maturities of three months or less)	2		1		Net change in short-term borrowings (original maturities of three months or less)	(2)		2
Additions to debt (original maturities greater than three months) (N)		1,200		150
Payments on debt (original maturities greater than three months)		—		(151)
Debt issuance costs		(45)		—
Additions to debt (original maturities greater than three months) (B)						Additions to debt (original maturities greater than three months) (B)	0		1,200
Payments on debt (original maturities greater than three months) (O)						Payments on debt (original maturities greater than three months) (O)	(361)		0
Debt issuance costs (B)(O)						Debt issuance costs (B)(O)	(1)		(45)

Proceeds from exercise of employee stock options	Proceeds from exercise of employee stock options	30		1		Proceeds from exercise of employee stock options	8		30
Dividends paid to shareholders	Dividends paid to shareholders	(9)		(29)		Dividends paid to shareholders	0		(9)
Repurchase of common stock		—		(700)

Other	Other	(33)		(13)		Other	(12)		(33)
Cash provided from (used for) financing activities		1,145		(741)
Cash (used for) provided from financing activities						Cash (used for) provided from financing activities	(368)		1,145
Investing Activities	Investing Activities					Investing Activities
Capital expenditures		(69)		(168)
Proceeds from the sale of assets and businesses (P)		114		4
Sales of investments		—		47
Cash receipts from sold receivables (J)		48		160
Capital expenditures (A)(D)						Capital expenditures (A)(D)	(55)		(152)
Proceeds from the sale of assets and businesses (B)						Proceeds from the sale of assets and businesses (B)	0		114

Cash receipts from sold receivables (K)						Cash receipts from sold receivables (K)	57		48
Other	Other	1		(1)		Other	1		1
Cash provided from investing activities	Cash provided from investing activities	94		42		Cash provided from investing activities	3		11
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(8)		1		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		(8)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	940		(956)		Net change in cash, cash equivalents and restricted cash	(372)		940
Cash, cash equivalents and restricted cash at beginning of year		1,703		2,282
Cash, cash equivalents and restricted cash at beginning of period						Cash, cash equivalents and restricted cash at beginning of period	1,611		1,703
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	2,643	$	1,326	Cash, cash equivalents and restricted cash at end of period	$	1,239	$	2,643

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

Howmet Aerospace Inc. and subsidiaries ~~(formerly known as Arconic Inc.)~~

Statement of Changes in Consolidated Equity (unaudited)

(U.S. dollars in millions, except per-share amounts)

Howmet Aerospace Shareholders
Preferred
stock Common
stock Additional
capital Accumulated deficit Accumulated
other
comprehensive
loss Noncontrolling
interests Total
Equity
Balance at December 31, 2018 $ 55 $ 483 $ 8,319 $ (358) $ (2,926) $ 12 $ 5,585
Adoption of accounting standards (I and M)
— — — 75 (2) — 73
Net income — — — 187 — — 187
Other comprehensive income (I)
— — — — 76 — 76
Cash dividends declared:
Preferred-Class A @ $0.9375 per share — — — (1) — — (1)
Common @ $0.08 per share — — — (38) — — (38)
Stock-based compensation — — 8 — — — 8
Common stock issued: compensation plans — 2 (15) — — — (13)
Repurchase and retirement of common stock — (32) (668) — — — (700)
Other — — — 1 — — 1
Balance at March 31, 2019 $ 55 $ 453 $ 7,644 $ (134) $ (2,852) $ 12 $ 5,178


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling Interests		Total Equity
Balance at December 31, 2019	$	55	$	433	$	7,319	$	113	$	(3,329)	$	14	$	4,605

Net income	—		—		—		215		—		—		215
Other comprehensive loss (J)	—		—		—		—		(40)		—		(40)

Cash dividends declared:
Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—		—		(1)
Common @ $0.02 per share	—		—		—		(8)		—		—		(8)
Stock-based compensation	—		—		13		—		—		—		13
Common stock issued: compensation plans	—		3		(6)		—		—		—		(3)



Balance at March 31, 2020	$	55	$	436	$	7,326	$	319	$	(3,369)	$	14	$	4,781


		Howmet Aerospace Shareholders																					Howmet Aerospace Shareholders
		Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity			Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at December 31, 2019		$	55	$	433	$	7,319	$	129	$	(3,329)	$	14	$	4,621
Balance at December 31, 2020																Balance at December 31, 2020	$	55	$	433	$	4,668	$	364	$	(1,943)	$	3,577

Net income	Net income	—		—		—		215		—		—		215		Net income	—		—		—		80		—		80
Other comprehensive loss (I)		—		—		—		—		(40)		—		(40)
Other comprehensive income (J)																Other comprehensive income (J)	—		—		—		—		2		2
Cash dividends declared:	Cash dividends declared:															Cash dividends declared:
Preferred-Class A @ $0.9375 per share	Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—		—		(1)		Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—		(1)
Common @ $0.02 per share		—		—		—		(8)		—		—		(8)

Stock-based compensation	Stock-based compensation	—		—		13		—		—		—		13		Stock-based compensation	—		—		6		—		—		6
Common stock issued: compensation plans	Common stock issued: compensation plans	—		3		(6)		—		—		—		(3)		Common stock issued: compensation plans	—		1		(3)		—		—		(2)

Balance at March 31, 2020		$	55	$	436	$	7,326	$	335	$	(3,369)	$	14	$	4,797

Balance at March 31, 2021																Balance at March 31, 2021	$	55	$	434	$	4,671	$	443	$	(1,941)	$	3,662

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

Howmet Aerospace Inc. and subsidiaries ~~(formerly known as Arconic Inc.)~~

Notes to the Consolidated Financial Statements (unaudited)

(U.S. dollars in millions, except per-share amounts)

A. Basis of Presentation

The interim Consolidated Financial Statements of Howmet Aerospace Inc. (formerly known as Arconic Inc.) and ~~its~~ subsidiaries (“Howmet” or the “Company”) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The ~~2019~~2020 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). This Form 10-Q report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period ~~presentation (see Note~~ C).presentation.

The separation of Arconic Inc. into 2 standalone, publicly-traded companies, Howmet Aerospace Inc. and Arconic Corporation, (the “Arconic Inc. Separation Transaction”) ~~became effective~~occurred on April 1, ~~2020 (see Note~~ R).

2020. The ~~accompanying unaudited, interim Consolidated Financial Statements include the historical~~financial results of Arconic Corporation asfor all periods prior to the Arconic Inc. Separation Transaction ~~did not take place until April 1, 2020, after~~have been retrospectively reflected in the ~~most recent period reported in this Form 10-Q. In future filings, the historical results~~Statement of ~~the businesses that comprise Arconic Corporation will be presented~~Consolidated Operations as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The cash flows, comprehensive income, and equity related to Arconic Corporation have not been segregated and are included in ~~Howmet’s~~the Statement of Consolidated ~~Financial Statements. As a result~~Cash Flows, Statement of Consolidated Comprehensive Income and Statement of Changes in Consolidated Equity, respectively, for all periods prior to the Arconic Inc. Separation Transaction. See Note B for additional information related to the Arconic Inc. Separation Transaction and discontinued operations.

In the ~~accompanying unaudited, interim Consolidated Financial Statements are not indicative~~first quarter of 2021 and 2020, the ~~Company’s future financial position, results of operations or cash flows.~~

~~The~~ Company ~~derives a significant portion~~derived approximately 60% and 73%, respectively, of its revenue from products sold to the aerospace ~~end-market, including 71% of the Engineered Products and Forgings reportable segment.~~end-market. As a result of the global ~~pandemic~~ coronavirus (“COVID-19”) pandemic and its impact on the aerospace industry to-date, the possibility exists that there could be a sustained impact to our operations and financial results. ~~Certain~~Since the start of the pandemic, certain original equipment manufacturer (“OEM”) customers have reduced production or suspended manufacturing operations in North America and Europe on a temporary basis. ~~These suspensions,~~While the ~~duration of which is uncertain, are impacting operations at certain of our facilities resulting~~pandemic has resulted in the temporary closure of a small number of the Company's manufacturing ~~facilities. As a result,~~facilities during 2020, all of our manufacturing facilities are currently operating. Since the ~~Company~~duration of the pandemic is ~~taking~~uncertain, management has taken a series of actions to address the financial impact, including announcing certain headcount reductions and reducing ~~certain cash outflows by suspending dividends on common stock and reducing~~ the ~~levels~~level of ~~its~~ capital expenditures to preserve cash and maintain liquidity.

The preparation of the Consolidated Financial Statements of the Company in conformity with GAAP requires management to make certain judgments, estimates, and assumptions. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience, including considerations relating to the impact of COVID-19. The impact of COVID-19 is rapidly changing and of unknown duration and macroeconomic impact and as a result, these considerations remain highly uncertain. ~~We have~~Management has made ~~our~~its best estimates using all relevant information available at the time, but it is possible that our estimates will differ from our actual results and affect the Consolidated Financial Statements in future periods and potentially require adverse adjustments to the recoverability toof goodwill, intangible and long-lived assets, the realizability of deferred tax assets and other ~~judgements~~judgments and estimations and assumptions that may be impacted by COVID-19.

~~B. Recently Adopted and Recently Issued Accounting Guidance~~

~~Adopted~~

~~On January 1, 2020, the Company adopted changes issued by the~~ ~~Financial Accounting Standards Board ("FASB") related to the impairment model for expected credit losses.~~ The new impairment model (known as the current expected credit loss ("CECL") model) is based on expected losses rather than incurred losses. The Company recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments and requires the measurement of expected credit losses on assets including those that have a low risk of loss. The adoption of this new guidance did not have a material impact on the Consolidated Financial Statements.

~~Issued~~

In August 2018, the FASB issued guidance that impacts disclosures for defined benefit pension plans and other postretirement benefit plans. These changes become effective for the Company's 2020 annual report. Management has determined that the adoption of this guidance will not have a material impact on the Consolidated Financial Statements and plans to adopt for the 2020 annual report.

In December 2019, the FASB issued guidance that is intended to simplify various aspects related to the accounting for income taxes. These changes become effective on January 1, 2021, with early adoption permitted. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements and plans to adopt on January 1, 2021.

In March 2020, the FASB issued amendments that provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

~~C. Segment Information~~

In the third quarter of 2019, the Company realigned its operations by eliminating its Transportation and Construction Solutions (TCS) segment and transferring the Forged Wheels business to its Engineered Products and Forgings ("EP&F") segment and the Building and Construction Systems ("BCS") business to its Global Rolled Products ("GRP") segment, consistent with how the Chief Executive Officer was assessing operating performance and allocating capital in conjunction with the Arconic Inc. Separation Transaction (see Note R~~). Prior period financial information has been recast to conform to current year presentation.~~

~~Engineered Products and Forgings.~~ This segment produces products that are used primarily in the aerospace (commercial and defense), industrial, commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys) and seamless rolled rings (mostly nickel superalloys); investment castings (nickel superalloys, titanium, and aluminum), including airfoils; forged jet engine components (e.g., jet engine disks); extruded, machined and forged aircraft parts (titanium and aluminum); and forged aluminum commercial vehicle wheels, all of which are sold directly to customers and through distributors.

~~Global Rolled Products.~~ This segment produces aluminum sheet and plate, aluminum extruded and machined parts, integrated aluminum structural systems, and architectural extrusions used in the automotive, aerospace, building and construction, industrial, packaging, and commercial transportation end markets. Products are sold directly to customers and through distributors. While the customer base for flat-rolled products is large, a significant amount of sales of sheet and plate are to a relatively small number of customers. This segment became part of Arconic Corporation as part of the Arconic Inc. Separation Transaction on April 1, 2020.

~~The Company will continue to evaluate its organizational structure and portfolio in conjunction with the Arconic Inc. Separation Transaction (see Note~~ R~~), which may result in further changes to its reportable segments and the need to evaluate goodwill and long-lived assets for impairment in future periods.~~

~~Goodwill.~~ The Company had $4,457 of Goodwill at March 31, 2020 and we review it for impairment annually in the fourth quarter or more frequently if indicators exist or if a decision is made to sell or realign a business.

~~On January 1, 2020, management transferred the Savannahbusiness from Engine Products to Engineered Structures within the Engineered Products and Forgings segment, based on synergies with forgings technologies and manufacturing capabilities.~~ As ~~a result of the reorganization, goodwill of $17 was reallocated from Engine Products to Engineered Structures, and these reporting units were evaluated for impairment~~previously disclosed, during the first quarter of 2020. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was no goodwill impairment at the date the business was transferred.

During the first quarter of 2020, Howmet’s market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, sales globally to customers in the aerospace and commercial transportation industries that are impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this assessment, the Company performed a quantitative impairment test for the Engineered Structures reporting unit and concluded that though the margin between the fair value of the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not impaired. Consistent with prior practice, a discounted cash flow model was used to estimate the current fair value of the reporting unit. The significant assumptions and estimates utilized to determine fair value were developed utilizing current market and forecast information reflecting the disruption in demand that has and is expected to negatively impact the Company’s sales globally in the aerospace industry. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and could be material.

~~The operating results of the Company’s reportable segments were as follows:~~

Engineered Products and Forgings Global Rolled Products Total
Segment
First quarter ended March 31, 2020
Sales:
Third-party sales $ 1,631 $ 1,578 $ 3,209
Intersegment sales — 35 35
Total sales $ 1,631 $ 1,613 $ 3,244
Profit and loss:
Segment operating profit $ 339 $ 169 $ 508
Restructuring and other charges (credits) 34 (18) 16
Provision for depreciation and amortization 65 57 122
Capital expenditures 36 22 58
First quarter ended March 31, 2019
Sales:
Third-party sales $ 1,756 $ 1,784 $ 3,540
Intersegment sales — 52 52
Total sales $ 1,756 $ 1,836 $ 3,592
Profit and loss:
Segment operating profit $ 313 $ 135 $ 448
Restructuring and other charges 18 11 29
Provision for depreciation and amortization 71 59 130
Capital expenditures 117 39 156

~~The following table reconciles Total segment operating profit to Consolidated income before income taxes:~~

First quarter ended
March 31,
2020 2019
Total segment operating profit $ 508 $ 448
Unallocated amounts:
Restructuring and other charges (21) (12)
Corporate expense (88) (62)
Consolidated operating income $ 399 $ 374
Interest expense (91) (85)
Other expense, net (17) (32)
Consolidated income before income taxes $ 291 $ 257

~~The following table disaggregates revenue by major end market served. Differences between segment and consolidated totals are in Corporate.~~

Engineered
Products and
Forgings Global Rolled
Products Total
Segment
First quarter ended March 31, 2020
Aerospace $ 1,189 $ 285 $ 1,474
Transportation 256 509 765
Building and construction — 291 291
Industrial and Other 186 493 679
Total end-market revenue $ 1,631 $ 1,578 $ 3,209
First quarter ended March 31, 2019
Aerospace $ 1,250 $ 302 $ 1,552
Transportation 343 649 992
Building and construction — 330 330
Industrial and Other 163 503 666
Total end-market revenue $ 1,756 $ 1,784 $ 3,540

~~D. Restructuring and Other Charges~~

~~In the first~~third quarter of 2020, the Company ~~recorded Restructuring and other charges of $21 ($23 after-tax), which included $22 ($17 after-tax) for layoff costs, including the separation of approximately 460 employees (440~~identified a misclassification in the ~~Engineered Products~~presentation of changes in accounts payable and ~~Forgings segment and 20~~capital expenditures in Corporate); $12 ($12 after-tax) for impairment of assets associated with an agreement to sell an aerospace components business in the U.K.; a $6 ($6 after-tax) post-closing adjustment related to the sale of the Company’s U.K. forgings business; a $6 ($6 after-tax) loss on sale of the Company’s Brazilian rolling mill operations; and a $6 ($6 after-tax) charge for other exit costs related to prior programs; offset by a gain of $27 ($20 after-tax) on the sale of an extrusions business in South Korea; a benefit of $2 ($2 after-tax) related to the reversal of a number of prior period programs; and a gain of $2 ($2 after-tax) on the sale of assets.

In the first quarter of 2019, the Company recorded Restructuring and other charges of $12 ($10 after-tax), which included $65 ($51 after-tax) for layoff costs, including the separation of approximately 800 employees (425 in Corporate, 211 in the Engineered Products and Forgings segment, and 164 in the Global Rolled Products segment); a $2 ($1 after-tax) net charge for executive severance net of the benefit of forfeited executive stock compensation; a pension settlement charge of $2 ($2 after-tax); and $1 ($1 after-tax) for other miscellaneous items; offset by a benefit of $58 ($45 after-tax) related to the elimination of life insurance benefits for U.S. salaried and non-bargained hourly retirees of the Company and its ~~subsidiaries.~~

As of March 31, 2020, NaN of the 460 employees associated with the 2020 restructuring programs were separated. Most of the separations for the 2020 restructuring programs are expected to be completed in 2020. As of March 31, 2020, approximately

1,053 of the 1,310 employees associated with the 2019 restructuring programs were separated. The remaining separations for the 2019 restructuring programs are expected to be completed in 2020. In the first quarter ended March 31, 2020, the Company made cash payments of $7 against layoff reserves related to 2019 restructuring programs.

~~Activity and reserve balances for restructuring and other charges were as follows:~~

Layoff
costs Other exit
costs Total
Reserve balances at December 31, 2018 $ 10 $ 15 $ 25
Cash payments (74) (5) (79)
Restructuring charges 56 574 630
Other⁽¹⁾
39 (581) (542)
Reserve balances at December 31, 2019 31 3 34
Cash payments (7) — (7)
Restructuring charges 20 1 21
Other⁽²⁾
— (2) (2)
Reserve balances at March 31, 2020 $ 44 $ 2 $ 46

⁽¹⁾In 2019, Other for layoff costs included reclassifications of a $58 credit for elimination of life insurance benefits for U.S. salaried and non-bargaining hourly retirees, a charge of $9 for pension plan settlement accounting, as the impacts were reflected in the Company's separate liabilities for Accrued pension benefits and Accrued postretirement benefits and reversals of previously ~~recorded restructuring charges of $10.~~

In 2019, Other for other exit costs included a charge of $428 for impairment of the Disks long-lived asset group; a charge of $112 for impairment of assets associated with agreement to sell the Company’s Brazilian rolling mill operations, the U.K. forgings business, and a small additive business; a charge of $25 for impairment of properties, plants, and equipment related to the Company’s primary research and development facility and a trade name intangible asset; a charge of $12 for lease terminations; a charge of $9 for accelerated depreciation as the impacts were primarily reflected in various noncurrent asset accounts; a charge of $5 related to the impairment of a cost method investment of the GRP segment, and a charge of $1 related to other miscellaneous items; partially offset by a gain of $20 related to contingent consideration from the Texarkana sale. Additionally, Other included the reclassification of $9 in lease exit costs to reduce right-of-use assets within Other noncurrent assets in accordance with the new lease accounting standard.

⁽²⁾In 2020, Other for other exit costs included a gain of $27 on sale of the Company’s extrusions business in South Korea; a gain of $2 on the sale of assets; a charge of $12 for impairment of assets associated with an agreement to sell an aerospace component business in the U.K., a $6 post-closing adjustment related to the sale of the Company’s U.K. forgings business; a $6 loss on the sale of the Company’s Brazilian rolling mill operations; and a $3 charge for other exit costs.

~~The remaining reserves are expected to be paid in cash during 2020.~~

~~E. Other Expense, Net~~

First quarter ended
March 31,
2020 2019
Non-service related net periodic benefit cost $ 25 $ 29
Interest income (4) (10)
Foreign currency losses, net 11 —
Net loss from asset sales 2 2
Other, net (17) 11
$ 17 $ 32

Other, net included the impacts of deferred compensation arrangements of $16 related to investment performance which were favorable in the first quarter of 2020, but unfavorable of $10 in the first quarter of 2019.

~~F. Pension and Other Postretirement Benefits~~

~~The components of net periodic benefit cost were as follows:~~

First quarter ended
March 31,
2020 2019
Pension benefits
Service cost $ 7 $ 7
Interest cost 47 59
Expected return on plan assets (70) (72)
Recognized net actuarial loss 42 35
Settlements — 2
Net periodic benefit cost⁽¹⁾
$ 26 $ 31
Other postretirement benefits
Service cost $ 1 $ 2
Interest cost 6 7
Recognized net actuarial loss 2 1
Amortization of prior service cost (benefit) (2) (1)
Curtailments — (58)
Net periodic benefit cost⁽¹⁾
$ 7 $ (49)

⁽¹⁾Service cost was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development expenses; settlements and curtailments were included in Restructuring and other charges; and all other cost components were recorded in Other expense, net in theissued Statement of Consolidated ~~Operations.~~

In the first quarter of 2019, the Company communicated to plan participants that for its U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries, it would eliminate the life insurance benefit effective May 1, 2019, and certain health care subsidies effective December 31, 2019. As a result of these changes, in the first quarter of 2019, the Company recorded a decrease to the Accrued other postretirement benefits liability of $75, which was offset by a curtailment benefit of $58 in Restructuring and other charges and $17 in Accumulated other comprehensive loss.

In the first quarter of 2019, the Company applied settlement accounting to U.S. pension plans due to lump sum payments to participants which resulted in settlement charges of $2 that were recorded in Restructuring and other charges.

~~G. Income Taxes~~

The Company’s year-to-date tax provision is comprised of the most recent estimated annual effective tax rate applied to year-to-date pre-tax ordinary income. The tax impacts of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur. In addition, the tax provision is adjusted for the interim period impact of non-benefited pre-tax losses.

For the first quarter of 2020 and 2019, the estimated annual effective tax rate, before discrete items, applied to ordinary income was 27.9% and 25.9%, respectively. The rate in each period was higher than the U.S. federal statutory rate of 21% primarily due to additional estimated U.S. tax on Global Intangible Low-Taxed Income, state income taxes, and foreign income taxed in higher rate jurisdictions. The 2020 estimated annual effective tax rate was also higher due to tax expense resulting from non-deductible transaction costs and restructuring related capital gains associated with the Arconic Inc. Separation Transaction.

For the first quarter of 2020 and 2019, the tax rate including discrete items was 26.1% and 27.2%, respectively, and included a discrete tax benefit of $8 related primarily to stock compensation in the first quarter of 2020 and a discrete tax charge of $1 related to other items in the first quarter of 2019.

~~The tax provisions~~Cash Flows for the first quarter ended March 31, 2020 and ~~2019 were comprised~~six months ended June 30, 2020. Although management has determined that such misclassification did not materially misstate the Statement of ~~the following:~~

First quarter ended
March 31,
2020 2019
Pre-tax income at estimated annual effective income tax rate before discrete items $ 81 $ 67
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized 3 2
Other discrete items (8) 1
Provision for income taxes $ 76 $ 70

~~H. Earnings Per Share~~

Basic earnings per share ("EPS") amounts are computed by dividing earnings, after the deduction of preferred stock dividends declared, by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive share equivalents outstanding.

~~The information used to compute basic and diluted EPS attributable to the Company's common shareholders was as follows (shares in millions):~~

First quarter ended
March 31,
2020 2019
Net income $ 215 $ 187
Less: preferred stock dividends declared (1) (1)
Net income available to the Company's common shareholders - basic 214 186
Add: Interest expense related to convertible notes — 4
Net income available to the Company's common shareholders - diluted $ 214 $ 190
Average shares outstanding - basic 435 471
Effect of dilutive securities:
Stock options 1 —
Stock and performance awards 4 4
Convertible notes⁽¹⁾
— 14
Average shares outstanding - diluted 440 489

⁽¹⁾The convertible notes matured on October 15, 2019. No shares of the Company’s common stock were issued in connection with the maturity or the final conversion of the convertible notes. As of October 15, 2019, the calculation of average diluted shares outstanding ceased to include the approximately 15 million shares of common stock and the corresponding interest expense previously attributable to the convertible notes.

Common stock outstanding at March 31, 2020 and 2019 was 436 and 453, respectively. The decrease in common stock outstanding at March 31, 2020 was primarily due to the impact of share repurchases of 55 in 2019. As average shares outstanding are used in the calculation for both basic and diluted EPS, the full impact of share repurchases was not realized in EPS in the first quarter ended March 31, 2019, as the share repurchases occurred at varying points during 2019.

~~The following shares were excluded from the calculation of average shares outstanding – diluted as their effect was anti-dilutive (shares in millions).~~

First quarter ended
March 31,
2020 2019
Stock options⁽¹⁾
4 8

⁽¹⁾~~The average exercise price per share of options was $27.65~~Consolidated Cash Flows for the first quarter ended March 31, 2020 ~~and $26.67 for~~or six months ended June 30, 2020, the Company revised the first quarter, ~~ended March 31, 2019.~~

~~I. Accumulated Other Comprehensive Loss~~

~~The following table details the activity of the four components that comprise Accumulated other comprehensive loss:~~

First quarter ended
March 31,
2020 2019
Pension and other postretirement benefits (F)
Balance at beginning of period $ (2,732) $ (2,344)
Other comprehensive income:
Unrecognized net actuarial loss and prior service cost/benefit 1 72
Tax expense — (16)
Total Other comprehensive income before reclassifications, net of tax 1 56
Amortization of net actuarial loss and prior service cost⁽¹⁾
43 (21)
Tax (expense) benefit ⁽²⁾
(7) 5
Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽³⁾
36 (16)
Total Other comprehensive income 37 40
Balance at end of period $ (2,695) $ (2,304)
Foreign currency translation
Balance at beginning of period $ (596) $ (583)
Foreign currency translation (79) 26
Net amount reclassified from Accumulated other comprehensive loss⁽⁴⁾
14 —
Other comprehensive (loss) income (65) 26
Balance at end of period $ (661) $ (557)
Available-for-sale securities
Balance at beginning of period $ — $ (3)
Other comprehensive income⁽⁵⁾
1 3
Balance at end of period $ 1 $ —
Cash flow hedges
Balance at beginning of period $ (1) $ 4
Adoption of accounting standards — (2)
Other comprehensive (loss) income:
Net change from periodic revaluations (11) 8
Tax expense (1) (1)
Total Other comprehensive loss (income) before reclassifications, net of tax (12) 7
Net amount reclassified to earnings (1) —
Tax expense⁽²⁾
— —
Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽³⁾
(1) —
Total Other comprehensive (loss) income (13) 7
Balance at end of period $ (14) $ 9
Accumulated other comprehensive loss $ (3,369) $ (2,852)

⁽¹⁾~~These amounts were recorded~~resulting in ~~Other expense, net (see Note~~ E).

⁽²⁾~~These amounts were included in Provision for income taxes on the accompanying Statement of Consolidated Operations.~~

⁽³⁾~~A positive amount indicates~~an $83 increase to previously reported capital expenditures and decrease to cash provided from investing activities with a corresponding ~~charge to earnings~~reduction (decrease) in accounts payable, trade and ~~a negative amount indicates a corresponding benefit to earnings.~~increase in cash provided by operations.

⁽⁴⁾~~Foreign currency translation charges were included~~Also as previously disclosed, in ~~Restructuring and other charges on~~ the ~~accompanying Statement of Consolidated Operations due to the sale of foreign entities.~~

⁽⁵⁾~~Realized gains and losses were included in Other expense, net on the accompanying Statement of Consolidated Operations.~~

~~J. Receivables~~

The Company has an arrangement with financial institutions to sell certain customer receivables without recourse on a revolving basis ("Receivables Sale Program"). The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is a consolidated subsidiary of the Company. This arrangement historically provided up to a maximum funding of $400 for receivables sold. The Company maintains a beneficial interest, or a right to collect cash, on the sold receivables that have not been funded (deferred purchase program receivable). In the firstthird quarter of 2020, a $16 deferred tax error was identified related to periods prior to 2018. Although management determined it was not material to any periods, the Company ~~entered into an amendment to remove subsidiaries~~has revised its Statement of ~~the GRP business from the sale of receivables program~~Changes in preparation for the Arconic Inc. Separation Transaction and repurchased the remaining $282 unpaid receivables of GRP customers in a non-cash transaction by reducing the amount of the deferred purchase program receivable. This amendment also reduced the maximum funding for receivables sold to $300.

On March 30, 2012, the Company initially sold $304 of customer receivables in exchange for $50 in cash and $254 of deferred purchase program receivable under the arrangement. The Company has received additional net cash funding of $248 ($3,656 in draws and $3,408 in repayments) since the program’s inception, including net cash repayments totaling $52 ($98 in draws and $150 in repayments)Consolidated Equity for the three months ended March 31, ~~2020.~~

~~As of March 31,~~ 2020 and ~~December 31, 2019,~~will revise the ~~deferred purchase program receivable was $65~~three and ~~$246, respectively, which was included in Other receivables on~~six months ended June 30, 2020 to present the ~~accompanying Consolidated Balance Sheet. The deferred purchase program receivable is reduced~~correction as ~~collections of the underlying receivables occur; however, as this is~~ a revolving program, the sale of new receivables will result in an increase in the deferred purchase program receivable. The Company services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.

Cash receipts from customer payments on sold receivables (which are cash receipts on the underlying trade receivables that have been previously sold in this program) as well as cash receipts and cash disbursements from draws and repayments under the program are presented as cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash Flows.

On April 14, 2020, the Company’s credit rating was downgraded by Moody’s Investors Service, Inc., which resulted in a termination event under the provisions of the Receivables Sale Program agreement for which a waiver was obtained. This termination event under the Receivables Sale Program is not an event of default under the Company’s other financing and commercial agreements, including the Credit Agreement. On May 5, 2020, an amendmentreduction to ~~the Receivables Sale Program was executed that cured the termination event.~~

~~Other Customer Receivable Sales~~

In the first quarter of 2020, the Company also sold $31 of customer receivables in exchange for cash, the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows.

~~K. Inventories~~

March 31, 2020 December 31, 2019
Finished goods $ 723 $ 671
Work-in-process 1,352 1,316
Purchased raw materials 339 343
Operating supplies 98 99
Total inventories $ 2,512 $ 2,429

At March 31, 2020 and December 31, 2019, the portion of inventories valued on a last-in, first-out (LIFO) basis was $1,295 and $1,257, respectively. If valued on an average-cost basis, total inventories would have been $423 and $445 higher at March 31, 2020 and December 31, 2019, respectively.

~~L. Properties, Plants, and Equipment, net~~

March 31, 2020 December 31, 2019
Land and land rights $ 118 $ 128
Structures 2,468 2,385
Machinery and equipment 9,364 9,293
11,950 11,806
Less: accumulated depreciation and amortization 6,966 7,074
4,984 4,732
Construction work-in-progress 374 731
Properties, plants, and equipment, net $ 5,358 $ 5,463

~~M. Leases~~

~~Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $34 and $37 in the first quarter of 2020 and 2019, respectively.~~

~~Operating lease right-of-use assets and lease liabilities in the Consolidated Balance Sheet were as follows:~~

March 31, 2020 December 31, 2019
Right-of-use assets classified in Other noncurrent assets $ 242 $ 252
Current portion of lease liabilitiesclassified in Other current liabilities
70 71
Long-term portion of lease liabilities classified in Other noncurrent liabilities and deferred credits 188 194
Total lease liabilities $ 258 $ 265

~~Future minimum contractual operating lease obligations were as follows:~~

March 31, 2020 December 31, 2019
2020 $ 63 $ 81
2021 66 62
2022 51 46
2023 36 34
2024 25 24
Thereafter 68 70
Total lease payments $ 309 $ 317
Less: Imputed interest (51) (52)
Present value of lease liabilities $ 258 $ 265

Right-of-use assets obtained in exchange for operating lease obligations in the first quarter ended March 31, 2020 and 2019 were $14 and $6, respectively. The weighted-average remaining lease term at March 31, 2020 and 2019 was 6 years. The weighted-average discount rate at March 31, 2020 and 2019 was 5.8% and 6.2%, respectively.

On October 31, 2018, the Company sold its Texarkana, Texas rolling mill and cast house which were accounted for separately. The Company had continuing involvement related to the lease back of the cast house. As a result, in 2018, the Company continued to treat the cast house assets that it sold to Ta Chen as owned at December 31, 2018. In conjunction with the adoption of the new lease accounting standard on January 1, 2019, the Company's continuing involvement no longer required deferral of the recognition of the cast house sale. As such, the associated $73 deferred gain related to the cast house was recorded in Retained earnings as ~~a cumulative effect~~ of ~~an accounting change in the first quarter of~~December 31, 2019.

~~N. Debt~~

March 31, 2020 December 31, 2019
6.150% Notes, due 2020 1,000 1,000
5.400% Notes due 2021 1,250 1,250
5.870% Notes, due 2022 627 627
5.125% Notes, due 2024 1,250 1,250
5.900% Notes, due 2027 625 625
6.750% Bonds, due 2028 300 300
5.950% Notes, due 2037 625 625
4.750% Iowa Finance Authority Loan, due 2042 250 250
Term Loan, due 2027⁽¹⁾
600 —
6.125% Notes, due 2028⁽¹⁾
600 —
Other⁽²⁾
(41) (18)
7,086 5,909
Less: amount due within one year 1,309 1,003
Total long-term debt $ 5,777 $ 4,906

⁽¹⁾~~This debt was issued by Arconic Corporation as part of the Arconic Inc. Separation Transaction.~~

⁽²⁾~~Includes various financing arrangements related to subsidiaries, unamortized debt discounts related to outstanding notes and bonds listed in the table above and unamortized debt issuance costs.~~

~~Public Debt.~~

On February 7, 2020, Arconic Corporation, which was a wholly-owned subsidiary of the Company, completed an offering of $600 aggregate principal amount of 6.125% senior secured second-lien notes due 2028 (the "6.125% Notes").

~~On March 25, 2020, Arconic Corporation entered into a credit agreement (the "Arconic Corporation Credit Agreement"), which provided for a $600 aggregate principal amount~~ ~~seven~~-year, senior secured first-lien term loan B facility (the "Term Loan") and the Revolving Credit Facility (as defined below). Arconic Corporation borrowed the full amount of the Term Loan on the closing date. The Term Loan has a variable interest rate currently based on LIBOR for the relevant interest period plus an applicable margin of 2.75%. The provisions of the Term Loan require a mandatory 1% repayment of $6 each annual period during the seven-year term. The Arconic Corporation Credit Facility is guaranteed by certain of Arconic Corporation’s wholly-owned domestic subsidiaries and secured on a first-priority basis by liens on substantially all assets of Arconic Corporation and the guarantors.

~~Arconic Corporation used the proceeds from the 6.125% Notes and Term Loan to make a payment to the Company to fund the transfer of certain assets to Arconic Corporation relating to the~~B. Arconic Inc. Separation Transaction and ~~for general corporate purposes. Following the Arconic Inc. Separation Transaction, the Company has no obligations under either the 6.125% Notes or the Arconic Corporation Credit Agreement. See Note~~ R.

On April 6, 2020, the Company completed the early redemption of all $1,000 of its 6.150% Notes due 2020 (the "6.150% Notes") and the early partial redemption of $300 of its 5.400% Notes due 2021 (the 5.400% Notes"). Holders of the 6.150% Notes were paid an aggregate of $1,020 and holders of the 5.400% Notes were paid an aggregate of $315, plus accrued and unpaid interest up to, but not including, the redemption date. The Company incurred early termination premium and interest of $35 and $17, respectively, which will be recorded during the second quarter of 2020 ~~in Interest expense, net.~~

On April 16, 2020, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission, which became effective automatically (the “Shelf Registration Statement”). The Shelf Registration Statement allows for offerings of debt securities from time to time.

On April 22, 2020, the Company priced, and on April 24, 2020, the Company completed, an offering of $1,200 aggregate principal amount of 6.875% Notes due 2025, the proceeds of which are to be used to fund the cash tender offers noted below and to pay related transaction fees, including applicable premiums and expenses, with the remaining amount to be used for general corporate purposes. The Company incurred deferred financing costs of $15, which will be recorded during the second quarter of 2020. The offering satisfies the financing condition for the cash tender offers noted below. On April 22, 2020, the Company announced (1) a cash tender offer and consent solicitation for its 5.400% Notes with a maximum aggregate purchase price of up to $785 and (2) a cash tender offer for its 5.870% Notes due 2022 (the “5.870% Notes”) with a maximum aggregate

purchase price of up to $210. As of 5:00 pm on May 5, 2020, which was the early tender deadline for the tender offers, $561 aggregate principal amount of 5.400% Notes and $147 aggregate principal amount of 5.870% Notes had been tendered. The Company has announced that it expects to purchase the notes tendered on the early settlement date on May 7, 2020. On May 6, 2020, the Company increased the amount of maximum aggregate purchase price for its 5.870% Notes from $210 to $300.

The tender cap related to the 5.400% Notes remains unchanged. The Company also announced that it is extending the deadline for receiving the early tender premium in respect of each tender offer through the expiration date of the tender offers, May 20, 2020. The amount of accrued interest and early tender premium associated with the notes accepted for early settlement was $4 and $35, respectively, which will be recorded during the second quarter of 2020 in Interest expense, net.

~~Credit Facilities.~~

~~In March 2020, the Company entered into an amendment to its~~ ~~Five~~-Year Revolving Credit Agreement (the “Credit Agreement”). The amendment was entered into to permit the Arconic Inc. Separation Transaction and to amend certain terms of the Credit Agreement, including a change to the existing financial covenant and reduction of total commitments available from $3,000 to $1,500, effective April 1, 2020 and extended the maturity date from June 29, 2023 to April 1, 2025. The Company will be required to maintain a ratio of Consolidated Net Debt (as defined in the Credit Agreement) to Consolidated EBITDA (as defined in the Credit Agreement) to be no greater than 3.50 to 1.00. There were 0 amounts outstanding at March 31, 2020 or December 31, 2019, and 0 amounts were borrowed during 2020 or 2019 under the Credit Agreement. At March 31, 2020, Howmet was in compliance with all covenants under the Credit Agreement.

~~On March 25, 2020, Arconic Corporation entered into the Arconic Corporation Credit Agreement, which provided for the Term Loan and a $1,000 aggregate principal amount~~ ~~five~~-year, senior secured first-lien revolving credit facility (the “Revolving Credit Facility”), in connection with the Arconic Inc. Separation Transaction. During the three months ended March 31, 2020, there were no borrowings or repayments under this Revolving Credit Facility.

In addition to the Credit Agreement, the Company has a number of other credit agreements that provide a combined borrowing capacity of $250 as of March 31, 2020 which is due to expire in 2020. The purpose of any borrowings under these credit arrangements is to provide for working capital requirements and for other general corporate purposes. The covenants contained in all these arrangements are the same as the Credit Agreement. During the three months ended March 31, 2020, there were no borrowings or repayments under these other credit facilities.

~~O. Fair Value of Financial Instruments~~

The carrying values of Cash and cash equivalents, Restricted cash, Derivatives, Noncurrent receivables, and Short-term debt included in the Consolidated Balance Sheet approximate their fair value. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities that are carried at fair value which is based on quoted market prices which are classified in Level 1 of the fair value hierarchy. The fair value of Long-term debt, less amount due within one year was based on quoted market prices for public debt and on interest rates that are currently available to the Company for issuance of debt with similar terms and maturities for non-public debt. The fair value amounts for all Long-term debt were classified in Level 2 of the fair value hierarchy.

March 31, 2020 December 31, 2019
Carrying
value Fair
value Carrying
value Fair
value
Long-term debt, less amount due within one year $ 5,777 $ 5,636 $ 4,906 $ 5,337

~~Restricted cash was $52 and $55 at March 31, 2020 and December 31, 2019, respectively.~~

~~P. Acquisitions and Divestitures~~

~~2020 Divestitures.~~ On January 31, 2020, the Company reached an agreement to sell a small manufacturing plant in the United Kingdom for $12 in cash, subject to working capital and other adjustments. The operating results and assets and liabilities of this plant are included in the EP&F segment. Subject to regulatory approvals and provided the parties reach agreement regarding customary closing conditions, the Company currently plans to close the sale in the second quarter of 2020. As a result of entering into the agreement to sell, the Company recognized a charge of $12 related to a non-cash impairment of the net book value of the business, primarily properties, plants, and equipment. This charge was recorded in Restructuring and other charges in the Statement of Consolidated Operations.

On February 1, 2020, the Company completed the sale of its aluminum rolling mill in Itapissuma, Brazil for $50 which resulted in a loss of $59. The rolling mill produces specialty foil and sheet products and its operating results and assets and liabilities were included in the GRP segment. As a result of entering into the agreement to sell in August 2019, the Company recognized a charge of $53 in 2019 related to a non-cash impairment of the net book value of the business, primarily properties, plants, and

equipment. The Company recognized an incremental charge of $6 in the first quarter of 2020 due to certain adjustments related to unfavorable changes in foreign currency. These charges were recorded in Restructuring and other charges in the Statement of Consolidated Operations. The sale remains subject to certain post-closing adjustments. This business generated sales of $11 and $40 in the first quarter of 2020 and 2019, respectively, and had 525 employees at the time of divestiture.

On March 1, 2020, the Company sold its hard alloy extrusions plant in South Korea for $62 in cash, which resulted in a gain of $27 in the first quarter of 2020 recorded in Restructuring and other charges in the Statement of Consolidated Operations. This sale remains subject to certain post-closing adjustments. The operating results and assets and liabilities of this plant were included in the GRP segment. This business generated sales of $8 and $13 in the first quarter of 2020 and 2019, respectively, and had 158 employees at the time of divestiture.

~~2019 Divestiture.~~ On December 1, 2019, the Company completed the sale of its forgings business in the United Kingdom for $64 in cash, which resulted in a loss on sale of $46 that was recognized in 2019 and an incremental charge of $6 related to certain post-closing adjustments that was recorded in the first quarter of 2020. These charges were recorded in Restructuring and other charges in the Statement of Consolidated Operations. Of the cash proceeds received, $53 was recorded as Restricted cash within Prepaid expenses and other current assets on the Consolidated Balance Sheet at December 31, 2019 and March 31, 2020, as its use is subject to restriction by the U.K. pension authority until certain U.K. pension plan changes have been made and approved. The forgings business primarily produces steel, titanium, and nickel based forged components for aerospace, mining, and off-highway markets and its operating results and assets and liabilities were included in the EP&F segment. The sale remains subject to certain remaining post-closing adjustments. This business generated sales of $32 in the first quarter of 2019 and had 540 employees at the time of divestiture.

~~Q. Contingencies and Commitments~~

~~Contingencies~~

~~Environmental Matters~~

The Company participates in environmental assessments and cleanups at more than 100 locations. These include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")) sites.

A liability is recorded for environmental remediation when a cleanup program becomes probable and the costs can be reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of remedial actions and related costs. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, and technological changes, among others.

The Company’s remediation reserve balance was $229 at March 31, 2020 and $230 at December 31, 2019, recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which $93 and $94, respectively, were classified as a current liability), and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. Payments related to remediation expenses applied against the reserve were $2 in the first quarter ended March 31, 2020, which includes expenditures currently mandated, as well as those not required by any regulatory authority or third party.

Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be approximately 1% or less of Cost of goods sold.

~~The following discussion provides details regarding the current status of the most significant remediation reserves related to a current site.~~

~~Massena West, NY—~~The Company has an ongoing remediation project related to the Grasse River, which is adjacent to the Company's Massena plant site and is included in the GRP segment. Many years ago, it was determined that sediments and fish in the river contain varying levels of polychlorinated biphenyls ("PCBs"). The project, which was selected by the U.S. Environmental Protection Agency (EPA) in a Record of Decision issued in April 2013, is aimed at capping PCB contaminated sediments with concentration in excess of one part per million in the main channel of the river and dredging PCB contaminated sediments in the near-shore areas where total PCBs exceed one part per million. At March 31, 2020 and December 31, 2019, the reserve balances associated with this matter were $169 and $171, respectively. In the first quarter of 2019, the Company received approval from the EPA of its final remedial design which is now under construction and is expected to be completed in 2022. As the project proceeds, the liability may be updated due to factors such as changes in remedial requirements, site restoration costs, and ongoing operation and maintenance costs, among others.

In connection with the Arconic Inc. Separation Transaction, Arconic Corporation agreed to assume and indemnify the Company against certain liabilities relating to Arconic Corporation’s businesses, including potential liabilities associated with the remediation project related to the Grasse River.

~~Tax~~

Pursuant to the Tax Matters Agreement, dated as of October 31, 2016, entered into between the Company and Alcoa Corporation in connection with the separation of Alcoa Corporation, the Company shares responsibility with Alcoa Corporation for, and Alcoa Corporation has agreed to partially indemnify the Company with respect to the following matter.

As previously reported, in July 2013, following a Spanish corporate income tax audit covering the 2006 through 2009 tax years, an assessment was received mainly disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by the Company. In August 2013, the Company filed an appeal of this assessment in Spain’s Central Tax Administrative Court, which was denied in January 2015. The Company filed another appeal in Spain’s National Court in March 2015 which was denied in July 2018. The National Court’s decision requires the assessment for the 2006 through 2009 tax years to be reissued to take into account the outcome of the 2003 to 2005 audit which was closed in 2017. The Company estimates the revised assessment to be $170 (€154), including interest.

In March 2019, the Supreme Court of Spain accepted the Company's petition to review the National Court’s decision, and the Company has filed a formal appeal of the assessment. The Supreme Court is reviewing the assessment on its merits and will render a final decision. In the event the Company receives an unfavorable ruling from the Supreme Court of Spain, a portion of the assessment may be offset with existing net operating losses and tax credits available to the Spanish consolidated tax group, which would be shared between the Company and Alcoa Corporation as provided for in the Tax Matters Agreement.

In the third quarter of 2018, the Company established an income tax reserve and an indemnification receivable representing Alcoa Corporation’s 49% share of the liability. As of March 31, 2020, the balances of the reserve, including interest, and the receivable are $59 (€53) and $29 (€26), respectively.

Additionally, while the tax years 2010 through 2013 are closed to audit, it is possible that the Company may receive assessments for tax years subsequent to 2013. Any potential assessment for an individual tax year is not expected to be material to the Company’s consolidated operations.

~~Reynobond PE~~

As previously reported, on June 13, 2017, the Grenfell Tower in London, U.K. caught fire resulting in fatalities, injuries and damage. A French subsidiary of Arconic, Arconic Architectural Products SAS (AAP SAS), supplied a product, Reynobond PE, to its customer, a cladding system fabricator, which used the product as one component of the overall cladding system on Grenfell Tower. The fabricator supplied its portion of the cladding system to the façade installer, who then completed and installed the system under the direction of the general contractor. Neither Arconic nor AAP SAS was involved in the design or installation of the system used at the Grenfell Tower, nor did it have a role in any other aspect of the building’s refurbishment or original design. Regulatory investigations into the overall Grenfell Tower matter are being conducted, including a criminal investigation by the London Metropolitan Police Service (the “Police”), a Public Inquiry by the British government and a consumer protection inquiry by a French public authority. The Public Inquiry was announced by the U.K. Prime Minister on June 15, 2017 and subsequently was authorized to examine the circumstances leading up to and surrounding the Grenfell Tower fire in order to make findings of fact and recommendations to the U.K. Government on matters such as the design, construction and modification of the building, the role of relevant public authorities and contractors, the implications of the fire for the adequacy and enforcement of relevant regulations, arrangements in place for handling emergencies and the handling of concerns from residents, among other things. Hearings for Phase 1 of the Public Inquiry began on May 21, 2018 and concluded on December 12, 2018. Phase 2 hearings of the Public Inquiry began in early 2020, following which a final report will be written and subsequently published. AAP SAS is participating as a Core Participant in the Public Inquiry and is also cooperating with the ongoing parallel investigation by the Police. The Company no longer sells the PE product for architectural use on buildings. Given the preliminary nature of these investigations and the uncertainty of potential future litigation, the Company cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of an unfavorable outcome.

Upon the completion of the Arconic Inc. Separation Transaction, Arconic Corporation holds the building and construction systems businesses previously held by the Company and AAP SAS has become a subsidiary of Arconic Corporation. In connection with the Arconic Inc. Separation Transaction, Arconic Corporation agreed to assume and indemnify the Company against certain liabilities relating to Arconic Corporation’s businesses, including potential liabilities associated with the following legal proceedings. In connection with the Separation, Arconic Corporation has agreed to indemnify the Company for certain liabilities and Howmet has agreed to indemnify Arconic Corporation for certain liabilities.

~~Behrens et al. v. Arconic Inc. et al.~~ As previously reported, on June 6, 2019, 247 plaintiffs comprised of survivors and estates of decedents of the Grenfell Tower fire filed a complaint against “Arconic Inc., Alcoa Inc. and Arconic Architectural Products, LLC” (collectively, for purposes of the description of such proceeding, the “Arconic Defendants”), as well as Saint-Gobain Corporation, d/b/a Celotex and Whirlpool Corporation, in the Court of Common Pleas of Philadelphia County. The complaint alleges claims under Pennsylvania state law for products liability and wrongful death related to the fire. In particular, the

plaintiffs allege that the Arconic Defendants knowingly supplied a dangerous product ("Reynobond PE") for installation on the Grenfell Tower despite knowing that Reynobond PE was unfit for use above a certain height. The Arconic Defendants removed the case to the United States District Court for the Eastern District of Pennsylvania on June 19, 2019. On August 29, 2019, the Arconic Defendants moved to dismiss the complaint on the bases, among other things, that: (i) the case should be heard in the United Kingdom, not the United States; (ii) there is no jurisdiction over necessary parties; and (iii) Pennsylvania products liability law does not apply to manufacture and sale of product overseas. On December 23, 2019, the Court issued an order denying the motion to dismiss the complaint on bases (ii) and (iii) and suggesting a procedure for limited discovery followed by further briefing on those subjects. Discovery is ongoing on defendants’ motion to have the case dismissed in favor of a UK forum (forum non conveniens). Given the preliminary nature of this matter and the uncertainty of litigation, the Company cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of an unfavorable outcome.

~~Howard v. Arconic Inc. et al.~~ As previously reported, a purported class action complaint related to the Grenfell Tower fire was filed on August 11, 2017 in the United States District Court for the Western District of Pennsylvania against Arconic Inc. and Klaus Kleinfeld. A related purported class action complaint was filed in the United States District Court for the Western District of Pennsylvania on September 15, 2017, under the caption ~~Sullivan v. Arconic Inc. et al.~~, against Arconic Inc., three former Arconic executives, several current and former Arconic directors, and banks that acted as underwriters for Arconic’s September 18, 2014 preferred stock offering (the “Preferred Offering”). The plaintiff in ~~Sullivan~~ had previously filed a purported class action against the same defendants on July 18, 2017 in the Southern District of New York and, on August 25, 2017, voluntarily dismissed that action without prejudice. On February 7, 2018, on motion from certain putative class members, the court consolidated ~~Howard~~ ~~and~~ ~~Sullivan, closed~~ ~~Sullivan~~, and appointed lead plaintiffs in the consolidated case. On April 9, 2018, the lead plaintiffs in the consolidated purported class action filed a consolidated amended complaint. The consolidated amended complaint alleged that the registration statement for the Preferred Offering contained false and misleading statements and omitted to state material information, including by allegedly failing to disclose material uncertainties and trends resulting from sales of Reynobond PE for unsafe uses and by allegedly expressing a belief that appropriate risk management and compliance programs had been adopted while concealing the risks posed by Reynobond PE sales. The consolidated amended complaint also alleged that between November 4, 2013 and June 23, 2017 Arconic and Kleinfeld made false and misleading statements and failed to disclose material information about the Company’s commitment to safety, business and financial prospects, and the risks of the Reynobond PE product, including in Arconic’s Form 10-Ks for the fiscal years ended December 31, 2013, 2014, 2015, and 2016, its Form 10-Qs and quarterly financial press releases from the fourth quarter of 2013 through the first quarter of 2017, its 2013, 2014, 2015, and 2016 Annual Reports, its 2016 Annual Highlights Report, and on its official website. The consolidated amended complaint sought, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses. On June 8, 2018, all defendants moved to dismiss the consolidated amended complaint for failure to state a claim. On June 21, 2019, the Court granted the defendants’ motion to dismiss in full, dismissing the consolidated amended complaint in its entirety without prejudice. On July 23, 2019, the lead plaintiffs filed a second amended complaint. The second amended complaint alleges generally the same claims as the consolidated amended complaint with certain additional allegations, as well as claims that the risk factors set forth in the registration statement for the Preferred Offering were inadequate and that certain additional statements in the sources identified above were misleading. The second amended complaint seeks, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses. On September 11, 2019, all defendants moved to dismiss the second amended complaint. Plaintiffs’ opposition to that motion was filed by November 1, 2019 and all defendants filed a reply brief on November 26, 2019. Given the preliminary nature of this matter and the uncertainty of litigation, the Company cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of an unfavorable outcome.

~~Raul v. Albaugh, et al.~~ As previously reported, on June 22, 2018, a derivative complaint was filed nominally on behalf of Arconic by a purported Arconic stockholder against the then members of Arconic’s Board of Directors and Klaus Kleinfeld and Ken Giacobbe, naming Arconic as a nominal defendant, in the United States District Court for the District of Delaware. The complaint raises similar allegations as the consolidated amended complaint and second amended complaint in ~~Howard~~, as well as allegations that the defendants improperly authorized the sale of Reynobond PE for unsafe uses, and asserts claims under Section 14(a) of the Securities Exchange Act of 1934 and Delaware state law. On July 13, 2018, the parties filed a stipulation agreeing to stay this case until the final resolution of the ~~Howard~~ case, the Grenfell Tower Public Inquiry in London, and the investigation by the Police and on July 23, 2018, the Court approved the stay. Given the preliminary nature of this matter and the uncertainty of litigation, the Company cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of an unfavorable outcome.

~~While the Company believes that these cases are without merit and intends to challenge them vigorously, there can be no assurances regarding the ultimate resolution of these matters.~~

~~Stockholder Demands.~~ As previously noted, the Board of Directors also received letters, purportedly sent on behalf of stockholders, reciting allegations similar to those made in the federal court lawsuits and demanding that the Board authorize the Company to initiate litigation against members of management, the Board and others. The Board of Directors appointed a

Special Litigation Committee of the Board to review, investigate, and make recommendations to the Board regarding the appropriate course of action with respect to these stockholder demand letters. On May 22, 2019, the Special Litigation Committee, following completion of its investigation into the claims demanded in the demand letters, recommended to the Board that it reject the demands to authorize commencement of litigation. On May 28, 2019, the Board adopted the Special Litigation Committee’s findings and recommendations and rejected the demands that it authorize commencement of actions to assert the claims set forth in the demand letters.

~~Other~~

In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against the Company, including those pertaining to environmental, product liability, safety and health, employment, tax and antitrust matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot currently be determined because of the considerable uncertainties that exist. Therefore, it is possible that the Company’s liquidity or results of operations in a period could be materially affected by one or more of these other matters. However, based on facts currently available, management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the results of operations, financial position or cash flows of the Company.

~~Commitments~~

~~Guarantees~~

At March 31, 2020, the Company had outstanding bank guarantees related to tax matters, outstanding debt, workers’ compensation, environmental obligations, energy contracts, and customs duties, among others. The total amount committed under these guarantees, which expire at various dates between 2020 and 2040, was $27 at March 31, 2020.

Pursuant to the Separation and Distribution Agreement between the Company and Alcoa Corporation, the Company was required to provide a guarantee for an energy supply agreement at an Alcoa Corporation facility that expires in 2047. This guarantee had a fair value of $10 and $9 at March 31, 2020 and December 31, 2019, respectively, and was included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet. The Company was required to provide a guarantee up to an estimated present value of approximately $882 and $1,353 at March 31, 2020 and December 31, 2019, respectively. For this guarantee, subject to its provisions, the Company is secondarily liable in the event of a payment default by Alcoa Corporation. The Company currently views the risk of an Alcoa Corporation payment default on its obligations under the contract to be remote.

~~Letters of Credit~~

The Company has outstanding letters of credit, primarily related to workers’ compensation, environmental obligations, and leasing obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, mostly in 2020, was $138 at March 31, 2020.

Pursuant to the Separation and Distribution Agreements between the Company and Arconic Corporation and the Company and Alcoa Corporation, the Company was required to retain letters of credit of $54 that had previously been provided related to both the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 2016. Arconic Corporation and Alcoa Corporation workers’ compensation claims and letter of credit fees paid by the Company are being proportionally billed to and are being fully reimbursed by Arconic Corporation and Alcoa Corporation.

~~Surety Bonds~~

The Company has outstanding surety bonds, primarily related to tax matters, contract performance, workers’ compensation, environmental-related matters, and customs duties. The total amount committed under these surety bonds, which expire at various dates, primarily in 2020, was $64 at March 31, 2020.

Pursuant to the Separation and Distribution Agreements between the Company and Arconic Corporation and the Company and Alcoa Corporation, the Company was required to provide surety bonds of $27 that had previously been provided related to both the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 2016. Arconic Corporation and Alcoa Corporation workers’ compensation claims and surety bond fees paid by the Company are being proportionately billed to and are being fully reimbursed by Arconic Corporation and Alcoa Corporation.

~~R. Arconic Inc. Separation Transaction~~Discontinued Operations

On April 1, 2020, the Company completed the ~~previously announced~~ separation of its business into 2 independent, publicly-traded companies. Following the Arconic Inc. Separation Transaction, Arconic Corporation ~~holds~~held the Global Rolled Products (“GRP”) businesses ~~(global~~

(global rolled products, aluminum extrusions, and building and construction systems) previously held by the Company. The Company retained the Engineered Products and Forgings businesses (engine products, fastening systems, engineered structures, and forged wheels).

The Company's Board of Directors approved the completion of the separation on February 5, 2020, which was effected by the distribution (the “Distribution”) by the Company of all of the outstanding common stock of Arconic Corporation on April 1, 2020 to the Company’s stockholders who held shares as of the close of business on March 19, 2020 (the “Record Date”). In the Distribution, each Company stockholder of record as of the Record Date received one share of Arconic Corporation common stock for every four shares of the Company’s common stock held as of the Record Date. The Company did not issue fractional shares of Arconic Corporation common stock in the Distribution. Instead, each stockholder otherwise entitled to a fractional share of Arconic Corporation common stock received cash in lieu of fractional shares.

~~On March 31, 2020, in~~In connection with the Arconic Inc. Separation Transaction, the Company entered into several agreements with Arconic Corporation that govern the relationship between the Company and Arconic Corporation following the Distribution, including the following: a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, ~~Transition Services Agreement and~~ certain Patent, Know-How, Trade Secret License and Trademark License Agreements, and Raw Material Supply Agreements.

~~John Plant~~On February 7, 2020, Arconic Corporation completed an offering of $600 aggregate principal amount of 6.125% senior secured second-lien notes due 2028. On March 25, 2020, Arconic Corporation entered into a credit agreement which provided for a $600 aggregate principal amount seven-year senior secured first-lien loan B facility and ~~Tolga Oal are serving as co-Chief Executive Officers~~a revolving credit facility which is guaranteed by certain of ~~Howmet. Timothy D. Myers is serving as Chief Executive Officer for~~ Arconic ~~Corporation. The Company’s Board~~Corporation's wholly-owned domestic subsidiaries and secured on a first-priority basis by liens on substantially all assets of ~~Directors named new directors~~Arconic Corporation and subsidiary guarantors. Arconic Corporation used the proceeds to make payment to the Company to fund the transfer of certain assets to Arconic Corporation relating to the Arconic Inc. Separation Transaction and for general corporate purposes. The Company incurred debt issuance costs of $45 associated with these issuances for the first quarter of 2020.

On February 1, 2020, the Company completed the sale of its rolling mill in Itapissuma, Brazil for $50 in cash which resulted in a loss of $59, of which $53 was recognized in Restructuring and other charges within discontinued operations in the second half of 2019 and $6 in the first quarter of 2020. On March 1, 2020, Arconic Corporation sold its hard alloy extrusions plant in South Korea for $62 in cash, which resulted in a $27 gain that was recognized in Restructuring and ~~Howmet boards. T~~heother charges within discontinued operations in the first quarter of 2020.

Discontinued Operations

The results of operations of Arconic Corporation ~~Board~~are presented as discontinued operations in the Statement of Directors comprises: William Austen; Christopher Ayers; Margaret Billson; Austin Camporin; Jacques Croisetiere; Elmer Doty; Carol Eicher; Fritz Henderson; Timothy Myers; E. Stanley O’Neal. Jeffrey Stafeil. Christopher Ayers, Elmer DotyConsolidated Operations as summarized below:


	First quarter ended
	March 31,
	2020
Sales	$	1,575
Cost of goods sold	1,293
Selling, general administrative, research and development and other expenses	101

Provision for depreciation and amortization	58
Restructuring and other charges	(18)
Operating income from discontinued operations	141
Interest expense	7
Other expense, net	41
Income from discontinued operations	93
Provision for income taxes	31
Income from discontinued operations after income taxes	$	62

The following table presents purchases of properties, plants, and ~~Stanley O’Neal resigned from Howmet’s Board.~~ ~~Joining~~ ~~the Howmet Board of Directors are: Joseph Cantie; Robert Leduc; Jody Miller; Tolga Oal; and Nicole Piasecki.~~ ~~Rajiv Gupta~~ ~~and Sean Mahoney~~ ~~notified Howmet’s Board that they will not stand for re-election and will retire~~equipment, proceeds from the sale of businesses and the provision for depreciation and amortization of discontinued operations related to Arconic Corporation:


	First quarter ended
	March 31,
	2020
Capital expenditures	$	72
Proceeds from the sales of businesses	$	112
Provision for depreciation and amortization	$	58

The cash flows and equity related to Arconic Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows or Statement of Comprehensive Income for all periods presented prior to the Arconic Inc. Separation Transaction.

C. Recently Adopted and Recently Issued Accounting Guidance

Adopted

On January 1, 2021, the Company adopted changes issued by the Financial Accounting Standards Board (“FASB”) that were intended to simplify various aspects of accounting for income taxes by eliminating certain exceptions contained in existing guidance and amending other guidance to simplify several other income tax accounting matters. The adoption of this new guidance did not have a material impact on the Consolidated Financial Statements.

Issued

In March 2020, the FASB issued amendments that provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

D. Segment Information

Howmet is a global leader in lightweight metals engineering and manufacturing. Howmet’s innovative, multi-material products, which include nickel, titanium, aluminum, and cobalt, are used worldwide in the aerospace (commercial and defense), commercial transportation, and industrial and other end markets. Segment performance under Howmet’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Segment operating profit. Howmet’s definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and Other charges. Segment operating profit may not be comparable to similarly titled measures of other companies. Differences between segment totals and consolidated Howmet are in Corporate.

Howmet’s operations consist of 4 worldwide reportable segments as follows:

Engine Products

Engine Products produces investment castings, including airfoils, and seamless rolled rings primarily for aircraft engines and industrial gas turbines. Engine Products produces rotating parts as well as structural parts.

Fastening Systems

Fastening Systems produces aerospace fastening systems, as well as commercial transportation, industrial and other fasteners. The business’s high-tech, multi-material fastening systems are found nose to tail on aircraft and aero engines. The business’s products are also critical components of commercial transportation vehicles, automobiles, construction and industrial equipment and renewable energy sector.

Engineered Structures

Engineered Structures produces titanium ingots and mill products for aerospace and defense applications and is vertically integrated to produce titanium forgings, extrusions forming and machining services for airframe, wing, aero-engine, and landing gear components. Engineered Structures also produces aluminum forgings, nickel forgings, and aluminum machined components and assemblies for aerospace and defense applications.

Forged Wheels

Forged Wheels provides forged aluminum wheels and related products for heavy-duty trucks and the commercial transportation markets.

Goodwill

The Company had $4,086 of Goodwill at March 31, 2021 and reviews it annually for impairment in the fourth quarter, or more frequently, if indicators exist or if a decision is made to sell or realign a business.

On January 1, 2020, management transferred the Savannahbusiness from the Engine Products segment to the Engineered Structures segment, based on synergies with forgings technologies and manufacturing capabilities. As a result of the reorganization, goodwill of $17 was reallocated from Engine Products to Engineered Structures, and these reporting units were evaluated for impairment during the first quarter of 2020. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was 0 goodwill impairment at the date the business was transferred.

During the first quarter of 2020, Howmet's market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, global sales to customers in the aerospace and commercial transportation industries impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this assessment, the Company performed a quantitative impairment test in the first quarter of 2020 for the Engineered Structures reporting unit and concluded that though the margin between the fair value of the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not impaired. Consistent with prior practice, a discounted cash flow model was used to estimate the current fair value of the reporting unit. The significant assumptions and estimates utilized to determine fair value were developed utilizing current market and forecast information reflecting the disruption in demand that has and is expected to negatively impact the Company’s sales globally in the aerospace industry. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and could be material. Since the first quarter of 2020, there have been no indicators of impairment identified for the Engineered Structures reporting unit or any other reporting units or indefinite-lived intangible assets.

The operating results of the Company’s ~~2020 Annual Meeting~~reportable segments were as follows. Differences between total segment and consolidated totals are in Corporate.


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
First quarter ended March 31, 2021
Sales:
Third-party sales	$	534	$	272	$	176	$	227	$	1,209
Inter-segment sales	1		0		1		0		2
Total sales	$	535	$	272	$	177	$	227	$	1,211
Profit and loss:
Segment operating profit	$	101	$	45	$	10	$	70	$	226
Restructuring and other charges	5		2		1		0		8
Provision for depreciation and amortization	31		12		12		10		65
Capital expenditures	11		5		5		9		30

First quarter ended March 31, 2020
Sales:
Third-party sales	$	781	$	385	$	275	$	191	$	1,632
Inter-segment sales	2		0		3		0		5
Total sales	$	783	$	385	$	278	$	191	$	1,637
Profit and loss:
Segment operating profit	$	165	$	96	$	28	$	50	$	339
Restructuring and other charges	13		2		17		2		34
Provision for depreciation and amortization	30		12		13		10		65
Capital expenditures	19		8		3		7		37

The following table reconciles Total segment operating profit to Income from continuing operations before income taxes:


	First quarter ended
	March 31,
	2021		2020
Total segment operating profit	$	226	$	339
Unallocated amounts:
Restructuring and other charges	(9)		(39)
Corporate expense	(28)		(42)
Consolidated operating income	$	189	$	258
Interest expense	(72)		(84)
Other (expense) income, net	(4)		24
Income from continuing operations before income taxes	$	113	$	198

The following table reconciles Total segment capital expenditures, which are presented on an accrual basis, with Capital expenditures as presented on the statement of ~~Shareholders.~~cash flows. Differences between segment and consolidated totals are in Corporate and discontinued operations, including the impact of changes in accrued capital expenditures during the period.


	First quarter ended
	March 31,
	2021		2020
Total segment capital expenditures	$	30	$	37
Corporate and discontinued operations	25		115
Capital expenditures	$	55	$	152

The following table disaggregates segment revenue by major end market served. Differences between total segment and consolidated totals are in Corporate.


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
First quarter ended March 31, 2021
Aerospace - Commercial	$	227	$	148	$	80	$	0	$	455
Aerospace - Defense	151		42		77		0		270
Commercial Transportation	0		46		0		227		273
Industrial and Other	156		36		19		0		211
Total end-market revenue	$	534	$	272	$	176	$	227	$	1,209

First quarter ended March 31, 2020
Aerospace - Commercial	$	507	$	257	$	184	$	0	$	948
Aerospace - Defense	127		44		70		0		241
Commercial Transportation	0		46		0		191		237
Industrial and Other	147		38		21		0		206
Total end-market revenue	$	781	$	385	$	275	$	191	$	1,632

~~For~~The Company derived 60% and 73% of its revenue from aerospace end markets in the first quarter of 2021 and 2020, respectively.

General Electric Company represented approximately 11% and 13% of the Company’s third-party sales for the first quarter of 2021 and 2020, respectively, primarily from Engine Products.

E. Restructuring and Other Charges


	First quarter ended
	March 31,
	2021		2020
Layoff costs	$	0	$	22
Adjustments to (reversals of) previously recorded layoff reserves	1		(2)
Pension, Other post-retirement benefits and Deferred Compensation - net settlements	3		0

Net loss related to divestitures of assets and businesses	4		16
Other	1		3
Restructuring and other charges	$	9	$	39

In the first quarter of 2021, the Company recorded Restructuring and other charges of $9, which included a $4 charge for impairment of assets associated with an agreement to sell a small manufacturing business in France, a $3 charge for U.S. pension plans' settlement accounting, a $1 adjustment related to a number of prior period program reserves and a $1 charge for exit costs including accelerated depreciation.

In the first quarter of 2020, the Company recorded Restructuring and other charges of $39, which included a $22 charge for layoff costs, including the separation of 460 employees (175 in Engine Products, 106 in Fastening Systems, 100 in Engineered Structures, 56 in Forged Wheels and 23 in Corporate); a $12 charge for impairment of assets associated with an agreement to sell a small manufacturing business in the United Kingdom (U.K.); a $6 post closing adjustment related to the 2019 sale of the Company’s U.K. forgings business and a $3 charge for various other exit costs related to prior programs. These charges were partially offset by a benefit of $2 related to the reversal of a number of prior period program reserves and a $2 gain on sale of assets.


	Layoff costs		Other��exit costs		Total
Reserve balances at December 31, 2020	$	54	$	0	$	54
Cash payments	(24)		0		(24)
Restructuring charges	4		5		9
Other(1)	(5)		(5)		(10)
Reserve balances at March 31, 2021	$	29	$	0	$	29

(1)In the first quarter of 2021, Layoff costs included $3 in settlement accounting charges related to U.S. pension plans and a $2 charge for other layoffs costs; while Other exit costs included a $4 charge for impairment associated with an agreement to sell a small manufacturing business; and a $1 charge for other exit costs including accelerated depreciation.

The remaining Layoff cost reserves are expected to be paid in cash by the end of 2021.

F. Other Expense (Income), Net


	First quarter ended
	March 31,
	2021		2020
Non-service related net periodic benefit cost	$	3	$	6
Interest income	0		(4)
Foreign currency losses, net	2		0
Net loss from asset sales	3		2

Deferred compensation	2		(10)
Other, net	(6)		(18)
Total	$	4	$	(24)

G. Pension and Other Postretirement Benefits

The components of net periodic benefit cost were as follows:


	First quarter ended
	March 31,
	2021		2020
Pension benefits
Service cost	$	1	$	7
Interest cost	12		47
Expected return on plan assets	(23)		(70)
Recognized net actuarial loss	14		42

Settlements	3		0


Net periodic benefit cost(1)	7		26
Discontinued operations	0		20
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	7	$	6

Other postretirement benefits
Service cost	$	0	$	1
Interest cost	1		6
Recognized net actuarial loss	0		2
Amortization of prior service benefit	(1)		(2)


Net periodic benefit cost(1)	0		7
Discontinued operations	0		6
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	0	$	1

(1)Service cost for continuing operations was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development expenses; settlements and curtailments were included in Restructuring and other charges; and all other cost components were recorded in Other expense (income), net in the Statement of Consolidated Operations. The amounts included in Net periodic benefit cost include costs related to both continuing and discontinued operations for the first quarter ended March 31, 2020.

Pension benefits

In the first quarter ended March 31, 2021, the Company ~~recognized $38~~applied settlement accounting to certain U.S. pension plans due to lump sum payments made to participants, which resulted in ~~Selling, general administrative,~~settlement charges of $3 that were recorded in Restructuring and other ~~expenses~~charges.

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA 2021”) was signed into law in the United States. ARPA 2021, in part, provides temporary relief for employers who sponsor defined benefit pension plans related to funding contributions under the Employee Retirement Income Security Act of 1974. As a result, management expects Howmet’s estimated minimum required pension funding to decline. Management is currently evaluating the impact.

Other postretirement benefits

In the first quarter of 2021, the Company announced a plan administration change of certain of its Medicare-eligible prescription drug benefits to an Employer Group Waiver Plan with wrap-around secondary plan effective July 1, 2021. The administration change is expected to reduce costs to the Company through the usage of Medicare Part D and drug manufacturer subsidies. Due to this amendment, along with the associated plan remeasurements, the Company recorded a decrease to its Accrued other postretirement benefits liability of $39, which was offset in Accumulated other comprehensive loss in the Consolidated Balance Sheet.

H. Income Taxes

For the first quarter of 2021 and 2020, the estimated annual effective tax rate, before discrete items, applied to ordinary income was 30.4% and 26.9%, respectively. The 2021 and 2020 rates were higher than the U.S. federal statutory rate of 21% primarily due to additional estimated U.S. tax on Global Intangible Low-Taxed Income and other foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax, and nondeductible expenses.

For the first quarter of 2021 and 2020, the tax rate including discrete items was 29.2% and 22.7%, respectively. For the first quarter of 2021, the Company recorded a discrete net tax benefit of $1 for other items. For the first quarter of 2020, the Company recorded a discrete tax benefit of $8 related primarily to stock compensation.

The tax provisions for the first quarter ended March 31, 2021 and 2020 were comprised of the following:


	First quarter ended
	March 31,
	2021		2020
Pre-tax income at estimated annual effective income tax rate before discrete items	$	34	$	53


Other discrete items	(1)		(8)
Provision for income taxes	$	33	$	45

I. Earnings Per Share

Basic earnings per share (“EPS”) amounts are computed by dividing earnings, after the deduction of preferred stock dividends declared, by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive share equivalents outstanding.

The information used to compute basic and diluted EPS attributable to Howmet common shareholders was as follows (shares in millions):


	First quarter ended
	March 31,
	2021		2020

Net income from continuing operations attributable to common shareholders	$	80	$	153
Income from discontinued operations	0		62
Net income attributable to common shareholders	80		215
Less: preferred stock dividends declared	1		1
Net income available to Howmet Aerospace common shareholders - basic and diluted	$	79	$	214



Average shares outstanding - basic	434		435
Effect of dilutive securities:
Stock options	1		1
Stock and performance awards	4		4

Average shares outstanding - diluted	439		440

Common stock outstanding at March 31, 2021 and 2020 was 434 and 436, respectively.

The following shares were excluded from the calculation of average shares outstanding – diluted as their effect was anti-dilutive (shares in millions):


	First quarter ended
	March 31,
	2021	2020

Stock options(1)	1	4

(1)The weighted average exercise price per share of options excluded from diluted EPS was $31.86 and $27.65 as of March 31, 2021 and 2020, respectively.

J. Accumulated Other Comprehensive Loss

The following table details the activity of the four components that comprise Accumulated other comprehensive loss:


	First quarter ended
	March 31,
	2021		2020
Pension and other postretirement benefits (G)
Balance at beginning of period	$	(980)	$	(2,732)
Other comprehensive income:
Unrecognized net actuarial loss and prior service cost/benefit	37		1
Tax expense	(8)		0
Total Other comprehensive income before reclassifications, net of tax	29		1
Amortization of net actuarial loss and prior service cost(1)	16		43
Tax expense(2)	(3)		(7)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)	13		36
Total Other comprehensive income	42		37

Balance at end of period	$	(938)	$	(2,695)
Foreign currency translation
Balance at beginning of period	$	(966)	$	(596)
Foreign currency translation	(44)		(79)
Net amount reclassified from Accumulated other comprehensive loss(4)	0		14
Other comprehensive loss	(44)		(65)

Balance at end of period	$	(1,010)	$	(661)
Debt securities
Balance at beginning of period	$	0	$	0
Other comprehensive income(5)	0		1
Balance at end of period	$	0	$	1
Cash flow hedges
Balance at beginning of period	$	3	$	(1)

Other comprehensive income (loss):
Net change from periodic revaluations	8		(11)
Tax expense	(2)		(1)
Total Other comprehensive income (loss) before reclassifications, net of tax	6		(12)
Net amount reclassified to earnings	(3)		(1)
Tax expense(2)	1		0
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)	(2)		(1)
Total Other comprehensive income (loss)	4		(13)
Balance at end of period	$	7	$	(14)

Accumulated other comprehensive loss	$	(1,941)	$	(3,369)

(1)These amounts were recorded in Other expense (income), net on the ~~accompanying~~Statement of Consolidation Operations (see Note F).

(2)These amounts were included in Provision for income taxes on the Statement of Consolidated Operations.

(3)A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings.

(4)Foreign currency translation charges were included in Restructuring and other charges on the Statement of Consolidated Operations due to the sale of foreign entities.

(5)Realized gains and losses were included in Other expense (income), net on the Statement of Consolidated Operations.

K. Receivables

Sale of Receivables Programs

The Company has 2 accounts receivables securitization arrangements.

The first is an arrangement with financial institutions to sell certain customer receivables without recourse on a revolving basis (“Receivables Sale Program”). The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is a consolidated subsidiary of the Company. This arrangement historically provided up to a maximum funding of $400 for ~~costs related~~receivables sold. The Company maintains a beneficial interest, or a right to collect cash, on the sold receivables that have not been funded (deferred purchase program receivable).

In the first quarter of 2020, the Company entered into an amendment to remove subsidiaries of the GRP business from the sale of receivables program in preparation for the Arconic Inc. Separation ~~Transaction. In addition,~~Transaction and repurchased the remaining $282 unpaid receivables of GRP customers in a non-cash transaction by reducing the amount of the deferred purchase program receivable. This amendment also reduced the maximum funding for receivables sold to $300. The concentration limit of one customer may be reduced at the discretion of the financial institutions or automatically upon the downgrade of its debt rating as defined in the Receivables Sale Program agreement. A reduction in the customer's concentration limit would reduce the eligible receivable funding base thereby reducing the amount of future draws available and may require repayment of a portion of existing draws.

The Company had net cash repayments totaling $26 ($18 in draws and $44 in repayments) and $52 ($98 in draws and $150 in repayments) for the three months ended March 31, 2021 and March 31, 2020, respectively.

As of March 31, 2021 and December 31, 2020, the deferred purchase program receivable was $68 and $12, respectively, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving program, the sale of new receivables will result in an increase in the deferred purchase program receivable. The Company services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.

Cash receipts from customer payments on sold receivables (which are cash receipts on the underlying trade receivables that have been previously sold) as well as cash receipts and cash disbursements from draws and repayments under the program are presented as cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash Flows.

The second arrangement is one in which the Company, through a wholly-owned special purpose entity (“SPE”), has a receivables purchase agreement (the “Receivables Purchase Agreement”) such that the SPE may sell certain receivables to financial institutions until the earlier of March 30, 2022 or a termination event. The Receivables Purchase Agreement also contains customary representations and warranties, as well as affirmative and negative covenants. Pursuant to the Receivables Purchase Agreement, the Company does not maintain effective control over the transferred receivables, and therefore accounts for these transfers as sales of receivables.

The SPE sold $84 of its receivables without recourse and received cash funding under this program during the first quarter ended March 31, 2021, resulting in derecognition of the receivables from the Company’s consolidated balance sheets. As of March 31, 2021 and December 31, 2020, $65 and $46 remained outstanding from the customer, respectively. Cash received from collections of sold receivables is used by the SPE to fund additional purchases of receivables on a revolving basis, not to exceed $125, which is the aggregate maximum limit. As collateral against the sold receivables, the SPE maintains a certain level of unsold receivables, which was $16 and $33 at March 31, 2021 and December 31, 2020, respectively. Costs associated with the sales of receivables are reflected in the Company’s Consolidated statements of operations for the periods in which the sales occur. Cash receipts from sold receivables under the Receivables Purchase Agreement are presented within operating activities in the Statement of Consolidated Cash Flows.

The Company had accounts receivable securitization arrangements totaling $425 at March 31, 2021 and December 31, 2020, respectively, of which $243 and $250 was drawn at March 31, 2021 and at December 31, 2020, respectively. The $7 reduction in the amount drawn resulted in a corresponding reduction in Cash and cash equivalents.

Other Customer Receivable Sales

In the first quarter of 2021 and 2020, the Company sold $7 and $14, respectively, of a certain customer’s receivables in exchange for cash (of which $7 remained outstanding from the customer at March 31, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows.

In the first quarter 2021 and 2020, the Company sold $59 and $17, respectively, of a certain customer’s receivables in exchange for cash (of which $57 remained outstanding from the customer at March 31, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. The sale of these customer receivables was undertaken to offset a change in the customer’s payment patterns (customer had been taking an early payment discount).

L. Inventories


	March 31, 2021		December 31, 2020
Finished goods	$	516	$	528
Work-in-process	627		629
Purchased raw materials	271		292
Operating supplies	39		39
Total inventories	$	1,453	$	1,488

At March 31, 2021 and December 31, 2020, the portion of inventories valued on a last-in, first-out (“LIFO”) basis was $472 and $458, respectively. If valued on an average-cost basis, total inventories would have been $139 and $131 higher at March 31, 2021 and December 31, 2020, respectively.

M. Properties, Plants, and Equipment, net


	March 31, 2021		December 31, 2020
Land and land rights	$	92	$	98
Structures	1,020		1,033
Machinery and equipment	3,856		3,879
	4,968		5,010
Less: accumulated depreciation and amortization	2,644		2,626
	2,324		2,384
Construction work-in-progress	200		208
Properties, plants, and equipment, net	$	2,524	$	2,592

The Company incurred capital expenditures which remained unpaid at March 31, 2021 and March 31, 2020 of $28 and $48, respectively, which result in cash outflows for investing activities in subsequent periods.

N. Leases

Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $17 and $18 in the first quarter of 2021 and 2020, respectively.

Operating lease right-of-use assets and lease liabilities in the Consolidated Balance Sheet were as follows:


	March 31, 2021		December 31, 2020
Right-of-use assets classified in Other noncurrent assets	$	125	$	131

Current portion of lease liabilities classified in Other current liabilities	37		38
Long-term portion of lease liabilities classified in Other noncurrent liabilities	94		100
Total lease liabilities	$	131	$	138

O. Debt


	March 31, 2021		December 31, 2020

5.400% Notes, due 2021(1)	$	0	$	361
5.870% Notes, due 2022(2)	476		476
5.125% Notes, due 2024	1,250		1,250
6.875% Notes, due 2025	1,200		1,200
5.900% Notes, due 2027	625		625
6.750% Bonds, due 2028	300		300
5.950% Notes due 2037	625		625
4.750% Iowa Finance Authority Loan, due 2042	250		250
Other(3)	(13)		(12)
	4,713		5,075
Less: amount due within one year	489		376
Total long-term debt	$	4,224	$	4,699

(1)Redeemed on January 15, 2021.

(2)Redeemed on May 3, 2021.

(3)Includes various financing arrangements related to subsidiaries, unamortized debt discounts and unamortized debt issuance costs related to outstanding notes and bonds listed in the table above.

Public Debt.

On January 15, 2021, the Company completed the early redemption of all the remaining $361 of its 5.400% Notes due 2021 at par and paid $5 in accrued interest. On an annual basis, the redemption of these 5.400% Notes will decrease Interest expense, net by approximately $19.

On May 3, 2021, the Company completed the early redemption of all the remaining $476 aggregate principal amount of its 5.870% Notes due 2022 and paid an aggregate of $503, including $5 of accrued interest. The Company also incurred an early termination premium of $22, which will be recorded in the second quarter of 2021 in Interest expense, net. On an annual basis, the redemption of these 5.870% Notes will decrease Interest expense, net by approximately $28.

Credit Facilities.

During 2020, the Company entered into several amendments to its Five-Year Revolving Credit Agreement (the “Credit Agreement”) to permit the Arconic Inc. Separation Transaction and to amend certain terms of the Credit Agreement, including a change to the existing financial covenant, a reduction of total commitments available from $3,000 to $1,000 and extension of the maturity date from June 29, 2023 to April 1, 2025. On March 29, 2021, the Company entered into another amendment to its Credit Agreement to provide extended relief from its existing financial covenant for the quarters ended March 31, 2021 through December 31, 2022.

The Company is required to maintain a ratio of Consolidated Net Debt (as defined in the Credit Agreement) to Consolidated EBITDA (as defined in the Credit Agreement) of no greater than 3.50 to 1.00 as of the end of each fiscal quarter for the period of the four fiscal quarters of the Company most recently ended, except as of the end of each fiscal quarter noted below for the period of the four fiscal quarters then ended:


			No greater than
(i) for the quarter ending March 31, 2021			5.50 to 1.00
(ii) for the quarter ending June 30, 2021			5.50 to 1.00
(iii) for the quarter ending September 30, 2021			5.00 to 1.00
(iv) for the quarter ending December 31, 2021			4.75 to 1.00
(v) for the quarter ending March 31, 2022			4.50 to 1.00
(vi) for the quarter ending June 30, 2022			4.50 to 1.00
(vii) for the quarter ending September 30, 2022			4.25 to 1.00
(viii) for the quarter ending December 31, 2022			3.75 to 1.00

Under the March 2021 amendment to the Credit Agreement, during the covenant relief period through December 31, 2022 (unless the Company ends the covenant relief period earlier in accordance with the amendment), common stock dividends and share repurchases are permitted only if no loans under the Credit Agreement are outstanding at the time and are limited to an aggregate amount not to exceed $250 during the year ending December 31, 2021 with an incremental amount of $400 available during the year ending December 21, 2022 provided that any amount that remains unused as of December 31, 2021 may be carried forward and used during the year ending December 31, 2022.

There were 0 amounts outstanding at March 31, 2021 or December 31, 2020, and 0 amounts were borrowed during 2021 or 2020 under the Credit Agreement. At March 31, 2021, the Company was in compliance with all covenants under the Credit Agreement. Availability under the Credit Agreement could be reduced in future periods if the Company fails to maintain the required ratios referenced above.

P. Fair Value of Financial Instruments

The carrying values of Cash and cash equivalents, Restricted cash, Derivatives, Noncurrent receivables, and Short-term debt included in the Consolidated Balance Sheet approximate their fair value. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities that are carried at fair value which is based on quoted market prices which are classified in Level 1 of the fair value hierarchy. The fair value of Long-term debt, less amounts due within one year was based on quoted market prices for public debt and on interest rates that are currently available to Howmet for issuance of debt with similar terms and maturities for non-public debt. The fair value amounts for all Long-term debt were classified in Level 2 of the fair value hierarchy.


	March 31, 2021				December 31, 2020
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	4,224	$	4,831	$	4,699	$	5,426

Restricted cash, which was included in Prepaid assets and other current liabilities in the Consolidated Balance Sheet, was $1 at both March 31, 2021 and December 31, 2020.

Q. Divestitures

2021 Divestiture

On March 15, 2021, the Company reached an agreement to sell a small manufacturing plant in France within the Fastening Systems segment for $9 in cash, subject to working capital ~~expenditures~~and other adjustments, and therefore was classified as held for sale. The result was a charge of ~~$45~~$4 related to the non-cash impairment of the net book value of the business, primarily goodwill, in the first quarter of 2021 which was recorded in Restructuring and ~~$3, respectively,~~other charges in the Statement of Consolidated Operations.

2020 Divestiture

On January 31, 2020, the Company reached an agreement to sell a small manufacturing plant in the United Kingdom within the Engineered Structures segment for $12 in cash, and therefore was classified as held for sale. As a result of entering into the agreement, a charge of $12 was recognized related to a non-cash impairment of the net book value of the business, primarily properties, plants, and equipment in the first quarter of 2020, which was recorded in Restructuring and other charges in the Statement of Consolidated Operations. As the sale did not close, the Company changed the classification from held for sale to

held for use in the second quarter of 2020.

R. Contingencies and Commitments

Contingencies

The following information supplements and, as applicable, updates the discussion of the contingencies and commitments in Note V to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020, and should be read in conjunction with the complete descriptions provided in the Form 10-K.

Environmental Matters

Howmet participates in environmental assessments and cleanups at more than 30 locations. These include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)) sites.

The Company’s remediation reserve balance was $10 at March 31, 2021 and $10 at December 31, 2020, recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which $5 and $5, respectively, were classified as a current liability), and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. Payments related to remediation expenses applied against the reserve were less than $1 in the first quarter ended March 31, 2021 and included expenditures currently mandated, as well as those not required by any regulatory authority or third party.

Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be less than 1% of Cost of goods sold.

Reynobond PE

With respect to the regulatory investigations into the Grenfell Tower matter, including the Public Inquiry by the British government, no update is available.

Pursuant to the Separation and Distribution Agreement, dated as of March 31, 2020, Arconic Corporation agreed to indemnify the Company for certain liabilities and the Company agreed to indemnify Arconic Corporation for certain liabilities. As a result of the Arconic Inc. Separation ~~Transaction. Inception~~Transaction, Arconic Corporation holds the building and construction systems businesses previously held by the Company and Arconic Architectural Products SAS (“AAP SAS”) is a subsidiary of Arconic Corporation; accordingly, Arconic Corporation has agreed to ~~date costs recorded~~assume and indemnify the Company against potential liabilities associated with the June 13, 2017 fire at the Grenfell Tower in ~~Selling, general administrative,~~London, U.K., including the following legal proceedings in which Arconic Inc. and/or its then directors were named as parties:

United Kingdom Litigation. On December 23, 2020, claimant groups comprised of survivors and ~~other expenses were $116~~estates of decedents of the Grenfell Tower fire filed suits in the U.K. arising from that fire, against 23 defendants, including Howmet Aerospace Inc., AAP SAS, and Arconic Corporation. The Company has recently been served with claim forms in the proceedings, which contain brief details of the claims. However, the suits remain at a preliminary stage, and the Company is still waiting to be served with full particulars of the claimants’ substantive allegations and the relief that claimants seek. Following a recent application by legal representatives acting for the claimant groups, the current stay of the suits has been extended until July 7, 2021, when they will be heard together at a case management hearing in the High Court in London on July 7-8, 2021.

Behrens et al. v. Arconic Inc. et al. On June 6, 2019, 247 plaintiffs comprised of survivors and estates of decedents of the Grenfell Tower fire filed a complaint against “Arconic Inc., Alcoa Inc. and Arconic Architectural Products, LLC” (collectively, for purposes of the description of such proceeding, the “Arconic Defendants”), as well as Saint-Gobain Corporation, d/b/a Celotex and Whirlpool Corporation alleging claims under Pennsylvania state law for products liability and wrongful death related to the fire. The case was removed to the United States District Court for the Eastern District of Pennsylvania. Defendants moved to dismiss the case on numerous grounds, including forum non conveniens. Defendant Saint-Gobain Corporation was subsequently voluntarily dismissed from the case. On September 16, 2020, the court issued an order granting the remaining defendants’ motion to dismiss on forum non conveniens grounds, subject to certain conditions, determining that the United Kingdom, and not the United States, is the appropriate place for plaintiffs to bring their case. Plaintiffs subsequently filed a motion for reconsideration, which the court denied on November 23, 2020. Plaintiffs are appealing the judgment; the Arconic Defendants are cross-appealing one of the conditions. Plaintiffs filed their opening appeal brief on March 8, 2021; the Arconic Defendants’ opening brief was filed on April 21, 2021.

With respect to the Howard v. Arconic Inc. et al. and Raul v. Albaugh, et al. proceedings, no updates to such proceedings are available.

While there can be no assurances regarding the ultimate resolution of these matters, Arconic Corporation has agreed to assume and indemnify the Company against potential liabilities associated with them.

Lehman Brothers International (Europe) (“LBIE”) Claim. On June 26, 2020, LBIE filed formal proceedings against two Firth Rixson entities (“Firth”) in the High Court of Justice, Business and Property Courts of England and Wales. The proceedings relate to interest rate swap transactions that Firth entered into with LBIE in 2007 to 2008. In 2008, LBIE commenced insolvency proceedings, an event of default under the agreements, rendering LBIE unable to meet its obligations under the swaps and suspending Firth’s payment obligations. In the Court proceedings, LBIE seeks a declaration that Firth has a contractual obligation to pay the amounts owing to LBIE under the agreements, which LBIE claims to be approximately $64, plus applicable interest. The parties filed position papers on July 24, 2020 and October 19, 2020 (LBIE) and September 21, 2020 (Firth). A virtual hearing in this matter occurred on January 13 and 14, 2021 in London, England. A decision is expected within six months of the January 2021 hearing. The Company believes it has meritorious defenses and intends to vigorously defend against these claims.

Other

Commitments

Guarantees

At March 31, 2021, Howmet had outstanding bank guarantees related to tax matters, outstanding debt, ~~issuance costs~~workers’ compensation, environmental obligations, energy contracts, and ~~capital expenditures~~customs duties, among others. The total amount committed under these guarantees, which expire at various dates between 2021 and 2040, was $33 at March 31, 2021.

Pursuant to the Separation and Distribution Agreement between Howmet and Alcoa Corporation, Howmet was required to provide certain guarantees for Alcoa Corporation, which had a fair value of ~~$45~~$6 and ~~$10,~~$12 at March 31, 2021 and December 31, 2020, respectively, and were included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet. The Company was required to provide a guarantee up to an estimated present value amount of approximately $1,356 and $1,398 at March 31, 2021 and December 31, 2020, respectively. For this guarantee, subject to its provisions, the Company is secondarily liable in the event of a payment default by Alcoa Corporation. The Company currently views the risk of an Alcoa Corporation payment default on its obligations under the contract to be remote.

Letters of Credit

The Company has outstanding letters of credit, primarily related to workers’ compensation, environmental obligations, accounts receivable securitization and leasing obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, mostly in 2021, was $113 at March 31, 2021.

Pursuant to the Separation and Distribution Agreements between the Company and Arconic Corporation and between the Company and Alcoa Corporation, the Company is required to retain letters of credit of $53 that had previously been provided related to the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 2016. Arconic Corporation and Alcoa Corporation workers’ compensation and letters of credit fees paid by the Company are being proportionally billed to and are being reimbursed by Arconic Corporation and Alcoa Corporation, respectively. Also, the Company was required to provide letters of credit for certain Arconic Corporation environmental obligations and, as a result, the Company has $23 of outstanding letters of credit relating to liabilities (which are included in the $113 in the above paragraph). $6 of these outstanding letters of credit are pending cancellation and will be deemed cancelled once returned by the beneficiary. Arconic Corporation has issued surety bonds to cover these environmental obligations. Arconic Corporation is being billed for these letter of credit fees paid by the Company and will reimburse the Company for any payments made under these letters of credit.

Surety Bonds

The Company has outstanding surety bonds, primarily related to tax matters, contract performance, workers’ compensation, environmental-related matters, and customs duties. The total amount committed under these annual surety bonds, which expire and automatically renew at various dates, primarily in 2021, was $46 at March 31, 2021.

Pursuant to the Separation and Distribution Agreements between the Company and Arconic Corporation and between the Company and Alcoa Corporation, the Company is required to provide surety bonds of $25 (which are included in the $46 in the above paragraph) that had previously been provided related to the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 2016. Arconic Corporation and Alcoa Corporation workers’ compensation claims paid and surety bond fees paid by the Company are being proportionately billed to and are being reimbursed by Arconic Corporation and Alcoa Corporation.

S. Subsequent Events

Management evaluated all activity of ~~the Company~~Howmet and concluded that no subsequent events have occurred that would require recognition in the Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial Statements, except as noted below:

See Note NO for ~~details of both~~ the ~~issuance and~~ early redemption of ~~debt and changes to the Company's credit facilities.~~debt.

~~See Note~~ R ~~for updates on the Arconic Inc. Separation Transaction.~~

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

(dollars in millions, except per share ~~amounts; shipments in thousands of metric tons [kmt])~~amounts)

Overview

On April 1, 2020, Howmet Aerospace Inc. (formerly known as Arconic ~~Inc) ("Howmet"~~Inc.) (“Howmet” or the “Company”) completed the ~~previously announced~~ separation of its business into two independent, publicly-traded companies (the “Arconic Inc. Separation Transaction”). Following the Arconic Inc. Separation Transaction, Arconic Corporation holds the Global Rolled Products businesses (global rolled products, aluminum extrusions, and building and construction systems) previously held by the Company. The Company retained the Engineered Products and Forgings businesses ~~(engine products, fastening systems, engineered structures,~~(Engine Products, Engineered Structures, Fastening Systems, and ~~forged wheels)~~Forged Wheels).

~~The Company's Board of Directors approved the completion of the Arconic Inc~~. Separation Transaction on February 5, 2020, which was effected by the distribution (the “Distribution”) by the Company of all of the outstanding common stock of Arconic Corporation on April 1, 2020 to the Company’s stockholders who held shares as of the close of business on March 19, 2020 (the “Record Date”). In the Distribution, each Company stockholder of record as of the Record Date received one share of Arconic Corporation common stock for every four shares of the Company’s common stock held as of the Record Date. The Company did not issue fractional shares of Arconic Corporation common stock in the Distribution. Instead, each stockholder otherwise entitled to a fractional share of Arconic Corporation common stock received cash in lieu of fractional shares.

~~On March 31, 2020, in connection with the Arconic Inc~~. ~~Separation Transaction, the Company entered into several agreements with Arconic Corporation that~~ ~~govern the relationship~~ ~~between~~ the Company and Arconic Corporation following the Distribution, including the following: a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, Transition Services Agreement and certain Patent, Know-How, Trade Secret License and Trademark License Agreements.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~includes~~excludes the historical results of Arconic Corporation, as the Arconic Inc. Separation Transaction ~~did not take place until~~occurred on April 1, ~~2020, after the most recent period reported in this Form 10-Q. In future filings, the historical~~2020. The financial results of ~~the businesses that comprise~~ Arconic Corporation ~~will be presented as discontinued operations in the Company’s Consolidated Financial Statements. As a result of~~for all periods prior to the Arconic Inc. Separation Transaction have been retrospectively reflected in the ~~information~~Statement of Consolidated Operations as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The cash flows, comprehensive income, and equity related to Arconic Corporation have not been segregated and are included in ~~this Management’s Discussion~~the Statement of Consolidated Cash Flows, Statement of Consolidated Comprehensive Income and ~~Analysis~~Statement of ~~Financial Condition and Results of Operations is not necessarily indicative of~~Changes in Consolidated Equity, respectively, for all periods prior to the ~~post-separation Company’s future financial position, results of operations or cash flows.~~Arconic Inc. Separation Transaction.

COVID-19

~~The~~Year to date 2021, the Company ~~derives a significant portion~~derived approximately 60% of its revenue from products sold to the aerospace ~~end-market, including 71% of our Engineered Products and Forgings reportable segment.~~end-market. As a result of ~~COVID-19~~the global coronavirus (“COVID-19”) pandemic and its impact on the aerospace industry to-date, the possibility exists that there could be a sustained impact to our operations and ~~our~~ financial results. ~~Certain~~Since the start of the pandemic, certain original equipment manufacturer (“OEM”) customers have reduced production or suspended manufacturing operations in North America and Europe on a temporary basis. ~~These suspensions,~~While the ~~duration of which is uncertain, are impacting operations at certain of our facilities resulting~~pandemic has resulted in the temporary closure of a small number of the Company's manufacturing ~~facilities. As a result,~~facilities during 2020, all of our manufacturing facilities are currently operating. Since the ~~Company~~duration of the pandemic is ~~taking~~uncertain, management has taken a series of actions to address the financial impact, including announcing certain headcount reductions and reducing ~~certain cash outflows, by suspending our dividends and reducing~~ the ~~levels~~level of ~~our~~ capital expenditures to preserve cash and maintain liquidity. Although the impact of COVID-19 on the Company’s 2020 outlook remains highly uncertain, we expect this situation to have an adverse impact on its 2020 financial performance and has withdrawn the 2020 guidance and assumptions that were provided in February 2020.

For additional information regarding the risks of COVID-19 on our business, see section Part I, Item 1A in the ~~section entitled “Item 1A. Risk Factors—~~Company’s Annual Report on Form 10-K for the year ended December 31, 2020, “Risk Factors — Our business, results of operations, financial condition and/or cash flows have been and could continue to be materially adversely affected by the effects of ~~widespread public health epidemics/pandemics, including~~the COVID-19 ~~that are beyond our control.~~pandemic.”

Results of Operations

Earnings Summary:

Sales. Sales were ~~$3,209~~$1,209 in the first quarter of ~~2020~~2021 compared to ~~$3,541~~$1,634 in the first quarter of ~~2019.~~2020. The decrease of ~~$332,~~$425, or 9%26%, in the first quarter of ~~2020,~~2021 was primarily due to lower sales volumes in the commercial ~~transportation, automotive, and~~ aerospace ~~end markets~~market driven by the impacts of COVID-19, and Boeing 737 MAX (“737 MAX”) and Boeing 787 production declines; a decrease in sales of $66 from the divestitures of the hard alloy extrusions plant in South Korea (March 2020), the aluminum rolling mill in Itapissuma, Brazil ( February 2020), and the forgings business in the United Kingdom (December 2019); and lower aluminum prices,declines, partially offset by growth in the commercial transportation, defense aerospace and industrial gas turbine markets as well as favorable product ~~mix and higher volumes in the industrial end market.~~pricing of $17.

Cost of goods sold ~~("COGS")~~(COGS). COGS as a percentage of Sales was ~~77.2%~~72.2% in the first quarter of ~~2020~~2021 compared to ~~79.6%~~72.4% in the first quarter of ~~2019.~~2020. The decrease in the first quarter of ~~2020~~2021 was primarily due to net ~~cost~~costs savings and ~~lower aluminum prices, partially offset by lower volumes, impairment costs related to facilities closures~~favorable product pricing. Additionally, in 2020, the Company recorded total COGS charges of ~~$3, and costs~~$11 related to fires that occurred at ~~two plants~~a Fastening Systems’ plant in France in 2019 and at a Forged Wheels plant in Barberton, Ohio in mid-February 2020. The Company recorded total COGS charges of

~~$11.~~ $9 related to the fires at France and Barberton in 2021. The Company anticipates additional charges of approximately ~~$10~~$3 to ~~$15~~$7 in the second quarter of ~~2020,~~2021, with ~~additional~~further impacts in subsequent quarters as the businesses continue to recover from the fires. ~~The Company has insurance with a deductible of $10 for each plant.~~

Selling, general administrative, and other expenses ~~("SG&A").~~(SG&A). SG&A expenses were ~~$169~~$65 in the first quarter of 2021 compared to $79 in the first quarter of 2020. The decrease of $14, or 18%, in the first quarter of 2021 was primarily due to overhead cost reductions as well as costs incurred in the first quarter of 2020 ~~compared to $178~~associated with the Arconic Inc. Separation Transaction.

Research and development expenses (R&D). R&D expenses were $5 in the first quarter of ~~2019. The decrease of $9, or 5%,~~2021 compared to $4 in the first quarter of 2020, ~~was primarily due to lower costs driven by overhead cost reductions, a decrease~~an increase of ~~$6 in strategy and portfolio review costs, and a decrease of $2 in legal~~$1, or 25%.

Restructuring and other ~~advisory costs related~~charges. Restructuring and other charges were $9 in the first quarter of 2021 compared to ~~Grenfell Tower, partially offset by higher costs associated with the Arconic Inc. Separation Transaction of $35.~~

~~Research and development expenses ("R&D").R&D expenses were $15~~$39 in the first quarter of 2020 ~~compared to $22 in~~or a decrease of $30.

Restructuring and other charges for the first quarter of ~~2019. The decrease~~2021 were primarily comprised of ~~$7, or 32%,~~a $4 charge for impairment of assets associated with an agreement to sell a small manufacturing business in ~~the first quarter of 2020 was primarily due to the consolidation of the Company's primary R&D facility in conjunction with ongoing cost reduction efforts.~~

~~Restructuring~~France and ~~other charges.~~ ~~Restructuring and other charges was $21 in the first quarter of 2020 compared to $12 in the first quarter of 2019.~~a $3 charge for U.S. pension plans' settlement accounting.

Restructuring and other charges for the first quarter of 2020 were primarily ~~included severance~~comprised of a $22 charge for layoff costs ~~of $22 and charges for asset impairments of $24, partially offset by the gain on sale of an extrusions plant of $27.~~

~~Restructuring and other charges for the first quarter of 2019 primarily included severance costs of $67,~~ partially offset by a benefit of ~~$58~~$2 related to the ~~elimination~~reversal of ~~life insurance benefits~~a number of prior period program reserves, a $12 charge for ~~U.S. salaried~~impairment of assets associated with an agreement to sell a small manufacturing business in the U.K., and ~~non-bargained hourly retirees~~a $6 post closing adjustment related to the sale of the ~~Company and its subsidiaries.~~Company’s U.K. forgings business that occurred in December 2019.

See Note E to the Consolidated Financial Statements for additional detail.

Interest ~~expense.~~expense. Interest expense was ~~$91~~$72 in the first quarter of ~~2020~~2021 compared to ~~$85~~$84 in the first quarter of ~~2019.~~2020. The ~~increase~~decrease of ~~$6,~~$12, or 7%14%, in the first quarter of ~~2020~~2021 was primarily due to ~~higher~~lower debt outstanding ~~resulting from new debt issued~~in the first quarter of 2021 driven by the early redemption of $1,000, $889, and $151 of the principal amounts of the 6.150% Notes due 2020, 5.400% Notes due 2021 (the “5.400% Notes”) and 5.870% Notes due 2022 (the “5.870% Notes”), respectively, in the second quarter of 2020 and $361 of the principal amount of the 5.400% Notes, which was offset by the issuance on April 24, 2020 of the 6.875% Notes due 2025 in the aggregate principal amount of $1,200.

Other expense (income), net. Other expense, net was $4 in the first quarter of 2021 compared to Other income, net of $24 in the first quarter of 2020. ~~See Note~~ N ~~to the Consolidated Financial Statements.~~

~~Other expense, net.~~ ~~Other expense, net was $17 in the first quarter~~The increase of ~~2020 compared to $32 in the first quarter of 2019. The decrease of $15,~~$28, or ~~47%~~117%, in the first quarter of ~~2020~~2021 was primarily due to the impacts of deferred compensation arrangements of $16 related to investment performance which were favorable in the first quarter of 2020 but unfavorable of $10 in the first quarter of 2019, and lower non-service related net periodic benefit cost, partially offset by unfavorable foreign currency$12 and lower interest ~~income.~~income of $4.

Provision for income taxes. The tax rate including discrete items was ~~26.1%~~29.2% in the first quarter of ~~2020~~2021 compared to ~~27.2%~~22.7% in the first quarter of ~~2019.~~2020. A discrete tax benefit of $8$1 was recorded in the first quarter of ~~2020~~2021 compared to ~~a discrete tax charge of $1~~$8 in the first quarter of ~~2019.~~2020. The estimated annual effective tax rate, before discrete items, applied to ordinary income was ~~27.9%~~30.4% in the first quarter of ~~2020~~2021 compared to ~~25.9%~~26.9% in the first quarter of ~~2019.~~2020. See Note GH to the Consolidated Financial Statements.

Net ~~income~~Income from Continuing Operations.~~. Net income~~ Income from continuing operations was ~~$215~~$80, or $0.18 per diluted share, in the first quarter of ~~2020,~~2021 compared to $153, or ~~$0.49~~$0.35 per diluted share, ~~compared to $187~~ in the first quarter of ~~2019,~~2020. The decrease of $73, or ~~$0.39 per diluted share. The increase of $28~~48%, in the first quarter of ~~2020~~2021 was primarily due to ~~net cost savings,~~a reduction in operating income of $69 due to lower ~~Other~~sales volumes in the commercial aerospace market driven by the impacts of COVID-19, and 737 MAX and Boeing 787 production declines and an increase in other expense ~~net, SG&A, Provision for depreciation and amortization, and R&D expenses,~~of $28, partially offset by ~~lower volumes,~~a reduction in interest expense of $12 and ~~higher Restructuring and other charges, Interest expense, and Provision~~a decrease in the provision for income ~~taxes.~~taxes of $12.

Net Income. As the Arconic Inc. Separation Transaction occurred on April 1, 2020, there is no income from discontinued operations for the first quarter of 2021. Net income was $80 for the first quarter of 2021 all of which was composed of $80 of income from continuing operations, or $0.18 per diluted share.

Net income was $215 for the first quarter of 2020 composed of $153 of income from continuing operations and $62 from discontinued operations, or $0.35 and $0.14 per diluted share, respectively.

Segment Information

The Company’s operations consist of four worldwide reportable segments: Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels. Segment performance under ~~the Company's~~Howmet’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Segment operating profit. ~~The Company's~~Howmet's definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and ~~other charges and Impairment of goodwill.~~Other charges. Segment operating profit may not be comparable to similarly titled measures of other companies. Differences between segment totals and consolidated ~~totals~~Howmet are in Corporate. (See Note D to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a description of each segment).

In the ~~third~~second quarter of ~~2019,~~2020, the Company realigned its operations by eliminating its Transportation and Construction Solutions ("TCS") segment and transferring the Forged Wheels business to its Engineered Products and Forgings ("EP&F") segment and the Building and Construction Systems ("BCS") business to its Global Rolled Products ("GRP") segment, consistent with how the ~~Chief~~Co-Chief Executive ~~Officer was assessing~~Officers assess operating performance and allocating capital in conjunction with the Arconic Inc. Separation Transaction (see Note RB to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q). Prior period financial information has been recast to conform to current year presentation.

The Company produces aerospace engine parts and components and aerospace fastening systems ~~and aluminum sheet and plate products~~ for ~~Boeing~~ 737 MAX airplanes. The temporary reduction in the production rate of the 737 MAX airplanes that was announced by Boeing in April 2019 did not have a significant impact on the Company's sales or segment operating profit in 2019. In late December 2019, Boeing announced a temporary suspension of production of the 737 MAX airplanes. This decline in production had a negative impact on sales and segment operating profit in the ~~EP&F~~Engine Products, Fastening Systems and ~~GRP segments~~Engineered Structures segments. While regulatory authorities in the ~~first quarter~~United States and certain other jurisdictions lifted grounding orders beginning in late 2020, our sales could continue to be negatively affected from the residual impacts of ~~2020. The Company expects~~ the ~~reduction in~~ 737 MAX ~~production rates to continue to have a negative impact on 2020 financial performance throughout the year~~

~~Engineered Products and Forgings~~

First quarter ended
March 31,
2020 2019
Third-party sales $ 1,631 $ 1,756
Segment operating profit 339 313
grounding.

Engine Products


	First quarter ended
	March 31,
	2021		2020
Third-party sales	$	534	$	781


Segment operating profit	101		165

Third-party sales for the ~~Engineered~~Engine Products ~~and Forgings~~ segment decreased ~~$125,~~$247, or 7%32%, in the first quarter of ~~2020~~2021 compared to the first quarter of ~~2019,~~2020, primarily due to lower commercial aerospace volumes from production declines for the 737 MAX and COVID-19 productivity impacts, partially offset by higher volumes in the defense aerospace and industrial gas turbines end markets as well as favorable product pricing.

Segment operating profit for the Engine Products segment decreased $64, or 39%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to lower commercial aerospace volumes from production declines for the 737 MAX and COVID-19 productivity impacts, partially offset by cost reductions, favorable sales volumes in the defense aerospace and industrial gas turbine end markets, and favorable product pricing.

In 2021 compared to 2020, demand in industrial gas turbines and defense aerospace end markets is expected to increase while demand in the commercial aerospace end market is expected to be down driven by the impact of COVID-19. Favorable product pricing and cost reductions are expected to continue.

Fastening Systems


	First quarter ended
	March 31,
	2021		2020
Third-party sales	$	272	$	385


Segment operating profit	45		96

Third-party sales for the Fastening Systems segment decreased $113, or 29%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to lower volumes in the commercial ~~transportation and~~ aerospace end ~~markets~~market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production ~~declines and a decrease in sales of $32 from the divestiture of the forgings business in the U.K. (December 2019) (see Note~~ P ~~to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q).~~declines.

Segment operating profit for the ~~Engineered Products and Forgings~~Fastening Systems segment ~~increased $26,~~decreased $51, or 8%53%, in the first quarter of ~~2020~~2021 compared to the first quarter of ~~2019, primarily due to net cost savings, lower raw material costs, and price increases, partially offset by lower volumes as noted above.~~

~~Global Rolled Products~~

First quarter ended
March 31,
2020 2019
Third-party sales $ 1,578 $ 1,784
Intersegment sales 35 52
Total sales $ 1,613 $ 1,836
Segment operating profit 169 135
Third-party aluminum shipments (kmt) 312 331

~~Third-party sales for the Global Rolled Products segment decreased $206, or 12%, in the first quarter of~~ 2020, ~~compared to the first quarter of 2019,~~ primarily due to lower volumes in the ~~automotive,~~ commercial ~~transportation, and~~ aerospace end ~~markets~~market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, lower aluminum prices, and a decrease in sales of $34 from the divestitures of the aluminum rolling mill in Itapissuma, Brazil (February 2020) and the hard alloy extrusions plant in South Korea (March 2020) (see Note P ~~to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q),~~ partially offset by ~~increased industrial volumes as a result~~cost reductions.

In 2021 compared to 2020, demand in the commercial aerospace end market is expected to be down driven by the impact of ~~the Tennessee transition~~COVID-19. Favorable cost reductions are expected to ~~industrial products.~~continue.

~~Segment operating profit~~Engineered Structures


	First quarter ended
	March 31,
	2021		2020
Third-party sales	$	176	$	275


Segment operating profit	10		28

Third-party sales for the ~~Global Rolled Products~~Engineered Structures segment ~~increased $34,~~decreased $99, or ~~25%~~36%, in the first quarter of ~~2020~~2021 compared to the first quarter of ~~2019,~~2020, primarily due to ~~net cost savings, aluminum prices, and favorable~~lower volumes in the ~~industrial~~commercial aerospace end market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by higher volumes in the defense aerospace end market.

Segment operating profit for the Engineered Structuressegment decreased $18, or 64%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to lower volumes ~~noted above.~~in the commercial aerospace end market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by higher volumes in the defense aerospace end market and cost reductions.

In 2021 compared to 2020, demand in the commercial aerospace end market is expected to be down driven by the impact of COVID-19. Favorable cost reductions are expected to continue.

Forged Wheels


	First quarter ended
	March 31,
	2021		2020
Third-party sales	$	227	$	191


Segment operating profit	70		50

Third-party sales for the Forged Wheels segment increased $36, or 19%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to higher volumes in the North America commercial transportation end market.

Segment operating profit for the Forged Wheels segment increased $20, or 40%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to higher commercial transportation sales volumes and cost reductions.

In 2021 compared to 2020, demand in the commercial transportation markets served by Forged Wheels is expected to increase in most regions. Commercial transportation OEMs are expected to increase output as global economies recover from 2020 COVID-19 lows. However, sales in the Forged Wheels segment could be negatively impacted by customer supply chain constraints.

Reconciliation of Income from continuing operations before income taxes to Total segment operating profit


	First quarter ended
	March 31,
	2021		2020
Income from continuing operations before income taxes	$	113	$	198
Interest expense	72		84
Other expense (income), net	4		(24)
Consolidated operating income	$	189	$	258
Unallocated amounts:
Restructuring and other charges	9		39
Corporate expense	28		42
Total segment operating profit	$	226	$	339

Total segment operating profit is a non-GAAP financial measure. Management believes that this measure is meaningful to ~~Consolidated income before income taxes~~

See Restructuring and other charges, Interest expense, and Other expense (income), net discussions above under Results of Operations for reference.

Corporate expense ~~increased $26,~~decreased $14, or ~~42%~~33%, in the first quarter of ~~2020~~2021 compared towith the first quarter of ~~2019,~~2020 primarily due to ~~higher~~ costs associated with the Arconic Inc. Separation Transaction of ~~$35~~$4 and impairment costs related to ~~facilities~~facility closures of $3 ~~partially offset~~incurred in 2020 that did not recur in 2021 and lower costs driven by ~~a decrease of $6 in strategy and portfolio review costs, and a decrease of $2 in legal and other advisory costs related to Grenfell Tower.~~overhead cost reductions.

Environmental Matters

See the Environmental Matters section of Note QR to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Subsequent Events

See Note NS to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for ~~details~~subsequent events.

Liquidity and Capital Resources

As previously disclosed, during the third quarter of ~~both~~2020, the ~~issuance~~Company identified a misclassification in the presentation of changes in accounts payable and ~~early redemption~~capital expenditures in its previously issued Statement of ~~debt~~Consolidated Cash Flows for the first quarter ended March 31, 2020 and ~~changes~~six months ended June 30, 2020. Although management has determined that such misclassification did not materially misstate the Statement of Consolidated Cash Flows for the first quarter ended March 31, 2020 or six months ended June 30, 2020, the Company revised the first quarter, resulting in an $83 increase to previously reported capital expenditures and decrease to cash provided from investing activities with a corresponding reduction (decrease) in accounts payable, trade and increase in cash provided by operations.

The cash flows related to Arconic Corporation have not been segregated and are included in the Statement of Consolidated

Cash Flows for all periods prior to the ~~Company's credit facilities.~~

Arconic Inc. Separation Transaction. See Note RA to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for ~~updates on the Arconic Inc. Separation Transaction.~~reference.

~~Liquidity and Capital Resources~~

Operating Activities

Cash used for operations was ~~$291~~$6 in the three months ended March 31, ~~2020,~~2021 compared to ~~$258~~$208 in the three months ended March 31, ~~2019.~~2020. The decrease in cash used for operations of ~~$33,~~$202, or ~~13%~~97%, was ~~primarily~~ due to ~~higher~~lower operating results of $256 which were more than offset by lower working capital of ~~$68~~$408, lower pension contributions of $27, and ~~an unfavorable change in~~ noncurrent liabilities of ~~$19, partially offset by higher operating results of $54.~~$25. The components of the change in working capital included ~~unfavorable~~favorable changes in receivables of ~~$280 in~~$66, inventories of $156, accounts payable ~~and $104 in~~of $158, accrued expenses ~~partially~~of $81, and prepaid expenses and other current assets of $25, offset by ~~favorable changes of $279 in receivables and $43 in~~ taxes, including income ~~taxes.~~taxes of $78.

Financing Activities

Cash used for financing activities was $368 in the three months ended March 31, 2021 compared to cash provided from financing activities ~~was~~of $1,145 in the three months ended March 31, ~~2020 compared to Cash used for financing activities of $741 in the three months ended March 31, 2019.~~2020. The change of ~~$1,886,~~$1,513, or ~~255%~~132%, was primarily due to debt issued ~~for~~of $1,200 in the first quarter of 2020 (which went with Arconic Corporation in ~~connection with~~ the Arconic Inc. Separation ~~Transaction (see~~Transaction) partially offset by debt issuance costs of $44, while the first quarter of 2021 had payments on the redemption of long-term debt of $361. (See Note NO to the Consolidated Financial Statements in Part I, Item 1 of this Form ~~10-Q)~~10-Q for reference). On an annual basis, the redemption of ~~$1,200,~~the 5.400% Notes and the 5.870% Notes will decrease Interest expense, net by approximately $47.

Howmet expects to re-instate a ~~decrease in repurchases~~quarterly dividend of $0.02 per share of the Company’s common stock, beginning in the third quarter 2021, subject to the discretion and final approval of ~~$700.~~the Board of Directors each quarter after the Board’s consideration of all factors it deems relevant and subject to applicable law and contractual considerations.

The Company maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein. ~~In addition~~On March 29, 2021, the Company entered into another amendment to ~~the~~its Credit Agreement ~~the Company has a number of other credit agreements.~~to provide extended relief from its existing financial covenant through December 31, 2022. See Note NO to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference.

The Company may in the future repurchase additional portions of its debt or equity securities from time to time, in either the open market or through privately negotiated transactions, in accordance with applicable SEC and other legal requirements. The timing, prices, and sizes of purchases depend upon prevailing trading prices, general economic and market conditions, and other factors, including applicable securities laws.

The Company’s costs of borrowing and ability to access the capital markets are affected not only by market conditions but also by the ~~short-~~short and long-term debt ratings assigned to the Company by the major credit rating agencies.

The Company's credit ratings from the three major credit rating agencies are as follows:

~~Long-Term Debt~~Issuer Rating

~~Short-Term Debt~~

Outlook

Date of Last Update

Standard and Poor’s Ratings Service (S&P)

~~BBB-~~BB+

~~A-3~~

Negative

~~April 22,~~September 9, 2020

Moody’s Investors Service (Moody’s)

~~Ba3~~Ba2

~~Speculative Grade Liquidity-2~~

~~Negative~~

~~April 23, 2020~~

~~Fitch~~

~~BBB-~~

Stable

April ~~22, 2020~~20, 2021

Fitch Investors Service (Fitch)

BBB-

Stable

March 26, 2021

On March 26, 2021, Fitch affirmed the following ratings for Howmet: long-term debt at BBB- and the current outlook as stable.

On April 20, 2021, Moody’s upgraded Howmet’s long-term debt rating from Ba3 to Ba2 and the current outlook from negative to stable, citing the Company’s considerable revenues and well-established market position.

Investing Activities

Cash provided from investing activities was ~~$94~~$3 in the three months ended March 31, ~~2020~~2021 compared to ~~$42~~$11 in the three months ended March 31, ~~2019.~~2020. The ~~increase~~decrease in cash provided from investing activities of ~~$52,~~$8, or ~~124%~~73%, was primarily due to ~~a decrease in capital expenditures of $99, an increase in~~ proceeds from the sale of assets and business of ~~$110 (see Note~~ N$114 primarily related to the ~~Consolidated Financial Statements~~sale of a hard extrusions plant in ~~Part I Item 1~~South Korea and an aluminum rolling mill in Brazil in the first quarter of ~~this Form 10-Q)~~2020 (both of which related to Arconic Corporation), ~~partially~~substantially offset by a decrease in ~~sales~~capital expenditures of ~~investments of $47~~$97 and ~~a decrease~~increase in cash receipts from sold receivables of ~~$112.~~

~~Critical Accounting Policies and Estimates~~$9.

Goodwill. Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more frequently if indicators of impairment exist or if a decision is made to sell or realign a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash

flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. For the first quarter of ~~2020,~~2021, Howmet had ~~seven~~four reporting units ~~of which four were included in the EP&F segment (Fastening~~(Engine Products, Fastening Systems, Engineered Structures ~~Engine Products,~~ and Forged Wheels)~~, and three were included in the GRP segment (Global Rolled Products, Aluminum Extrusions, and BCS.)~~.

In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the quantitative impairment test (described below), otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the quantitative impairment test.

~~Howmet~~The Company determines annually, based on facts and circumstances, which of its reporting units will be subject to the qualitative assessment. For those reporting units where a qualitative assessment is either not performed or for which the conclusion is that an impairment is more likely than not, a quantitative impairment test will be performed. Howmet’s policy is that a quantitative impairment test be performed for each reporting unit at least once during every three-year period.

Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact they would have on the estimated fair value using positive, neutral, and adverse categories based on current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using high, medium, and low weighting. Furthermore, management considers the results of the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital ~~(WACC)~~(“WACC”) between the current and prior years for each reporting unit.

During the first quarter of 2020, Howmet’s market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, sales globally to customers in the aerospace and commercial transportation industries ~~that are~~ impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test in the first quarter to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this assessment, the Company performed a quantitative impairment test in the first quarter for the Engineered Structures reporting unit and concluded that though the margin between the fair value of the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not impaired. Consistent with prior practice, a discounted cash flow model was used to estimate the current fair value of the reporting unit. The significant

assumptions and estimates utilized to determine fair value were developed utilizing current market and forecast information reflecting the disruption in demand that has had and is expected to ~~negatively~~have a negative impact on the Company’s global sales ~~globally~~ in the aerospace industry. Since the first quarter of 2020, the Company did not identify an indication of impairment of goodwill related to any of its reporting units or indefinite-lived intangible assets.

In the first quarter of 2021, there was no indication of impairment identified for any reporting unit as the margin between fair value of the reporting unit and its carrying value exceeded 20%. As such, the fair values of all of our reporting units substantially exceeded their carrying values at March 31, 2021. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and could be material.

Recently Adopted and Recently Issued Accounting Guidance

See Note BC to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Forward-Looking Statements

This report contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect Howmet’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements, forecasts and ~~expectations~~outlook relating to the ~~growth~~condition of ~~the aerospace, automotive, commercial transportation and other~~ end markets; ~~statements and guidance regarding~~ future financial results, operating performance, or ~~operating performance; statements regarding~~estimated or expected future capital expenditures; future strategic actions; ~~and statements about~~ Howmet’s strategies, outlook, and business and financial ~~prospects.~~prospects; and any future dividends or share repurchases. These statements reflect beliefs and assumptions that are based on Howmet’s perception of historical trends,

current conditions and expected future developments, as well as other factors Howmet believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict, which could cause actual results to differ materially from those indicated by these statements. Such risks and uncertainties include, but are not limited to: ~~(a)~~a) uncertainty of the duration, extent and impact of the ~~separation~~COVID-19 pandemic on Howmet’s business, results of ~~Arconic Corporation from Howmet on the businesses of Howmet;~~operations, and financial condition; (b) deterioration in global economic and financial market conditions generally, including as a result of pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the COVID-19 ~~outbreak~~pandemic continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations); (c) unfavorable changes in the markets served by Howmet; (d) the impact of potential cyber attacks and information technology or data security breaches; (e) the loss of significant customers or adverse changes in customers’ business or financial conditions; (f) manufacturing difficulties or other issues that impact product performance, quality or safety; (g) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (h) the inability to achieve ~~the level of~~ revenue growth, cash generation, cost savings, restructuring plans, cost reductions, improvement in profitability, ~~and margins, fiscal discipline,~~ or strengthening of competitiveness and operations anticipated or targeted; ~~(e)~~(i) competition from new product offerings, disruptive technologies or other developments; ~~(f) political,~~(j) geopolitical, economic, and regulatory risks relating to Howmet’s global operations, including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (g) manufacturing difficulties or other issues that impact product performance, quality or safety; (h) Howmet’s inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, expansions, or joint ventures; (i) the impact of potential cyber attacks and information technology or data security breaches; (j) the loss of significant customers or adverse changes in customers’ business or financial conditions; (k) ~~adverse changes in discount rates or investment returns on pension assets; (l) the impact of changes in aluminum prices and foreign currency exchange rates on costs and results; (m)~~ the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet to substantial costs and liabilities; (l) failure to comply with government contracting regulations; (m) adverse changes in discount rates or investment returns on pension assets; and (n) ~~the possible impacts and our preparedness to respond to implications of COVID-19; and (o)~~ the other risk factors summarized in Howmet’s Form 10-K for the year ended December 31, ~~2019~~2020 and other reports filed with the U.S. Securities and Exchange Commission. Market projections are subject to the risks discussed above and other risks in the market. Howmet disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not material.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

The Company's Co-Chief Executive Officers and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the first quarter of ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

See Note QR to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Item 1.1A. Risk Factors.

~~Howmet’s business, financial condition and results of operations may be impacted by a number of factors. In addition to~~There have been no material changes from the risk factors ~~discussed elsewhere in this report,~~previously disclosed in Part I, Item 1A, ~~of Howmet’s~~“Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and in other reports filed by Howmet with the Securities and Exchange Commission, the following risks and uncertainties, updated from and in addition to those in the Form 10-K, could materially harm its business, financial condition or results of operations, including causing Howmet’s actual results to differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to Howmet or that Howmet currently deems immaterial also may materially adversely affect the Company in future periods.

Our business, results of operations, financial condition and/or cash flows could be materially adversely affected by the effects of widespread public health epidemics/pandemics, including COVID-19, that are beyond our control.

Any outbreaks of contagious diseases, public health epidemics or pandemics and other adverse public health developments in countries where we, our employees, customers and suppliers operate could have a material and adverse effect on our business, results of operations, financial condition and/or cash flows. Specifically, the recent novel strain of COVID-19, initially limited to a region in China and now affecting the global community on a pandemic basis, including the United States and Europe, is adversely impacting our operations, and the nature and extent of the impact over time is highly uncertain and beyond our control. The extent to which COVID-19 affects our operations over time will depend on future developments, which are highly uncertain, including the duration of the outbreak, the continued severity of the virus and the extent of actions that have been or may be taken to contain or treat its impact. These actions include, but are not limited to, declarations of states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations, many of which have been implemented across much of the globe and all of which have negatively affected our business. The longer the period of duration, the greater impact on our businesses and the heightened risk of a material adverse impact on business, results of operations, financial conditions and/or cash flows, as well as on our business strategies and initiatives. While the restrictions and limitations noted above may be relaxed or rolled back if and when COVID-19 abates, the actions may be reinstated as the pandemic continues to evolve. The scope and timing of any such reinstatements is difficult to predict and may materially affect our operations in the future. We continue to monitor guidelines proposed by federal, state and local governments with respect to the proposed “reopening” measures, which may change over time depending on public health, safety and other considerations. We are continuing to focus on the safety and protection of our workforce by continuing to implement additional safety protocols in light of COVID-19.

As a result of COVID-19 and the measures designed to contain its spread, our sales globally, including to customers in the aerospace and commercial transportation industries that are impacted by COVID-19, have been and are expected to be negatively impacted as a result of disruption in demand, which over time could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. The COVID-19 pandemic has already subjected our operations, financial performance and financial condition to a number of risks, including, but not limited to those discussed below:2020.

•Business and operations risks: We continue to monitor the evolving situation relating to COVID-19 to determine whether we will need to significantly modify our business practices or take actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, suppliers and shareholders. We have had a number of smaller manufacturing locations that have experienced or continue to experience periods of shutdowns. Future shutdowns will be dependent on facts and circumstances as they unfold, including based on the restrictions and limitations noted above. Additional shutdowns, while not required by governmental authorities, may be necessary to match our production of materials to the reduced demand of our customers. In addition, given these factors and potential further disruptions, we may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. We may also face challenges in restoring our production levels if and when COVID-19 abates, including as a result of government-imposed or other limitations that prevent the return of all or a portion of our workforce and/or continue to disrupt demand and limit the capabilities of our suppliers. We continue to monitor the situation, to assess further possible implications to our business, employees, customers and supply chain, and to take actions in an effort to mitigate adverse consequences. As a result of COVID-19 and its potential impact on the aerospace industry, the possibility exists that a sustained impact to our operations, financial results and market capitalization may require material impairments of our assets including, but

not limited to, goodwill, intangible assets, long-lived assets, and right-of-use assets. While we have already commenced plans to reduce costs, including announcing certain headcount reductions and reducing certain cash outflows, by suspending our dividends and reducing the levels of our capital expenditures, we cannot at this time predict the longer term impact of the COVID-19 pandemic, but it could have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

•Customer and supplier risks: We have limited visibility into future demand given the disruptions resulting from COVID-19. Several of our aerospace and commercial transportation customers have temporarily suspended operations, reduced operations and or taken cost-cutting actions, the duration and extent of which we cannot predict, including , but not limited to, General Electric Company, which represented approximately 13% of our Engineered Products and Forgings reportable segment third-party sales in 2019 and announced reductions in its workforce and plant closures, and The Boeing Company, an aerospace platform partner, which announced reductions in production at its North American operations. Due to these cost-cutting measures and others, we are experiencing, and expect to continue experiencing, lower demand and volume for products and services, customer requests for potential payment deferrals, pricing concessions or other contract modifications, delays of deliveries and the achievement of other billing milestones. These trends may lead to charges, impairments and other adverse financial impacts over time, as noted above, as we have historically depended upon the strength of these industries, particularly the aerospace industry. Similarly, our suppliers may not have the materials, capacity, or capability to manufacture our products according to our schedule and specifications. To date, we have not experienced significant disruption to our supply chain. If our suppliers’ operations were to be impacted, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers, each of which would affect our business, results of operations, financial condition and/or cash flows. The duration of the current disruptions to our customers and to our supply chain, and related financial impact to us, cannot be estimated at this time. Should such disruption continue for an extended period of time, the impact will have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Ultimately, the demand for our products is, in turn, driven by demand for transportation and for people to travel within and between various countries around the world. Should the COVID-19 outbreak cause a long term deterioration in demand for transportation or travel due to fear or anxiety related to health concerns, governmental restriction, economic hardships, or increased use of electronic communication technologies embraced during the COVID-19 related shutdowns, the effects of the COVID-19 virus on our business may extend well beyond the COVID-19 current health crisis and immediate related governmental actions.

•Market risks: The current financial market dynamics and volatility pose heightened risks to our liquidity. For example, dramatically lowered interest rates and lower expected asset valuations and returns can materially impact the calculation of long-term liabilities such as our pension. In addition, extreme volatility in financial and commodities markets has had and may continue to have adverse impacts on other asset valuations such as the value of the investment portfolios supporting our pension. Our long-term liabilities are sensitive to numerous factors and assumptions that can move in offsetting directions and should be considered as of the time of a relevant measurement event.

•Liquidity and credit risks: We currently have the ability to borrow up to $1.5 billion under our revolving credit agreement, which was amended on March 4, 2020. A prolonged period of generating lower financial results and cash from operations could adversely affect our ability to draw under such amended revolving credit agreement, could also adversely affect our financial condition, including in respect of satisfying both required and voluntary pension funding requirements, and could otherwise negatively affect our ability to achieve our strategic objectives. These factors could also adversely affect our ability to maintain compliance with the debt covenants under our amended revolving credit agreement, including as a result of potential increases in net debt or future reductions in EBITDA. There can also be no assurance that we will not face credit rating downgrades as a result of weaker than anticipated performance of our businesses or other factors including overall market conditions. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets, and a significant downgrade could have an adverse commercial impact on our businesses. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding (including for receivables securitization or

supply chain finance programs used to finance working capital) or our ability to refinance certain of our indebtedness, which could adversely affect our business, financial position, results of operations and/or cash flows. Although the U.S. federal and other governments have announced a number of funding programs to support businesses, our ability or willingness to access funding under such programs may be limited by regulations or other guidance, including eligibility criteria, or by further change or uncertainty related to the terms of these programs.

The COVID-19 pandemic may also exacerbate other risks disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, including, but not limited to, risks related to global economic conditions, competition, loss of customers, costs of supplies, manufacturing difficulties and disruptions, investment returns, our credit profile, our credit ratings and interest rates. We expect that the longer the period of disruption from COVID-19 continues, the more material the adverse impacts will be on our business operations, financial performance, results of operations and/or cash flows. In addition, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our business, results of operations, financial conditions and/or cash flows.

We may not achieve some or all of the expected benefits of the separation of Arconic Inc. into two independent, publicly-traded companies on April 1, 2020 (the “Separation”), and failure to realize such benefits in a timely manner may materially adversely affect our business.

We may not be able to achieve the full strategic and financial benefits expected to result from the Separation, or such benefits may be delayed or not occur at all. The Separation is expected to provide the following benefits, among others: (i) enabling the management of each company to more effectively pursue its own distinct operating priorities and strategies, to focus on strengthening its core business and its unique needs, and to pursue distinct and targeted opportunities for long-term growth and profitability; (ii) permitting each company to allocate its financial resources to meet the unique needs of its own business, allowing each company to intensify its focus on its distinct strategic priorities and to more effectively pursue its own distinct capital structures and capital allocation strategies; (iii) allowing each company to more effectively articulate a clear investment thesis to attract a long-term investor base suited to its business and providing investors with two distinct and targeted investment opportunities; (iv) creating an independent equity currency tracking each company’s underlying business, affording Howmet and Arconic Corporation direct access to the capital markets and facilitating each company’s ability to consummate future acquisitions or other restructuring transactions utilizing its common stock; (v) allowing each company more consistent application of incentive structures and targets, due to the common nature of the underlying businesses; and (vi) separating and simplifying the structures required to manage two distinct and differing underlying businesses.

We may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (i) we may be more susceptible to market fluctuations and other adverse events than if Arconic Corporation were still a part of the Company because our business is less diversified than it was prior to the completion of the Separation; and (ii) as a smaller, independent company, we may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those it obtained prior to completion of the Separation. If we fail to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

~~Arconic Corporation may fail to perform under various transaction agreements that were executed as part of the Separation.~~

In connection with the Separation, we entered into a separation and distribution agreement with Arconic Corporation and also entered into various other agreements, including a tax matters agreement with respect to our continuing ownership of Arconic Corporation common stock, an agreement related to the Davenport plant, an employee matters agreement, intellectual property license agreements, metal supply agreements and real estate and office leases. The separation and distribution agreement, the tax matters agreement and the employee matters agreement, together with the documents and agreements by which the internal reorganization of the Company prior to the Separation was effected, determined the allocation of assets and liabilities between us and Arconic Corporation following the Separation for those respective areas and included any necessary indemnifications related to liabilities and obligations. We will rely on Arconic Corporation to satisfy its performance and payment obligations under these agreements. If Arconic Corporation is unable or unwilling to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties and/or losses.

In connection with the Separation, Arconic Corporation has agreed to indemnify us for certain liabilities and we have agreed to indemnify Arconic Corporation for certain liabilities. If we are required to pay under these indemnities to Arconic Corporation, our financial results could be negatively impacted. The Arconic Corporation indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which Arconic Corporation will be allocated responsibility, and Arconic Corporation may not be able to satisfy its indemnification obligations in the future.

Pursuant to the separation and distribution agreement and certain other agreements with Arconic Corporation, Arconic Corporation has agreed to indemnify us for certain liabilities, and we have agreed to indemnify Arconic Corporation for certain liabilities, in each case for uncapped amounts. Indemnities that we may be required to provide Arconic Corporation are not subject to any cap, may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that Arconic Corporation has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of the Company’s operating business. Further, the indemnity from Arconic Corporation may not be sufficient to protect us against the full amount of such liabilities, and Arconic Corporation may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Arconic Corporation any amounts for which we are held liable, we may be temporarily required to bear such losses. Each of these risks could negatively affect our business, results of operations and financial condition.

~~The Separation could result in substantial tax liability.~~

It was a condition to the distribution that we receive an opinion of our outside counsel, satisfactory to our Board of Directors, regarding the qualification of the distribution, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”). This condition was satisfied prior to the distribution. However, the opinion of counsel was based upon and relied on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings by us and Arconic Corporation, including those relating to the past and future conduct by us and Arconic Corporation. If any of these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if we or Arconic Corporation breach any of our representations or covenants contained in the separation agreement and certain other agreements and documents or in any documents relating to the opinion of counsel, the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.

Notwithstanding our receipt of the opinion of counsel, the Internal Revenue Service (the “IRS”) could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the opinion of counsel was based are false or have been violated. In addition, the opinion of counsel represents the judgment of such counsel and is not binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt of the opinion of counsel, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, we, our stockholders and Arconic Corporation, could be subject to significant U.S. federal income tax liability.

If the distribution fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, we would recognize taxable gain as if it had sold the Arconic Corporation common stock in a taxable sale for its fair market value, and our stockholders who received such Arconic Corporation shares in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

Under current U.S. federal income tax law, even if the distribution, together with certain related transactions, otherwise qualifies for tax-free treatment under Sections 355 and 368(a)(1)(D) of the Code, the distribution may nevertheless be rendered taxable to us as a result of certain post-distribution transactions, including certain acquisitions of shares or assets of ours or Arconic Corporation. Under the tax matters agreement entered into between us and Arconic Corporation in connection with the Separation, Arconic Corporation may be required to indemnify us for any taxes resulting from the Separation (and any related costs and other damages) to the extent such amounts resulted from (1) an acquisition of all or a portion of the equity securities or assets of Arconic Corporation, whether by merger or otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (2) other actions or failures to act by Arconic Corporation, or (3) any of Arconic Corporation’s representations, covenants or undertakings contained in the separation agreement and certain other agreements and documents or in any documents relating to the opinion of counsel being incorrect or violated. However, the indemnity from Arconic Corporation may not be sufficient to protect us against the full amount of such additional taxes or related liabilities, and Arconic Corporation may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Arconic Corporation any amounts for which we are held liable, we may be temporarily required to bear such losses. In addition, we and our subsidiaries may incur certain tax costs in connection with the Separation, including non-U.S. tax costs resulting from transactions (including the internal reorganization) in non-U.S. jurisdictions, which may be material. Each of these risks could negatively affect our business, results of operations and financial condition.

Item 6. Exhibits.


~~2.1~~			Separation and Distribution Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Rolled Products Corporation, incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.2~~			Tax Matters Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Rolled Products Corporation, incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.3~~			Employee Matters Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Rolled Products Corporation, incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.4~~			First Amendment to Employee Matters Agreement, dated as of April 10, 2020, by and between Howmet Aerospace Inc. and Arconic Corporation, incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on April 13, 2020.
~~2.5~~			Patent, Know-How, and Trade Secret License Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Rolled Products Corporation, incorporated by reference to Exhibit 2.4 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.6~~			Patent, Know-How, and Trade Secret License Agreement, dated as of March 31, 2020, by and between Arconic Rolled Products Corporation and Arconic Inc. , incorporated by reference to Exhibit 2.5 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.7~~			Trademark License Agreement, dated as of March 31, 2020, by and between Arconic Rolled Products Corporation and Arconic Inc. , incorporated by reference to Exhibit 2.6 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.8~~			Trademark License Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Rolled Products Corporation, incorporated by reference to Exhibit 2.7 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.9~~			Master Agreement for Product Supply, dated as of March 31, 2020, by and between Arconic Massena LLC, Arconic Lafayette LLC, Arconic Davenport LLC and Arconic Inc., incorporated by reference to Exhibit 2.8 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.10~~			Second Supplemental Tax and Project Certificate and Agreement, dated as of March 31, 2020, by and among Arconic Inc., Arconic Davenport LLC and Arconic Rolled Products Corporation, incorporated by reference to Exhibit 2.9 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~2.11~~			Lease and Property Management Agreement, dated as of March 31, 2020, by and between Arconic Inc. and Arconic Massena LLC, incorporated by reference to Exhibit 2.10 to the Company's Current Report on Form 8-K filed on April 6, 2020.
~~4.1~~			Fifth Supplemental Indenture, dated as of April 16, 2020, between Howmet Aerospace Inc., a Delaware corporation, and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to exhibit 4(e) to the Howmet Aerospace’s Registration Statement on Form S-3 (Registration Statement No. 333-237705) dated April 16, 2020.
~~4.2~~			~~Form of 6.875% Notes due 2025, incorporated by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K filed on April 24, 2020.~~
~~4.3~~			Sixth Supplemental Indenture, dated as of May 6, 2020, between Howmet Aerospace Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee., incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on May 6, 2020.
10.1			Employment Letter Agreement between Arconic Inc. and Tolga Oal, dated as of February 24, 2020, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 25, 2020.
~~10.2~~			Amendment No. 3,5 dated as of March ~~4, 2020,~~29, 2021, to the Five-Year Revolving Credit Agreement, dated as of July 25, 2014, among ~~Arconic~~Howmet Aerospace Inc., the lenders and issuers named therein, Citibank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., ~~as syndication agent, and Goldman Sachs Bank USA, as documentation agent,~~ incorporated by reference to Exhibit 10.1 to the ~~Company's~~Company’s Current Report on Form ~~8-K/A~~8-K filed on March ~~5, 2020.~~29, 2021.
~~10.3~~			~~Non-Employee Director Compensation Policy, effective April 1, 2020.~~
~~10.4~~			~~Amended and Restated Deferred Fee Plan for Directors, effective April 1, 2020.~~
~~31.~~31			Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~32.~~32			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document.


101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.			Cover Page Interactive Data File - the cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020,~~2021, formatted in Inline XBRL (included within the Exhibit 101 attachments).

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.


			Howmet Aerospace Inc.

May ~~7, 2020~~6, 2021			/s/ Ken Giacobbe
Date			Ken Giacobbe
			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)

May ~~7, 2020~~6, 2021			/s/ Paul Myron
Date			Paul Myron
			Vice President and Controller
			(Principal Accounting Officer)

3632


		Page(s)
Part I
Item 1.	Financial Statements	3
	Statement of Consolidated Operations for the First Quarter Ended March 31, 2021 and 2020	3
	Statement of Consolidated Comprehensive Income for the First Quarter Ended March 31, 2021 and 2020	4
	Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	5
	Statement of Consolidated Cash Flows for the First Quarter Ended March 31, 2021 and 2020	6
	Statement of Changes in Consolidated Equity for the First Quarter Ended March 31, 2021 and 2020	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
Part II
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31

Item 6.	Exhibits	32
	Signatures	32


	Engineered Products and Forgings		Global Rolled Products		Total Segment
First quarter ended March 31, 2020
Sales:
Third-party sales	$	1,631	$	1,578	$	3,209
Intersegment sales	—		35		35
Total sales	$	1,631	$	1,613	$	3,244
Profit and loss:
Segment operating profit	$	339	$	169	$	508
Restructuring and other charges (credits)	34		(18)		16
Provision for depreciation and amortization	65		57		122
Capital expenditures	36		22		58

First quarter ended March 31, 2019
Sales:
Third-party sales	$	1,756	$	1,784	$	3,540
Intersegment sales	—		52		52
Total sales	$	1,756	$	1,836	$	3,592
Profit and loss:
Segment operating profit	$	313	$	135	$	448
Restructuring and other charges	18		11		29
Provision for depreciation and amortization	71		59		130
Capital expenditures	117		39		156


	Engineered Products and Forgings		Global Rolled Products		Total Segment
First quarter ended March 31, 2020
Aerospace	$	1,189	$	285	$	1,474
Transportation	256		509		765
Building and construction	—		291		291
Industrial and Other	186		493		679
Total end-market revenue	$	1,631	$	1,578	$	3,209

First quarter ended March 31, 2019
Aerospace	$	1,250	$	302	$	1,552
Transportation	343		649		992
Building and construction	—		330		330
Industrial and Other	163		503		666
Total end-market revenue	$	1,756	$	1,784	$	3,540


	Layoff costs		Other exit costs		Total
Reserve balances at December 31, 2018	$	10	$	15	$	25
Cash payments	(74)		(5)		(79)
Restructuring charges	56		574		630
Other⁽¹⁾	39		(581)		(542)
Reserve balances at December 31, 2019	31		3		34
Cash payments	(7)		—		(7)
Restructuring charges	20		1		21
Other⁽²⁾	—		(2)		(2)
Reserve balances at March 31, 2020	$	44	$	2	$	46


	March 31, 2020		December 31, 2019
6.150% Notes, due 2020	1,000		1,000
5.400% Notes due 2021	1,250		1,250
5.870% Notes, due 2022	627		627
5.125% Notes, due 2024	1,250		1,250
5.900% Notes, due 2027	625		625
6.750% Bonds, due 2028	300		300
5.950% Notes, due 2037	625		625
4.750% Iowa Finance Authority Loan, due 2042	250		250
Term Loan, due 2027⁽¹⁾	600		—
6.125% Notes, due 2028⁽¹⁾	600		—
Other⁽²⁾	(41)		(18)
	7,086		5,909
Less: amount due within one year	1,309		1,003
Total long-term debt	$	5,777	$	4,906