UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended ~~March 31,~~June 30, 2022


☐			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 ~~April 29,~~August 1, 2022, there were ~~417,914,089~~415,403,018 shares of common stock, par value $1.00 per share, of the registrant outstanding.

TABLE OF CONTENTS


		Page
Part I
Item 1.	Financial Statements and Supplementary Data	3
	Statement of Consolidated Operations for the ~~First~~Second Quarter and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	3
	Statement of Consolidated Comprehensive Income for the ~~First~~Second Quarter and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	4
	Consolidated Balance Sheet as of ~~March 31,~~June 30, 2022 and December 31, 2021	5
	Statement of Consolidated Cash Flows for the ~~First Quarter~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021	6
	Statement of Changes in Consolidated Equity for the ~~First~~Second Quarter Ended ~~March 31,~~June 30, 2022 and 2021	7
	Statement of Changes in Consolidated Equity for the Six Months Ended June 30, 2022 and 2021	8
	Notes to the Consolidated Financial Statements	89
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2024
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2531
Item 4.	Controls and Procedures	2531
Part II
Item 1.	Legal Proceedings	2632
Item 1A.	Risk Factors	2632
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2632
Item 6.	Exhibits	2733
	Signatures	2733

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data.

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

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


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Sales (C)	Sales (C)	$	1,324	$	1,209		Sales (C)	$	1,393	$	1,195	$	2,717	$	2,404
Cost of goods sold (exclusive of expenses below)	Cost of goods sold (exclusive of expenses below)	950		873			Cost of goods sold (exclusive of expenses below)	987		857		1,937		1,730
Selling, general administrative, and other expenses	Selling, general administrative, and other expenses	69		65			Selling, general administrative, and other expenses	83		55		152		120
Research and development expenses	Research and development expenses	7		5			Research and development expenses	9		4		16		9
Provision for depreciation and amortization	Provision for depreciation and amortization	66		68			Provision for depreciation and amortization	67		67		133		135
Restructuring and other charges (D)	Restructuring and other charges (D)	2		9			Restructuring and other charges (D)	6		5		8		14
Operating income	Operating income	230		189			Operating income	241		207		471		396

Loss on debt redemption (N)							Loss on debt redemption (N)	2		23		2		23
Interest expense, net	Interest expense, net	58		72			Interest expense, net	57		66		115		138
Other expense, net (F)		1		4
Other (income) expense, net (F)							Other (income) expense, net (F)	(1)		8		—		12
Income before income taxes	Income before income taxes	171		113			Income before income taxes	183		110		354		223
Provision for income taxes (G)	Provision for income taxes (G)	40		33			Provision for income taxes (G)	36		36		76		69

Net income	Net income	$	131	$	80		Net income	$	147	$	74	$	278	$	154

Amounts Attributable to Howmet Aerospace Common Shareholders (H):	Amounts Attributable to Howmet Aerospace Common Shareholders (H):						Amounts Attributable to Howmet Aerospace Common Shareholders (H):
Net income	Net income	$	130	$	79		Net income	$	147	$	74	$	277	$	153
Earnings per share:	Earnings per share:						Earnings per share:
Basic	Basic	$	0.31	$	0.18		Basic	$	0.35	$	0.17	$	0.66	$	0.35

Diluted	Diluted	$	0.31	$	0.18		Diluted	$	0.35	$	0.17	$	0.66	$	0.35

Average Shares Outstanding (H):	Average Shares Outstanding (H):						Average Shares Outstanding (H):
Basic	Basic	419		434			Basic	417		432		418		433
Diluted	Diluted	425		439			Diluted	422		437		423		438

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					Second quarter ended				Six months ended
		March 31,				June 30,	June 30,
		2022		2021					2022		2021		2022		2021
Net income	Net income	$	131	$	80			Net income	$	147	$	74	$	278	$	154
Other comprehensive (loss) income, net of tax (I):
Other comprehensive income (loss), net of tax (I):								Other comprehensive income (loss), net of tax (I):
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	10		42				Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits	22		35		32		77
Foreign currency translation adjustments	Foreign currency translation adjustments	(31)		(44)				Foreign currency translation adjustments	(114)		18		(145)		(26)

Net change in unrecognized gains on cash flow hedges		20		4
Net change in unrecognized (losses) gains on cash flow hedges								Net change in unrecognized (losses) gains on cash flow hedges	(36)		4		(16)		8
Total Other comprehensive (loss) income, net of tax	Total Other comprehensive (loss) income, net of tax	(1)		2				Total Other comprehensive (loss) income, net of tax	(128)		57		(129)		59
Comprehensive income	Comprehensive income	$	130	$	82			Comprehensive income	$	19	$	131	$	149	$	213

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, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	520	$	720	Cash and cash equivalents	$	537	$	720
Receivables from customers, less allowances of $1 in 2022 and $— in 2021 (J)		479		367
Receivables from customers, less allowances of $— in 2022 and 2021 (J)						Receivables from customers, less allowances of $— in 2022 and 2021 (J)	501		367
Other receivables (J)	Other receivables (J)	50		53		Other receivables (J)	49		53
Inventories (K)	Inventories (K)	1,483		1,402		Inventories (K)	1,563		1,402
Prepaid expenses and other current assets	Prepaid expenses and other current assets	250		195		Prepaid expenses and other current assets	187		195

Total current assets	Total current assets	2,782		2,737		Total current assets	2,837		2,737
Properties, plants, and equipment, net (L)	Properties, plants, and equipment, net (L)	2,400		2,467		Properties, plants, and equipment, net (L)	2,340		2,467
Goodwill	Goodwill	4,053		4,067		Goodwill	4,012		4,067
Deferred income taxes	Deferred income taxes	149		184		Deferred income taxes	118		184
Intangibles, net	Intangibles, net	543		549		Intangibles, net	534		549
Other noncurrent assets (M)	Other noncurrent assets (M)	202		215		Other noncurrent assets (M)	211		215

Total assets	Total assets	$	10,129	$	10,219	Total assets	$	10,052	$	10,219
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable, trade	Accounts payable, trade	$	777	$	732	Accounts payable, trade	$	814	$	732
Accrued compensation and retirement costs	Accrued compensation and retirement costs	172		198		Accrued compensation and retirement costs	198		198
Taxes, including income taxes	Taxes, including income taxes	63		61		Taxes, including income taxes	58		61
Accrued interest payable	Accrued interest payable	69		74		Accrued interest payable	75		74
Other current liabilities (M)	Other current liabilities (M)	171		183		Other current liabilities (M)	176		183
Short-term debt (N)	Short-term debt (N)	3		5		Short-term debt (N)	1		5

Total current liabilities	Total current liabilities	1,255		1,253		Total current liabilities	1,322		1,253
Long-term debt, less amount due within one year (N and O)	Long-term debt, less amount due within one year (N and O)	4,228		4,227		Long-term debt, less amount due within one year (N and O)	4,169		4,227
Accrued pension benefits (E)	Accrued pension benefits (E)	746		771		Accrued pension benefits (E)	710		771
Accrued other postretirement benefits (E)	Accrued other postretirement benefits (E)	152		153		Accrued other postretirement benefits (E)	150		153
Other noncurrent liabilities and deferred credits (M)	Other noncurrent liabilities and deferred credits (M)	291		307		Other noncurrent liabilities and deferred credits (M)	280		307

Total liabilities	Total liabilities	6,672		6,711		Total liabilities	6,631		6,711
Contingencies and commitments (Q)	Contingencies and commitments (Q)	0		0		Contingencies and commitments (Q)	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	418		422		Common stock	416		422
Additional capital	Additional capital	4,123		4,291		Additional capital	4,079		4,291
Retained earnings	Retained earnings	725		603		Retained earnings	863		603
Accumulated other comprehensive loss (I)	Accumulated other comprehensive loss (I)	(1,864)		(1,863)		Accumulated other comprehensive loss (I)	(1,992)		(1,863)

Total equity	Total equity	3,457		3,508		Total equity	3,421		3,508
Total liabilities and equity	Total liabilities and equity	$	10,129	$	10,219	Total liabilities and equity	$	10,052	$	10,219

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)


		Three months ended					Six months ended
		March 31,					June 30,
		2022		2021			2022		2021
Operating activities	Operating activities					Operating activities
Net income	Net income	$	131	$	80	Net income	$	278	$	154
Adjustments to reconcile net income to cash provided from (used for) operations:
Adjustments to reconcile net income to cash provided from operations:						Adjustments to reconcile net income to cash provided from operations:
Depreciation and amortization	Depreciation and amortization	66		68		Depreciation and amortization	133		135
Deferred income taxes	Deferred income taxes	28		10		Deferred income taxes	52		15
Restructuring and other charges	Restructuring and other charges	2		9		Restructuring and other charges	8		14
Net loss from investing activities—asset sales		3		3
Net realized and unrealized losses						Net realized and unrealized losses	7		4
Net periodic pension cost (E)	Net periodic pension cost (E)	6		4		Net periodic pension cost (E)	11		9
Stock-based compensation	Stock-based compensation	11		6		Stock-based compensation	29		14

Loss on debt redemption (N)						Loss on debt redemption (N)	2		23
Other	Other	22		14		Other	27		23
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 (J)	Increase in receivables (J)	(123)		(144)		Increase in receivables (J)	(169)		(231)
(Increase) decrease in inventories	(Increase) decrease in inventories	(87)		20		(Increase) decrease in inventories	(191)		19
Decrease in prepaid expenses and other current assets	Decrease in prepaid expenses and other current assets	5		23		Decrease in prepaid expenses and other current assets	1		10
Increase in accounts payable, trade	Increase in accounts payable, trade	68		26		Increase in accounts payable, trade	118		48
Decrease in accrued expenses	Decrease in accrued expenses	(54)		(92)		Decrease in accrued expenses	(40)		(93)
Increase in taxes, including income taxes	Increase in taxes, including income taxes	6		12		Increase in taxes, including income taxes	1		24
Pension contributions	Pension contributions	(11)		(29)		Pension contributions	(20)		(61)
Increase in noncurrent assets	Increase in noncurrent assets	(1)		(2)		Increase in noncurrent assets	(1)		(4)
Decrease in noncurrent liabilities	Decrease in noncurrent liabilities	(17)		(14)		Decrease in noncurrent liabilities	(33)		(24)
Cash provided from (used for) operations		55		(6)
Cash provided from operations						Cash provided from operations	213		79
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)	(3)		(2)		Net change in short-term borrowings (original maturities of three months or less)	(4)		(1)

Payments on debt (original maturities greater than three months) (N)	Payments on debt (original maturities greater than three months) (N)	—		(361)		Payments on debt (original maturities greater than three months) (N)	(60)		(838)
Debt issuance costs (N)	Debt issuance costs (N)	—		(1)		Debt issuance costs (N)	—		(1)

Premiums paid on early redemption of debt (N)						Premiums paid on early redemption of debt (N)	(2)		(22)
Repurchase of common stock	Repurchase of common stock	(175)		—		Repurchase of common stock	(235)		(200)
Proceeds from exercise of employee stock options	Proceeds from exercise of employee stock options	7		8		Proceeds from exercise of employee stock options	10		15
Dividends paid to shareholders	Dividends paid to shareholders	(9)		(1)		Dividends paid to shareholders	(18)		(1)

Other	Other	(14)		(11)		Other	(22)		(20)
Cash used for financing activities	Cash used for financing activities	(194)		(368)		Cash used for financing activities	(331)		(1,068)
Investing Activities	Investing Activities					Investing Activities
Capital expenditures (C)	Capital expenditures (C)	(62)		(55)		Capital expenditures (C)	(106)		(91)
Proceeds from the sale of assets and businesses	Proceeds from the sale of assets and businesses	1		—		Proceeds from the sale of assets and businesses	42		8

Sale of debt securities						Sale of debt securities	—		5
Cash receipts from sold receivables (J)	Cash receipts from sold receivables (J)	—		57		Cash receipts from sold receivables (J)	—		172
Other	Other	—		1		Other	(1)		—
Cash (used for) provided from investing activities	Cash (used for) provided from investing activities	(61)		3		Cash (used for) provided from investing activities	(65)		94
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)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		—
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(200)		(372)		Net change in cash, cash equivalents and restricted cash	(184)		(895)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	722		1,611		Cash, cash equivalents and restricted cash at beginning of period	722		1,611
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	522	$	1,239	Cash, cash equivalents and restricted cash at end of period	$	538	$	716

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		Total Equity
Balance at December 31, 2020		$	55	$	433	$	4,668	$	364	$	(1,943)	$	3,577

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

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

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

Net income														Net income	—		—		—		74		—		74
Other comprehensive income (I)														Other comprehensive income (I)	—		—		—		—		57		57

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

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


		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, 2021		$	55	$	422	$	4,291	$	603	$	(1,863)		$	3,508
Balance at March 31, 2022															Balance at March 31, 2022	$	55	$	418	$	4,123	$	725	$	(1,864)	$	3,457

Net income	Net income	—		—		—		131		—			131		Net income	—		—		—		147		—		147
Other comprehensive income (I)		—		—		—		—		(1)			(1)
Other comprehensive loss (I)															Other comprehensive loss (I)	—		—		—		—		(128)		(128)
Cash dividends declared:	Cash dividends declared:														Cash dividends declared:
Preferred-Class A @ $0.9375 per share		—		—		—		(1)		—			(1)

Common @ $0.02 per share	Common @ $0.02 per share	—		—		—		(8)		—			(8)		Common @ $0.02 per share	—		—		—		(9)		—		(9)
Repurchase and retirement of common stock	Repurchase and retirement of common stock	—		(5)		(170)		—		—			(175)		Repurchase and retirement of common stock	—		(2)		(58)		—		—		(60)
Stock-based compensation	Stock-based compensation	—		—		11		—		—			11		Stock-based compensation	—		—		18		—		—		18
Common stock issued: compensation plans	Common stock issued: compensation plans	—		1		(9)		—		—			(8)		Common stock issued: compensation plans	—		—		(4)		—		—		(4)

Balance at March 31, 2022		$	55	$	418	$	4,123	$	725	$	(1,864)		$	3,457
Balance at June 30, 2022															Balance at June 30, 2022	$	55	$	416	$	4,079	$	863	$	(1,992)	$	3,421

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		Total Equity
Balance at December 31, 2020	$	55	$	433	$	4,668	$	364	$	(1,943)	$	3,577

Net income	—		—		—		154		—		154
Other comprehensive income (I)	—		—		—		—		59		59
Cash dividends declared:
Preferred-Class A @ $1.8750 per share	—		—		—		(1)		—		(1)


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




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


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at December 31, 2021	$	55	$	422	$	4,291	$	603	$	(1,863)	$	3,508
Net income	—		—		—		278		—		278
Other comprehensive loss (I)	—		—		—		—		(129)		(129)
Cash dividends declared:
Preferred-Class A @ $1.8750 per share	—		—		—		(1)		—		(1)
Common @ $0.04 per share	—		—		—		(17)		—		(17)
Repurchase and retirement of common stock	—		(7)		(228)		—		—		(235)
Stock-based compensation	—		—		29		—		—		29
Common stock issued: compensation plans	—		1		(13)		—		—		(12)


Balance at June 30, 2022	$	55	$	416	$	4,079	$	863	$	(1,992)	$	3,421

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 ~~share and~~ per-share amounts)

A. Basis of Presentation

The interim Consolidated Financial Statements of Howmet Aerospace Inc. and subsidiaries (“Howmet” or the “Company” or “we” or “our”) 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 2021 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, 2021, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period presentation.

In the ~~first~~second quarter of 2022, ~~and 2021,~~ the Company derived approximately ~~61%~~ ~~and 60%, respectively,~~45% of its revenue from products sold to the commercial aerospace ~~market.~~market which is substantially less than the pre-pandemic 2019 annual rate of approximately 60%. Due to the global COVID-19 pandemic and its impact on the commercial aerospace industry to date, there has been a decrease in domestic and international air ~~travel. As a result, the~~travel, which in turn has adversely affected demand for ~~narrow body~~narrow-body and ~~wide body aircraft has been adversely affected. Narrow body~~wide-body aircraft. Although domestic air travel is increasing, it still is below pre-pandemic 2019 levels on an average monthly basis. International travel also continues to be lower than pre-pandemic 2019 levels. Narrow-body demand is returning faster than ~~wide body~~wide-body demand and the commercial wide-body aircraft market is taking longer to recover, which is creating a shift in our product mix compared to pre-pandemic conditions. ~~Since~~In addition to the ~~duration of~~impact from the pandemic, ~~is uncertain, management has taken a series~~the timing and level of ~~actions~~future aircraft builds by original equipment manufacturers are subject to ~~address the financial impact, including fixed~~changes and ~~variable cost reductions,~~uncertainties, such as ~~headcount reductions~~declines in Boeing 787 production rates due to delays in its recertification, which may cause our future results to differ from prior periods due to changes in product mix in certain ~~segments, and reducing the level of capital expenditures to preserve cash and maintain liquidity.~~segments.

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.~~COVID-19 and changes in the aerospace industry as a result of the pandemic. The impact of ~~COVID-19~~these changes 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.~~COVID-19 and changes in the aerospace industry.

B. 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. Based upon the provisions of our agreements that were amended to date, management does not believe that the impact of these changes will have a material impact on the Consolidated Financial Statements.

C. 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 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 Adjusted EBITDA. Prior to the first quarter of 2022, the Company used Segment operating profit as its primary measure of performance. However, the Company’s Chief Executive Officer believes that Segment Adjusted EBITDA is now a better representation of its business because it provides additional information with respect to the Company’s operating performance and the Company’s ability to meet its financial obligations. Howmet’s definition of Segment Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to

Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. Special items, including Restructuring and other charges, are also excluded from Net margin and Segment Adjusted EBITDA. Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Differences between the total segment and consolidated 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. Fastening Systems’ products are also critical components of commercial transportation vehicles, automobiles, construction and industrial equipment, and renewable energy sectors.

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 market.

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


		Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment			Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
First quarter ended March 31, 2022
Second quarter ended June 30, 2022												Second quarter ended June 30, 2022
Sales:	Sales:											Sales:
Third-party sales	Third-party sales	$	631	$	264	$	182	$	247	$	1,324	Third-party sales	$	652	$	277	$	185	$	279	$	1,393
Inter-segment sales	Inter-segment sales	1		—		1		—		2		Inter-segment sales	1		—		1		—		2
Total sales	Total sales	$	632	$	264	$	183	$	247	$	1,326	Total sales	$	653	$	277	$	186	$	279	$	1,395
Profit and loss:	Profit and loss:											Profit and loss:

Provision for depreciation and amortization	Provision for depreciation and amortization	31		12		12		10		65		Provision for depreciation and amortization	$	31	$	11	$	12	$	10	$	64
Segment Adjusted EBITDA	Segment Adjusted EBITDA	173		56		23		67		319		Segment Adjusted EBITDA	179		56		26		75		336
Restructuring and other charges (credits)		3		(3)		2		—		2
Restructuring and other charges												Restructuring and other charges	4		—		1		—		5
Capital expenditures	Capital expenditures	27		15		7		9		58		Capital expenditures	24		8		2		5		39

First quarter ended March 31, 2021
Second quarter ended June 30, 2021												Second quarter ended June 30, 2021
Sales:	Sales:											Sales:
Third-party sales	Third-party sales	$	534	$	272	$	176	$	227	$	1,209	Third-party sales	$	544	$	262	$	160	$	229	$	1,195
Inter-segment sales	Inter-segment sales	1		—		1		—		2		Inter-segment sales	1		—		2		—		3
Total sales	Total sales	$	535	$	272	$	177	$	227	$	1,211	Total sales	$	545	$	262	$	162	$	229	$	1,198
Profit and loss:	Profit and loss:											Profit and loss:

Provision for depreciation and amortization	Provision for depreciation and amortization	31		12		12		10		65		Provision for depreciation and amortization	$	30	$	13	$	13	$	9	$	65
Segment Adjusted EBITDA	Segment Adjusted EBITDA	132		57		22		80		291		Segment Adjusted EBITDA	130		63		24		70		287
Restructuring and other charges	Restructuring and other charges	5		2		1		—		8		Restructuring and other charges	5		3		—		—		8
Capital expenditures	Capital expenditures	11		5		5		9		30		Capital expenditures	16		9		5		13		43

													Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Six months ended June 30, 2022												Six months ended June 30, 2022
Sales:												Sales:
Third-party sales												Third-party sales	$	1,283	$	541	$	367	$	526	$	2,717
Inter-segment sales												Inter-segment sales	2		—		2		—		4
Total sales												Total sales	$	1,285	$	541	$	369	$	526	$	2,721
Profit and loss:												Profit and loss:

Provision for depreciation and amortization												Provision for depreciation and amortization	$	62	$	23	$	24	$	20	$	129
Segment Adjusted EBITDA												Segment Adjusted EBITDA	352		112		49		142		655
Restructuring and other charges (credits)												Restructuring and other charges (credits)	7		(3)		3		—		7
Capital expenditures												Capital expenditures	51		23		9		14		97

Six months ended June 30, 2021												Six months ended June 30, 2021
Sales:												Sales:
Third-party sales												Third-party sales	$	1,078	$	534	$	336	$	456	$	2,404
Inter-segment sales												Inter-segment sales	2		—		3		—		5
Total sales												Total sales	$	1,080	$	534	$	339	$	456	$	2,409
Profit and loss:												Profit and loss:

Provision for depreciation and amortization												Provision for depreciation and amortization	$	61	$	25	$	25	$	19	$	130
Segment Adjusted EBITDA												Segment Adjusted EBITDA	262		120		46		150		578
Restructuring and other charges												Restructuring and other charges	10		5		1		—		16
Capital expenditures												Capital expenditures	27		14		10		22		73

911

The following table reconciles Total Segment Adjusted EBITDA to Income before income taxes:


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Total Segment Adjusted EBITDA	Total Segment Adjusted EBITDA	$	319	$	291		Total Segment Adjusted EBITDA	$	336	$	287	$	655	$	578
Segment provision for depreciation and amortization	Segment provision for depreciation and amortization	(65)		(65)			Segment provision for depreciation and amortization	(64)		(65)		(129)		(130)
Unallocated amounts:	Unallocated amounts:						Unallocated amounts:
Restructuring and other charges	Restructuring and other charges	(2)		(9)			Restructuring and other charges	(6)		(5)		(8)		(14)
Corporate expense	Corporate expense	(22)		(28)			Corporate expense	(25)		(10)		(47)		(38)
Operating income	Operating income	$	230	$	189		Operating income	$	241	$	207	$	471	$	396

Loss on debt redemption							Loss on debt redemption	(2)		(23)		(2)		(23)
Interest expense, net	Interest expense, net	(58)		(72)			Interest expense, net	(57)		(66)		(115)		(138)
Other expense, net		(1)		(4)
Other income (expense), net							Other income (expense), net	1		(8)		—		(12)
Income before income taxes	Income before income taxes	$	171	$	113		Income before income taxes	$	183	$	110	$	354	$	223

Differences between the total segment and consolidated totals are in Corporate. The following table reconciles total segment capital expenditures with Capital expenditures as presented in the Statement of Consolidated Cash ~~Flows.~~Flows:


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Total segment capital expenditures	Total segment capital expenditures	$	58	$	30		Total segment capital expenditures	$	39	$	43	$	97	$	73
Corporate	Corporate	4		25			Corporate	5		(7)		9		18
Capital expenditures	Capital expenditures	$	62	$	55		Capital expenditures	$	44	$	36	$	106	$	91

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


		Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment			Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
First quarter ended March 31, 2022
Second quarter ended June 30, 2022												Second quarter ended June 30, 2022
Aerospace - Commercial	Aerospace - Commercial	$	329	$	148	$	109	$	—	$	586	Aerospace - Commercial	$	362	$	155	$	108	$	—	$	625
Aerospace - Defense	Aerospace - Defense	137		32		57		—		226		Aerospace - Defense	123		37		63		—		223
Commercial Transportation	Commercial Transportation	—		53		—		247		300		Commercial Transportation	—		53		—		279		332
Industrial and Other	Industrial and Other	165		31		16		—		212		Industrial and Other	167		32		14		—		213
Total end-market revenue	Total end-market revenue	$	631	$	264	$	182	$	247	$	1,324	Total end-market revenue	$	652	$	277	$	185	$	279	$	1,393

First quarter ended March 31, 2021
Second quarter ended June 30, 2021												Second quarter ended June 30, 2021
Aerospace - Commercial	Aerospace - Commercial	$	227	$	148	$	80	$	—	$	455	Aerospace - Commercial	$	260	$	129	$	79	$	—	$	468
Aerospace - Defense	Aerospace - Defense	151		42		77		—		270		Aerospace - Defense	121		41		64		—		226
Commercial Transportation	Commercial Transportation	—		46		—		227		273		Commercial Transportation	—		49		—		229		278
Industrial and Other	Industrial and Other	156		36		19		—		211		Industrial and Other	163		43		17		—		223
Total end-market revenue	Total end-market revenue	$	534	$	272	$	176	$	227	$	1,209	Total end-market revenue	$	544	$	262	$	160	$	229	$	1,195

Six months ended June 30, 2022												Six months ended June 30, 2022
Aerospace - Commercial												Aerospace - Commercial	$	691	$	303	$	217	$	—	$	1,211
Aerospace - Defense												Aerospace - Defense	260		69		120		—		449
Commercial Transportation												Commercial Transportation	—		106		—		526		632
Industrial and Other												Industrial and Other	332		63		30		—		425
Total end-market revenue												Total end-market revenue	$	1,283	$	541	$	367	$	526	$	2,717

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

The Company derived 61% and ~~60%~~59% of its revenue from the aerospace market for the ~~first quarter~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively.

General Electric Company represented approximately 13% and ~~11%~~12% of the Company’s third-party sales for the ~~first quarter~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively, primarily from Engine Products.

D. Restructuring and Other Charges


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021

(Reversals of) adjustments to previously recorded layoff reserves		$	(1)	$	1
Layoff costs							Layoff costs	$	—	$	2	$	—	$	2
Reversals of previously recorded layoff reserves							Reversals of previously recorded layoff reserves	—		(2)		(1)		(1)
Pension and Other post-retirement benefits - net settlements (E)	Pension and Other post-retirement benefits - net settlements (E)	1		3			Pension and Other post-retirement benefits - net settlements (E)	3		3		4		6

Non-cash asset impairments							Non-cash asset impairments	—		4		—		4
Net loss related to divestitures of assets and businesses (P)	Net loss related to divestitures of assets and businesses (P)	—		4			Net loss related to divestitures of assets and businesses (P)	—		—		—		4
Other	Other	2		1			Other	3		(2)		5		(1)
Restructuring and other charges	Restructuring and other charges	$	2	$	9		Restructuring and other charges	$	6	$	5	$	8	$	14

In the ~~first~~second quarter of 2022, the Company recorded Restructuring and other charges of ~~$2,~~$6, which were primarily due to

charges for U.S. pension plan settlements of $3 and exit related costs, including accelerated depreciation, of $3.

In the six months ended June 30, 2022, the Company recorded Restructuring and other charges of $8, which were primarily due to exit related costs, including accelerated depreciation, of $2$5 and charges for a U.S. pension plan ~~settlement~~settlements of ~~$1,~~$4, partially offset by a reversal of $1 for a layoff reserve related to a prior period.

In the ~~first~~second quarter ofand six months ended June 30, 2021, the Company recorded Restructuring and other charges of ~~$9,~~$5 and $14, respectively, which ~~included a $4 charge~~was primarily due to charges for ~~impairment of assets associated with an agreement to sell a small manufacturing business in France, a $3 charge for U.S.~~ pension ~~plans' settlement accounting, a $1 adjustment~~plan settlements and exit related ~~to a number of prior period program reserves and a $1 charge for exit costs including accelerated depreciation.~~costs.


		Layoff costs		Other exit costs		Total			Layoff costs		Other exit costs		Total
Reserve balances at December 31, 2021	Reserve balances at December 31, 2021	$	17	$	2	$	19	Reserve balances at December 31, 2021	$	17	$	2	$	19
Cash payments	Cash payments	(2)		(2)		(4)		Cash payments	(8)		(4)		(12)
Restructuring charges	Restructuring charges	—		2		2		Restructuring charges	3		5		8
Other(1)	Other(1)	(1)		—		(1)		Other(1)	(4)		(1)		(5)
Reserve balances at March 31, 2022		$	14	$	2	$	16
Reserve balances at June 30, 2022								Reserve balances at June 30, 2022	$	8	$	2	$	10

(1)In the ~~first quarter of~~six months ended June 30, 2022, Other for layoff costs included a $4 charge for U.S. pension plan settlements and Other exit costs included a $1 charge for ~~a pension plan settlement.~~accelerated depreciation.

The majority of the layoff cost and other exit cost reserves is expected to be paid in cash during 2022 and 2023, with small amounts to be paid through 2024.

E. Pension and Other Postretirement Benefits

The components of net periodic cost (benefit) were as follows:


		First quarter ended				Second quarter ended						Six months ended
		March 31,				June 30,						June 30,
		2022		2021				2022		2021			2022		2021
Pension benefits	Pension benefits						Pension benefits
Service cost	Service cost	$	1	$	1		Service cost	$	1	$	1		$	2	$	2
Interest cost	Interest cost	12		12			Interest cost	13		12			25		24
Expected return on plan assets	Expected return on plan assets	(20)		(23)			Expected return on plan assets	(21)		(23)			(41)		(46)
Recognized net actuarial loss	Recognized net actuarial loss	13		14			Recognized net actuarial loss	12		15			25		29

Settlements	Settlements	1		3			Settlements	3		3			4		6

Net periodic cost(1)	Net periodic cost(1)	$	7	$	7		Net periodic cost(1)	$	8	$	8		$	15	$	15

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

Net periodic benefit(1)	Net periodic benefit(1)	$	(1)	$	—		Net periodic benefit(1)	$	—	$	—		$	(1)	$	—

(1)Service cost was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and

development expenses; settlements were included in Restructuring and other charges; and all other cost components were recorded in Other (income) expense, net in the Statement of Consolidated Operations.

Pension benefits

~~For the first quarter of 2022 and 2021, the~~The Company applied settlement accounting to certain U.S. pension plans due to lump sum payments made to participants, which resulted in settlement charges ~~for~~of $3 and $4 in the second quarter ~~of $1~~and six months ended June 30, 2022, respectively, and $3 and $6 in the second quarter and six months ended June 30, 2021, respectively, that were recorded in Restructuring and other charges in the Statement of Consolidated Operations.

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. For the ~~first~~second quarter ofand six months ended

June 30, 2022, ~~and 2021,~~ Howmet’s combined pension contributions and other postretirement benefit payments were approximately ~~$13~~$12 and ~~$33,~~$25, respectively. For the second quarter and six months ended June 30, 2021, Howmet’s combined pension contributions and other postretirement benefit payments were approximately $36 and $69, respectively.

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. 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.

F. Other (Income) Expense, Net


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Non-service related net periodic benefit cost	Non-service related net periodic benefit cost	$	4	$	3		Non-service related net periodic benefit cost	$	3	$	3	$	7	$	6

Interest income							Interest income	(1)		(1)		(1)		(1)
Foreign currency (gains) losses, net	Foreign currency (gains) losses, net	(3)		2			Foreign currency (gains) losses, net	(1)		1		(4)		3
Net loss from asset sales		3		3

Net realized and unrealized losses							Net realized and unrealized losses	4		1		7		4
Deferred compensation	Deferred compensation	(3)		2			Deferred compensation	(6)		4		(9)		6
Other, net	Other, net	—		(6)			Other, net	—		—		—		(6)
Other expense, net		$	1	$	4
Other (income) expense, net							Other (income) expense, net	$	(1)	$	8	$	—	$	12

G. Income Taxes

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

The estimated annual effective tax rate, before discrete items, applied to ordinary income was ~~24.3%~~23.9% in both the ~~first~~second quarter ofand six months ended June 30, 2022 and ~~30.4%~~29.1% in both the ~~first~~second quarter ofand six months ended June 30, 2021. The 2022 and 2021 rates were higher than the U.S. federal statutory rate of 21% primarily due to additional estimated U.S. tax on Global Intangible Low-Taxed Income (“GILTI”) and other foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax, and nondeductible expenses.

For the ~~first~~second quarter of 2022 and 2021, the tax rate including discrete items was ~~23.4%~~19.7% and ~~29.2%~~32.7%, respectively. For the ~~first~~second quarter of 2022, the Company recorded a discrete tax benefit of $7 attributable to a $6 benefit to release a valuation allowance related to an interest carryforward tax attribute in the U.K. and a net benefit of $1 for other small items. For the second quarter of 2021, the Company recorded a discrete tax charge of $4 attributable to a $2 charge for a U.K. tax rate change and a net charge of $2 for other small items.

For the six months ended June 30, 2022 and 2021, the tax rate including discrete items was 21.5% and 30.9%, respectively. For the six months ended June 30, 2022, the Company recorded a discrete net tax benefit of $9 attributable to a $6 benefit to release a valuation allowance related to an interest carryforward tax attribute in the U.K., a $5 excess benefit for stock compensation and a net charge of $2 for other small items. For the ~~first quarter of~~six months ended June 30, 2021, the Company recorded a discrete tax charge of $3 attributable to a $2 charge for a U.K. tax rate change and a net ~~tax benefit~~charge of $1 for other small items.

The tax provision ~~for the first quarter ended March 31, 2022 and 2021~~ was comprised of the following:


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Pre-tax income at estimated annual effective income tax rate before discrete items	Pre-tax income at estimated annual effective income tax rate before discrete items	$	42	$	34		Pre-tax income at estimated annual effective income tax rate before discrete items	$	44	$	32	$	85	$	65

Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income							Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	(1)		(1)		—		—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized							Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	—		1		—		1
Other discrete items	Other discrete items	(2)		(1)			Other discrete items	(7)		4		(9)		3
Provision for income taxes	Provision for income taxes	$	40	$	33		Provision for income taxes	$	36	$	36	$	76	$	69

H. Earnings Per Share

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

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


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021

Net income attributable to common shareholders	Net income attributable to common shareholders	$	131	$	80		Net income attributable to common shareholders	$	147	$	74	$	278	$	154
Less: preferred stock dividends declared	Less: preferred stock dividends declared	1		1			Less: preferred stock dividends declared	—		—		1		1
Net income available to Howmet Aerospace common shareholders - basic and diluted	Net income available to Howmet Aerospace common shareholders - basic and diluted	$	130	$	79		Net income available to Howmet Aerospace common shareholders - basic and diluted	$	147	$	74	$	277	$	153

Average shares outstanding - basic	Average shares outstanding - basic	419		434			Average shares outstanding - basic	417		432		418		433
Effect of dilutive securities:	Effect of dilutive securities:						Effect of dilutive securities:
Stock options	Stock options	—		1			Stock options	—		1		—		1
Stock and performance awards	Stock and performance awards	6		4			Stock and performance awards	5		4		5		4

Average shares outstanding - diluted	Average shares outstanding - diluted	425		439			Average shares outstanding - diluted	422		437		423		438

Common stock outstanding at ~~March 31,~~June 30, 2022 and 2021 was approximately ~~418~~416 million and ~~434~~429 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. In the quarter ended ~~March 31,~~June 30, 2022, the Company repurchased approximately 52 million shares of its common stock at an average price of ~~$34.00~~$33.89 per share (excluding commissions cost) for ~~$175~~$60 in cash. For the six months ended June 30, 2022, the Company repurchased approximately 7 million shares for $235 in cash. All of the shares repurchased have been retired. After giving effect to the share repurchases made through ~~March 31,~~June 30, 2022, approximately ~~$1,172~~$1,112 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 its Five-Year Revolving Credit Agreement (the “Credit Agreement”) (see Note N). 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 approximately 15 million decrease in average shares outstanding (basic) for the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021 was primarily due to the approximately 1920 million shares repurchased ~~during~~between July 1, 2021 and June 30, 2022. As average shares outstanding are used in the calculation for both basic and diluted EPS, the full impact of share repurchases was not realized in EPS in the ~~first~~second quarter ofand six months ended June 30, 2022 as share repurchases occurred at varying points during the quarter.

~~The following~~

In July 2022, the Company repurchased approximately 1 million shares of its common stock under the Share Repurchase Programs at an average price of $32.22 per share (excluding commissions cost) for approximately $30 in cash. After the share repurchases made through July 31, 2022, approximately $1,082 remains authorized for common stock share repurchases.

There were no stock options shares excluded from the calculation of average shares outstanding – diluted ~~as their effect was anti-dilutive (shares in millions):~~
First quarter ended
March 31,
2022 2021
Stock options(1)
— 1

~~(1)There~~for the second quarter and six months ended June 30, 2022 and 2021. Additionally, there were no anti-dilutive stock options shares as of ~~March 31, 2022. The weighted average exercise price per share of options excluded from diluted EPS was $31.86 as of March 31,~~June 30, 2022 and 2021.

I. Accumulated Other Comprehensive Loss

The following table details the activity of the three components that comprise Accumulated other comprehensive loss:
First quarter ended
March 31,
2022 2021
Pension and other postretirement benefits (E)
Balance at beginning of period $ (799) $ (980)
Other comprehensive income:
Unrecognized net actuarial gain and prior service cost/benefit 1 37
Tax expense — (8)
Total Other comprehensive income before reclassifications, net of tax 1 29
Amortization of net actuarial loss and prior service cost(1)
12 16
Tax expense(2)
(3) (3)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)
9 13
Total Other comprehensive income 10 42
Balance at end of period $ (789) $ (938)
Foreign currency translation
Balance at beginning of period $ (1,062) $ (966)
Other comprehensive loss (31) (44)
Balance at end of period $ (1,093) $ (1,010)
Cash flow hedges
Balance at beginning of period $ (2) $ 3
Other comprehensive income (loss):
Net change from periodic revaluations 25 8
Tax expense (6) (2)
Total Other comprehensive income before reclassifications, net of tax 19 6
Net amount reclassified to earnings 1 (3)
Tax benefit(2)
— 1
Total amount reclassified from Accumulated other comprehensive income (loss), net of tax(3)
1 (2)
Total Other comprehensive income 20 4
Balance at end of period $ 18 $ 7
Accumulated other comprehensive loss $ (1,864) $ (1,941)


	Second quarter ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Pension and other postretirement benefits (E)
Balance at beginning of period	$	(789)	$	(938)	$	(799)	$	(980)
Other comprehensive income:
Unrecognized net actuarial gain and prior service cost/benefit	15		30		16		67
Tax expense	(3)		(7)		(3)		(15)
Total Other comprehensive income before reclassifications, net of tax	12		23		13		52
Amortization of net actuarial loss and prior service cost(1)	13		15		25		31
Tax expense(2)	(3)		(3)		(6)		(6)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)	10		12		19		25
Total Other comprehensive income	22		35		32		77

Balance at end of period	$	(767)	$	(903)	$	(767)	$	(903)
Foreign currency translation
Balance at beginning of period	$	(1,093)	$	(1,010)	$	(1,062)	$	(966)


Other comprehensive (loss) income	(114)		18		(145)		(26)

Balance at end of period	$	(1,207)	$	(992)	$	(1,207)	$	(992)




Cash flow hedges
Balance at beginning of period	$	18	$	7	$	(2)	$	3

Other comprehensive income (loss):
Net change from periodic revaluations	(36)		11		(11)		19
Tax income (expense)	8		(2)		2		(4)
Total Other comprehensive (loss) income before reclassifications, net of tax	(28)		9		(9)		15
Net amount reclassified to earnings	(11)		(5)		(10)		(8)
Tax benefit(2)	3		—		3		1
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)	(8)		(5)		(7)		(7)
Total Other comprehensive (loss) income	(36)		4		(16)		8
Balance at end of period	$	(18)	$	11	$	(18)	$	11

Accumulated other comprehensive loss	$	(1,992)	$	(1,884)	$	(1,992)	$	(1,884)

(1)These amounts were recorded in Other (income) expense, net (see Note F) and Restructuring and other charges (see Note D) in the Statement of Consolidated Operations.

(2)These amounts were included in Provision for income taxes (see Note G) in 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.

J. Receivables

Sale of Receivables Programs

The Company ~~has historically maintained 2~~maintains an accounts receivables securitization ~~arrangements.~~arrangement through a wholly-owned special purpose entity (“SPE”). The Company previously had a second arrangement which terminated on August 30, 2021. The net cash funding from the sale of accounts receivable was neither a use of cash nor a source of cash for ~~the first~~any quarter of 2022 or 2021.

The ~~first~~terminated arrangement was ~~an arrangement~~ with financial institutions to sell certain customer receivables without recourse on a revolving ~~basis (the “Receivables Sale Program”)~~basis. The Company had $22 net cash repayments ($41 in draws and ~~was terminated on August~~$63 in repayments) for the six months ended June 30, ~~2021. This arrangement historically provided up to a maximum funding of $300 for receivables sold. Cash~~2021 in connection with this arrangement. The total cash receipts from both customer payments on sold receivables (which were cash receipts on the underlying trade receivables that had been previously sold) ~~as well as~~and net cash ~~receipts and cash disbursements from~~

~~draws and~~ repayments under the program were presented as cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash ~~Flows. The Company had $26 net cash repayments ($18 in draws and $44 in repayments)~~Flows for the ~~three~~six months ended ~~March 31, 2021 in connection with this arrangement.~~June 30, 2021.

The ~~second~~current accounts receivables securitization arrangement is one in which the Company, through ~~a wholly-owned special purpose entity (“SPE”),~~an 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 August 30, 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. This accounts receivable securitization arrangement totaled $325 at both ~~March 31,~~June 30, 2022 and December 31, 2021 of which $250 was drawn as of both ~~March 31,~~June 30, 2022 and December 31, 2021. As collateral against the sold receivables, the SPE maintains a certain level of unsold receivables, which were ~~$100~~$130 and $79 at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

The Company sold ~~$464~~$437 and ~~$84~~$901 of its receivables without recourse and received cash funding under this program during the ~~three~~second quarter and six months ended ~~March 31,~~June 30, 2022, ~~and March 31, 2021,~~ respectively, resulting in derecognition of the receivables from the Company’s Consolidated Balance Sheet. Costs associated with the sales of receivables are reflected in the Company’s Statement of Consolidated Operations for the periods in which the sales occur. Cash receipts from sold receivables under the Receivables Purchase Agreement are presented within operating activities in the Statement of Consolidated Cash Flows.

Other Customer Receivable Sales

In the ~~first~~second quarter ofand six months ended June 30, 2022, the Company sold ~~$106~~$117 and $223, respectively, of certain customers’ receivables in exchange for cash ($~~110~~125 was outstanding from customers at ~~March 31,~~June 30, 2022), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. In the ~~first~~second quarter ofand six months ended June 30, 2021, the Company sold ~~$66~~$98 and $164, respectively, of 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.

K. Inventories


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Finished goods	Finished goods	$	487	$	478	Finished goods	$	486	$	478
Work-in-process	Work-in-process	676		631		Work-in-process	725		631
Purchased raw materials	Purchased raw materials	279		256		Purchased raw materials	307		256
Operating supplies	Operating supplies	41		37		Operating supplies	45		37
Total inventories	Total inventories	$	1,483	$	1,402	Total inventories	$	1,563	$	1,402

At ~~March 31,~~June 30, 2022 and December 31, 2021, the portion of inventories valued on a last-in, first-out (“LIFO”) basis was ~~$588~~$627 and $523, respectively. These amounts exclude the effects of LIFO valuation reductions, which were ~~$201~~$203 and $192 at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

L. Properties, Plants, and Equipment, net


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Land and land rights(1)	Land and land rights(1)	$	90	$	91	Land and land rights(1)	$	87	$	91
Structures(1)	Structures(1)	959		1,034		Structures(1)	973		1,034
Machinery and equipment	Machinery and equipment	3,961		3,932		Machinery and equipment	3,905		3,932
		5,010		5,057			4,965		5,057
Less: accumulated depreciation and amortization(1)	Less: accumulated depreciation and amortization(1)	2,770		2,772		Less: accumulated depreciation and amortization(1)	2,779		2,772
		2,240		2,285			2,186		2,285
Construction work-in-progress	Construction work-in-progress	160		182		Construction work-in-progress	154		182
Properties, plants, and equipment, net	Properties, plants, and equipment, net	$	2,400	$	2,467	Properties, plants, and equipment, net	$	2,340	$	2,467

(1)~~The~~In the first quarter of 2022, the Company reached an agreement to sell the corporate ~~center~~headquarters in Pittsburgh, PA. The proceeds from the sale of the corporate headquarters were $44, excluding $3 of transaction costs, and ~~as a result, it~~the carrying value at the time of sale was ~~classified as held for sale and included~~$41. A loss of less than $1 was recorded in ~~Prepaid expenses~~Restructuring and other ~~current assets~~charges in the Statement of Consolidated ~~Balance Sheet. The carrying value of the building was $40 at March 31, 2022, and no material gain or loss is expected~~Operations upon finalization of the ~~sale.~~sale in the second quarter of 2022. The Company ~~intends to~~entered into a 12-year lease with the purchaser for a portion of the ~~property back from the purchaser.~~property.

The Company incurred capital expenditures which remained unpaid at ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021 of ~~$29~~$30 and ~~$28,~~$39, respectively, and will result in cash outflows within investing activities in the Statement of Consolidated Cash Flows in subsequent periods.

M. Leases

Operating lease cost, which ~~included~~includes short-term leases and variable lease payments and approximates cash paid, was ~~$16~~$14 and ~~$17~~$16 in the ~~first~~second quarter of 2022 and 2021, respectively. Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $30 and $33 in the six months ended June 30, 2022 and 2021, respectively.

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


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Right-of-use assets classified in Other noncurrent assets	Right-of-use assets classified in Other noncurrent assets	$	105	$	108	Right-of-use assets classified in Other noncurrent assets	$	109	$	108

Current portion of lease liabilities classified in Other current liabilities	Current portion of lease liabilities classified in Other current liabilities	$	32	$	33	Current portion of lease liabilities classified in Other current liabilities	$	32	$	33
Long-term portion of lease liabilities classified in Other noncurrent liabilities	Long-term portion of lease liabilities classified in Other noncurrent liabilities	78		81		Long-term portion of lease liabilities classified in Other noncurrent liabilities	82		81
Total lease liabilities	Total lease liabilities	$	110	$	114	Total lease liabilities	$	114	$	114

N. Debt


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021

5.125% Notes, due 2024	5.125% Notes, due 2024	$	1,150	$	1,150	5.125% Notes, due 2024	$	1,090	$	1,150
6.875% Notes, due 2025	6.875% Notes, due 2025	600		600		6.875% Notes, due 2025	600		600
5.900% Notes, due 2027	5.900% Notes, due 2027	625		625		5.900% Notes, due 2027	625		625
6.750% Bonds, due 2028	6.750% Bonds, due 2028	300		300		6.750% Bonds, due 2028	300		300
3.000% Notes, due 2029	3.000% Notes, due 2029	700		700		3.000% Notes, due 2029	700		700
5.950% Notes, due 2037	5.950% Notes, due 2037	625		625		5.950% Notes, due 2037	625		625
4.750% Iowa Finance Authority Loan, due 2042	4.750% Iowa Finance Authority Loan, due 2042	250		250		4.750% Iowa Finance Authority Loan, due 2042	250		250
Other(1)	Other(1)	(19)		(18)		Other(1)	(20)		(18)
		4,231		4,232			4,170		4,232
Less: amount due within one year	Less: amount due within one year	3		5		Less: amount due within one year	1		5
Total long-term debt	Total long-term debt	$	4,228	$	4,227	Total long-term debt	$	4,169	$	4,227

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

Public Debt

On January 15, 2021, the Company completed the early redemption of all the remaining $361 of its 5.400% Notes due 2021 at par and paid $5 in accrued interest.

On May 3, 2021, the Company completed the early redemption of all the remaining $476 aggregate principal amount of its 5.870% Notes due 2022and paid an aggregate of $503, including $5 of accrued interest. The Company also incurred an early termination premium and other costs of $23, which was recorded in Loss on debt redemption in the Statement of Consolidated Operations.

In the second quarter of 2022, the Company repurchased in the open market approximately $60 aggregate principal amount of its 5.125% Notes due 2024 and paid approximately $62, including an early termination premium of approximately $2, which was recorded in Loss on debt redemption in the Statement of Consolidated Operations.

Credit Facility

On September 28, 2021, the Company amended and restated its Credit Agreement. 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 provisions of the Credit Agreement. Capitalized terms used in this “Credit Facility” section but not otherwise defined shall have the meanings given to such terms in the Credit Agreement.

Under the Credit Agreement, the Company’s ratio of Consolidated Net Debt to Consolidated EBITDA as of the end of each fiscal quarter for the period of the four fiscal quarters of the Company most recently ended, is required to be no greater than 3.50 to 1.00; provided, however, that during the Covenant Relief Period through December 31, 2022 (unless the Company elects to terminate the 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,~~June 30, 2022			4.50 to 1.00
(ii) for the quarter ending ~~June 30, 2022~~			~~4.50 to 1.00~~
~~(iii) for the quarter ending~~ September 30, 2022			4.25 to 1.00
~~(iv)~~(iii) for the quarter ending December 31, 2022			3.75 to 1.00

During the Covenant Relief Period, common stock dividends and share repurchases (see Note H) 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 $500 during the year ending December 31, 2022. Common stock dividends and share repurchases were ~~$183~~$252 for the ~~first quarter of~~six months ended June 30, 2022.

There were no amounts outstanding under the Credit Agreement at ~~March 31,~~June 30, 2022 or December 31, 2021, and no amounts were borrowed during 2022 or 2021 under the Credit Agreement. At ~~March 31,~~June 30, 2022, 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.

O. Fair Value of Financial Instruments

The carrying values of Cash and cash equivalents, restricted cash, derivatives, noncurrent receivables, and Short-term debt included in the Consolidated Balance Sheet approximate their fair value. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities that are carried at fair value which is based on quoted market prices which are classified in Level 1 of the fair value hierarchy and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheet. The fair value of Long-term debt, less amount due within one year was based on quoted market prices for public debt and on interest rates that are currently available to 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, 2022 December 31, 2021
Carrying
value Fair
value Carrying
value Fair
value
Long-term debt, less amount due within one year $ 4,228 $ 4,405 $ 4,227 $ 4,707


	June 30, 2022				December 31, 2021
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	4,169	$	4,037	$	4,227	$	4,707

Restricted cash, which is included in Prepaid expenses and other current assets in the Consolidated Balance Sheet, was $1 and $2 at ~~both March 31,~~June 30, 2022 and December 31, ~~2021.~~2021, respectively.

P. Divestiture

2021 Divestiture

On March 15, 2021, the Company reached an agreement to sell a small manufacturing plant in France within the Fastening Systems segment, 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. On June 1, 2021, the Company completed the sale for $10 (of which $8 of cash was received in the second quarter of 2021). The remaining $2 in escrow will be received no later than July 2023.

Q. 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~~Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”), and should be read in conjunction with the complete descriptions provided in the Form 10-K.

Environmental ~~Matters~~

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 operated 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 $15 at both ~~March 31,~~June 30, 2022 and December 31, 2021, and was recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which $6 was classified as a current liability for both periods), and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. Payments related to remediation expenses applied against the reserve were less than $1 in the ~~first~~second quarter ended ~~March 31,~~June 30, 2022 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.

Indemnified Matters. The Separation and Distribution Agreement, dated October 31, 2016, that the Company entered into with Alcoa Corporation in connection with its separation from Alcoa Corporation, provides for cross-indemnities between the Company and Alcoa Corporation for claims subject to indemnification. The Separation and Distribution Agreement, dated March 31, 2020, that the Company entered into with Arconic Corporation in connection with its separation from Arconic Corporation, provides for cross-indemnities between the Company and Arconic Corporation for claims subject to indemnification. Among other claims that are covered by these indemnities, Arconic Corporation indemnifies the Company (f/k/a Arconic Inc. and f/k/a Alcoa Inc.) for all potential liabilities associated with the fire that occurred at the Grenfell Tower in London, U.K. on June 14, 2017, including the following legal proceedings, as updated from the Form 10-K:

United Kingdom Litigation (various claims on behalf of survivors and estates of decedents). The suits are stayed. A case management conference was held during the week of April 26, 2022. On July 28, 2022, the stay was extended.

Behrens et al. v. Arconic Inc. et al. (various claims on behalf of survivors and estates of decedents). On September 16, 2020, the court dismissed the U.S. case, determining that the U.K. is the appropriate jurisdiction for the case. ~~Plaintiffs are appealing. Oral argument is scheduled~~On July 8, 2022, the Third Circuit Court of Appeals affirmed the dismissal. A petition for ~~June 6, 2022.~~a rehearing was filed before the Third Circuit Court.

~~With respect to the~~ Howard v. Arconic Inc. et al. (securities law related claims). On July 29, 2022, the court denied the Company’s motion for certification of an interlocutory appeal. The court also ordered the parties to submit a pre-scheduling conference report and a stipulation selecting an alternative dispute resolution process.

With respect to the Raul v. Albaugh, et al. (derivative related claim) ~~proceedings,~~proceeding, the regulatory investigations and the stockholder demands specified in the Form 10-K, there are no updates.

Lehman Brothers International (Europe) (“LBIE”) Legal Proceeding. Lehman Brothers International (Europe) (“LBIE”) Proceeding. On June 26, 2020, LBIE filed formal proceedings against 2 Firth Rixson entities (“Firth”) in the High Court of Justice, Business and Property Courts of England and Wales. The proceedings relate to interest rate swap transactions that Firth entered into with LBIE in 2007 to 2008. In 2008, LBIE commenced insolvency proceedings, an event of default under the agreements, rendering LBIE unable to meet its obligations under the swaps and suspending Firth’s payment obligations. In the

court proceedings, LBIE seeks a declaration that Firth has a contractual obligation to pay the amounts owing to LBIE under the agreements upon its emergence from insolvency proceedings which is expected to occur by 2023, which LBIE claims to be approximately $64, plus applicable interest. Firth will continue to maintain its position that multiple events of default under the agreements related to LBIE’s insolvency proceeding cannot be cured or continue indefinitely, which the Company believes are meritorious defenses. A virtual hearing in this matter occurred on January 13 and 14, 2021 in London, England, and a ruling has yet to be issued to date. Given the importance of the case for LBIE and Firth, it is expected that, irrespective of the 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 into 2023. The Company intends to vigorously defend against these claims.

~~Other~~

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

Commitments

Guarantees

At ~~March 31,~~June 30, 2022, 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 2022 and 2040, was ~~$15~~$13 at ~~March 31,~~June 30, 2022.

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 at both ~~March 31,~~June 30, 2022 and December 31, 2021, and were included in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet. The remaining guarantee, for which the Company and Arconic Corporation are secondarily liable in the event of a payment default by Alcoa Corporation, relates to a long-term energy supply agreement that expires in 2047 at an Alcoa Corporation facility. The Company currently views the risk of an Alcoa Corporation payment default on its obligations under the contract to be remote. The Company and Arconic Corporation are required to provide a guarantee up to an estimated present value amount of approximately $1,406 at both ~~March 31,~~June 30, 2022 and December 31, 2021 in the event of an Alcoa Corporation

default. In December 2021, a surety bond with a limit of $80 relating to this guarantee was obtained by Alcoa Corporation to protect Howmet’s obligation. This surety bond will be renewed on an annual basis by Alcoa Corporation.

Letters of Credit

The Company has outstanding letters of credit primarily related to workers’ compensation, environmental obligations, and leasing obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, mostly in 2022 and 2023, was ~~$118~~$123 at ~~March 31,~~June 30, 2022.

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 (which are included in the ~~$118~~$123 in the above paragraph) that had previously been provided related to the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims that 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 proportionally billed to, and are 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 $17 of outstanding letters of credit relating to such liabilities (which are also included in the ~~$118~~$123 in the above paragraph).

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 2022 and 2023, was $46 at ~~March 31,~~June 30, 2022.

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 ~~paid~~ that occurred prior to the respective separation transactions of April 1, 2020 and November 1,

2016. Arconic Corporation and Alcoa Corporation workers’ compensation claims and surety bond fees paid by the Company are proportionately billed to, and are reimbursed by, Arconic Corporation and Alcoa Corporation, respectively.

R. 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.~~Statements, except as noted below:

See Note H for the common stock repurchases made subsequent to the second quarter of 2022.

On July 30, 2022, the Company’s cast house in Barberton, Ohio, which produces aluminum ingot used in the production of wheels for the North American commercial transportation market, experienced a mechanical failure resulting in substantial heat and fire-related damage to equipment. The facility is temporarily closed due to this event. An estimate of the impact is on-going and not currently available.

1923

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

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto included in Part I,, Item 1 (Financial Statements and Supplementary Data) of this Form 10-Q.

Overview

~~COVID-19~~

~~Year-to-date~~In the second quarter of 2022, the Company derived approximately ~~61%~~45% of its revenue from products sold to the commercial aerospace ~~market.~~market which is substantially less than the pre-pandemic 2019 annual rate of approximately 60%. Due to the global COVID-19 pandemic and its impact on the commercial aerospace industry to date, there has been a decrease in domestic and international air ~~travel. As a result, the~~travel, which in turn has adversely affected demand for ~~narrow body~~narrow-body and ~~wide body aircraft has been adversely affected. Narrow body~~wide-body aircraft. Although domestic air travel is increasing, it still is below pre-pandemic 2019 levels on an average monthly basis. International travel also continues to be lower than pre-pandemic 2019 levels. Narrow-body demand is returning faster than ~~wide body~~wide-body demand and the commercial wide-body aircraft market is taking longer to recover, which is creating a shift in our product mix compared to pre-pandemic conditions. ~~Since~~In addition to the ~~duration of~~impact from the pandemic, ~~is uncertain, management has taken a series~~the timing and level of ~~actions~~future aircraft builds by original equipment manufacturers are subject to ~~address the financial impact, including fixed~~changes and ~~variable cost reductions,~~uncertainties, such as ~~headcount reductions~~declines in Boeing 787 production rates due to delays in its recertification, which may cause our future results to differ from prior periods due to changes in product mix in certain ~~segments, and reducing the level of capital expenditures to preserve cash and maintain liquidity.~~segments.

For additional information regarding the ongoing risks ~~of COVID-19 on~~related to our business, see section Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, “Risk Factors — Our business, results of operations, financial condition and/or cash flows have been and could continue to be adversely impacted materially by the continued effects of the COVID-19 pandemic.”2021.

Results of Operations

Earnings Summary:

Sales. Sales were ~~$1,324~~$1,393 in the ~~first~~second quarter of 2022 compared to ~~$1,209~~$1,195 in the ~~first~~second quarter of 2021 and $2,717 in the six months ended June 30, 2022 compared to $2,404 in the six months ended June 30, 2021. The increase of ~~$115,~~$198, or ~~10%~~17%, in the ~~first~~second quarter of 2022 was primarily due to higher sales inof 34% from the commercial aerospace market, an increase in material cost pass through of approximately ~~$40,~~$60, and favorable product pricing of ~~$14,~~$19. The increase of $313, or 13%, in the six months ended June 30, 2022 was primarily due to higher sales of 31% from the commercial aerospace market, an increase in material cost pass through of approximately $100, and favorable product pricing of $33, partially offset by lower sales in the defense aerospace market.

Cost of goods sold ~~(COGS)~~(“COGS”). COGS as a percentage of Sales was ~~71.8%~~70.9% in the ~~first~~second quarter of 2022 compared to ~~72.2%~~71.7% in the ~~first~~second quarter of 2021 and 71.3% in the six months ended June 30, 2022 compared to 72.0% in the six months ended June 30, 2021. The decrease in the ~~first~~second quarter ofand six months ended June 30, 2022 was primarily due to higher sales volumes and favorable ~~productivity,~~product pricing, partially offset by material cost pass through and increased headcount, primarily in the Engine Products and Fastening Systems segments, in anticipation of future revenue increases in 2022. Additionally, the Company recorded total COGS reimbursements of $3 and net charges of $9$6 in the ~~first~~second quarter ofand six months ended June 30, 2021, respectively, related to fires that occurred at a Fastening Systems plant in France in 2019 (the “France Plant Fire”) and at a Forged Wheels plant in Barberton, Ohio in 2020 (the “Barberton Plant Fire”). The Company recorded total COGS charges of $5$2 and $7 in the ~~first~~second quarter ofand six months ended June 30, 2022, respectively, related to the France Plant Fire and Barberton Plant Fire. The Company anticipates additional charges of approximately $3$2 to $7$6 in the ~~second~~third quarter of 2022, 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”). SG&A expenses were ~~$69~~$83 in the ~~first~~second quarter of 2022 compared to ~~$65~~$55 in the ~~first~~second quarter of 2021 and $152 in the six months ended June 30, 2022 compared to $120 in the six months ended June 30, 2021. The increase of ~~$4,~~$28, or 6%51%, in the ~~first~~second quarter of 2022 and $32, or 27%, in the six months ended June 30, 2022 was primarily due to ~~previous legal reimbursements~~the timing of expenditures, higher employment and ~~higher Corporate~~legacy costs, ~~partially offset by net~~as well as legal and other advisory reimbursements ~~for an Arconic Corporation indemnified claim of $3.~~received in 2021 that did not occur in 2022.

Research and development expenses ~~(R&D)~~(“R&D”). R&D expenses were $7$9 in the ~~first~~second quarter of 2022 and $5$4 in the ~~first~~second quarter of 2021, an increase of ~~$2,~~$5, or ~~40%~~125%. R&D expenses were $16 in the six months ended June 30, 2022 and $9 in the six months ended June 30, 2021, an increase of $7, or 78%. The increase in the second quarter and six months ended June 30, 2022 was primarily due to higher spending on technology projects.

Restructuring and other charges. Restructuring and other charges were $2$6 in the ~~first~~second quarter of 2022 compared to $9$5 in the ~~first~~second quarter of 2021 or an increase of $1. Restructuring and other charges were $8 in the six months ended June 30, 2022 compared to $14 in the six months ended June 30, 2021 or a decrease of ~~$7.~~

$6. Restructuring and other charges for the ~~first~~second quarter of 2022 were primarily due to acharges for U.S. pension plan ~~settlement~~settlements of $3 and exit related costs, including accelerated depreciation, of ~~$2.~~

$3. Restructuring and other charges for the ~~first~~six months ended June 30, 2022 were primarily due to exit related costs, including accelerated depreciation, of $5 and charges for U.S. pension plan settlements of $4. Restructuring and other charges for the second quarter ofand six months ended June 30, 2021 were primarily ~~comprised of a $4 charge~~due to charges for ~~impairment of assets associated with an agreement to sell a small manufacturing business in France~~pension plan settlements and ~~a $3 charge for U.S. pension plans' settlement accounting.~~

exit related costs.

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

Interest expense, net. Interest expense, net was ~~$58~~$57 in the ~~first~~second quarter of 2022 compared to ~~$72~~$66 in the ~~first~~second quarter of 2021 and $115 in the six months ended June 30, 2022 compared to $138 in the six months ended June 30, 2021. The decrease of ~~$14,~~$9, or ~~19%~~14%, in the ~~first~~second quarter of 2022 and $23, or 17%, in the six months ended June 30, 2022 was primarily due to a reduced average level of ~~debt.~~debt for the second quarter and six months ended June 30, 2022.

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

Loss on debt redemption. Debt redemption or tender premiums include the cost to redeem or repurchase certain of the Company’s notes at a price which may be equal to the greater of the principal amount or the sum of the present values of the remaining scheduled payments, discounted using a defined treasury rate plus a spread, or a price based on the market price of its notes. Loss on debt redemption was $2 in the second quarter and six months ended June 30, 2022 compared with $23 in the second quarter and six months ended June 30, 2021. The decrease of $21 for both periods was primarily due to the debt premiums paid in the second quarter of 2021 on the 5.870% Notes due 2022, partially offset by the debt premiums paid on the 5.125% Notes due 2024 in the second quarter of 2022.

Other (income) expense, net. Other ~~expense,~~income, net was $1 in the ~~first~~second quarter of 2022 compared to Other expense, net of $4$8 in the ~~first~~second quarter of 2021 and Other expense, net was zero in the six months ended June 30, 2022 compared to Other expense, net of $12 in the six months ended June 30, 2021. The decrease of ~~$3,~~$9, or ~~75%~~113%, in the ~~first~~second quarter of 2022 was primarily due to the impacts of deferred compensation arrangements of $10, partially offset by an increase from net realized and unrealized losses of $3, primarily due to unrealized losses on investments. The decrease of $12, or 100%, in the six months ended June 30, 2022 was primarily due to the impacts of deferred compensation arrangements of $15 and an increase in foreign currency gains of ~~$5 and the impacts of deferred compensation arrangements of $5,~~$7, partially offset by mark-to-market adjustments of ~~$6.~~$6 in 2021 that did not occur in 2022 and an increase from net realized and unrealized losses of $3, primarily due to unrealized losses on investments.

Provision for income taxes. The estimated annual effective tax rate, before discrete items, applied to ordinary income was ~~24.3%~~23.9% in both the second quarter and six months ended June 30, 2022 compared to 29.1% in both the second quarter and six months ended June 30, 2021. The tax rate including discrete items was 19.7% in the ~~first~~second quarter of 2022 compared to ~~30.4%~~32.7% in the ~~first~~second quarter of 2021. A discrete tax benefit of $7 was recorded in the second quarter of 2022 compared to a discrete tax charge of $4 in the second quarter of 2021. The tax rate including discrete items was ~~23.4%~~21.5% in the ~~first quarter of~~six months ended June 30, 2022 compared to ~~29.2%~~30.9% in the ~~first quarter of~~six months ended June 30, 2021. A discrete tax benefit of $2$9 was recorded in the ~~first quarter of~~six months ended June 30, 2022 compared to a discrete tax ~~benefit~~charge of $1$3 in the ~~first quarter of~~six months ended June 30, 2021. The estimated annual effective tax rate is a reflection of global income across numerous jurisdictions. As a result of the recovery in domestic profitability, the annual effective tax rate has ~~improved.~~decreased.

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

Net income. Net income was ~~$131,~~$147, or ~~$0.31~~$0.35 per diluted share, in the ~~first~~second quarter of 2022 compared to ~~$80,~~$74, or ~~$0.18~~$0.17 per diluted share, in the ~~first~~second quarter of 2021 and $278, or $0.66 per diluted share, in the six months ended June 30, 2022 compared to $154, or $0.35 per diluted share, in the six months ended June 30, 2021. The increase of ~~$51~~$73 in the ~~first~~second quarter of 2022 was primarily due to higher sales in the commercial aerospace market, price increases, ~~productivity gains,~~a decrease in the Loss on debt redemption, and a decrease in Interest expense, net, due to lower long-term debt levels, partially offset by lower sales in the defense aerospace market, an increase in material costs and other inflationary costs, and an increase in Research and development expenses. The increase of $124 in the six months ended June 30, 2022 was primarily due to higher sales in the commercial aerospace market, price increases, a decrease in Interest expense, net, due to lower long-term debt levels, a decrease in the Loss on debt redemption, and a decrease in Restructuring and other charges, partially offset by lower sales in the defense aerospace market, an increase in material costs and other inflationary costs, ~~and~~ an increase in the provision for income taxes primarily driven by an increase in income before income ~~taxes.~~taxes, and an increase in Research and development expenses.

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 Adjusted EBITDA. Prior to the first quarter of 2022, the Company used Segment operating profit as its primary measure of performance. However, the Company’s Chief Executive Officer (“CEO”) believes that Segment adjusted EBITDA is now a better representation of its business because it provides additional information with respect to the Company’s operating performance and the Company’s ability to meet its financial obligations. Howmet’s definition of Segment Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. Special items, including Restructuring and other charges, are also excluded from Net margin and Segment Adjusted EBITDA. Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Differences between the total segment and consolidated totals are in Corporate (See Note C to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a description of each segment).

The Company has aligned its operations consistent with how the CEO assesses operating performance and allocates capital.

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 the production of 737 MAX airplanes. This decline in production had a negative impact on sales and Segment Adjusted EBITDA in the Engine Products, Fastening Systems, and Engineered Structures 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 remained at lower levels through the first half of 2021 due to the residual impacts of the 737 MAX grounding.

The Company also produces aerospace engine parts and components and aerospace fastening systems for Boeing 787 airplanes. In 2020 and 2021, Boeing reduced production rates of the 787 airplanes. Boeing paused deliveries of its 787 aircraft in May 2021. The significant decline in Boeing 787 production rates had a negative impact on sales and Segment Adjusted EBITDA in the Engine Products, Fastening Systems, and Engineered Structures segments in 2021 and the first ~~quarter~~half of 2022. We expect reduced production rates to continue to have a negative impact on our sales and Segment Adjusted EBITDA in the second half of 2022.

Engine Products


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Third-party sales	Third-party sales	$	631	$	534		Third-party sales	$	652	$	544	$	1,283	$	1,078

Segment Adjusted EBITDA	Segment Adjusted EBITDA	173		132			Segment Adjusted EBITDA	179		130		352		262

Third-party sales for the Engine Products segment increased ~~$97,~~$108, or ~~18%~~20%, in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, primarily due to higher sales volumes in the commercial aerospace and ~~industrial~~oil and gas ~~turbine~~ markets and an increase in material cost pass ~~through, partially offset by lower~~through.

Third-party sales for the Engine Products segment increased $205, or 19%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher sales volumes in the ~~defense~~commercial aerospace ~~market.~~market and an increase in material cost pass through.

Segment Adjusted EBITDA for the Engine Products segment increased ~~$41,~~$49, or ~~31%~~38%, in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, primarily due to higher sales volumes in the commercial aerospace and ~~industrial~~oil and gas ~~turbine~~ markets as well as strong productivity ~~gains, partially offset by lower sales volumes in the defense aerospace market.~~gains. The segment added approximately ~~325~~455 net headcount in the ~~first~~second quarter of 2022 in anticipation of ~~further~~future revenue increases in 2022.

InSegment Adjusted EBITDA for the Engine Products segment increased $90, or 34%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher sales volumes in the commercial aerospace market as well as strong productivity gains. The segment added approximately 780 net headcount in the six months ended June 30, 2022 in anticipation of future revenue increases in 2022.

For the full year 2022 compared to 2021, demand in the commercial aerospace, ~~and~~ industrial gas turbine, and oil and gas markets is expected to increase. An increase in material costs is expected to contribute to an increase in sales as the Company generally passes through these costs.

Fastening Systems


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Third-party sales	Third-party sales	$	264	$	272		Third-party sales	$	277	$	262	$	541	$	534

Segment Adjusted EBITDA	Segment Adjusted EBITDA	56		57			Segment Adjusted EBITDA	56		63		112		120

Third-party sales for the Fastening Systems segment ~~decreased $8,~~increased $15, or 3%6%, in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, primarily due to higher sales volumes in the commercial aerospace market, with narrow body recovery more than offsetting Boeing 787 production declines, and an increase in material cost pass through, partially offset by lower sales volumes in the ~~defense~~industrial market.

Third-party sales for the Fastening Systems segment increased $7, or 1%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher sales volumes in the commercial aerospace market, ~~partially offset by~~with narrow body recovery more than offsetting Boeing 787 production declines, higher sales volumes in the commercial transportation market, and an increase in material cost pass ~~through. Commercial aerospace revenue in this segment was flat year over year, with narrow body recovery~~through, partially offset by ~~Boeing 787 production declines.~~lower sales volumes in the defense aerospace and industrial markets.

Segment Adjusted EBITDA for the Fastening Systems segment decreased ~~$1,~~$7, or 2%11%, in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, primarily due to Boeing 787 production declines, lower sales volumes in the industrial market, and inflationary costs, partially offset by favorable sales volumes in the narrow body commercial aerospace market. The segment added approximately 245 net headcount in the second quarter of 2022 in anticipation of future revenue increases in 2022.

Segment Adjusted EBITDA for the Fastening Systems segment decreased $8, or 7%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to Boeing 787 production declines, lower sales volumes in the defense aerospace ~~market, Boeing 787 production declines,~~and industrial markets, and inflationary costs, partially offset by favorable sales volumes in the narrow body commercial aerospace and commercial transportation markets. The segment added approximately ~~135~~380 net headcount in the ~~first quarter of~~six months ended June 30, 2022 in anticipation of ~~further~~future revenue increases in 2022.

InFor the full year 2022 as compared to 2021, demand in the commercial aerospace and commercial transportation markets is expected to increase. An increase in material costs is expected to contribute to an increase in sales as the Company generally passes through these costs.

Engineered Structures


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Third-party sales	Third-party sales	$	182	$	176		Third-party sales	$	185	$	160	$	367	$	336

Segment Adjusted EBITDA	Segment Adjusted EBITDA	23		22			Segment Adjusted EBITDA	26		24		49		46

Third-party sales for the Engineered Structures segment increased ~~$6,~~$25, or 3%16%, in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, primarily due to higher sales volumes in the commercial aerospace market, with narrow body recovery more than offsetting Boeing 787 production declines, and an increase in material cost pass through.

Third-party sales for the Engineered Structures segment increased $31, or 9%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher sales volumes in the commercial aerospace market, with narrow body recovery more than offsetting Boeing 787 production declines, and an increase in material cost pass through, partially offset by lower sales volumes in the defense aerospace market, including lower F-35 program volumes.

Segment Adjusted EBITDA for the Engineered Structures segment increased ~~$1,~~$2, or 5%8%, in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, primarily due to higher sales volumes in the commercial aerospace market, with narrow body recovery more than offsetting Boeing 787 production declines, partially offset by inflationary costs.

Segment Adjusted EBITDA for the Engineered Structuressegment increased $3, or 7%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher sales volumes in the commercial aerospace market, with narrow body recovery more than offsetting Boeing 787 production declines, partially offset by lower sales volumes in the defense aerospace market, including lower F-35 program volumes, as well as inflationary costs.

2227

InFor the full year 2022 as compared to 2021, demand in the commercial aerospace market is expected to increase. However, demand in the defense aerospace market is expected to be down. An increase in material costs is expected to contribute to an increase in sales as the Company generally passes through these costs.

Forged Wheels


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Third-party sales	Third-party sales	$	247	$	227		Third-party sales	$	279	$	229	$	526	$	456

Segment Adjusted EBITDA	Segment Adjusted EBITDA	67		80			Segment Adjusted EBITDA	75		70		142		150

Third-party sales for the Forged Wheels segment increased ~~$20,~~$50, or 9%22%, in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, primarily due to an increase in material and inflationary cost pass through and a 7% increase in volumes, partially offset by unfavorable foreign currency movements.

Third-party sales for the Forged Wheels segment increased $70, or 15%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to an increase in material and inflationary cost pass through, partially offset by aunfavorable foreign currency movements.

Segment Adjusted EBITDA for the Forged Wheels segment increased $5, or 7% ~~decline in volumes~~, in the ~~commercial transportation market driven~~second quarter of 2022 compared to the second quarter of 2021, primarily due to higher sales volumes, partially offset by ~~customer supply chain constraints.~~unfavorable foreign currency movements.

Segment Adjusted EBITDA for the Forged Wheels segment decreased ~~$13,~~$8, or ~~16%~~5%, in the ~~first quarter of~~six months ended June 30, 2022 compared to the ~~first quarter of~~six months ended June 30, 2021, primarily due to ~~lower sales volumes in the commercial transportation market driven by customer supply chain constraints and~~ unfavorable foreign ~~currency.~~currency movements.

InFor the full year 2022 as compared to 2021, demand in the commercial transportation markets served by Forged Wheels is expected to increase in most regions. An increase in material and inflationary costs is expected to contribute to an increase in sales as the Company generally passes through these costs. However, sales in the Forged Wheels segment could be negatively impacted by customer supply chain constraints.

Reconciliation of Total Segment Adjusted EBITDA to Income before income taxes


		First quarter ended				Second quarter ended				Six months ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Income before income taxes	Income before income taxes	$	171	$	113		Income before income taxes	$	183	$	110	$	354	$	223

Loss on debt redemption							Loss on debt redemption	2		23		2		23
Interest expense, net	Interest expense, net	58		72			Interest expense, net	57		66		115		138
Other expense, net		1		4
Other (income) expense, net							Other (income) expense, net	(1)		8		—		12
Operating income	Operating income	$	230	$	189		Operating income	$	241	$	207	$	471	$	396
Segment provision for depreciation and amortization	Segment provision for depreciation and amortization	65		65			Segment provision for depreciation and amortization	64		65		129		130
Unallocated amounts:	Unallocated amounts:						Unallocated amounts:
Restructuring and other charges	Restructuring and other charges	2		9			Restructuring and other charges	6		5		8		14
Corporate expense	Corporate expense	22		28			Corporate expense	25		10		47		38
Total Segment Adjusted EBITDA	Total Segment Adjusted EBITDA	$	319	$	291		Total Segment Adjusted EBITDA	$	336	$	287	$	655	$	578

Total Segment Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because it provides additional information with respect to the Company’s operating performance and the Company’s ability to meet its financial obligations. Differences between the total segment and consolidated totals are in Corporate.

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

Corporate expense ~~decreased $6,~~increased $15, or ~~21%~~150%, in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, primarily due to ~~lower~~higher costs related to the ~~Barberton~~France Plant Fire and the ~~France~~Barberton Plant Fire of $5, ~~and~~ legal and other advisory reimbursements received in the ~~first~~second quarter of ~~2022~~2021 that did not occur in the ~~first~~second quarter of 2022 of $4, costs associated with closures, shutdowns, and other items of $1, and higher employment and legacy costs.

Corporate expense increased $9, or 24%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher legal and other advisory reimbursements received in the six months ended June 30, 2021 compared to the six months ended June 30, 2022 of ~~$3, partially offset by~~$1, costs associated with closures, shutdowns, and other items of $1, and higher employment and legacy costs.

Environmental Matters

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

Subsequent Events

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

2329

Liquidity and Capital Resources

Operating Activities

Cash provided from operations was ~~$55~~$213 in the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to ~~cash used for operations of $6~~$79 in the ~~three~~six months ended ~~March 31,~~June 30, 2021. The ~~change~~increase of ~~$61,~~$134, or ~~1,017%~~170%, was primarily due to higher operating results of ~~$75~~$156 and lower pension contributions of ~~$18,~~$41, partially offset by an increase in working capital of ~~$30.~~$57. The components of the change in working capital primarily included inventories of ~~$107,~~$210, taxes, including income taxes, of $23, and prepaid expenses and other current assets of ~~$18, and taxes, including income taxes, of $6,~~$9, partially offset by a change in accounts payable of ~~$42, accrued expenses of $38, and~~$70, favorable changes in receivables of ~~$21~~$62, including employee retention credit ~~receivables.~~receivables, and accrued expenses of $53.

Management expects Howmet’s estimated pension contributions and other postretirement benefit payments in 2022 to be approximately $60.

Financing Activities

Cash used for financing activities was ~~$194~~$331 in the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to ~~$368~~$1,068 in the ~~three~~six months ended ~~March 31,~~June 30, 2021. The decrease of ~~$174,~~$737, or ~~47%~~69%, was primarily due to less payments made ~~in 2021~~ in connection with the redemption of long-term debt of ~~$361~~$778 (See Note N to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference), and a reduction in the premiums paid on the early redemption of debt of $20, partially offset by incremental common stock repurchases of ~~$175~~$35 and dividends paid to common stock shareholders of ~~$8.~~$17. On an annual basis, the debt repurchases in 2022 will decrease Interest expense, net by approximately $3.

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

The Company has an effective shelf registration statement on Form S-3, filed with the SEC, which allows for offerings of debt securities from time to time. The Company may opportunistically issue new debt securities under such registration statement or otherwise in accordance with securities laws, including but not limited to in order to refinance existing indebtedness.

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 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+

Stable

December 3, 2021

Moody’s Investors Service (“Moody’s”)

Ba1

Stable

April 27, 2022

Fitch Investors Service (“Fitch”)

BBB-

Stable

March 22, 2022

On April 27, 2022, Moody’s upgraded Howmet’s long-term debt rating from Ba2 to Ba1 citing the Company’s ability to improve its financial leverage, strong cash generation, and well-balanced financial policies and affirmed the current outlook as stable.

On March 22, 2022, Fitch affirmed the following ratings for Howmet: long-term debt at BBB- and the current outlook as stable.

Investing Activities

Cash used for investing activities was ~~$61~~$65 in the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to cash provided from investing activities of $3$94 in the ~~three~~six months ended ~~March 31,~~June 30, 2021. The change of ~~$64,~~$159, or ~~2,133%~~169%, was primarily due to cash receipts from sold receivables of ~~$57~~$172 in 2021, which did not have activity in the current year as a result of the termination of an accounts receivables securitization program ~~changes~~ in August ~~2021. This change was partially offset by~~2021, and an increase in capital expenditures of ~~$7.~~$15. The net cash funding from the sale of accounts receivable was neither a use of cash nor a source of cash during 2022 and 2021.

These changes were partially offset by incremental proceeds from the sale of assets of $34, which was primarily due to the sale of the corporate center. In ~~March~~the second quarter of 2022, the Company ~~reached an agreement to sell~~sold the corporate ~~center.~~headquarters in Pittsburgh, PA. The proceeds from the sale of the corporate headquarters were $44, excluding $3 of transaction costs, and a carrying value of ~~the building was $40 at March 31, 2022, and no material gain or loss is expected upon finalization of the sale.~~$41. The Company ~~intends to lease a portion of the property back from the purchaser which will not have a material adverse impact on the results of operations.~~

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entered into a 12-year lease with the purchaser for a portion of the property.

Recently Adopted and Recently Issued Accounting Guidance

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

Forward-Looking Statements

This report contains (and oral communications made by Howmet Aerospace may contain) 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 Aerospace’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 or operating performance; future strategic actions; Howmet Aerospace’s strategies, outlook, and business and financial prospects; and any future repurchases of its debt or equity securities. These statements reflect beliefs and assumptions that are based on Howmet Aerospace’s perception of historical trends, current conditions and expected future developments, as well as other factors Howmet Aerospace 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 Aerospace’s business, results of operations, and financial condition; (b) deterioration in global economic and financial market conditions generally (including as a result of COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions); (c) unfavorable changes in the markets served by Howmet Aerospace; (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) inability to meet increased demand, production targets or commitments; (j) competition from new product offerings, disruptive technologies or other developments; (k) geopolitical, economic, and regulatory risks relating to Howmet Aerospace’s global operations, including geopolitical and diplomatic tensions, instabilities and conflicts, as well as compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (l) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet Aerospace to substantial costs and liabilities; (m) failure to comply with government contracting regulations; (n) adverse changes in discount rates or investment returns on pension assets; and (o) the other risk factors summarized in Howmet Aerospace’s Form 10-K for the year ended December 31, 2021 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. The statements in a presentation or document are made as of the date of such presentation or document. Howmet Aerospace 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 Chief Executive 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~~second quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

See Note Q 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, 2021.

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 ~~March 31,~~June 30, 2022:
(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)
January 1 - January 31, 2022 2,957,552 $33.81 2,957,552 $1,247
February 1 - February 28, 2022 650,204 $34.60 650,204 $1,224
March 1 - March 31, 2022 1,539,551 $34.10 1,539,551 $1,172
Total for quarter ended March 31, 2022 5,147,307 $34.00 5,147,307


	(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)
April 1 - April 30, 2022	31,422(3)	$34.16	—	$1,172
May 1 - May 31, 2022	1,770,271	$33.89	1,770,271	$1,112
June 1 - June 30, 2022	—	$—	—	$1,112
Total for quarter ended June 30, 2022	1,801,693	$33.90	1,770,271

(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. After giving effect to the share repurchases made through ~~March 31,~~June 30, 2022, approximately ~~$1,172~~$1,112 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 N 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.

(3)Reflects the surrender of shares of Howmet common stock by a participant in the Company’s stock incentive plan to the Company to satisfy the exercise price and tax withholding obligations of employee stock options at the time of exercise. These surrendered shares are not part of any Share Repurchase Programs.

Item 6. Exhibits.


10.1			First Amendment, effective as of April 1, 2022, to Amended and Restated Trademark License Agreement by and between Alcoa USA Corp. and Howmet Aerospace Inc.
31			Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document.
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.			Cover Page Interactive Data File - the cover page from this Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2022, 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 3,~~August 4, 2022			/s/ Ken Giacobbe
Date			Ken Giacobbe
			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)

~~May 3,~~August 4, 2022			/s/ Barbara L. Shultz
Date			Barbara L. Shultz
			Vice President and Controller
			(Principal Accounting Officer)

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