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,~~September 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,~~November 1, 2021, there were ~~434,325,032~~427,217,982 shares of common stock, par value $1.00 per share, of the registrant outstanding.

TABLE OF CONTENTS


		~~Page(s)~~Page
Part I
Item 1.	Financial Statements	3
	Statement of Consolidated Operations for the ~~First~~Third Quarter and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020	3
	Statement of Consolidated Comprehensive Income for the ~~First~~Third Quarter and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020	4
	Consolidated Balance ~~Sheets~~Sheet as of ~~March 31,~~September 30, 2021 and December 31, 2020	5
	Statement of Consolidated Cash Flows for the ~~First Quarter~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020	6
	Statement of Changes in Consolidated Equity for the ~~First~~Third Quarter Ended ~~March 31,~~September 30, 2021 and 2020	7
	Statement of Changes in Consolidated Equity for the Nine Months Ended September 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	2529
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3136
Item 4.	Controls and Procedures	3136
Part II
Item 1.	Legal Proceedings	3137
Item 1A.	Risk Factors	3137
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	3239
	Signatures	3239

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				Third quarter ended				Nine months ended
		March 31,				September 30,				September 30,
		2021		2020				2021		2020		2021		2020
Sales (D)	Sales (D)	$	1,209	$	1,634		Sales (D)	$	1,283	$	1,134	$	3,687	$	4,021
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)	928		900		2,658		3,006
Selling, general administrative, and other expenses	Selling, general administrative, and other expenses	65		79			Selling, general administrative, and other expenses	70		66		190		219
Research and development expenses	Research and development expenses	5		4			Research and development expenses	4		5		13		13
Provision for depreciation and amortization	Provision for depreciation and amortization	68		71			Provision for depreciation and amortization	68		68		203		212
Restructuring and other charges (E)	Restructuring and other charges (E)	9		39			Restructuring and other charges (E)	8		22		22		166
Operating income	Operating income	189		258			Operating income	205		73		601		405
Loss on debt redemption (O)							Loss on debt redemption (O)	118		—		141		64
Interest expense, net	Interest expense, net	72		84			Interest expense, net	63		77		201		241
Other expense (income), net (F)		4		(24)
Income before income taxes		113		198
Provision for income taxes (H)		33		45
Other expense, net (F)							Other expense, net (F)	1		8		13		—
Income (loss) before income taxes							Income (loss) before income taxes	23		(12)		246		100
(Benefit) provision for income taxes (H)							(Benefit) provision for income taxes (H)	(4)		(48)		65		(5)
Income from continuing operations after income taxes	Income from continuing operations after income taxes	80		153			Income from continuing operations after income taxes	$	27	$	36	$	181	$	105
Income from discontinued operations after income taxes (B)	Income from discontinued operations after income taxes (B)	0		62			Income from discontinued operations after income taxes (B)	—		—		—		50
Net income	Net income	$	80	$	215		Net income	$	27	$	36	$	181	$	155

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	Net income	$	79	$	214		Net income	$	26	$	35	$	179	$	153
Earnings per share - basic	Earnings per share - basic						Earnings per share - basic
Continuing operations	Continuing operations	$	0.18	$	0.35		Continuing operations	$	0.06	$	0.08	$	0.42	$	0.24
Discontinued operations	Discontinued operations	$	0	$	0.14		Discontinued operations	$	—	$	—	$	—	$	0.11
Earnings per share - diluted	Earnings per share - diluted						Earnings per share - diluted
Continuing operations	Continuing operations	$	0.18	$	0.35		Continuing operations	$	0.06	$	0.08	$	0.41	$	0.23
Discontinued operations	Discontinued operations	$	0	$	0.14		Discontinued operations	$	—	$	—	$	—	$	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	429		436		431		436
Average shares outstanding - diluted	Average shares outstanding - diluted	439		440			Average shares outstanding - diluted	434		439		437		440

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

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Comprehensive Income (unaudited)

(U.S. dollars in millions)


		First quarter ended					Third quarter ended				Nine months ended
		March 31,				September 30,	September 30,
		2021		2020					2021		2020		2021		2020
Net income	Net income	$	80	$	215			Net income	$	27	$	36	$	181	$	155
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	13		8		90		54
Foreign currency translation adjustments	Foreign currency translation adjustments	(44)		(65)				Foreign currency translation adjustments	(36)		48		(62)		(25)
Net change in unrealized gains on debt securities		0		1
Net change in unrecognized gains (losses) on cash flow hedges		4		(13)
Total Other comprehensive income (loss), net of tax		2		(40)

Net change in unrecognized (losses) gains on cash flow hedges								Net change in unrecognized (losses) gains on cash flow hedges	(4)		5		4		1
Total other comprehensive (loss) income, net of tax								Total other comprehensive (loss) income, net of tax	(27)		61		32		30
Comprehensive income	Comprehensive income	$	82	$	175			Comprehensive income	$	—	$	97	$	213	$	185

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			September 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	$	724	$	1,610
Receivables from customers, less allowances of $1 in 2021 and $1 in 2020 (K)		339		328
Receivables from customers, less allowances of $— in 2021 and $1 in 2020 (K)						Receivables from customers, less allowances of $— in 2021 and $1 in 2020 (K)	408		328
Other receivables (K)	Other receivables (K)	96		29		Other receivables (K)	57		29
Inventories (L)	Inventories (L)	1,453		1,488		Inventories (L)	1,420		1,488
Prepaid expenses and other current assets	Prepaid expenses and other current assets	202		217		Prepaid expenses and other current assets	211		217

Total current assets	Total current assets	3,328		3,672		Total current assets	2,820		3,672
Properties, plants, and equipment, net (M)	Properties, plants, and equipment, net (M)	2,524		2,592		Properties, plants, and equipment, net (M)	2,483		2,592
Goodwill (D)	Goodwill (D)	4,086		4,102		Goodwill (D)	4,077		4,102
Deferred income taxes	Deferred income taxes	227		272		Deferred income taxes	202		272
Intangibles, net	Intangibles, net	563		571		Intangibles, net	554		571
Other noncurrent assets (N)	Other noncurrent assets (N)	243		234		Other noncurrent assets (N)	221		234

Total assets	Total assets	$	10,971	$	11,443	Total assets	$	10,357	$	11,443
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable, trade	Accounts payable, trade	$	596	$	599	Accounts payable, trade	$	646	$	599
Accrued compensation and retirement costs	Accrued compensation and retirement costs	171		205		Accrued compensation and retirement costs	202		205
Taxes, including income taxes	Taxes, including income taxes	93		102		Taxes, including income taxes	77		102
Accrued interest payable	Accrued interest payable	88		89		Accrued interest payable	68		89
Other current liabilities (N)	Other current liabilities (N)	243		289		Other current liabilities (N)	201		289
Short-term debt (O)	Short-term debt (O)	489		376		Short-term debt (O)	14		376

Total current liabilities	Total current liabilities	1,680		1,660		Total current liabilities	1,208		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)	4,272		4,699
Accrued pension benefits (G)	Accrued pension benefits (G)	941		985		Accrued pension benefits (G)	847		985
Accrued other postretirement benefits (G)	Accrued other postretirement benefits (G)	159		198		Accrued other postretirement benefits (G)	154		198
Other noncurrent liabilities and deferred credits (N)	Other noncurrent liabilities and deferred credits (N)	305		324		Other noncurrent liabilities and deferred credits (N)	297		324

Total liabilities	Total liabilities	7,309		7,866		Total liabilities	6,778		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	428		433
Additional capital	Additional capital	4,671		4,668		Additional capital	4,473		4,668
Retained earnings	Retained earnings	443		364		Retained earnings	534		364
Accumulated other comprehensive loss (J)	Accumulated other comprehensive loss (J)	(1,941)		(1,943)		Accumulated other comprehensive loss (J)	(1,911)		(1,943)

Total equity	Total equity	3,662		3,577		Total equity	3,579		3,577
Total liabilities and equity	Total liabilities and equity	$	10,971	$	11,443	Total liabilities and equity	$	10,357	$	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					Nine months ended
		March 31,					September 30,
		2021		2020			2021		2020
Operating activities	Operating activities					Operating activities
Net income	Net income	$	80	$	215	Net income	$	181	$	155
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	203		271
Deferred income taxes	Deferred income taxes	10		19		Deferred income taxes	24		25
Restructuring and other charges	Restructuring and other charges	9		21		Restructuring and other charges	22		148
Net loss from investing activities—asset sales	Net loss from investing activities—asset sales	3		2		Net loss from investing activities—asset sales	7		6
Net periodic pension benefit cost (G)		4		26
Net periodic pension cost (G)						Net periodic pension cost (G)	13		42
Stock-based compensation	Stock-based compensation	6		13		Stock-based compensation	28		35
Loss on debt redemption (O)						Loss on debt redemption (O)	141		64
Other	Other	14		25		Other	28		(1)
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		(144)		(210)
Increase in receivables (K)						Increase in receivables (K)	(382)		(117)
Decrease (increase) in inventories	Decrease (increase) in inventories	20		(136)		Decrease (increase) in inventories	49		(42)
Decrease (increase) in prepaid expenses and other current assets		23		(2)
Decrease in prepaid expenses and other current assets						Decrease in prepaid expenses and other current assets	6		1
Increase (decrease) in accounts payable, trade (A)	Increase (decrease) in accounts payable, trade (A)	26		(132)		Increase (decrease) in accounts payable, trade (A)	63		(439)
Decrease in accrued expenses	Decrease in accrued expenses	(92)		(173)		Decrease in accrued expenses	(121)		(177)
Increase in taxes, including income taxes		12		90
(Decrease) increase in taxes, including income taxes						(Decrease) increase in taxes, including income taxes	(15)		41
Pension contributions	Pension contributions	(29)		(56)		Pension contributions	(68)		(110)
Increase in noncurrent assets	Increase in noncurrent assets	(2)		0		Increase in noncurrent assets	(1)		(5)
Decrease in noncurrent liabilities	Decrease in noncurrent liabilities	(14)		(39)		Decrease in noncurrent liabilities	(32)		(39)
Cash used for operations		(6)		(208)
Cash provided from (used for) operations						Cash provided from (used for) operations	146		(142)
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)	—		(8)
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)	700		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)	(1,491)		(2,041)
Debt issuance costs (B)(O)	Debt issuance costs (B)(O)	(1)		(45)		Debt issuance costs (B)(O)	(11)		(61)

Premiums paid on early redemption of debt (O)						Premiums paid on early redemption of debt (O)	(133)		(59)
Proceeds from exercise of employee stock options	Proceeds from exercise of employee stock options	8		30		Proceeds from exercise of employee stock options	17		30
Dividends paid to shareholders	Dividends paid to shareholders	0		(9)		Dividends paid to shareholders	(11)		(10)

Repurchase of common stock						Repurchase of common stock	(225)		(51)
Net cash transferred to Arconic Corporation at separation (B)						Net cash transferred to Arconic Corporation at separation (B)	—		(500)
Other	Other	(12)		(33)		Other	(20)		(39)
Cash (used for) provided from financing activities		(368)		1,145
Cash used for financing activities						Cash used for financing activities	(1,174)		(339)
Investing Activities	Investing Activities					Investing Activities
Capital expenditures (A)(D)		(55)		(152)
Proceeds from the sale of assets and businesses (B)		0		114

Capital expenditures (A)(D)						Capital expenditures (A)(D)	(138)		(220)
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		—
Cash receipts from sold receivables (K)	Cash receipts from sold receivables (K)	57		48		Cash receipts from sold receivables (K)	267		258
Other	Other	1		1		Other	2		—
Cash provided from investing activities	Cash provided from investing activities	3		11		Cash provided from investing activities	144		152
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	(1)		(6)
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	(885)		(335)
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	$	726	$	1,368

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										Howmet Aerospace Shareholders
		Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss			Noncontrolling Interests		Total Equity			Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at December 31, 2019		$	55	$	433	$	7,319	$	113	$	(3,329)		$	14	$	4,605
Balance at June 30, 2020																	Balance at June 30, 2020	$	55	$	436	$	4,703	$	223	$	(1,968)	$	—	$	3,449

Net income	Net income	—		—		—		215		—			—		215		Net income	—		—		—		36		—		—		36
Other comprehensive loss (J)		—		—		—		—		(40)			—		(40)

Other comprehensive income (J)																	Other comprehensive income (J)	—		—		—		—		61		—		61
Cash dividends declared:	Cash dividends declared:																Cash dividends declared:
Preferred-Class A @ $0.9375 per share	Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—			—		(1)		Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—		—		(1)
Common @ $0.02 per share		—		—		—		(8)		—			—		(8)

Repurchase and retirement of common stock																	Repurchase and retirement of common stock	—		(2)		(49)		—		—		—		(51)
Stock-based compensation	Stock-based compensation	—		—		13		—		—			—		13		Stock-based compensation	—		—		12		—		—		—		12
Common stock issued: compensation plans	Common stock issued: compensation plans	—		3		(6)		—		—			—		(3)		Common stock issued: compensation plans	—		—		(5)		—		—		—		(5)

Distributions to Arconic Corporation (B)																	Distributions to Arconic Corporation (B)	—		—		22		—		(22)		—		—

Balance at March 31, 2020		$	55	$	436	$	7,326	$	319	$	(3,369)		$	14	$	4,781
Balance at September 30, 2020																	Balance at September 30, 2020	$	55	$	434	$	4,683	$	258	$	(1,929)	$	—	$	3,501


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

Net income	Net income	—		—		—		80		—			80		Net income	—		—		—		27		—		27
Other comprehensive income (J)	Other comprehensive income (J)	—		—		—		—		2			2		Other comprehensive income (J)	—		—		—		—		(27)		(27)
Cash dividends declared:	Cash dividends declared:														Cash dividends declared:
Preferred-Class A @ $0.9375 per share	Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—			(1)		Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—		(1)

Common @ $0.02 per share															Common @ $0.02 per share	—		—		—		(9)		—		(9)
Repurchase and retirement of common stock															Repurchase and retirement of common stock	—		(1)		(24)		—		—		(25)
Stock-based compensation	Stock-based compensation	—		—		6		—		—			6		Stock-based compensation	—		—		14		—		—		14
Common stock issued: compensation plans	Common stock issued: compensation plans	—		1		(3)		—		—			(2)		Common stock issued: compensation plans	—		—		2		—		—		2

Balance at March 31, 2021		$	55	$	434	$	4,671	$	443	$	(1,941)		$	3,662
Balance at September 30, 2021															Balance at September 30, 2021	$	55	$	428	$	4,473	$	534	$	(1,911)	$	3,579

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	—		—		—		155		—		—		155
Other comprehensive income (J)	—		—		—		—		30		—		30
Cash dividends declared:
Preferred-Class A @ $2.8125 per share	—		—		—		(2)		—		—		(2)

Common @ $0.02 per share	—		—		—		(8)		—		—		(8)
Repurchase and retirement of common stock	—		(2)		(49)		—		—		—		(51)
Stock-based compensation	—		—		35		—		—		—		35
Common stock issued: compensation plans	—		3		(11)		—		—		—		(8)
Distributions to Arconic Corporation (B)	—		—		(2,611)		—		1,370		(14)		(1,255)




Balance at September 30, 2020	$	55	$	434	$	4,683	$	258	$	(1,929)	$	—	$	3,501


	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	—		—		—		181		—		181
Other comprehensive income (J)	—		—		—		—		32		32
Cash dividends declared:
Preferred-Class A @ $2.8125 per share	—		—		—		(2)		—		(2)
Common @ $0.02 per share	—		—		—		(9)		—		(9)
Repurchase and retirement of common stock	—		(7)		(218)		—		—		(225)
Stock-based compensation	—		—		28		—		—		28
Common stock issued: compensation plans	—		2		(5)		—		—		(3)


Balance at September 30, 2021	$	55	$	428	$	4,473	$	534	$	(1,911)	$	3,579

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~~nine months ended September 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”)~~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~~fixed and variable cost reductions, such as headcount reductions in certain ~~headcount reductions~~segments, 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 not materially misstate the Statement of Consolidated Cash Flows for the first quarter ended March 31, 2020 or six months ended June 30, 2020, the Company revised the first quarter, resulting in an $83 increase to previously reported capital expenditures and decrease to cash provided from investing activities with a corresponding reduction (decrease) in accounts payable, trade and increase in cash provided by operations.

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 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.~~companies, which was effected by the distribution (the “Distribution”) by the Company of all of the outstanding common stock of Arconic Corporation to the Company’s stockholders. 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,~~(Engine Products, Fastening Systems, Engineered Structures, and ~~forged wheels)~~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~~Nine months ended
	~~March 31,~~September 30,
	2020
Sales	$	1,575
Cost of goods sold	1,293
Selling, general administrative, research and development and other expenses	~~101~~106

Provision for depreciation and amortization	58
Restructuring and other charges	(18)
Operating income from discontinued operations	~~141~~136
Interest expense, net	7
Other expense, net	41
Income from discontinued operations	9388
Provision for income taxes	3138
Income from discontinued operations after income taxes	$	6250

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~~Nine months ended
	~~March 31,~~September 30,
	2020
Capital expenditures	$	72
Proceeds from the sales of businesses	$	112
Provision for depreciation and amortization	$	58

There was no discontinued operations activity related to Arconic Corporation for the third quarter ended September 30, 2020.

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 the total segment ~~totals~~ and consolidated ~~Howmet~~totals are in Corporate.

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

Engine Products

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

Fastening Systems

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

Engineered Structures

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

Forged Wheels

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

Goodwill

The Company had ~~$4,086~~$4,077 of Goodwill at ~~March 31,~~September 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 0no 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 the total segment and consolidated totals are in Corporate.


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Third quarter ended September 30, 2021
Sales:
Third-party sales	$	599	$	254	$	199	$	231	$	1,283
Inter-segment sales	1		—		1		—		2
Total sales	$	600	$	254	$	200	$	231	$	1,285
Profit and loss:
Segment operating profit	$	120	$	47	$	14	$	62	$	243
Restructuring and other charges	5		3		—		—		8
Provision for depreciation and amortization	31		12		12		10		65
Capital expenditures	21		8		3		15		47

Third quarter ended September 30, 2020
Sales:
Third-party sales	$	485	$	271	$	206	$	172	$	1,134
Inter-segment sales	1		—		1		—		2
Total sales	$	486	$	271	$	207	$	172	$	1,136
Profit and loss:
Segment operating profit	$	39	$	33	$	10	$	35	$	117
Restructuring and other charges	9		—		9		—		18
Provision for depreciation and amortization	31		12		13		10		66
Capital expenditures	15		9		3		6		33

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Nine months ended September 30, 2021
Sales:
Third-party sales	$	1,677	$	788	$	535	$	687	$	3,687
Inter-segment sales	3		—		4		—		7
Total sales	$	1,680	$	788	$	539	$	687	$	3,694
Profit and loss:
Segment operating profit	$	321	$	142	$	35	$	193	$	691
Restructuring and other charges	15		8		1		—		24
Provision for depreciation and amortization	92		37		37		29		195
Capital expenditures	48		22		13		37		120

Nine months ended September 30, 2020
Sales:
Third-party sales	$	1,851	$	982	$	710	$	476	$	4,019
Inter-segment sales	4		—		6		—		10
Total sales	$	1,855	$	982	$	716	$	476	$	4,029
Profit and loss:
Segment operating profit	$	309	$	199	$	57	$	91	$	656
Restructuring and other charges	44		26		21		3		94
Provision for depreciation and amortization	92		36		40		29		197
Capital expenditures	48		24		11		17		100

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:


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Total segment operating profit	$	243	$	117	$	691	$	656
Unallocated amounts:
Restructuring and other charges	(8)		(22)		(22)		(166)
Corporate expense	(30)		(22)		(68)		(85)
Operating income	$	205	$	73	$	601	$	405
Loss on debt redemption	(118)		—		(141)		(64)
Interest expense, net	(63)		(77)		(201)		(241)
Other expense, net	(1)		(8)		(13)		—
Income (loss) from continuing operations before income taxes	$	23	$	(12)	$	246	$	100

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~~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 the total 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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Total segment capital expenditures	$	47	$	33	$	120	$	100
Corporate and discontinued operations	—		3		18		120
Capital expenditures	$	47	$	36	$	138	$	220

1214

The following table disaggregates segment revenue by major end market served. Differences between the 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
Third quarter ended September 30, 2021
Aerospace - Commercial	$	299	$	126	$	118	$	—	$	543
Aerospace - Defense	130		37		65		—		232
Commercial Transportation	—		59		—		231		290
Industrial and Other	170		32		16		—		218
Total end-market revenue	$	599	$	254	$	199	$	231	$	1,283

Third quarter ended September 30, 2020
Aerospace - Commercial	$	199	$	169	$	104	$	—	$	472
Aerospace - Defense	142		37		82		—		261
Commercial Transportation	—		38		—		172		210
Industrial and Other	144		27		20		—		191
Total end-market revenue	$	485	$	271	$	206	$	172	$	1,134

Nine months ended September 30, 2021
Aerospace - Commercial	$	786	$	403	$	277	$	—	$	1,466
Aerospace - Defense	402		120		206		—		728
Commercial Transportation	—		154		—		687		841
Industrial and Other	489		111		52		—		652
Total end-market revenue	$	1,677	$	788	$	535	$	687	$	3,687

Nine months ended September 30, 2020
Aerospace - Commercial	$	1,018	$	650	$	432	$	—	$	2,100
Aerospace - Defense	394		120		216		—		730
Commercial Transportation	—		118		—		476		594
Industrial and Other	439		94		62		—		595
Total end-market revenue	$	1,851	$	982	$	710	$	476	$	4,019

The Company derived 60% and ~~73%~~70% of its revenue from the aerospace ~~end markets in~~end-market for the ~~first quarter of~~nine months ended September 30, 2021 and 2020, respectively.

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

E. Restructuring and Other Charges


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Layoff costs	$	—	$	17	$	2	$	93
Net reversals of previously recorded layoff reserves	—		—		(1)		(10)
Pension, Other post-retirement benefits and Deferred Compensation - net settlements (G)	3		3		9		67
Non-cash asset impairments	4		—		8		—
Net loss related to divestitures of assets and businesses (Q)	—		—		4		9
Other	1		2		—		7
Restructuring and other charges	$	8	$	22	$	22	$	166

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~~third quarter ofand nine months ended September 30, 2021, the Company recorded Restructuring and other charges of ~~$9,~~$8 and $22, respectively, which were primarily due to charges for pension plan settlements and exit related costs.

In the third quarter of 2020, the Company recorded Restructuring and other charges of $22, which included a $4$17 charge for layoff costs, an $8 charge for pension plan settlements, and a $2 charge for accelerated depreciation. These charges were partially offset by a $3 benefit from the termination of a deferred compensation plan and a $2 curtailment benefit related to a post-retirement plan.

In the nine months ended September 30, 2020, the Company recorded Restructuring and other charges of $166, which included a $93 charge for layoff costs, a $72 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 segment), a $5 charge for impairment of assets associated with an agreement to sell a small manufacturing business in France, a $3 charge for U.S. pension plans' settlement accounting, a $1 adjustment related to a number of prior period program reserves and a $1 charge for exit costs including accelerated depreciation.

In the first quarter of 2020, the Company recorded Restructuring and other charges of $39, which included a $22 charge for layoff costs, including the separation of 460 employees (175 in Engine Products, 106 in Fastening Systems, 100 in Engineered Structures, 56 in Forged Wheels and 23 in Corporate); a $12 charge for impairment of assets associated with an ~~agreement to sell a small manufacturing~~aerospace components business in the ~~United Kingdom (U.K.);~~U.K (within the Engineered Structures segment), a ~~$6 post closing adjustment related to the 2019 sale of the Company’s U.K. forgings business~~$2 charge for accelerated depreciation, 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, a $3 benefit from the termination of a deferred compensation plan, a $2 curtailment benefit related to a post-retirement plan, 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	$	—	$	54
Cash payments	(37)		—		(37)
Restructuring charges	10		12		22
Other(1)	(11)		(12)		(23)
Reserve balances at September 30, 2021	$	16	$	—	$	16

(1)In the ~~first quarter of~~nine months ended September 30, 2021, ~~Layoff~~layoff costs included ~~$3 in settlement accounting charges related to U.S.~~a $9 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 associated with~~were primarily related to an ~~agreement to sell a small manufacturing business; and a $1~~$11 charge for other exit costs including accelerated depreciation.

The remaining ~~Layoff~~layoff cost reserves are expected to be paid in cash by ~~the end of 2021.~~mid-year 2022.

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)


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Non-service related net periodic benefit cost	$	2	$	8	$	8	$	19
Interest income	(1)		(1)		(2)		(5)
Foreign currency (gains) losses, net	(2)		(5)		1		(12)
Net loss from asset sales	3		2		7		6

Deferred compensation	(1)		4		5		1
Other, net	—		—		(6)		(9)
Other expense, net	$	1	$	8	$	13	$	—

1416

G. Pension and Other Postretirement Benefits

The components of net periodic ~~benefit~~ cost (benefit) 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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Pension benefits
Service cost	$	1	$	1	$	3	$	10
Interest cost	12		17		36		81
Expected return on plan assets	(23)		(21)		(69)		(115)
Recognized net actuarial loss	14		12		43		66

Settlements	3		8		9		72


Net periodic cost(1)	7		17		22		114
Discontinued operations	—		—		—		20
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	7	$	17	$	22	$	94

Other postretirement benefits
Service cost	$	—	$	1	$	1	$	3
Interest cost	1		2		4		9
Recognized net actuarial loss	1		—		1		2
Amortization of prior service benefit	(3)		(2)		(7)		(5)
Curtailments	—		(2)		—		(2)

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

(1)Service cost for continuing operations was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development expenses; settlements and curtailments were included in Restructuring and other charges; and all other cost components were recorded in Other expense, ~~(income),~~ net in the Statement of Consolidated Operations. The amounts included in ~~Net~~net periodic ~~benefit~~ cost (benefit) include costs related to both continuing and discontinued operations for the ~~first quarter~~nine months ended ~~March 31,~~September 30, 2020.

Pension benefits

In the ~~first~~third quarter ~~ended March 31,~~of 2021, the Company applied settlement accounting to certain U.S. and Canadian pension plans due to lump sum payments made to participants, which resulted in settlement charges of $3 and $9 in the third quarter and nine months ended September 30, 2021, respectively, that were recorded in Restructuring and other charges.

In October 2021, the Company undertook additional actions to reduce gross pension obligations by approximately $125 by purchasing group annuity contracts with a third-party carrier to pay and administer future annuity payments. These actions are expected to result in a settlement charge of approximately $30 and will be recorded in Restructuring and other charges in the fourth quarter ending December 31, 2021 in the Statement of Consolidated Operations. The funded status of the plans have not been significantly impacted.

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,~~Considering the impact of ARPA 2021, 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 ended June 30, 2020 and nine months ended September 30, 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 in the second quarter ended June 30, 2020 and

nine months ended September 30, 2020.

In the third quarter and nine months ended September 30, 2020, the Company also applied settlement accounting to certain Canadian, U.K., and U.S. pension plans due to lump sum payments to participants which resulted in settlement charges of $8 and $10, respectively, 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 a 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~~. 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 third quarter of 2020, the Company applied curtailment accounting due to a workforce reduction resulting in a decrease in expense of $2 which is recorded in Restructuring and other charges in the Statement of Consolidated Operations.

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%~~29.7% in both the third quarter and ~~26.9%, respectively.~~nine months ended September 30, 2021, and 34.5% in both the third quarter and nine months ended September 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 (“GILTI”) 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 nondeductible expenses.

For the ~~first~~third quarter of 2021 and 2020, the tax rate including discrete items was ~~29.2%~~17.4% (benefit on income) and ~~22.7%~~400.0% (benefit on a relatively small loss), respectively. For the ~~first~~third quarter of 2021, the Company recorded a discrete ~~net~~ tax benefit of $12 related to a net $13 benefit from prior year amended returns and audit settlements, and a net $1 charge for other items. For the ~~first~~third quarter of 2020, the Company recorded a discrete tax benefit of $8$41 related ~~primarily~~ to a $36 benefit for a U.S. tax law change associated with the issuance of final regulations that provide for an exclusion of certain high-taxed foreign earnings from the calculation of GILTI, a net $6 benefit for prior year items, and a net $1 charge for other items.

For the nine months ended September 30, 2021 and 2020, the tax rate including discrete items was 26.4% (provision on income) and 5.0% (benefit on income), respectively. For the nine months ended September 30, 2021, the Company recorded a discrete tax benefit of $9 related to a net $13 benefit related to prior year amended returns and audit settlements, a $2 charge for a U.K. tax rate change, and a net $2 charge for other items. For the nine months ended September 30, 2020, the Company recorded a discrete tax benefit of $39 related to a $36 benefit for a U.S. tax law change associated with the issuance of final regulations that provide for an exclusion of certain high-taxed foreign earnings from the calculation of GILTI, a $6 charge for the remeasurement of deferred tax balances in various jurisdictions as a result of the Arconic Inc. Separation Transaction, a $5 benefit for stock ~~compensation.~~compensation, a net $2 benefit for prior year items, and a net $2 benefit for other items.

The tax ~~provisions~~(benefit) provision for the ~~first~~third quarter and nine months ended ~~March 31,~~September 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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Pre-tax income (loss) at estimated annual effective income tax rate before discrete items	$	7	$	(4)	$	73	$	34
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	1		(2)		—		—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	—		(1)		1		—
Other discrete items	(12)		(41)		(9)		(39)
(Benefit) provision for income taxes	$	(4)	$	(48)	$	65	$	(5)

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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income from continuing operations attributable to common shareholders	$	27	$	36	$	181	$	105
Income from discontinued operations	—		—		—		50
Net income attributable to common shareholders	27		36		181		155
Less: preferred stock dividends declared	1		1		2		2
Net income available to Howmet Aerospace common shareholders - basic and diluted	$	26	$	35	$	179	$	153



Average shares outstanding - basic	429		436		431		436
Effect of dilutive securities:
Stock options	1		—		1		—
Stock and performance awards	4		3		5		4

Average shares outstanding - diluted	434		439		437		440

Common stock outstanding at ~~March 31,~~September 30, 2021 and 2020 was approximately 428 million and 434 ~~and 436,~~million, respectively.

On August 18, 2021, the Company announced that its Board of Directors authorized a share repurchase program of up to $1,500 of the Company's outstanding common stock. The Board had previously authorized, in May 2019, a share repurchase program of up to $500, of which approximately $77 Board authorization remained available as of July 31, 2021. In the quarter ended September 30, 2021, the Company repurchased approximately 770 thousand shares of its common stock at an average price of $32.50 per share (excluding commissions cost) for approximately $25 in cash. All of the shares repurchased have been retired. After giving effect to the share repurchases made through September 30, 2021, approximately $1,552 Board authorization remains available. Under the Company’s share repurchase programs (the “Share Repurchase Programs”), the Company may repurchase shares 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 is no stated expiration for the Share Repurchase Programs. Under its Share Repurchase Programs, the Company may repurchase shares from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations, including limits under the Company’s Five-Year Revolving Credit Agreement (see Note O). The Company is not obligated to repurchase any specific number of shares or to do so at any particular time, and the Share Repurchase Programs may be suspended, modified or terminated at any time without prior notice.

The 5 million decrease in average shares outstanding (basic) for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily due to the 7 million shares repurchased during 2021. 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 third quarter and nine months ended September 30, 2021 as share repurchases occurred at varying points during the second and third quarter of 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


	Third quarter ended		Nine months ended
	September 30,		September 30,
	2021	2020	2021	2020

Stock options(1)	—	3	—	3

(1)The weighted average exercise price per share of options excluded from diluted EPS was ~~$31.86~~$33.61 and ~~$27.65~~$26.03 as of ~~March 31,~~September 30, 2021 and 2020, respectively.

J. Accumulated Other Comprehensive Loss

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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Pension and other postretirement benefits (G)
Balance at beginning of period	$	(903)	$	(866)	$	(980)	$	(2,732)
Other comprehensive income:
Unrecognized net actuarial gain (loss) and prior service cost/benefit	1		(7)		68		(66)
Tax benefit (expense)	—		3		(15)		11
Total Other comprehensive income (loss) before reclassifications, net of tax	1		(4)		53		(55)
Amortization of net actuarial loss and prior service cost(1)	15		16		46		133
Tax expense(2)	(3)		(4)		(9)		(24)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)	12		12		37		109
Total Other comprehensive income	13		8		90		54
Transfer to Arconic Corporation	—		(22)		—		1,798
Balance at end of period	$	(890)	$	(880)	$	(890)	$	(880)
Foreign currency translation
Balance at beginning of period	$	(992)	$	(1,097)	$	(966)	$	(596)
Foreign currency translation	(36)		48		(62)		(39)
Net amount reclassified from Accumulated other comprehensive loss(4)	—		—		—		14
Other comprehensive (loss) income	(36)		48		(62)		(25)
Transfer to Arconic Corporation	—		—		—		(428)
Balance at end of period	$	(1,028)	$	(1,049)	$	(1,028)	$	(1,049)




Cash flow hedges
Balance at beginning of period	$	11	$	(5)	$	3	$	(1)

Other comprehensive income (loss):
Net change from periodic revaluations	1		2		20		(6)
Tax benefit (expense)	—		2		(4)		2
Total Other comprehensive income (loss) before reclassifications, net of tax	1		4		16		(4)
Net amount reclassified to earnings	(7)		2		(15)		6
Tax benefit (expense)(2)	2		(1)		3		(1)
Total amount reclassified from Accumulated other comprehensive (loss) income, net of tax(3)	(5)		1		(12)		5
Total Other comprehensive (loss) income	(4)		5		4		1
Balance at end of period	$	7	$	—	$	7	$	—

Accumulated other comprehensive loss	$	(1,911)	$	(1,929)	$	(1,911)	$	(1,929)

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) provision for income taxes on the Statement of Consolidated Operations.

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

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

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

K. Receivables

Sale of Receivables Programs

The Company has historically maintained 2 accounts receivables securitization arrangements.

The first iswas 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.~~ and was terminated on August 30, 2021. This arrangement historically provided up to a maximum funding of ~~$400~~$300 for receivables sold. The Company ~~maintains~~maintained a beneficial interest, or a right to collect cash, on the sold receivables that have not been funded (deferred purchase program receivable).

In connection with the ~~first quarter of 2020, the~~termination, 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~~$211 unpaid receivables, ~~of GRP customers~~paying $160 in ~~a non-cash transaction by~~cash and reducing the ~~amount of the~~$51 deferred purchase program ~~receivable. This amendment also reduced the maximum funding for receivables sold~~receivable 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 ofzero (in a ~~portion of existing draws.~~non-cash transaction).

The Company had net cash repayments totaling ~~$26~~$44 ($1841 in draws and ~~$44~~$85 in repayments) and ~~$52~~$153 ($98189 in draws and ~~$150~~$342 in repayments) for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020, respectively.

As of ~~March 31,~~September 30, 2021, ~~and~~there was no deferred purchase program receivable included in Other receivables on the accompanying Consolidated Balance Sheet. As of December 31, 2020, the deferred purchase program receivable was ~~$68 and~~ $12, ~~respectively,~~ which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable iswas 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.occurred.

Cash receipts from customer payments on sold receivables (which ~~are~~were cash receipts on the underlying trade receivables that ~~have~~had been previously sold) as well as cash receipts and cash disbursements from draws and repayments under the program ~~are~~were presented as cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash ~~Flows.~~Flows through the termination of the arrangement in 2021. As a result of the termination of the Receivables Sale Program on August 30, 2021, there will be no additional changes related to cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash Flows in the fourth quarter of 2021.

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~~August 30, ~~2022~~2024 or a termination event. The Receivables Purchase Agreement also contains customary representations and warranties, as well as affirmative and negative covenants. Pursuant to the Receivables Purchase Agreement, the Company does not maintain effective control over the transferred receivables, and therefore accounts for these transfers as sales of receivables.

The SPE sold $84 of its receivables without recourse and received cash funding under this program during the first quarter ended March 31, 2021, resulting in derecognition of the receivables from the Company’s consolidated balance sheets. As of March 31, 2021 and December 31, 2020, $65 and $46 remained outstanding from the customer, respectively. Cash received from collections of sold receivables is used by the SPE to fund additional purchases of receivables on a revolving ~~basis, not~~basis. This arrangement historically provided up to ~~exceed~~a maximum funding of $125 for receivables sold. On August 30, 2021, the Company entered into an amendment to add the subsidiaries that were previously part of the terminated Receivables Sale Program, and, as a result, the maximum funding limit was increased by $200 to $325. The SPE sold the $211 of receivables, which iswere repurchased as a result of the ~~aggregate maximum limit.~~termination of the Receivables Sale Program, in exchange for cash.

The SPE sold $398 and $553 of its receivables without recourse and received cash funding under this program during the third quarter and nine months ended September 30, 2021, respectively, resulting in derecognition of the receivables from the Company’s Consolidated Balance Sheet. As of September 30, 2021 and December 31, 2020, $250 and $46 remained outstanding from the customer, respectively. As collateral against the sold receivables, the SPE maintains a certain level of unsold receivables, which was ~~$16~~$90 and $33 at ~~March 31,~~September 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, excluding the receipts associated with the August 30, 2021 termination of the Receivables Sale Program, are presented within operating activities in the Statement of Consolidated Cash Flows.

The Company had accounts receivable securitization arrangements totaling $325 and $425 at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively, of which ~~$243 and~~ $250 was drawn ~~at March 31,~~as of September 30, 2021 and at December 31, ~~2020, respectively.~~2020. The ~~$7 reduction in~~net cash funding from the ~~amount drawn resulted in~~sale of accounts receivable was neither a ~~corresponding reduction in Cash and~~use of cash ~~equivalents.~~nor a source of cash for any quarter of 2021.

Other Customer Receivable Sales

In the ~~first~~third quarter ofand nine months ended September 30, 2021, ~~and 2020,~~ the Company sold $7$103 and ~~$14,~~$267, respectively, of a certain ~~customer’s receivables in exchange for cash (of which~~ $7 ~~remained outstanding from the customer at March 31, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows.~~

~~In the first quarter 2021 and 2020, the Company sold $59 and $17, respectively, of a certain customer’s~~customers’ receivables in exchange for cash (of which $57102 remained outstanding from the ~~customer~~customers at ~~March 31,~~September 30, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. ~~The sale~~In the third quarter and nine months ended September 30, 2020, the Company sold $42 and $131, respectively, of ~~these customer receivables was undertaken to offset a change in the customer’s payment patterns (customer had been taking an early payment discount).~~

1822

certain customers’ receivables in exchange for cash, the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows.

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


	September 30, 2021		December 31, 2020
Finished goods	$	479	$	528
Work-in-process	640		629
Purchased raw materials	264		292
Operating supplies	37		39
Total inventories	$	1,420	$	1,488

At ~~March 31,~~September 30, 2021 and December 31, 2020, the portion of inventories valued on a last-in, first-out (“LIFO”) basis was ~~$472~~$500 and $458, respectively. ~~If valued on an average-cost basis, total inventories would have been $139~~These amounts exclude the effects of LIFO valuation reductions, which were $173 and $131 ~~higher~~ at ~~March 31,~~September 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


	September 30, 2021		December 31, 2020
Land and land rights	$	92	$	98
Structures	1,024		1,033
Machinery and equipment	3,940		3,879
	5,056		5,010
Less: accumulated depreciation and amortization	2,736		2,626
	2,320		2,384
Construction work-in-progress	163		208
Properties, plants, and equipment, net	$	2,483	$	2,592

The Company incurred capital expenditures which remained unpaid at ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020 of ~~$28~~$42 and ~~$48,~~$29, respectively, ~~which~~and 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~~$15 and ~~$18~~$17 in the ~~first~~third quarter of 2021 and 2020, respectively. Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $48 and $53 in the nine months ended September 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


	September 30, 2021		December 31, 2020
Right-of-use assets classified in Other noncurrent assets	$	116	$	131

Current portion of lease liabilities classified in Other current liabilities	$	34	$	38
Long-term portion of lease liabilities classified in Other noncurrent liabilities	88		100
Total lease liabilities	$	122	$	138

1923

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


	September 30, 2021		December 31, 2020

5.400% Notes, due 2021(1)	$	—	$	361
5.870% Notes, due 2022(2)	—		476
5.125% Notes, due 2024	1,197		1,250
6.875% Notes, due 2025	600		1,200
5.900% Notes, due 2027	625		625
6.750% Bonds, due 2028	300		300
3.000% Notes, due 2029	700		—
5.950% Notes, due 2037	625		625
4.750% Iowa Finance Authority Loan, due 2042	250		250
Other(3)	(11)		(12)
	4,286		5,075
Less: amount due within one year	14		376
Total long-term debt	$	4,272	$	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.~~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 were recorded in Loss on debt redemption and Interest expense, net, respectively, 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 “6.875% Notes”), 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 repurchased $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 were recorded in Loss on debt redemption and Interest expense, net, respectively, 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 was recorded in Loss on debt redemption in the second quarter of 2021.

On September 1, 2021, the Company completed an offering of $700 aggregate principal amount of 3.000% Notes due 2029, the proceeds of which have been used to fund the cash tender offer noted below and to pay related transaction fees, including applicable premiums and expenses.

On September 2, 2021, the Company completed a cash tender offer and repurchased approximately $600 aggregate principal amount of its 6.875% Notes. The amount of tender premium and accrued interest associated with the notes accepted for settlement were $105 and $14, respectively, which were recorded in Loss on debt redemption and Interest expense, net, respectively, during the third quarter ended September 30, 2021 in the Statement of Consolidated Operations.

In the third quarter of 2021, the Company repurchased in the open market approximately $53 aggregate principal amount of its 5.125% Notes due 2024 (the “5.125% Notes”) and paid approximately $59, including an early termination premium and accrued interest of approximately $5 and $1, respectively, which were recorded in Loss on debt redemption and Interest expense, net, respectively. In October 2021, the Company repurchased an additional $47 aggregate principal amount of its 5.125% Notes in the open market and paid approximately $52, including an early termination premium of approximately $5, which will be recorded in Loss on debt redemption in the ~~second~~fourth quarter ofending December 31, 2021 in ~~Interest expense, net~~. the Statement of Consolidated Operations.

On an annual basis, the ~~redemption of these~~ ~~5.870%~~ ~~Notes~~current year debt activity will decrease Interest expense, net by approximately ~~$28.~~$70.

Credit ~~Facilities.~~Facility

~~During 2020,~~On September 28, 2021, the Company ~~entered into several amendments to~~amended and restated its Five-Year Revolving Credit Agreement (the “Credit Agreement”) ~~to permit~~. The Credit Agreement provides a $1,000 senior unsecured revolving credit facility that matures on September 28, 2026, unless extended or earlier terminated in accordance with the ~~Arconic Inc. Separation Transaction and to amend certain terms~~provisions of the Credit ~~Agreement, including a change~~Agreement. Capitalized terms used in this “Credit Facility” section but not otherwise defined shall have the meanings given to such terms in the ~~existing financial covenant, a reduction of total commitments available from $3,000 to $1,000 and extension of~~Credit Agreement.

Under the ~~maturity date from June 29, 2023 to April 1, 2025. On March 29, 2021, the Company entered into another amendment to its~~ Credit Agreement, ~~to provide extended relief from its existing financial covenant for~~ the ~~quarters ended March 31, 2021 through December 31, 2022.~~

~~The Company is required to maintain a~~Company’s 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~~is required to be no greater than 3.50 to 1.00; provided, however, that during the ~~end of each fiscal quarter noted below for~~Covenant Relief Period through December 31, 2022 (unless the ~~period of~~Company elects to terminate the ~~four fiscal quarters then ended:~~Covenant Relief Period earlier in accordance with the Credit Agreement), the Company’s Consolidated Net Debt to Consolidated EBITDA ratio cannot exceed the levels set forth below:


			No greater than
~~(i) for the quarter ending March 31, 2021~~			~~5.50 to 1.00~~

~~(ii) for the quarter ending June 30, 2021~~			~~5.50 to 1.00~~
~~(iii)~~(i) for the quarter ending September 30, 2021			5.00 to 1.00
~~(iv)~~(ii) for the quarter ending December 31, 2021			4.75 to 1.00
~~(v)~~(iii) for the quarter ending March 31, 2022			4.50 to 1.00
~~(vi)~~(iv) for the quarter ending June 30, 2022			4.50 to 1.00
~~(vii)~~(v) for the quarter ending September 30, 2022			4.25 to 1.00
~~(viii)~~(vi) for the quarter ending December 31, 2022			3.75 to 1.00

~~Under~~During 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),~~Covenant Relief Period, common stock dividends 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~~$450 during the year ending December 31, 2021, with an incremental amount of ~~$400~~$500 available during the year ending December ~~21,~~31, 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 0no amounts outstanding at ~~March 31,~~September 30, 2021 or December 31, 2020, and 0no amounts were borrowed during 2021 or 2020 under the Credit Agreement. At ~~March 31,~~September 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~~restricted cash, ~~Derivatives, Noncurrent~~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.~~hierarchy and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheet. 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


	September 30, 2021				December 31, 2020
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	4,272	$	4,872	$	4,699	$	5,426

Restricted cash, which ~~was~~is included in Prepaid ~~assets~~expenses and other current ~~liabilities~~assets in the Consolidated Balance Sheet, was $2 and $1 at ~~both March 31,~~September 30, 2021 and December 31, ~~2020.~~2020, respectively.

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, subject~~the second quarter of 2021). An agreement to ~~working capital and other adjustments, and therefore~~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 the second quarter of 2020 and recorded these assets at their lower of carrying value (assuming no initial reclassification for held for 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, 2021~~$12 and $10 at September 30, 2021 and December 31, 2020, respectively, 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. The increase in September 2021 is associated with site monitoring costs for previously owned property in Vernon, California, which will determine if any additional remediation is required. Payments related to remediation expenses applied against the reserve were less than $1 in the ~~first~~third quarter ended ~~March 31,~~September 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~~updated as applicable from the Form 10-K:

Howard v. Arconic Inc. ~~and/or its then directors~~et al. (securities law related claims). As described in the Form 10-K, lead plaintiffs in this case, which alleges violations of the federal securities law, filed an amended complaint in July 2019 (the “Second Amended Complaint”). On June 23, 2021, the 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 defendants were ~~named as parties:~~permanently dismissed, with prejudice. On August 12, 2021, defendants filed an answer to the Second Amended Complaint. In addition, on August 11, 2021, the Company filed a motion for certification of an interlocutory appeal and associated stay, to which Plaintiffs filed an opposition on August 17, 2021 and the Company filed a reply brief on August 24, 2021. This motion remains pending before the court.

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

~~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 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~~ decedents)~~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.~~Proceeding. 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~~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 2023, which LBIE claims to be approximately $64, plus applicable interest. ~~The parties filed~~Firth will continue to maintain its position ~~papers on July 24, 2020 and October 19, 2020 (LBIE) and September 21, 2020 (Firth).~~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. 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 of 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,~~September 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~~$16 at ~~March 31,~~September 30, 2021.

Pursuant to the Separation and Distribution Agreement, dated as of October 31, 2016, 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,~~September 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~~$1,406 and $1,398 at ~~March 31,~~September 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 and 2022, was ~~$113~~$116 at ~~March 31,~~September 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~~$17 of outstanding letters of credit relating to liabilities (which are included in the ~~$113~~$116 in the above paragraph). $6Less than $1 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.

2327

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,~~September 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~~ Note G for details related to actions taken by the Company to reduce pension obligations.

See Note O for the ~~early redemption~~open market debt repurchases made subsequent to the third quarter of ~~debt.~~2021.

Effective October 14, 2021, John C. Plant assumed the position of sole Chief Executive Officer and continued in his role as Executive Chairman of the Board of Directors. Tolga Oal, the Company’s prior Co-Chief Executive Officer, departed the Company and also stepped down from the Board, each effective as of October 14, 2021.

2428

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

(U.S. 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. See Note B to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information related to the Arconic Inc. Separation Transaction and discontinued operations.

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”)~~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~~fixed and variable cost reductions, such as headcount reductions in certain ~~headcount reductions~~segments, 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~~$1,283 in the ~~first~~third quarter of 2021 compared to ~~$1,634~~$1,134 in the ~~first~~third quarter of 2020 and $3,687 in the nine months ended September 30, 2021 compared to $4,021 in the nine months ended September 30, 2020. The increase of $149, or 13%, in the third quarter of 2021 was primarily due to higher sales volumes in the commercial transportation, commercial aerospace, and industrial gas turbine markets as well as favorable product pricing of $28, partially offset by declines in the defense aerospace market. Sequential improvement was driven by higher sales volumes in the commercial aerospace market. The decrease of ~~$425,~~$334, or ~~26%~~8%, in the ~~first quarter of~~nine months ended September 30, 2021 was primarily due to lower sales volumes in the commercial aerospace market driven by the ~~impacts~~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.~~$66.

Cost of goods sold (COGS). COGS as a percentage of Sales was ~~72.2%~~72.3% in the ~~first~~third quarter of 2021 compared to ~~72.4%~~79.4% in the ~~first~~third quarter of 2020 and 72.1% in the nine months ended September 30, 2021 compared to 74.8% in the nine months ended September 30, 2020. The decrease in the ~~first~~third quarter of 2021 and in the nine months ended September 30, 2021 was primarily due to net ~~costs savings~~cost reductions and favorable product pricing. Additionally, ~~in 2020,~~ the Company recorded total COGS charges of ~~$11~~$7 and net charges of $16 in the third quarter of 2020 and in the nine months ended September 30, 2020, respectively, related to fires that occurred at a Fastening ~~Systems’~~Systems plant in France in 2019 and at a Forged Wheels plant in Barberton, Ohio in mid-February 2020. The Company recorded total COGS charges of $9$1 and net charges of $7 in the third quarter of 2021 and in the nine months ended September 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~~fourth 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~~$70 in the ~~first~~third quarter of 2021 compared to ~~$79~~$66 in the ~~first~~third quarter of 2020 and $190 in the nine months ended September 30, 2021 compared to $219 in the nine months ended September 30, 2020. The increase of $4, or 6%, in the third quarter of 2021 was primarily due to lower insurance reimbursements. The decrease of ~~$14,~~$29, or ~~18%~~13%, in the ~~first quarter of~~nine months ended September 30, 2021 was primarily due to overhead cost reductions as well as costs incurred in the ~~first quarter of~~nine months ended September 30, 2020 associated with the Arconic Inc. Separation Transaction.

Research and development expenses (R&D). R&D expenses were $4 in the third quarter of 2021 and $5 in the ~~first quarter of 2021 compared to $4 in the first~~third quarter of 2020, ~~an increase~~a decrease of $1, or ~~25%~~20%. R&D expenses were $13 in both the nine months ended September 30, 2021 and the nine months ended September 30, 2020.

Restructuring and other charges. Restructuring and other charges were $9$8 in the ~~first~~third quarter of 2021 compared to ~~$39~~$22 in the ~~first~~third quarter of 2020 or a decrease of ~~$30.~~$14, and $22 in the nine months ended September 30, 2021 compared to $166 in the nine months ended September 30, 2020 or a decrease of $144.

Restructuring and other charges for the ~~first~~third quarter and nine months ended September 30, 2021 were primarily due to charges for pension plan settlements and exit related costs.

Restructuring and other charges for the third quarter of ~~2021~~2020 were primarily comprised of a $4$17 charge for layoff costs and an $8 charge for pension plan settlements. These charges were partially offset by a $3 benefit from the termination of a deferred compensation plan.

Restructuring and other charges in the nine months ended September 30, 2020 were primarily comprised of a $93 charge for layoff costs, a $72 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 segment), a $5 charge for impairment of assets associated with an agreement to sell ~~a small manufacturing~~an aerospace components business in ~~France~~the U.K (within the Engineered Structures segment), and a $3$5 charge for ~~U.S. pension plans' settlement accounting.~~

~~Restructuring and~~various other exit costs. These charges ~~for the first quarter of 2020~~ were ~~primarily comprised of a $22 charge for layoff costs~~ partially offset by a benefit of $2$10 related to the reversal of a number of prior period ~~program reserves, a $12 charge for impairment of assets associated with an agreement to sell a small manufacturing business in the U.K.,~~programs and a ~~$6 post closing adjustment related to~~$3 benefit from the ~~sale~~termination of ~~the Company’s U.K. forgings business that occurred in December 2019.~~a deferred compensation plan.

See ~~Note~~ Note E to the Consolidated Financial Statements in Part I, Item I of this Form 10-Q for additional detail.

~~Interest expense~~Loss on debt redemption. ~~. Interest expense~~Loss on debt redemption was ~~$72~~$118 in the ~~first~~third quarter of 2021 compared to ~~$84~~none in the ~~first~~third quarter of 2020, and $141 in the nine months ended September 30, 2021 compared to $64 in the nine months ended September 30, 2020. The increase of $118 in the third quarter of 2021 and $77, or 120%, in the nine months ended September 30, 2021 was primarily due to higher debt tender premiums paid on the 6.875% Notes due 2025 (the “6.875% Notes”).

Interest expense, net. Interest expense, net was $63 in the third quarter of 2021 compared to $77 in the third quarter of 2020, and $201 in the nine months ended September 30, 2021 compared to $241 in the nine months ended September 30, 2020. The decrease of ~~$12,~~$14, or ~~14%~~18%, in the ~~first~~third quarter of 2021 and $40, or 17%, in the nine months ended September 30, 2021 was primarily due to a reduced average level of debt for the third quarter and nine months ended September 30, 2021, respectively.

See Note O to the Consolidated Financial Statements in Part I, Item I of this Form 10-Q for additional detail related to the Company’s debt activity.

Other expense, net. Other expense, net was $1 in the third quarter of 2021 compared to Other expense, net of $8 in the third quarter of 2020, and Other expense, net was $13 in the nine months ended September 30, 2021 compared to Other expense, net of less than $1 in the nine months ended September 30, 2020. The decrease of $7, or 88%, in the third quarter of 2021 was primarily due to lower ~~debt outstanding in the first quarter~~non-service related net periodic benefit cost of ~~2021 driven by the early redemption of~~ ~~$1,000, $889,~~$6 and~~$151~~ ~~of the principal amounts of the~~ ~~6.150% Notes due 2020, 5.400% Notes due 2021 (the “5.400% Notes”) and~~ 5.870% Notes due 2022 (the “5.870% Notes”), respectively, in the second quarter of 2020 and $361 of the principal amount of the 5.400% Notes, which was offset by the issuance on April 24, 2020 of the 6.875% Notes due 2025 in the aggregate principal amount of $1,200.

~~Other expense (income), net.~~ Other expense, net was $4 in the first quarter of 2021 compared to Other income, net of $24 in the first quarter of 2020. The increase of $28, or 117%, in the first quarter of 2021 was primarily due to the impacts of deferred compensation arrangements of ~~$12 and~~$5, partially offset by a decrease in foreign currency gains of $3. The increase of $13 in the nine months ended September 30, 2021, was primarily due to an increase in foreign currency losses of $13, the impacts of deferred compensation arrangements of $4, lower interest income of ~~$4.~~$3, and mark-to-market adjustments of $3, partially offset by lower non-service related net periodic benefit cost of $11.

~~Provision~~(Benefit) 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%~~29.7% in both the third quarter and nine months ended September 30, 2021 compared to 34.5% in both the third quarter and nine months ended September 30, 2020. The tax rate including discrete items was 17.4% (benefit on income) in the ~~first~~third quarter of 2021 compared to ~~26.9%~~400.0% (benefit on a relatively small loss) in the ~~first~~third quarter of 2020. A discrete tax benefit of $12 was recorded in the third quarter of 2021 compared to a discrete tax benefit of $41 in the third quarter of 2020. The tax rate including discrete items was 26.4% (provision on income) for the nine months ended September 30, 2021 compared to 5.0% (benefit on income) for the nine months ended September 30, 2020. A discrete tax benefit of $9 was recorded in the nine months ended September 30, 2021 compared to a discrete tax benefit of $39 for the nine months ended September 30, 2020.

See Note H to the Consolidated Financial ~~Statements.~~Statements in Part I, Item I of this Form 10-Q for additional detail.

Net ~~Income~~income from ~~Continuing Operations.~~continuing operations. Income from continuing operations was ~~$80,~~$27, or ~~$0.18~~$0.06 per diluted share, in the ~~first~~third quarter of 2021 compared to ~~$153,~~$36, or ~~$0.35~~$0.08 per diluted share, in the ~~first~~third quarter of 2020, and Income from continuing operations was $181, or $0.41 per diluted share, in the nine months ended September 30, 2021 compared to $105, or $0.23 per diluted share, in the nine months ended September 30, 2020. The decrease of ~~$73, or 48%,~~$9 in the ~~first~~third quarter of 2021 was primarily due to an increase in Loss on debt redemption primarily on the 6.875% Notes and a ~~reduction~~decrease in the Benefit for income taxes, partially offset by an increase in Operating income primarily due to higher sales volumes in the commercial transportation, commercial aerospace, and industrial gas turbine markets and a decrease in Interest expense, net and Restructuring and other charges. The increase of $76 in the nine months ended September 30, 2021 was primarily due to an increase in operating income ~~of $69~~ due to lower COGS and a decrease in Restructuring and other charges and Interest expense, net, partially offset by lower sales volumes in the commercial aerospace market driven by the ~~impacts~~impact of COVID-19 ~~and 737 MAX~~ and Boeing 787 production declines, an increase in Loss on debt redemption primarily on the 6.875% Notes, 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. As the Arconic Inc. Separation Transaction occurred on April 1, 2020, there iswas no ~~income~~Income from discontinued operations for the ~~first~~third quarter ofor nine months ended September 30, 2021. Net income was ~~$80~~$27 for the ~~first~~third quarter of 2021, all of which was composed of ~~$80~~$27 of ~~income~~Income from continuing operations, or ~~$0.18~~$0.06 per diluted share, and $181 in the nine months ended September 30, 2021, all of which was composed of $181 of Income from continuing operations, or $0.41 per diluted share.

Net income was ~~$215~~$36 for the ~~first~~third quarter of 2020, all of which was composed of ~~$153~~$36 of Income from continuing operations, or $0.08 per diluted share. Net income was $155 for the nine months ended September 30, 2020 composed of $105 of Income from continuing operations and ~~$62~~$50 of Income from discontinued operations, or ~~$0.35~~$0.23 and ~~$0.14~~$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 the total segment ~~totals~~ and consolidated ~~Howmet~~totals are in ~~Corporate.~~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).

InEffective October 14, 2021, John C. Plant assumed the ~~second quarter~~position of ~~2020,~~sole Chief Executive Officer and continued in his role as Executive Chairman of the Board of Directors. Tolga Oal, the Company’s prior Co-Chief Executive Officer, departed the Company ~~realigned~~and also stepped down from the Board, each effective as of October 14, 2021. The Company has aligned its operations consistent with how the ~~Co-Chief~~Chief Executive ~~Officers assess~~Officer assesses operating performance and ~~allocating~~allocates capital, ~~in conjunction with~~which remain unchanged since 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.~~Transaction.

The Company produces aerospace engine parts and components and aerospace fastening systems for Boeing 737 MAX (“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.~~segments in 2020 and the first half of 2021. While regulatory authorities in the United States and certain other jurisdictions lifted grounding orders beginning in late 2020, our sales ~~could continue~~remained at lower levels in the first half of 2021 due to ~~be negatively affected from~~ the residual impacts of the 737 MAX grounding.

Engine Products


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Third-party sales	$	599	$	485	$	1,677	$	1,851


Segment operating profit	120		39		321		309

First quarter ended
March 31,
2021 2020
Third-party sales $ 534 $ 781
Segment operating profit 101 165
Third-party sales for the Engine Products segment increased $114, or 24%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to higher volumes in the commercial aerospace and industrial gas turbine markets, partially offset by declines in the defense aerospace market.

Third-party sales for the Engine Products segment decreased ~~$247,~~$174, or ~~32%~~9%, in the ~~first quarter of~~nine months ended September 30, 2021 compared to the ~~first quarter of~~nine months ended September 30, 2020, primarily due to lower volumes in the commercial aerospace ~~volumes from~~market driven by the impact of COVID-19 and Boeing 787 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.~~turbine market.

Segment operating profit for the Engine Products segment ~~decreased $64,~~increased $81, or ~~39%~~208%, in the ~~first~~third quarter of 2021 compared to the ~~first~~third quarter of 2020, primarily due to ~~lower~~higher volumes in the commercial aerospace ~~volumes from production declines~~and industrial gas turbine markets, cost reductions, and favorable product pricing. The segment added approximately 500 headcount in the third quarter of 2021 in anticipation of revenue increases into 2022.

Segment operating profit for the ~~737 MAX and COVID-19 productivity impacts, partially offset by cost reductions,~~Engine Products segment increased $12, or 4%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to favorable sales volumes in the ~~defense aerospace and~~ industrial gas turbine ~~end markets,~~market, cost reductions, and favorable product ~~pricing.~~pricing, partially offset by lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines. The segment added approximately 800 headcount in the nine months ended September 30, 2021 in anticipation of revenue increases into 2022.

InFor the full year 2021 compared to 2020, demand in the industrial gas ~~turbines and defense aerospace end markets~~turbine market 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 ~~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 quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Third-party sales	$	254	$	271	$	788	$	982


Segment operating profit	47		33		142		199

Third-party sales for the Fastening Systems segment decreased ~~$113,~~$17, or ~~29%~~6%, in the ~~first~~third quarter of 2021 compared to the ~~first~~third quarter of 2020, primarily due to lower volumes in the commercial aerospace ~~end~~ market driven by the impact of COVID-19 and ~~737 MAX~~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 $194, or 20%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 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.

Segment operating profit for the Fastening Systems segment increased $14, or 42%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to cost reductions and favorable sales volumes in the commercial transportation and industrial markets, partially offset by lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines.

Segment operating profit for the Fastening Systems segment decreased ~~$51,~~$57, or ~~53%~~29%, in the ~~first quarter of~~nine months ended September 30, 2021 compared to the ~~first quarter of~~nine months ended September 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.~~reductions and favorable sales volumes in the commercial transportation and industrial markets.

InFor 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

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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Third-party sales	$	199	$	206	$	535	$	710


Segment operating profit	14		10		35		57

Third-party sales for the Engineered Structures segment decreased ~~$99,~~$7, or ~~36%~~3%, in the ~~first~~third quarter of 2021 compared to the ~~first~~third quarter of 2020, primarily due to lower volumes in the defense aerospace market, including lower F-35 program volumes, partially offset by higher volumes in the commercial aerospace ~~end~~market.

Third-party sales for the Engineered Structures segment decreased $175, or 25%, in the nine months ended September 30, 2021 compared to the nine months ended September 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,~~declines.

Segment operating profit for the Engineered Structuressegment increased $4, or 40%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to higher volumes in the commercial aerospace market and cost reductions, partially offset by ~~higher~~lower volumes in the defense aerospace ~~end market.~~market, including lower F-35 program volumes.

Segment operating profit for the Engineered Structures segment decreased ~~$18,~~$22, or ~~64%~~39%, in the ~~first quarter of~~nine months ended September 30, 2021 compared to the ~~first quarter of~~nine months ended September 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 ~~higher volumes in the defense aerospace end market and~~ cost reductions.

InFor the full year 2021 compared to 2020, 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.

Forged Wheels

First quarter ended
March 31,
2021 2020
Third-party sales $ 227 $ 191
Segment operating profit 70 50


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Third-party sales	$	231	$	172	$	687	$	476


Segment operating profit	62		35		193		91

Third-party sales for the Forged Wheels segment increased ~~$36,~~$59, or ~~19%~~34%, in the ~~first~~third quarter of 2021 compared to the ~~first~~third 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 $211, or 44%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to higher volumes in the commercial transportation market.

Segment operating profit for the Forged Wheels segment increased ~~$20,~~$27, or ~~40%~~77%, in the ~~first~~third quarter of 2021 compared to the ~~first~~third quarter of 2020, primarily due to higher commercial transportation sales volumes, fixed cost reductions, and maximizing production in low-cost countries.

Segment operating profit for the Forged Wheels segment increased $102, or 112%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to higher commercial transportation sales volumes, fixed cost ~~reductions.~~reductions, and maximizing production in low-cost countries.

InFor 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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Income (loss) from continuing operations before income taxes	$	23	$	(12)	$	246	$	100
Loss on debt redemption	118		—		141		64
Interest expense, net	63		77		201		241
Other expense, net	1		8		13		—
Operating income	$	205	$	73	$	601	$	405
Unallocated amounts:
Restructuring and other charges	8		22		22		166
Corporate expense	30		22		68		85
Total segment operating profit	$	243	$	117	$	691	$	656

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, Loss on debt redemption, Interest expense, net, and Other expense, ~~(income),~~ net discussions above under Results of Operations for reference.

Corporate expense ~~decreased $14,~~increased $8, or ~~33%~~36%, in the ~~first~~third quarter of 2021 compared ~~with~~to the ~~first~~third quarter of 2020, primarily due to costs associated with closures, shutdowns, and other items of $10 and other miscellaneous items aggregating to $2, partially offset by lower net costs related to fires at two plants of $6.

Corporate expense decreased $17, or 20%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to lower net costs related to fires at two plants of $14, costs incurred in 2020 associated with the Arconic Inc. Separation Transaction of ~~$4 and impairment costs related to facility closures of $3 incurred in 2020 that did not recur in 2021~~$7, and lower costs driven by overhead cost ~~reductions.~~reductions, partially offset by costs associated with closures, shutdowns, and other items of $7 and other miscellaneous items aggregating to $5.

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$146 in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to ~~$208 in the three months ended March 31, 2020. The decrease in~~ cash used for operations of ~~$202,~~$142 in the nine months ended September 30, 2020. The change of $288, or ~~97%~~203%, was primarily due to lower operating results of ~~$256~~$98, which were more than offset by lower working capital of ~~$408,~~$333, lower pension contributions of ~~$27,~~$42, and noncurrent liabilities of ~~$25.~~$7. The components of the change in working capital primarily included ~~favorable~~accounts payable of $502, inventories of $91, and accrued expenses of $56 due to an increase in purchasing activity associated with market recovery, offset by unfavorable changes in receivables of ~~$66, inventories of $156, accounts payable of $158, accrued expenses of $81,~~$265 including employee retention credit receivables and ~~prepaid expenses~~taxes, and ~~other current assets of $25, offset by taxes,~~ including income taxes of ~~$78.~~$56.

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~~$1,174 in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to ~~cash provided from financing activities of $1,145~~$339 in the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The change of ~~$1,513,~~$835, or ~~132%~~246%, was primarily due to less debt issued of ~~$1,200 in the first quarter~~$1,700 and incremental common stock repurchases of ~~2020 (which went with Arconic Corporation in the Arconic Inc. Separation Transaction)~~$174, partially offset by ~~debt issuance costs of $44, while the first quarter of 2021 had~~less payments onmade in connection with the redemption of long-term debt of ~~$361.~~$476 (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, and a reduction in debt issuance costs of $50. On an annual basis, the ~~redemption of the~~ ~~5.400% Notes~~ ~~and~~ ~~the~~ ~~5.870%~~ ~~Notes~~current year debt activity will decrease Interest expense, net by approximately ~~$47.~~$70.

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

The Company maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named ~~therein. 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~~ therein (See Note O to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for ~~reference.~~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~~1, 2021

Moody’s Investors Service (Moody’s)

Ba2

Stable

~~April 20,~~August 18, 2021

Fitch Investors Service (Fitch)

BBB-

Stable

~~March 26,~~August 18, 2021

On ~~March 26,~~September 1, 2021, S&P affirmed the following ratings for Howmet: long-term debt at BB+ and the current outlook as negative.

On August 18, 2021, Moody’s affirmed the following ratings for Howmet: long-term debt at Ba2 and the current outlook as stable.

On August 18, 2021, Fitch also 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$144 in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to ~~$11~~$152 in the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The decrease in cash provided from investing activities of $8, or ~~73%~~5%, was primarily due to lower 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)~~2020), ~~substantially~~ offset by a decrease in capital expenditures of ~~$97 and~~$82, an increase in cash receipts from sold receivables of ~~$9.~~

~~Goodwill.~~ ~~Goodwill is not amortized; instead, it is reviewed for impairment annually (in~~$9 and the ~~fourth quarter) or more frequently if indicators~~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$5. Additionally, 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~~third 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~~Company restructured its accounts receivable securitization. As 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~~result, going forward, Cash receipts from sold receivables will be ~~subject to~~$0 within investing activities in 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~~Statement 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~~Consolidated Cash Flows in the fourth quarter of ~~2019. Over~~2021 (See Note K to 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 customersConsolidated Financial Statements 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 resultPart I, Item 1 of this ~~assessment, the Company performed a quantitative impairment test in the first quarter~~Form 10-Q 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%~~reference). As such, the fair values of all of our reporting units substantially exceeded their carrying values at March 31, 2021. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and could be material.

Recently Adopted and Recently Issued Accounting Guidance

See Note 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; and expected employment plans. 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~~Chief Executive ~~Officers~~Officer 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~~third 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.

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 September 30, 2021:


	(in millions except share and per share amounts)
Period	Total Number of Shares Purchased	Average Price Paid Per Share(1)	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)(2)
July 1 - July 31, 2021	—	$—	—	$77
August 1 - August 31, 2021	769,274	$32.50	769,274	$1,552
September 1 - September 30, 2021	—	$—	—	$1,552
Total for quarter ended September 30, 2021	769,274	$32.50	769,274

(1)Excludes commissions cost.

(2)On August 18, 2021, the Company announced that its Board of Directors authorized a share repurchase program of up to $1,500 million of the Company's outstanding common stock. The Board had previously authorized, in May 2019, a share repurchase program of up to $500 million, of which approximately $77 million Board authorization remained available as of July 31, 2021. After giving effect to the share repurchases made through September 30, 2021, approximately $1,552 million Board authorization remains available. Under the Company’s share repurchase programs (the “Share Repurchase Programs”), the Company may repurchase shares 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 is no stated expiration for the Share Repurchase Programs. Under its Share Repurchase Programs, the Company may repurchase shares from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations, including limits under the Company’s Five-Year Revolving Credit Agreement (See Note O to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference). The Company is not obligated to repurchase any specific number of shares or to do so at any particular time, and the Share Repurchase Programs may be suspended, modified or terminated at any time without prior notice.

Item 6. Exhibits.


4.1			Form of 3.000% Notes due 2029, incorporated by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K filed on September 1, 2021.
10.1			~~Amendment No. 5 dated~~Howmet Aerospace Inc. Executive Severance Plan, as ~~of March 29,~~Amended and Restated, effective September 17, 2021, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 23, 2021.
10.2			Howmet Aerospace Inc. Change in Control Severance Plan, as Amended and Restated, effective September 17, 2021, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on September 23, 2021.
10.3			Amended and Restated Five-Year Revolving Credit Agreement, dated as of ~~July 25, 2014,~~September 28, 2021, among Howmet Aerospace Inc., the lenders and issuers named therein, Citibank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., as syndication agent, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 28, 2021.
10.4			Letter Agreement, by and between Howmet Aerospace Inc. and John C. Plant, dated as of October 14, 2021, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on ~~March 29,~~October 14, 2021.
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,~~September 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,~~November 4, 2021			/s/ Ken Giacobbe
Date			Ken Giacobbe
			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)

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

3239


	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