UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(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,~~June 30, 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)

Investor Relations 412-553-1950

Office of the Secretary 412-553-1940

(Registrant’s telephone number including area code)

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


Title of each class	Trading 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 $100.00 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 3,~~August 2, 2021, there were ~~434,325,032~~428,912,175 shares of common stock, par value $1.00 per share, of the registrant outstanding.

TABLE OF CONTENTS


		Page(s)
Part I
Item 1.	Financial Statements	3
	Statement of Consolidated Operations for the ~~First~~Second Quarter and Six Months Ended ~~March 31,~~June 30, 2021 and 2020	3
	Statement of Consolidated Comprehensive Income (Loss) for the ~~First~~Second Quarter and Six Months Ended ~~March 31,~~June 30, 2021 and 2020	4
	Consolidated Balance ~~Sheets~~Sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020	5
	Statement of Consolidated Cash Flows for the ~~First Quarter~~Six Months Ended ~~March 31,~~June 30, 2021 and 2020	6
	Statement of Changes in Consolidated Equity for the ~~First~~Second Quarter Ended ~~March 31,~~June 30, 2021 and 2020	7
	Statement of Changes in Consolidated Equity for the Six Months Ended June 30, 2021 and 2020	8
	Notes to the Consolidated Financial Statements	89
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2528
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3134
Item 4.	Controls and Procedures	3134
Part II
Item 1.	Legal Proceedings	3135
Item 1A.	Risk Factors	3135
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	3237
	Signatures	3237

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

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


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2021		2020				2021		2020		2021		2020
Sales (D)	Sales (D)	$	1,209	$	1,634		Sales (D)	$	1,195	$	1,253	$	2,404	$	2,887
Cost of goods sold (exclusive of expenses below)	Cost of goods sold (exclusive of expenses below)	873		1,183			Cost of goods sold (exclusive of expenses below)	857		923		1,730		2,106
Selling, general administrative, and other expenses	Selling, general administrative, and other expenses	65		79			Selling, general administrative, and other expenses	55		74		120		153
Research and development expenses	Research and development expenses	5		4			Research and development expenses	4		4		9		8
Provision for depreciation and amortization	Provision for depreciation and amortization	68		71			Provision for depreciation and amortization	67		73		135		144
Restructuring and other charges (E)	Restructuring and other charges (E)	9		39			Restructuring and other charges (E)	5		105		14		144
Operating income	Operating income	189		258			Operating income	207		74		396		332
Interest expense, net	Interest expense, net	72		84			Interest expense, net	89		144		161		228
Other expense (income), net (F)	Other expense (income), net (F)	4		(24)			Other expense (income), net (F)	8		16		12		(8)
Income before income taxes		113		198
Provision for income taxes (H)		33		45
Income from continuing operations after income taxes		80		153
Income from discontinued operations after income taxes (B)		0		62
Net income		$	80	$	215
Income (loss) before income taxes							Income (loss) before income taxes	110		(86)		223		112
Provision (benefit) for income taxes (H)							Provision (benefit) for income taxes (H)	36		(2)		69		43
Income (loss) from continuing operations after income taxes							Income (loss) from continuing operations after income taxes	$	74	$	(84)	$	154	$	69
(Loss) income from discontinued operations after income taxes (B)							(Loss) income from discontinued operations after income taxes (B)	0		(12)		0		50
Net income (loss)							Net income (loss)	$	74	$	(96)	$	154	$	119

Amounts Attributable to Howmet Aerospace Common Shareholders (I):	Amounts Attributable to Howmet Aerospace Common Shareholders (I):						Amounts Attributable to Howmet Aerospace Common Shareholders (I):
Net income		$	79	$	214
Earnings per share - basic
Net income (loss)							Net income (loss)	$	73	$	(96)	$	153	118
Earnings (loss) per share - basic							Earnings (loss) per share - basic
Continuing operations	Continuing operations	$	0.18	$	0.35		Continuing operations	$	0.17	$	(0.19)	$	0.35	$	0.16
Discontinued operations	Discontinued operations	$	0	$	0.14		Discontinued operations	$	0	$	(0.03)	$	0	$	0.11
Earnings per share - diluted
Earnings (loss) per share - diluted							Earnings (loss) per share - diluted
Continuing operations	Continuing operations	$	0.18	$	0.35		Continuing operations	$	0.17	$	(0.19)	$	0.35	$	0.15
Discontinued operations	Discontinued operations	$	0	$	0.14		Discontinued operations	$	0	$	(0.03)	$	0	$	0.11
Average Shares Outstanding (I):	Average Shares Outstanding (I):						Average Shares Outstanding (I):
Average shares outstanding - basic	Average shares outstanding - basic	434		435			Average shares outstanding - basic	432		436		433		436
Average shares outstanding - diluted	Average shares outstanding - diluted	439		440			Average shares outstanding - diluted	437		436		438		440

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

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Comprehensive Income (Loss) (unaudited)

(U.S. dollars in millions)


		First quarter ended					Second quarter ended				Six months ended
		March 31,				June 30,	June 30,
		2021		2020					2021		2020		2021		2020
Net income		$	80	$	215
Net income (loss)								Net income (loss)	$	74	$	(96)	$	154	$	119
Other comprehensive income (loss), net of tax (J):	Other comprehensive income (loss), net of tax (J):							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	Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits	42		37				Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits	35		9		77		46
Foreign currency translation adjustments	Foreign currency translation adjustments	(44)		(65)				Foreign currency translation adjustments	18		(8)		(26)		(73)
Net change in unrealized gains on debt securities		0		1
Net change in unrealized losses on debt securities								Net change in unrealized losses on debt securities	0		(1)		0		0
Net change in unrecognized gains (losses) on cash flow hedges	Net change in unrecognized gains (losses) on cash flow hedges	4		(13)				Net change in unrecognized gains (losses) on cash flow hedges	4		9		8		(4)
Total Other comprehensive income (loss), net of tax	Total Other comprehensive income (loss), net of tax	2		(40)				Total Other comprehensive income (loss), net of tax	57		9		59		(31)
Comprehensive income		$	82	$	175
Comprehensive income (loss)								Comprehensive income (loss)	$	131	$	(87)	$	213	$	88

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

Howmet Aerospace Inc. and subsidiaries

Consolidated Balance Sheet (unaudited)

(U.S. dollars in millions)


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,238	$	1,610	Cash and cash equivalents	$	715	$	1,610
Receivables from customers, less allowances of $1 in 2021 and $1 in 2020 (K)		339		328
Receivables from customers, less allowances of $0 in 2021 and $1 in 2020 (K)						Receivables from customers, less allowances of $0 in 2021 and $1 in 2020 (K)	316		328
Other receivables (K)	Other receivables (K)	96		29		Other receivables (K)	100		29
Inventories (L)	Inventories (L)	1,453		1,488		Inventories (L)	1,456		1,488
Prepaid expenses and other current assets	Prepaid expenses and other current assets	202		217		Prepaid expenses and other current assets	212		217

Total current assets	Total current assets	3,328		3,672		Total current assets	2,799		3,672
Properties, plants, and equipment, net (M)	Properties, plants, and equipment, net (M)	2,524		2,592		Properties, plants, and equipment, net (M)	2,515		2,592
Goodwill (D)	Goodwill (D)	4,086		4,102		Goodwill (D)	4,090		4,102
Deferred income taxes	Deferred income taxes	227		272		Deferred income taxes	188		272
Intangibles, net	Intangibles, net	563		571		Intangibles, net	557		571
Other noncurrent assets (N)	Other noncurrent assets (N)	243		234		Other noncurrent assets (N)	230		234

Total assets	Total assets	$	10,971	$	11,443	Total assets	$	10,379	$	11,443
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable, trade	Accounts payable, trade	$	596	$	599	Accounts payable, trade	$	632	$	599
Accrued compensation and retirement costs	Accrued compensation and retirement costs	171		205		Accrued compensation and retirement costs	195		205
Taxes, including income taxes	Taxes, including income taxes	93		102		Taxes, including income taxes	80		102
Accrued interest payable	Accrued interest payable	88		89		Accrued interest payable	75		89
Other current liabilities (N)	Other current liabilities (N)	243		289		Other current liabilities (N)	232		289
Short-term debt (O)	Short-term debt (O)	489		376		Short-term debt (O)	13		376

Total current liabilities	Total current liabilities	1,680		1,660		Total current liabilities	1,227		1,660
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		Long-term debt, less amount due within one year (O and P)	4,227		4,699
Accrued pension benefits (G)	Accrued pension benefits (G)	941		985		Accrued pension benefits (G)	868		985
Accrued other postretirement benefits (G)	Accrued other postretirement benefits (G)	159		198		Accrued other postretirement benefits (G)	156		198
Other noncurrent liabilities and deferred credits (N)	Other noncurrent liabilities and deferred credits (N)	305		324		Other noncurrent liabilities and deferred credits (N)	303		324

Total liabilities	Total liabilities	7,309		7,866		Total liabilities	6,781		7,866
Contingencies and commitments (R)	Contingencies and commitments (R)	0		0		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	434		433		Common stock	429		433
Additional capital	Additional capital	4,671		4,668		Additional capital	4,481		4,668
Retained earnings	Retained earnings	443		364		Retained earnings	517		364
Accumulated other comprehensive loss (J)	Accumulated other comprehensive loss (J)	(1,941)		(1,943)		Accumulated other comprehensive loss (J)	(1,884)		(1,943)

Total equity	Total equity	3,662		3,577		Total equity	3,598		3,577
Total liabilities and equity	Total liabilities and equity	$	10,971	$	11,443	Total liabilities and equity	$	10,379	$	11,443

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

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(U.S. dollars in millions)


		First quarter ended					Six months ended
		March 31,					June 30,
		2021		2020			2021		2020
Operating activities	Operating activities					Operating activities
Net income	Net income	$	80	$	215	Net income	$	154	$	119
Adjustments to reconcile net income to cash used for operations:
Adjustments to reconcile net income to cash provided from (used for) operations:						Adjustments to reconcile net income to cash provided from (used for) operations:
Depreciation and amortization	Depreciation and amortization	68		129		Depreciation and amortization	135		203
Deferred income taxes	Deferred income taxes	10		19		Deferred income taxes	15		25
Restructuring and other charges	Restructuring and other charges	9		21		Restructuring and other charges	14		126
Net loss from investing activities—asset sales	Net loss from investing activities—asset sales	3		2		Net loss from investing activities—asset sales	4		4
Net periodic pension benefit cost (G)	Net periodic pension benefit cost (G)	4		26		Net periodic pension benefit cost (G)	9		34
Stock-based compensation	Stock-based compensation	6		13		Stock-based compensation	14		23
Other	Other	14		25		Other	46		48
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	Increase in receivables	(144)		(210)		Increase in receivables	(231)		(70)
Decrease (increase) in inventories	Decrease (increase) in inventories	20		(136)		Decrease (increase) in inventories	19		(136)
Decrease (increase) in prepaid expenses and other current assets	Decrease (increase) in prepaid expenses and other current assets	23		(2)		Decrease (increase) in prepaid expenses and other current assets	10		(11)
Increase (decrease) in accounts payable, trade (A)	Increase (decrease) in accounts payable, trade (A)	26		(132)		Increase (decrease) in accounts payable, trade (A)	48		(320)
Decrease in accrued expenses	Decrease in accrued expenses	(92)		(173)		Decrease in accrued expenses	(93)		(173)
Increase in taxes, including income taxes	Increase in taxes, including income taxes	12		90		Increase in taxes, including income taxes	24		96
Pension contributions	Pension contributions	(29)		(56)		Pension contributions	(61)		(102)
Increase in noncurrent assets	Increase in noncurrent assets	(2)		0		Increase in noncurrent assets	(4)		(6)
Decrease in noncurrent liabilities	Decrease in noncurrent liabilities	(14)		(39)		Decrease in noncurrent liabilities	(24)		(37)
Cash used for operations		(6)		(208)
Cash provided from (used for) operations						Cash provided from (used for) operations	79		(177)
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)		2		Net change in short-term borrowings (original maturities of three months or less)	(1)		(2)
Additions to debt (original maturities greater than three months) (B)		0		1,200
Additions to debt (original maturities greater than three months) (B)(O)						Additions to debt (original maturities greater than three months) (B)(O)	0		2,400
Payments on debt (original maturities greater than three months) (O)	Payments on debt (original maturities greater than three months) (O)	(361)		0		Payments on debt (original maturities greater than three months) (O)	(838)		(2,041)
Debt issuance costs (B)(O)	Debt issuance costs (B)(O)	(1)		(45)		Debt issuance costs (B)(O)	(1)		(61)

Premiums paid on early redemption of debt (O)						Premiums paid on early redemption of debt (O)	(22)		(59)
Proceeds from exercise of employee stock options	Proceeds from exercise of employee stock options	8		30		Proceeds from exercise of employee stock options	15		30
Dividends paid to shareholders	Dividends paid to shareholders	0		(9)		Dividends paid to shareholders	(1)		(10)
Repurchase of common stock						Repurchase of common stock	(200)		0
Net cash transferred to Arconic Corporation at separation (B)						Net cash transferred to Arconic Corporation at separation (B)	0		(500)
Other						Other	(20)		(34)
Cash used for financing activities						Cash used for financing activities	(1,068)		(277)
Investing Activities						Investing Activities
Capital expenditures (A)(D)						Capital expenditures (A)(D)	(91)		(184)
Proceeds from the sale of assets and businesses (B)(Q)						Proceeds from the sale of assets and businesses (B)(Q)	8		114
Sale of debt securities						Sale of debt securities	5		0
Cash receipts from sold receivables (K)						Cash receipts from sold receivables (K)	172		114

Other		(12)		(33)
Cash (used for) provided from financing activities		(368)		1,145
Investing Activities
Capital expenditures (A)(D)		(55)		(152)
Proceeds from the sale of assets and businesses (B)		0		114

Cash receipts from sold receivables (K)		57		48
Other		1		1
Cash provided from investing activities	Cash provided from investing activities	3		11		Cash provided from investing activities	94		44
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		(8)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	0		(8)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(372)		940		Net change in cash, cash equivalents and restricted cash	(895)		(418)
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 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	$	1,239	$	2,643	Cash, cash equivalents and restricted cash at end of period	$	716	$	1,285

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

Howmet Aerospace Inc. and subsidiaries

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 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
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at March 31, 2020	$	55	$	436	$	7,326	$	319	$	(3,369)	$	14	$	4,781

Net loss	—		—		—		(96)		—		—		(96)
Other comprehensive income (J)	—		—		—		—		9		—		9




Stock-based compensation	—		—		10		—		—		—		10


Distributions to Arconic Corporation (B)	—		—		(2,633)		—		1,392		(14)		(1,255)

Balance at June 30, 2020	$	55	$	436	$	4,703	$	223	$	(1,968)	$	0	$	3,449


		Howmet Aerospace Shareholders										Howmet Aerospace Shareholders
		Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss			Total Equity			Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at December 31, 2020		$	55	$	433	$	4,668	$	364	$	(1,943)		$	3,577
Balance at March 31, 2021															Balance at March 31, 2021	$	55	$	434	$	4,671	$	443	$	(1,941)	$	3,662

Net income	Net income	—		—		—		80		—			80		Net income	—		—		—		74		—		74
Other comprehensive income (J)	Other comprehensive income (J)	—		—		—		—		2			2		Other comprehensive income (J)	—		—		—		—		57		57
Cash dividends declared:
Preferred-Class A @ $0.9375 per share		—		—		—		(1)		—			(1)

Repurchase and retirement of common stock															Repurchase and retirement of common stock	—		(6)		(194)		—		—		(200)
Stock-based compensation	Stock-based compensation	—		—		6		—		—			6		Stock-based compensation	—		—		8		—		—		8
Common stock issued: compensation plans	Common stock issued: compensation plans	—		1		(3)		—		—			(2)		Common stock issued: compensation plans	—		1		(4)		—		—		(3)

Balance at March 31, 2021		$	55	$	434	$	4,671	$	443	$	(1,941)		$	3,662
Balance at June 30, 2021															Balance at June 30, 2021	$	55	$	429	$	4,481	$	517	$	(1,884)	$	3,598

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

Howmet Aerospace Inc. and subsidiaries

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		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	—		—		—		119		—		—		119
Other comprehensive loss (J)	—		—		—		—		(31)		—		(31)
Cash dividends declared:
Preferred-Class A @ $1.875 per share	—		—		—		(1)		—		—		(1)

Common @ $0.02 per share	—		—		—		(8)		—		—		(8)

Stock-based compensation	—		—		23		—		—		—		23
Common stock issued: compensation plans	—		3		(6)		—		—		—		(3)
Distributions to Arconic Corporation (B)	—		—		(2,633)		—		1,392		(14)		(1,255)




Balance at June 30, 2020	$	55	$	436	$	4,703	$	223	$	(1,968)	$	0	$	3,449


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at December 31, 2020	$	55	$	433	$	4,668	$	364	$	(1,943)	$	3,577
Net income	—		—		—		154		—		154
Other comprehensive income (J)	—		—		—		—		59		59
Cash dividends declared:
Preferred-Class A @ $1.875 per share	—		—		—		(1)		—		(1)

Repurchase and retirement of common stock	—		(6)		(194)		—		—		(200)
Stock-based compensation	—		—		14		—		—		14
Common stock issued: compensation plans	—		2		(7)		—		—		(5)


Balance at June 30, 2021	$	55	$	429	$	4,481	$	517	$	(1,884)	$	3,598

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

Howmet Aerospace Inc. and subsidiaries

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 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 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, 2020, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period presentation.

The separation of Arconic Inc. into 2 standalone, publicly-traded companies, Howmet Aerospace Inc. and Arconic Corporation, (the “Arconic Inc. Separation Transaction”) occurred on April 1, 2020. The financial results of Arconic Corporation for all periods prior to the Arconic Inc. Separation Transaction have been retrospectively reflected in the 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 the Statement of Consolidated 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.

InFor the ~~first quarter of~~six months ended June 30, 2021 and 2020, the Company derived approximately 60% and ~~73%~~70%, respectively, of its revenue from products sold to the aerospace end-market. As a result of 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 financial results. 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. While the pandemic has resulted in the temporary closure of a small number of the Company's manufacturing facilities during 2020, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, management has taken a series of actions to address the financial impact, including announcing certain headcount reductions and reducing the level of 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. Management has made 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 of goodwill, intangible and long-lived assets, the realizability of deferred tax assets and other judgments and estimations and assumptions that may be impacted by COVID-19.

As previously disclosed, during the third quarter of 2020, the Company identified a misclassification in the presentation of changes in accounts payable and capital expenditures in its previously issued Statement of Consolidated Cash Flows for the ~~first quarter ended March 31, 2020 and~~ six months ended June 30, 2020. Although management has determined that such misclassification ~~did~~was not ~~materially misstate~~material, the Company revised the accompanying 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.

Also as previously disclosed, in the third 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 has revised ~~its~~the accompanying Statement of Changes in Consolidated Equity for ~~the three months ended March 31, 2020 and will revise~~ the three and six months ended June 30, 2020 to present the correction as a reduction to Retained earnings as of December 31, 2019.

B. Arconic Inc. Separation Transaction and Discontinued Operations

On April 1, 2020, the Company completed the separation of its business into 2 independent, publicly-traded companies. Following the Arconic Inc. Separation Transaction, Arconic Corporation 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.

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, certain Patent, Know-How, Trade Secret License and Trademark License Agreements, and Raw Material Supply Agreements.

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 a revolving credit facility which 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 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 other charges within discontinued operations in the first quarter of 2020.

Discontinued Operations

The results of operations of Arconic Corporation are presented as discontinued operations in the Statement of Consolidated 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~~

~~Restructuring and other charges~~

~~(18)~~

~~Operating income from discontinued operations~~

~~141~~

~~Interest expense~~

~~Other expense, net~~

~~Income from discontinued operations~~

~~Provision for income taxes~~

~~Income from discontinued operations after income taxes~~


	Second quarter ended		Six months ended
	June 30,		June 30,
	2020		2020
Sales	$	0	$	1,575
Cost of goods sold	0		1,293
Selling, general administrative, research and development and other expenses	5		106

Provision for depreciation and amortization	0		58
Restructuring and other charges	0		(18)
Operating (loss) income from discontinued operations	(5)		136
Interest expense	0		7
Other expense, net	0		41
(Loss) income from discontinued operations	(5)		88
Provision for income taxes	7		38
(Loss) income from discontinued operations after income taxes	$	(12)	$	50

910

The following table presents purchases of properties, plants, and 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


	Second quarter ended		Six months ended
	June 30,		June 30,
	2020		2020
Capital expenditures	$	0	$	72
Proceeds from the sales of businesses	$	0	$	112
Provision for depreciation and amortization	$	0	$	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~~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.

1011

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~~$4,090 of Goodwill at ~~March 31,~~June 30, 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 Savannah business 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 compared to 2019 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.

1112

The operating results of the Company’s 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
Second quarter ended June 30, 2021
Sales:
Third-party sales	$	544	$	262	$	160	$	229	$	1,195
Inter-segment sales	1		0		2		0		3
Total sales	$	545	$	262	$	162	$	229	$	1,198
Profit and loss:
Segment operating profit	$	100	$	50	$	11	$	61	$	222
Restructuring and other charges	5		3		0		0		8
Provision for depreciation and amortization	30		13		13		9		65
Capital expenditures	16		9		5		13		43

Second quarter ended June 30, 2020
Sales:
Third-party sales	$	585	$	326	$	229	$	113	$	1,253
Inter-segment sales	1		0		2		0		3
Total sales	$	586	$	326	$	231	$	113	$	1,256
Profit and loss:
Segment operating profit	$	105	$	70	$	19	$	6	$	200
Restructuring and other charges (credits)	22		24		(5)		1		42
Provision for depreciation and amortization	31		12		14		9		66
Capital expenditures	14		7		5		4		30

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Six months ended June 30, 2021
Sales:
Third-party sales	$	1,078	$	534	$	336	$	456	$	2,404
Inter-segment sales	2		0		3		0		5
Total sales	$	1,080	$	534	$	339	$	456	$	2,409
Profit and loss:
Segment operating profit	$	201	$	95	$	21	$	131	$	448
Restructuring and other charges	10		5		1		0		16
Provision for depreciation and amortization	61		25		25		19		130
Capital expenditures	27		14		10		22		73

Six months ended June 30, 2020
Sales:
Third-party sales	$	1,366	$	711	$	504	$	304	$	2,885
Inter-segment sales	3		0		5		0		8
Total sales	$	1,369	$	711	$	509	$	304	$	2,893
Profit and loss:
Segment operating profit	$	270	$	166	$	47	$	56	$	539
Restructuring and other charges	35		26		12		3		76
Provision for depreciation and amortization	61		24		27		19		131
Capital expenditures	33		15		8		11		67

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 (loss) from continuing operations before income taxes:


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Total segment operating profit	$	222	$	200	$	448	$	539
Unallocated amounts:
Restructuring and other charges	(5)		(105)		(14)		(144)
Corporate expense	(10)		(21)		(38)		(63)
Consolidated operating income	$	207	$	74	$	396	$	332
Interest expense	(89)		(144)		(161)		(228)
Other (expense) income, net	(8)		(16)		(12)		8
Income (loss) from continuing operations before income taxes	$	110	$	(86)	$	223	$	112

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~~Statement of ~~cash flows.~~Consolidated 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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Total segment capital expenditures	$	43	$	30	$	73	$	67
Corporate and discontinued operations	(7)		2		18		117
Capital expenditures	$	36	$	32	$	91	$	184

1214

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


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Second quarter ended June 30, 2021
Aerospace - Commercial	$	260	$	129	$	79	$	0	$	468
Aerospace - Defense	121		41		64		0		226
Commercial Transportation	0		49		0		229		278
Industrial and Other	163		43		17		0		223
Total end-market revenue	$	544	$	262	$	160	$	229	$	1,195

Second quarter ended June 30, 2020
Aerospace - Commercial	$	312	$	224	$	144	$	0	$	680
Aerospace - Defense	125		39		64		0		228
Commercial Transportation	0		34		0		113		147
Industrial and Other	148		29		21		0		198
Total end-market revenue	$	585	$	326	$	229	$	113	$	1,253

Six months ended June 30, 2021
Aerospace - Commercial	$	487	$	277	$	159	$	0	$	923
Aerospace - Defense	272		83		141		0		496
Commercial Transportation	0		95		0		456		551
Industrial and Other	319		79		36		0		434
Total end-market revenue	$	1,078	$	534	$	336	$	456	$	2,404

Six months ended June 30, 2020
Aerospace - Commercial	$	819	$	481	$	328	$	0	$	1,628
Aerospace - Defense	252		83		134		0		469
Commercial Transportation	0		80		0		304		384
Industrial and Other	295		67		42		0		404
Total end-market revenue	$	1,366	$	711	$	504	$	304	$	2,885

The Company derived ~~60%~~59% and 73% of its revenue from aerospace end markets infor the ~~first quarter of~~six months ended June 30, 2021 and 2020, respectively.

General Electric Company represented approximately ~~11% and 13%~~12% of the Company’s third-party sales for both the ~~first quarter of~~six months ended June 30, 2021 and 2020 ~~respectively,~~, primarily from Engine Products.

E. Restructuring and Other Charges


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Layoff costs	$	2	$	54	$	2	$	76
Net reversals of previously recorded layoff reserves	(2)		(8)		(1)		(10)
Pension, Other post-retirement benefits and Deferred Compensation - net settlements (G)	3		64		6		64
Non-cash asset impairments	4		0		4		0
Net loss related to divestitures of assets and businesses (Q)	0		(7)		4		9
Other	(2)		2		(1)		5
Restructuring and other charges	$	5	$	105	$	14	$	144

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~~second quarter ofand six months ended June 30, 2021, the Company recorded Restructuring and other charges of ~~$9,~~$5 and $14, respectively, which ~~included a $4 charge~~was primarily due to charges 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~~plan settlements and exit related ~~to a number of prior period program reserves and a $1 charge for exit costs including accelerated depreciation.~~costs.

In the ~~first~~second quarter of 2020, the Company recorded Restructuring and other charges of ~~$39,~~$105, which included a ~~$22~~$64 charge for pension plan settlements; a $54 charge for layoff ~~costs, including~~costs; and a $2 charge for various other exit costs. These charges were partially offset by an $8 benefit from the ~~separation~~reversal of ~~460 employees (175~~several existing layoff reserves and a $7 benefit from the reversal of an impairment due to change in classification from held for sale to held for use related to an aerospace components business in the United Kingdom (U.K.).

In the six months ended June 30, 2020, the Company recorded Restructuring and other charges of $144, which included a $76 charge for layoff costs; a $64 charge for pension plan settlements; a $6 post-closing adjustment related to the sale of the Company’s U.K. forgings business (which was formerly part of the Engine Products ~~106 in Fastening Systems, 100 in Engineered Structures, 56 in Forged Wheels and 23 in Corporate)~~segment); ~~a $12 charge~~$5 for impairment of assets associated with an agreement to sell ~~a small manufacturing~~an aerospace components business in the ~~United Kingdom (U.K.); a $6 post closing adjustment related to~~U.K. (within the ~~2019 sale of the Company’s U.K. forgings business~~Engineered Structures segment); and a $3$5 charge for various other exit ~~costs related to prior programs.~~costs. These charges were partially offset by a benefit of $2$10 related to the reversal of ~~a number of~~ prior period ~~program reserves~~programs and a gain of $2 ~~gain~~ on the 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


	Layoff costs		Other exit costs		Total
Reserve balances at December 31, 2020	$	54	$	0	$	54
Cash payments	(32)		0		(32)
Restructuring charges	7		7		14
Other(1)	(8)		(7)		(15)
Reserve balances at June 30, 2021	$	21	$	0	$	21

(1)In the ~~first quarter of~~six months ended June 30, 2021, ~~Layoff~~layoff costs included ~~$3 in settlement accounting charges related to U.S.~~a $6 charge for pension ~~plans~~plan settlements and a $2 charge for other layoffs costs; while ~~Other~~other exit costs included a $4 charge for impairment of assets associated with ~~an agreement to sell~~the sale of a small manufacturing ~~business;~~business and a $1$6 charge for other exit costs including accelerated ~~depreciation.~~depreciation, partially offset by a $3 favorable working capital related settlement.

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)


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Non-service related net periodic benefit cost	$	3	$	5	$	6	$	11
Interest income	(1)		0		(1)		(4)
Foreign currency losses (gains), net	1		(7)		3		(7)
Net loss from asset sales	1		2		4		4

Deferred compensation	4		7		6		(3)
Other, net	0		9		(6)		(9)
Other expense (income), net	$	8	$	16	$	12	$	(8)

1416

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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Pension benefits
Service cost	$	1	$	2	$	2	$	9
Interest cost	12		17		24		64
Expected return on plan assets	(23)		(24)		(46)		(94)
Recognized net actuarial loss	15		12		29		54

Settlements	3		64		6		64


Net periodic benefit cost(1)	8		71		15		97
Discontinued operations	0		0		0		20
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	8	$	71	$	15	$	77

Other postretirement benefits
Service cost	$	1	$	1	$	1	$	2
Interest cost	2		1		3		7
Recognized net actuarial loss	0		0		0		2
Amortization of prior service benefit	(3)		(1)		(4)		(3)


Net periodic benefit cost(1)	0		1		0		8
Discontinued operations	0		0		0		6
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	0	$	1	$	0	$	2

(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~~six months ended ~~March 31,~~June 30, 2020.

Pension benefits

In the ~~first~~second quarter ~~ended March 31,~~of 2021, the Company applied settlement accounting to certain U.S. pension plans due to lump sum payments made to participants, which resulted in settlement charges of $3 and $6 in the second quarter and six months ended June 30, 2021, respectively, that were recorded in Restructuring and other 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~~Management expects Howmet’s estimated ~~minimum required~~ pension ~~funding~~contributions and other postretirement benefit payments in 2021 to ~~decline. Management is currently evaluating~~be approximately $120.

In the ~~impact.~~second quarter of 2020, the Company undertook a number of actions to reduce pension obligations in the U.K. by offering lump sum payments to certain plan participants and entering into group annuity contracts with a third party carrier to pay and administer future annuity payments. The Company applied settlement accounting to these U.K. pension plans which resulted in settlement charges of $62 that were recorded in Restructuring and other charges in the Statement of Consolidated Operations. The Company also applied settlement accounting to a U.S. pension plan due to lump sum payments to participants which resulted in settlement charges of $2 that were recorded in Restructuring and other charges.

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.

In the second quarter of 2020, 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 certain health care subsidies effective December 31, 2021 and that for certain bargained retirees of the Company, it would eliminate certain health care subsidies effective December 31, 2021 and the life insurance benefit effective August 1, 2020. As a result of these changes, in the second quarter of 2020, the Company recorded a decrease to the Accrued other postretirement benefits liability of $6, which was offset in Accumulated other comprehensive loss.

H. 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 2021 and 2020, the~~The estimated annual effective tax rate, before discrete items, applied to ordinary income was ~~30.4%~~29.1% in both the second quarter and ~~26.9%, respectively.~~six months ended June 30, 2021, and 36.1% in both the second quarter and six months ended June 30, 2020. The 2021 ~~and 2020 rates were~~rate 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 and other foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax, and nondeductible expenses. The 2020 rate was higher than the U.S. federal statutory rate of 21% primarily due to U.S. tax on foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax and higher nondeductible expenses.

For the ~~first~~second quarter of 2021 and 2020, the tax rate including discrete items was ~~29.2%~~32.7% (provision on income) and ~~22.7%~~2.3% (benefit on loss), respectively. For the ~~first~~second quarter of 2021, the Company recorded a discrete tax charge of $4 related to a $2 charge for a U.K. tax rate change and a net ~~tax benefit of $1~~$2 charge for other items. For the ~~first~~second quarter of 2020, the Company recorded a discrete tax benefit of $8$10 related ~~primarily~~to a $6 charge for the remeasurement of deferred tax balances in various jurisdictions as a result of the Arconic Inc. Separation Transaction and a net $4 charge for prior year items.

For the six months ended June 30, 2021 and 2020, the tax rate including discrete items was 30.9% and 38.4% (both are provisions on income), respectively. For the six months ended June 30, 2021, the Company recorded a discrete tax charge of $3 related to a $2 charge for a U.K. tax rate change and a net charge of $1 for other items.For the six months ended June 30, 2020, the Company recorded a discrete tax charge of $2 related to a $6 charge for the remeasurement of deferred tax balances in various jurisdictions as a result of the Arconic Inc. Separation Transaction, a net $3 charge for prior year items, partially offset by a $5 benefit related to stock ~~compensation.~~compensation and a net $2 benefit for other small items.

The tax ~~provisions~~provision (benefit) for the ~~first~~second quarter and six months ended ~~March 31,~~June 30, 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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Pre-tax income (loss) at estimated annual effective income tax rate before discrete items	$	32	$	(31)	$	65	$	40
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	(1)		18		0		0
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	1		1		1		1
Other discrete items	4		10		3		2
Provision (benefit) for income taxes	$	36	$	(2)	$	69	$	43

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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Net income (loss) from continuing operations attributable to common shareholders	$	74	$	(84)	$	154	$	69
(Loss) income from discontinued operations	0		(12)		0		50
Net income (loss) attributable to common shareholders	74		(96)		154		119
Less: preferred stock dividends declared	1		0		1		1
Net income (loss) available to Howmet Aerospace common shareholders - basic and diluted	$	73	$	(96)	$	153	$	118



Average shares outstanding - basic	432		436		433		436
Effect of dilutive securities:
Stock options	1		0		1		0
Stock and performance awards	4		0		4		4

Average shares outstanding - diluted	437		436		438		440

Common stock outstanding at ~~March 31,~~June 30, 2021 and 2020 was ~~434~~approximately 429 million and 436 million, respectively.

On May 20, 2019, the Company announced that its Board of Directors authorized the repurchase of $500 of the Company's outstanding common stock (the “Share Repurchase Program”) by means of trading plans established from time to time in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, block trades, private transactions, open market repurchases and/or accelerated share repurchase agreements or other derivative transactions. There was no stated expiration for the Share Repurchase Program under which the Company may repurchase shares from time to time and pursuant to such terms, as and if it deems appropriate. The Share Repurchase Program may be suspended, modified or terminated at any time without prior notice. The decrease in common stock outstanding at June 30, 2021 was primarily due to the impact of share repurchases of approximately 6 million shares in the quarter ended June 30, 2021, which were purchased at an average price of $34.02 per share for approximately $200 in cash. All of the shares repurchased have been retired. After giving effect to the share repurchases made through June 30, 2021, approximately $77 remains available under the prior authorizations by the Board of Directors for the Share Repurchase Program. 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 second quarter and six months ended June 30, 2021 as share repurchases occurred at varying points during the second quarter of 2021.

On July 19, 2021, the Company’s Board of Directors declared a dividend of $0.02 per share on the outstanding common stock of the Company, to be paid on August 25, 2021, to the holders of record of the common stock at the close of business on August 6, 2021.

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


	Second quarter ended		Six months ended
	June 30,		June 30,
	2021	2020	2021	2020

Stock options(1)	0	3	0	3
Stock and performance awards	0	3	0	0

(1)The weighted average exercise price per share of options excluded from diluted EPS was ~~$31.86 and $27.65~~$26.04 as of ~~March 31, 2021 and 2020, respectively.~~June 30, 2020.

1619

J. Accumulated Other Comprehensive Loss

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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Pension and other postretirement benefits (G)
Balance at beginning of period	$	(938)	$	(2,695)	$	(980)	$	(2,732)
Other comprehensive income:
Unrecognized net actuarial gain (loss) and prior service cost/benefit	30		(60)		67		(59)
Tax (expense) benefit	(7)		8		(15)		8
Total Other comprehensive income (loss) before reclassifications, net of tax	23		(52)		52		(51)
Amortization of net actuarial loss and prior service cost(1)	15		74		31		117
Tax expense(2)	(3)		(13)		(6)		(20)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)	12		61		25		97
Total Other comprehensive income	35		9		77		46
Transfer to Arconic Corporation	0		1,820		0		1,820
Balance at end of period	$	(903)	$	(866)	$	(903)	$	(866)
Foreign currency translation
Balance at beginning of period	$	(1,010)	$	(661)	$	(966)	$	(596)
Foreign currency translation	18		(8)		(26)		(87)
Net amount reclassified from Accumulated other comprehensive loss(4)	0		0		0		14
Other comprehensive income (loss)	18		(8)		(26)		(73)
Transfer to Arconic Corporation	0		(428)		0		(428)
Balance at end of period	$	(992)	$	(1,097)	$	(992)	$	(1,097)
Debt securities
Balance at beginning of period	$	0	$	1	$	0	$	0
Other comprehensive loss(5)	0		(1)		0		0
Balance at end of period	$	0	$	0	$	0	$	0
Cash flow hedges
Balance at beginning of period	$	7	$	(14)	$	3	$	(1)

Other comprehensive income (loss):
Net change from periodic revaluations	11		3		19		(8)
Tax (expense) income	(2)		1		(4)		0
Total Other comprehensive income (loss) before reclassifications, net of tax	9		4		15		(8)
Net amount reclassified to earnings	(5)		5		(8)		4
Tax expense(2)	0		0		1		0
Total amount reclassified from Accumulated other comprehensive (loss) income, net of tax(3)	(5)		5		(7)		4
Total Other comprehensive income (loss)	4		9		8		(4)
Balance at end of period	$	11	$	(5)	$	11	$	(5)

Accumulated other comprehensive loss	$	(1,884)	$	(1,968)	$	(1,884)	$	(1,968)

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 Statement of Consolidation Operations (see Note F).

(2)These amounts were included in Provision (benefit) 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~~(the “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 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 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~~$22 ($1841 in draws and ~~$44~~$63 in repayments) and ~~$52~~$136 ($98138 in draws and ~~$150~~$274 in repayments) for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020, respectively.

As of ~~March 31,~~June 30, 2021 and December 31, 2020, the deferred purchase program receivable was ~~$68~~$49 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~~$71 and $155 of its receivables without recourse and received cash funding under this program during the ~~first~~second quarter and six months ended ~~March 31,~~June 30, 2021, respectively, resulting in derecognition of the receivables from the Company’s ~~consolidated balance sheets.~~Consolidated Balance Sheets. As of ~~March 31,~~June 30, 2021 and December 31, 2020, ~~$65~~$68 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~~$10 and $33 at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Costs associated with the sales of receivables are reflected in the Company’s Consolidated ~~statements~~Statements of ~~operations~~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,~~both June 30, 2021 and December 31, 2020, ~~respectively,~~ of which ~~$243 and~~ $250 was drawn at ~~March 31,~~June 30, 2021 and at December 31, ~~2020, respectively.~~2020. The ~~$7 reduction~~net cash funding from the sale of accounts receivable was neither a use of cash nor a source of cash in ~~the amount drawn resulted in a corresponding reduction in Cash and cash equivalents.~~2021.

Other Customer Receivable Sales

In the ~~first~~second quarter ofand six months ended June 30, 2021, ~~and 2020,~~ the Company sold $7$98 and ~~$14,~~$164, respectively, of a certain ~~customer’s~~customers’ receivables in exchange for cash (of which $7 $92 r~~remained~~emained outstanding from the ~~customer~~customers at ~~March 31,~~June 30, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. In

In the ~~first~~second quarter ~~2021~~ and six months ended June 30, 2020, the Company sold ~~$59~~$58 and ~~$17,~~$89, respectively, of a certain ~~customer’s~~customers’ 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


	June 30, 2021		December 31, 2020
Finished goods	$	500	$	528
Work-in-process	656		629
Purchased raw materials	263		292
Operating supplies	37		39
Total inventories	$	1,456	$	1,488

At ~~March 31,~~June 30, 2021 and December 31, 2020, the portion of inventories valued on a last-in, first-out (“LIFO”) basis was ~~$472~~$490 and $458, respectively. If valued on an average-cost basis, total inventories would have been ~~$139~~$152 and $131 higher at ~~March 31,~~June 30, 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


	June 30, 2021		December 31, 2020
Land and land rights	$	92	$	98
Structures	1,025		1,033
Machinery and equipment	3,910		3,879
	5,027		5,010
Less: accumulated depreciation and amortization	2,701		2,626
	2,326		2,384
Construction work-in-progress	189		208
Properties, plants, and equipment, net	$	2,515	$	2,592

The Company incurred capital expenditures which remained unpaid at ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020 of ~~$28~~$39 and ~~$48,~~$29, 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~~$16 and $18 in the ~~first~~second quarter of 2021 and 2020, respectively. Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $33 and $36 in the six months ended June 30, 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


	June 30, 2021		December 31, 2020
Right-of-use assets classified in Other noncurrent assets	$	123	$	131

Current portion of lease liabilities classified in Other current liabilities	36		38
Long-term portion of lease liabilities classified in Other noncurrent liabilities	93		100
Total lease liabilities	$	129	$	138

1922

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


	June 30, 2021		December 31, 2020

5.400% Notes, due 2021(1)	$	0	$	361
5.870% Notes, due 2022(2)	0		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)	(10)		(12)
	4,240		5,075
Less: amount due within one year	13		376
Total long-term debt	$	4,227	$	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 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 accrued interest of $35 and $17, respectively, which has been recorded in Interest expense, net during the second quarter ended June 30, 2020 in the Statement of Consolidated Operations.

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 have been used to fund the cash tender offers noted above 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 $14 associated with the issuance in the second quarter of 2020.

On May 21, 2020, the Company completed a cash tender offer and redeemed $589 and $151 of principal amount of the 5.400% Notes and its 5.870% Notes due 2022 (the “5.870% Notes”), respectively. The amount of early tender premium and accrued interest associated with the notes accepted for early settlement were $24 and $4, respectively, which was recorded in Interest expense, net during the second quarter ended June 30, 2020 in the Statement of Consolidated Operations.

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 and other costs of $~~22,~~23, which ~~will be~~was recorded in Interest expense, net in the second quarter of 2021 ~~in Interest expense, net~~.

On an annual basis, the redemption of ~~these~~ the 5.400% Notes and the 5.870% Notes will decrease Interest expense, net by approximately ~~$28.~~$47.

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.

2023

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:~~follows:


			No greater than
~~(i) for the quarter ending March 31, 2021~~			~~5.50 to 1.00~~
~~(ii)~~(i) for the quarter ending June 30, 2021			5.50 to 1.00
~~(iii)~~(ii) for the quarter ending September 30, 2021			5.00 to 1.00
~~(iv)~~(iii) for the quarter ending December 31, 2021			4.75 to 1.00
~~(v)~~(iv) for the quarter ending March 31, 2022			4.50 to 1.00
~~(vi)~~(v) for the quarter ending June 30, 2022			4.50 to 1.00
~~(vii)~~(vi) for the quarter ending September 30, 2022			4.25 to 1.00
~~(viii)~~(vii) for the quarter ending December 31, 2022			3.75 to 1.00
(viii) for the quarter ending March 31, 2023 and thereafter			3.50 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 (see Note I) and share repurchases (see Note I) 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,~~June 30, 2021 or December 31, 2020, and 0 amounts were borrowed during 2021 or 2020 under the Credit Agreement. At ~~March 31,~~June 30, 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~~amount 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


	June 30, 2021				December 31, 2020
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	4,227	$	4,886	$	4,699	$	5,426

Restricted cash, which was included in Prepaid ~~assets~~expenses and other current ~~liabilities~~assets in the Consolidated Balance Sheet, was $1 at both ~~March 31,~~June 30, 2021 and December 31, 2020.

Q. Divestitures

2021 Divestiture

On ~~March 15,~~June 1, 2021, the Company ~~reached an agreement to sell~~completed the sale of a small manufacturing plant in France within the Fastening Systems segment for $9$10 (of which $8 of cash was received in ~~cash,~~the second quarter of 2021), subject to working capital and other ~~adjustments, and therefore~~adjustments. An agreement to sell was ~~classified as held for sale. The result was~~reached on March 15, 2021, which resulted in a charge of $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 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~~U.K. 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

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the second quarter of 2020 and recorded these assets at their lower of carrying value (assuming no initial reclassification for held for ~~use~~sale was made) or fair value. The result was a reversal of $7 related to a non-cash impairment in the second quarter of 2020. These charges were recorded in Restructuring and other charges in the Statement of Consolidated Operations.

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 (the “Form 10-K”), 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.

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 $10 at ~~March 31,~~both June 30, 2021 and ~~$10 at~~ December 31, 2020, recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which $5$6 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~~second quarter ended ~~March 31,~~June 30, 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~~The Company is ~~available.~~

~~Pursuant to the Separation and Distribution Agreement, dated as of March 31, 2020, Arconic Corporation agreed to indemnify the Company~~indemnified for certain liabilities and the Company agreed to indemnify Arconic Corporation for certain liabilities. As a result of the Arconic Inc. Separation 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 assume and indemnify the Company againstall potential liabilities associated with the ~~June 13, 2017~~ fire at the Grenfell Tower in London, U.K., which occurred on June 14, 2017, by Arconic Corporation pursuant to the Separation and Distribution Agreement dated March 31, 2020, including, with respect to the following legal proceedings, ~~in which Arconic Inc. and/or its then directors were named~~ as ~~parties:~~updated from the Form 10-K:

United Kingdom ~~Litigation.~~Litigation ~~On December 23, 2020, claimant groups comprised~~(various claims on behalf of survivors and estates of ~~decedents~~decedents). These suits have been further stayed until a hearing can be held by the relevant court on the first available date after April 4, 2022.

Howard v. Arconic Inc. et al. (securities law related claims). As described in the Form 10-K, lead plaintiffs in this case, which alleges violations of the ~~Grenfell Tower fire~~federal securities law, filed ~~suits~~an amended complaint (“Second Amended Complaint”) in July of 2019 after 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~~other defendants were granted a motion to ~~be served with full particulars of~~dismiss the ~~claimants’ substantive allegations and~~case, without prejudice. In the ~~relief that claimants seek. Following a recent application by legal representatives acting~~Second Amended Complaint, plaintiffs provided additional facts for the ~~claimant groups,~~Court’s consideration. On June 23, 2021, the ~~current stay of~~Court ruled that certain claims related to a particular registration statement, other SEC filings, product brochures and websites can proceed. All other claims against the ~~suits has been extended until July 7, 2021, when they~~defendants were permanently dismissed, with prejudice. Defendants will ~~be heard together at a case management hearing in~~file an answer to the ~~High Court in London on July 7-8,~~Second Amended Complaint by August 12, 2021.

With respect to the Behrens et al. v. Arconic Inc. et al. ~~On June 6, 2019, 247 plaintiffs comprised~~(various claims on behalf of survivors and estates of ~~decedents of~~decedents)and 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. (derivative related claim) proceedings, there are no ~~updates to such proceedings are available.~~updates.

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~~2 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 upon its emergence from insolvency proceedings which is expected to occur by 2022, which LBIE claims to be approximately $64, plus applicable interest. Firth will continue to maintain its position that multiple events of default under the agreements related to LBIE’s insolvency proceeding cannot be cured or continue indefinitely, which the Company believes are meritorious defenses. 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~~England, and a ruling has yet to be issued to date. Given the importance of the case for LBIE and Firth, it is expected ~~within six months~~that irrespective of the ~~January 2021 hearing.~~outcome from the most recent hearing, the case will be appealed

and any requirement for the parties to pay amounts under the agreements will be stayed. An appeal of the case could continue past the end of 2022 into 2023. The Company ~~believes it has meritorious defenses and~~ intends to vigorously defend against these claims.

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,~~June 30, 2021, Howmet 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 2021 and 2040, was ~~$33~~$18 at ~~March 31,~~June 30, 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 $6 and $12 at ~~March 31,~~June 30, 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~~$1,435 and $1,398 at ~~March 31,~~June 30, 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~~$133 at ~~March 31,~~June 30, 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~~$133 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 and 2022, was $46 at ~~March 31,~~June 30, 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 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 OI for the ~~early redemption of debt.~~common stock dividend declaration.

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

(dollars in millions, except per share amounts)

Overview

On April 1, 2020, Howmet Aerospace Inc. (formerly known as Arconic Inc.) (“Howmet” or the “Company”) completed the 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, Engineered Structures, Fastening Systems, and Forged Wheels).

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations excludes the historical results of Arconic Corporation, as the Arconic Inc. Separation Transaction occurred on April 1, 2020. The financial results of Arconic Corporation for all periods prior to the Arconic Inc. Separation Transaction have been retrospectively reflected in the 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 the Statement of Consolidated 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.

COVID-19

~~Year to date~~Year-to-date 2021, the Company derived approximately 60% of its revenue from products sold to the aerospace end-market. As a result of 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 financial results. 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. While the pandemic has resulted in the temporary closure of a small number of the Company's manufacturing facilities during 2020, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, management has taken a series of actions to address the financial impact, including announcing certain headcount reductions and reducing the level of capital expenditures to preserve cash and maintain liquidity.

For additional information regarding the risks of COVID-19 on our business, see section Part I, Item 1A in the 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 the COVID-19 pandemic.”

Results of Operations

Earnings Summary:

Sales. Sales were ~~$1,209~~$1,195 in the ~~first~~second quarter of 2021 compared to ~~$1,634~~$1,253 in the ~~first~~second quarter of 2020 and $2,404 in the six months ended June 30, 2021 compared to $2,887 in the six months ended June 30, 2020. The decrease of ~~$425,~~$58, or ~~26%~~5%, in the ~~first~~second quarter of 2021 was primarily due to lower sales volumes in the commercial aerospace market driven by the ~~impacts~~impact of COVID-19 and Boeing 787 production declines, partially offset by growth in the commercial transportation and industrial markets as well as favorable product pricing of $21. The decrease of $483, or 17%, in the six months ended June 30, 2021 was primarily due to lower sales volumes in the commercial aerospace market driven by the impact of COVID-19, and Boeing 737 MAX (“737 MAX”) and Boeing 787 production declines, partially offset by growth in the commercial transportation, defense aerospace, and industrial gas turbine markets as well as favorable product pricing of ~~$17.~~$38.

Cost of goods sold (COGS). COGS as a percentage of Sales was ~~72.2%~~71.7% in the ~~first~~second quarter of 2021 compared to ~~72.4%~~73.7% in the ~~first~~second quarter of 2020 and 72.0% in the six months ended June 30, 2021 compared to 72.9% in the six months ended June 30, 2020. The decrease in the ~~first~~second quarter of 2021 and in the six months ended June 30, 2021 was primarily due to net ~~costs~~cost savings and favorable product pricing. Additionally, ~~in 2020,~~ the Company recorded total COGS reimbursements of $2 and net charges of ~~$11~~$9 in the second quarter of 2020 and in the six months ended June 30, 2020, respectively, related to fires that occurred at 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 reimbursements of $3 and net charges of $9$6 in the second quarter of 2021 and in the six months ended June 30, 2021, respectively, related to the fires atin France and Barberton in 2021. The Company anticipates additional charges of approximately $3 to $7 in the ~~second~~third quarter of 2021, with further impacts in subsequent quarters as the businesses continue to recover from the fires.

Selling, general administrative, and other expenses (SG&A). SG&A expenses were ~~$65~~$55 in the ~~first~~second quarter of 2021 compared to ~~$79~~$74 in the ~~first~~second quarter of 2020 and $120 in the six months ended June 30, 2021 compared to $153 in the six months ended June 30, 2020. The decrease of ~~$14,~~$19, or ~~18%~~26%, in the ~~first~~second quarter of 2021 and $33, or 22%, in the six months ended June 30,

2021 was primarily due to overhead cost reductions as well as costs incurred in the ~~first~~second quarter ofand six months ended June 30, 2020 associated with the Arconic Inc. Separation Transaction.

Research and development expenses (R&D). R&D expenses were $5$4 in both the ~~first~~second quarter of 2021 and the second quarter of 2020. R&D expenses were $9 in the six months ended June 30, 2021 compared to $4$8 in the ~~first quarter of~~six months ended June 30, 2020, an increase of $1, or ~~25%~~13%.

Restructuring and other charges. Restructuring and other charges were $9$5 in the ~~first~~second quarter of 2021 compared to ~~$39~~$105 in the ~~first~~second quarter of 2020 or a decrease of ~~$30.~~$100 and $14 in the six months ended June 30, 2021 compared to $144 in the six months ended June 30, 2020 or a decrease of $130.

Restructuring and other charges for the ~~first~~second quarter ofand six months ended June 30, 2021 were primarily ~~comprised of a $4 charge~~due to charges for ~~impairment of assets associated with an agreement to sell a small manufacturing business in France~~pension plan settlements and ~~a $3 charge for U.S. pension plans' settlement accounting.~~exit related costs.

Restructuring and other charges for the ~~first~~second quarter of 2020 were primarily comprised of a ~~$22~~$64 charge for pension plan settlements and a $54 charge for layoff costs. These charges were partially offset by an $8 benefit from the reversal of several existing layoff reserves and a $7 benefit from the reversal of an impairment due to change in classification from held for sale to held for use related to a United Kingdom (U.K.) plant.

Restructuring and other charges in the six months ended June 30, 2020 were primarily comprised of a $76 charge for layoff costs, ~~partially offset by~~ a ~~benefit of $2 related to the reversal of a number of prior period program reserves, a $12~~$64 charge for ~~impairment of assets associated with an agreement to sell a small manufacturing business in the U.K., and~~pension plan settlements, a $6 ~~post closing~~post-closing adjustment related to the sale of the Company’s U.K. forgings business ~~that occurred~~(which was formerly part of the Engine Products segment), $5 for impairment of assets associated with an agreement to sell an aerospace components business in ~~December 2019.~~the U.K. (within the Engineered Structures segment), and a $5 charge for various other exit costs. These charges were partially offset by a benefit of $10 related to the reversal of a number of prior period programs.

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

Interest expense. Interest expense was ~~$72~~$89 in the ~~first~~second quarter of 2021 compared to ~~$84~~$144 in the ~~first~~second quarter of 2020 and $161 in the six months ended June 30, 2021 compared to $228 in the six months ended June 30, 2020. The decrease of ~~$12,~~$55, or ~~14%~~38%, in the ~~first~~second quarter of 2021 and $67, or 29%, in the six months ended June 30, 2021, was primarily due to lower debt outstanding in the ~~first~~second quarter of 2021 and in the six months ended June 30, 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~~the early redemption of $361 of the principal amount of the 5.400% Notes in the first quarter of 2021, and the early redemption of $476 of the 5.870% Notes in the second quarter of 2021, which was partially 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$8 in the ~~first~~second quarter of 2021 compared to Other expense, net of $16 in the second quarter of 2020 and Other expense, net was $12 in the six months ended June 30, 2021 compared to Other income, net of ~~$24~~$8 in the ~~first quarter of~~six months ended June 30, 2020. The ~~increase~~decrease of ~~$28,~~$8, or ~~117%~~50%, in the ~~first~~second quarter of 2021 was primarily due to a decrease in certain guarantees for Alcoa Corporation of $9, the impacts of deferred compensation arrangements of ~~$12~~$3, and lower non-service related net periodic benefit cost of $2, partially offset by foreign currency losses of $8. The increase of $20, or 250%, in the six months ended June 30, 2021, was primarily due to foreign currency losses of $10, the impacts of deferred compensation arrangements of $9, and lower interest income of ~~$4.~~$3, partially offset by lower non-service related net periodic benefit cost of $5.

Provision for income taxes. The tax rate including discrete items was 29.2% in the first quarter of 2021 compared to 22.7% in the first quarter of 2020. A discrete tax benefit of $1 was recorded in the first quarter of 2021 compared to $8 in the first quarter of 2020. The estimated annual effective tax rate, before discrete items, applied to ordinary income was ~~30.4%~~29.1% in both the second quarter and six months ended June 30, 2021 compared to 36.1% in both the second quarter and six months ended June 30, 2020. The tax rate including discrete items was 32.7% (provision on income) in the ~~first~~second quarter of 2021 compared to ~~26.9%~~2.3% (benefit on loss) in the ~~first~~second quarter of 2020. A discrete tax charge of $4 was recorded in the second quarter of 2021 compared to a discrete tax charge of $10 in the second quarter of 2020. The tax rate including discrete items was 30.9% (provision on income) for the six months ended June 30, 2021 compared to 38.4% (provision on income) for the six months ended June 30, 2020. A discrete tax charge of $3 was recorded in the six months ended June 30, 2021 compared to a discrete tax charge of $2 for the six months ended June 30, 2020. See Note H to the Consolidated Financial Statements.

Net Income (Loss) from Continuing Operations. Income from continuing operations was ~~$80,~~$74, or ~~$0.18~~$0.17 per diluted share, in the ~~first~~second quarter of 2021 compared to ~~$153,~~Loss from continuing operations of $(84), or $(0.19) per diluted share, in the second quarter of 2020 and Income from continuing operations was $154, or $0.35 per diluted share, in the ~~first quarter~~six months ended June 30, 2021 compared to Income from continuing operations of $69, or $0.15 per diluted share, in the six months ended June 30, 2020. The ~~decrease~~increase of ~~$73, or 48%,~~$158 in the ~~first~~second quarter of 2021 was primarily due to lower Restructuring and other charges, lower COGS, and a reduction in Interest expense, partially offset by a decrease in operating income ~~of $69~~ due to lower sales volumes in the commercial aerospace market driven by the ~~impacts~~impact of COVID-19 and Boeing 787 production declines, and an increase in the Provision for income taxes. The increase of $85 in the six months ended June 30, 2021 was primarily due to lower

Restructuring and other charges, lower COGS, and a reduction in Interest expense, partially offset by a decrease in operating income due to lower sales volumes in the commercial aerospace market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, and an increase in ~~other expense of $28, partially offset by a reduction in interest expense of $12 and a decrease in~~ the ~~provision~~Provision for income ~~taxes of $12.~~taxes.

Net ~~Income.~~Income (Loss). As the Arconic Inc. Separation Transaction occurred on April 1, 2020, there iswas no ~~income~~Income from discontinued operations for the ~~first~~second quarter of 2021 or for the six months ended June 30, 2021. Net income was ~~$80~~$74 for the ~~first~~second quarter of 2021, all of which was composed of ~~$80~~$74 of ~~income~~Income from continuing operations, or ~~$0.18~~$0.17 per diluted share, and $154 in the six months ended June 30, 2021, all of which was composed of $154 of Income from continuing operations, or $0.35 per diluted share.

Net ~~income~~loss was ~~$215~~$(96) for the ~~first~~second quarter of 2020 composed of ~~$153~~$(84) of ~~income~~Loss from continuing operations and ~~$62~~$(12) from discontinued operations, or ~~$0.35~~$(0.19) and ~~$0.14~~$(0.03) per diluted share, respectively. Net income was $119 for the six months ended June 30, 2020 composed of $69 of Income from continuing operations and $50 from discontinued operations, or $0.15 and $0.11 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 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~~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. (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 second quarter of 2020, the Company realigned its operations consistent with how the Co-Chief Executive Officers assess operating performance and allocating capital in conjunction with the Arconic Inc. Separation Transaction (see Note B 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 for 737 MAX airplanes. 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~~Segment operating profit in the Engine Products, Fastening Systems and Engineered Structures segments. While regulatory authorities in the United States and certain other jurisdictions lifted grounding orders beginning in late 2020, our sales ~~could continue~~have remained at lower levels due to ~~be negatively affected from~~ the residual impacts of the 737 MAX grounding.

Engine Products

First quarter ended
March 31,
2021 2020
Third-party sales $ 534 $ 781
Segment operating profit 101 165


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Third-party sales	$	544	$	585	$	1,078	$	1,366


Segment operating profit	100		105		201		270

Third-party sales for the Engine Products segment decreased ~~$247,~~$41, or ~~32%~~7%, in the ~~first~~second 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 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~~second quarter of 2020, primarily due to lower volumes in the commercial aerospace ~~end~~ market driven by the impact of COVID-19 and ~~737 MAX and~~ Boeing 787 production ~~declines.~~declines, partially offset by higher volumes in the industrial gas turbine market.

~~Segment operating profit~~Third-party sales for the ~~Fastening Systems~~Engine Products segment decreased ~~$51,~~$288, or ~~53%~~21%, in the ~~first quarter of~~six months ended June 30, 2021 compared to the ~~first quarter of~~six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace ~~end market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by 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.~~

~~Engineered Structures~~

First quarter ended
March 31,
2021 2020
Third-party sales $ 176 $ 275
Segment operating profit 10 28

Third-party sales for the Engineered Structures segment decreased $99, or 36%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to lower volumes 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 industrial gas turbine markets.

Segment operating profit for the ~~Engineered Structures~~Engine Products segment decreased ~~$18,~~$5, or ~~64%~~5%, in the ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020, primarily due to lower volumes in the commercial aerospace ~~end~~market driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by cost reductions, favorable sales volumes in the industrial gas turbine market, and favorable product pricing. The segment added approximately 300 headcount in the quarter in anticipation of revenue increases in the second half of the year.

Segment operating profit for the Engine Products segment decreased $69, or 26%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace market driven

by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by cost reductions, favorable sales volumes in the defense aerospace and industrial gas turbine markets, and favorable product pricing.

For the full year 2021 compared to 2020, demand in the industrial gas turbine market is expected to increase while demand in the commercial aerospace market is expected to be down, driven by the impact of COVID-19 and Boeing 787 production declines. Favorable cost reductions are expected to continue.

Fastening Systems


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Third-party sales	$	262	$	326	$	534	$	711


Segment operating profit	50		70		95		166

Third-party sales for the Fastening Systems segment decreased $64, or 20%, in the second quarter of 2021 compared to the second quarter of 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by higher volumes in the commercial transportation and industrial markets.

Third-party sales for the Fastening Systems segment decreased $177, or 25%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by higher volumes in the ~~defense~~commercial transportation and industrial markets.

Segment operating profit for the Fastening Systems segment decreased $20, or 29%, in the second quarter of 2021 compared to the second quarter of 2020, primarily due to lower volumes in the commercial aerospace ~~end~~ market driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by cost ~~reductions.~~reductions and favorable sales volumes in the commercial transportation and industrial markets.

InSegment operating profit for the Fastening Systems segment decreased $71, or 43%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by cost reductions and favorable sales volumes in the commercial transportation and industrial markets.

For the full year 2021 compared to 2020, demand in the commercial transportation and industrial 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.~~COVID-19 and Boeing 787 production declines. Favorable cost reductions are expected to continue.

Engineered Structures


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Third-party sales	$	160	$	229	$	336	$	504


Segment operating profit	11		19		21		47

Third-party sales for the Engineered Structures segment decreased $69, or 30%, in the second quarter of 2021 compared to the second quarter of 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines.

Third-party sales for the Engineered Structures segment decreased $168, or 33%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines.

Segment operating profit for the Engineered Structuressegment decreased $8, or 42%, in the second quarter of 2021 compared to the second quarter of 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by cost reductions.

Segment operating profit for the Engineered Structuressegment decreased $26, or 55%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by cost reductions.

For the full year 2021 compared to 2020, demand in the commercial aerospace market is expected to be down, driven by the impact of COVID-19 and Boeing 787 production declines. 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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Third-party sales	$	229	$	113	$	456	$	304


Segment operating profit	61		6		131		56

Third-party sales for the Forged Wheels segment increased ~~$36,~~$116, or ~~19%~~103%, in the ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020, primarily due to higher volumes in the ~~North America~~ commercial transportation ~~end~~market.

Third-party sales for the Forged Wheels segment increased $152, or 50%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to higher volumes in the commercial transportation market.

Segment operating profit for the Forged Wheels segment increased ~~$20,~~$55, or ~~40%~~917%, in the ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020, primarily due to higher commercial transportation sales volumes and ~~cost reductions.~~maximizing production in low-cost countries.

InSegment operating profit for the Forged Wheels segment increased $75, or 134%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to higher commercial transportation sales volumes and maximizing production in low-cost countries.

For the full year 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 (loss) 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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Income (loss) from continuing operations before income taxes	$	110	$	(86)	$	223	$	112
Interest expense	89		144		161		228
Other expense (income), net	8		16		12		(8)
Consolidated operating income	$	207	$	74	$	396	$	332
Unallocated amounts:
Restructuring and other charges	5		105		14		144
Corporate expense	10		21		38		63
Total segment operating profit	$	222	$	200	$	448	$	539

Total segment operating profit is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of the segments of the Company excluding Corporate results.

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

Corporate expense decreased ~~$14,~~$11, or ~~33%~~52%, in the ~~first~~second quarter of 2021 compared ~~with~~to the ~~first~~second quarter of 2020, primarily due to costs incurred in 2020 associated with the Arconic Inc. Separation Transaction of $4$3, lower costs related to fires at two plants of $7, and lower costs driven by overhead cost reductions.

Corporate expense decreased $25, or 40%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to costs incurred in 2020 associated with the Arconic Inc. Separation Transaction of $7, lower costs related to fires at two plants of $8, impairment costs related to facility closures of $3 incurred in 2020 that did not recur in 2021, and lower costs driven by overhead cost reductions.

Environmental Matters

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

Subsequent Events

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

Liquidity and Capital Resources

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

Operating Activities

Cash ~~used for~~provided from operations was $6$79 in the ~~three~~six months ended ~~March 31,~~June 30, 2021 compared to ~~$208 in the three months ended March 31, 2020. The decrease in~~ cash used for operations of ~~$202,~~$177 in the six months ended June 30, 2020. The change of $256, or ~~97%~~145%, was primarily due to lower operating results of ~~$256~~$191, which were more than offset by lower working capital of ~~$408,~~$391, including the impact of employee retention credit receivables, lower pension contributions of ~~$27,~~$41, and noncurrent liabilities of ~~$25.~~$13. The components of the change in working capital included ~~favorable changes in receivables of $66, inventories of $156,~~ accounts payable of ~~$158,~~$368, inventories of $155, accrued expenses of ~~$81,~~$80, and prepaid expenses and other current assets of ~~$25,~~$21, offset by unfavorable changes in receivables of $161 and taxes, including income taxes of ~~$78.~~$72.

As a result of the American Rescue Plan Act of 2021, management expects Howmet’s estimated pension contributions and other postretirement benefit payments in 2021 to be approximately $120.

Financing Activities

Cash used for financing activities was ~~$368~~$1,068 in the ~~three~~six months ended ~~March 31,~~June 30, 2021 compared to ~~cash provided from financing activities of $1,145~~$277 in the ~~three~~six months ended ~~March 31,~~June 30, 2020. The change of ~~$1,513,~~$791, or ~~132%~~286%, was primarily due to debt issued of ~~$1,200~~$2,400 in the first ~~quarter~~half of 2020 ~~(which~~(of which $1,200 went with Arconic Corporation in the Arconic Inc. Separation Transaction) ~~partially offset by debt issuance costs~~and the repurchase of ~~$44, while~~common stock of $200 in the ~~first~~second quarter of 2021, ~~had~~partially offset by payments on the redemption of long-term debt of ~~$361.~~$1,203 ($838 in the first half of 2021 compared to $2,041 in the first half of 2020) (See Note O to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference). , cash distributed to Arconic Corporation at the Arconic Inc. Separation Transaction of $500, a reduction in debt issuance costs of $60, a reduction in premiums paid on the redemption of debt of $37 and a reduction in dividends paid to common stock shareholders of $9. On an annual basis, the redemption of the 5.400% Notes and the 5.870% Notes will decrease Interest expense, net by approximately $47.

On July 19, 2021, the Board of Directors of Howmet ~~expects to re-instate~~declared a ~~quarterly~~ dividend of $0.02 per share on the outstanding common stock of the ~~Company’s~~Company, to be paid on August 25, 2021, to the holders of record of the common stock ~~beginning in~~at the ~~third quarter 2021, subject to the discretion and final approval~~close of ~~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.~~business on August 6, 2021.

The Company maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein. On March 29, 2021, the Company entered into another amendment to its Credit Agreement to provide extended relief from its existing financial covenant through December 31, 2022. See Note O 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. Such purchases may be completed by means of trading plans established from time to time in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, block trades, private transactions, open market repurchases, tender offers, and/or accelerated share repurchase agreements or other derivative transactions.

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 and long-term debt ratings assigned to the Company by the major credit rating agencies.

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

Issuer Rating

Outlook

Date of Last Update

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

BB+

Negative

September 9, 2020

Moody’s Investors Service (Moody’s)

Ba2

Stable

April 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 $3$94 in the ~~three~~six months ended ~~March 31,~~June 30, 2021 compared to ~~$11~~$44 in the ~~three~~six months ended ~~March 31,~~June 30, 2020. The ~~decrease~~increase in cash provided from investing activities of ~~$8,~~$50, or ~~73%~~114%, was primarily due to proceeds from the sale of assets and ~~business~~businesses of $106 ($8 is related to the sale of a small manufacturing plant in France in the second quarter of 2021 and $114 ~~primarily~~is related to the sale of a hard extrusions plant in South Korea and an aluminum rolling mill in Brazil in the first quarter of 2020 (both of which related to Arconic Corporation)), substantially offset by a decrease in capital expenditures of ~~$97~~$93 and an increase in cash receipts from sold receivables of ~~$9.~~

~~Goodwill.~~ ~~Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more frequently if indicators~~$58 and sale of ~~impairment exist or if a decision is made to sell or realign a business. A significant amount~~fixed income securities 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 2021, Howmet had four reporting units (Engine Products, Fastening Systems, Engineered Structures and Forged Wheels).

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.

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”) 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 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 have a negative impact on the Company’s global sales 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.$5.

Recently Adopted and Recently Issued Accounting Guidance

See Note C 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 outlook relating to the condition of end markets; future financial results, operating performance, or estimated or expected future capital expenditures; future strategic actions; Howmet’s strategies, outlook, and business and financial prospects; and any future dividends and repurchases of its debt or ~~share repurchases.~~equity securities. 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) uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet’s business, results of 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 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 revenue growth, cash generation, cost savings, restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (i) competition from new product offerings, disruptive technologies or other developments; (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; (k) 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 other risk factors summarized in Howmet’s Form 10-K for the year ended December 31, 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~~second quarter of 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 R to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

3135

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

The following table presents information with respect to the Company’s repurchases of its common stock during the quarter ended June 30, 2021:


	(in millions except share and per share amounts)
Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 1 - April 30, 2021	—	—	—	$277.0
May 1 - May 31, 2021(2)	4,910,988	$34.02	4,910,988	$77.0
June 1 - June 30, 2021(2)	967,803	$34.02	967,803	$77.0
Total for quarter ended June 30, 2021	5,878,791	$34.02	5,878,791

(1)On May 20, 2019, the Company announced that its Board of Directors authorized the repurchase of $500 million of the Company's outstanding common stock (the “Share Repurchase Program”) by means of trading plans established from time to time in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, block trades, private transactions, open market repurchases and/or accelerated share repurchase agreements or other derivative transactions. There was no stated expiration for the Share Repurchase Program under which the Company may repurchase shares from time to time and pursuant to such terms, as and if it deems appropriate. The Share Repurchase Program may be suspended, modified or terminated at any time without prior notice. After giving effect to the share repurchases made through June 30, 2021, approximately $77 million remains available under the prior authorization by the Board of Directors for the Share Repurchase Program. The amount of share repurchases by the Company may be limited under the terms of the Five-Year Revolving Credit Agreement (See Note O to the Consolidated Financial Statements for additional detail).

(2)On May 10, 2021, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC to repurchase $200 million of its common stock. The Company received an initial delivery of 4,910,988 shares in May 2021, and 967,803 additional shares in June 2021. A total of 5,878,791 shares, at an average price of $34.02 per share, were purchased under the agreement.

Item 6. Exhibits.


10.1			~~Amendment No. 5~~Letter Agreement, by and between Howmet Aerospace Inc. and Lola Lin, dated as of ~~March 29, 2021, to the Five-Year Revolving Credit~~May 5, 2021.
10.2			Restricted Share Unit Award Agreement ~~dated as~~- Annual Equity Award for Lola Lin, effective July 15, 2021.
10.3			Restricted Share Unit Award Agreement - Sign-On Equity Award for Lola Lin, effective July 15, 2021.
10.4			Form of ~~July 25, 2014, among Howmet Aerospace Inc., the lenders~~Confidentiality, Non-Competition, and issuers named therein, Citibank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 29, 2021.Non-Solicitation Agreement.
31			Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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,~~June 30, 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 6,~~August 4, 2021			/s/ Ken Giacobbe
Date			Ken Giacobbe
			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)

~~May 6,~~August 4, 2021			/s/ ~~Paul Myron~~Barbara L. Shultz
Date			~~Paul Myron~~Barbara L. Shultz
			Vice President and Controller
			(Principal Accounting Officer)

3237


	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