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 ~~September~~June 30, ~~2017~~

2020

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

Commission File Number 1-3610

~~ARCONIC~~

HOWMET AEROSPACE INC.

(Exact name of registrant as specified in its charter)


~~PENNSYLVANIA~~

~~25-0317820~~

Delaware

25-0317820

(State of

incorporation)

(I.R.S. Employer

Identification No.)

~~390 Park Avenue, New York, New York~~

~~10022-4608~~

201 Isabella Street,

Suite 200,

Pittsburgh,

Pennsylvania

15212-5872

(Address of principal executive offices)

(Zip code)

Investor Relations ~~212-836-2758~~

412-553-1950

Office of the Secretary ~~212-836-2732~~

412-553-1940

(Registrant’s telephone number including area code)

Arconic Inc.

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

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


Title of each class	Trading Symbol(s)	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 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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒✓ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Non-accelerated filer~~

~~☐ (Do not check if a smaller reporting company)~~

~~Smaller reporting company~~

☐

Emerging growth ~~Company~~

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 ☒

As of ~~October 20, 2017,~~August 3, 2020, there were ~~481,324,177~~436,141,507 shares of common stock, par value $1.00 per share, of the registrant outstanding.

Explanatory Note

On April 1, 2020, Arconic Inc. completed the separation of its business into two independent, publicly-traded companies: Howmet Aerospace Inc. (the new name for Arconic Inc.) and Arconic Corporation. The financial results of Arconic Corporation for all periods prior to April 1, 2020, have been retrospectively reflected in the Statement of Consolidated Operations as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods prior to April 1, 2020. Additionally, the related assets and liabilities associated with Arconic Corporation in the December 31, 2019 Consolidated Balance Sheet are classified as assets and liabilities of discontinued operations. The cash flows, comprehensive income, and equity related to Arconic Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows, Statement of Consolidated Comprehensive Income (Loss), and Statement of Changes in Consolidated Equity, respectively, for all periods prior to April 1, 2020.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

~~Arconic~~

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

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

   Third quarter ended
September 30, Nine months ended
September 30,
   2017 2016 2017 2016
Sales (I)
   $ 3,236 $ 3,138 $ 9,689 $ 9,427
Cost of goods sold (exclusive of expenses below)
   2,626 2,503 7,701 7,436
Selling, general administrative, and other expenses
   155 229 580 673
Research and development expenses
   25 30 83 93
Provision for depreciation and amortization
   140 136 410 402
Restructuring and other charges (D & E)
   19 3 118 33


Operating income
   271 237 797 790
Interest expense (L)
   100 126 398 371
Other income, net (G)
   (1 ) (11 ) (526 ) (40 )


Income from continuing operations before income taxes
   172 122 925 459
Provision for income taxes
   53 56 272 230


Income from continuing operations after income taxes
   119 66 653 229
Income from discontinued operations after income taxes (G)
   —   120 —   146


Net income
   119 186 653 375
Less: Income from discontinued operations attributable to noncontrolling interests (G)
   —   20 —   58


Net income attributable to Arconic
   $ 119 $ 166 $ 653 $ 317


Amounts Attributable to Arconic Common Shareholders (J):

Net income
   $ 101 $ 148 $ 600 $ 265


Earnings per share - basic

Continuing operations
   $ 0.23 $ 0.11 $ 1.36 $ 0.40
Discontinued operations
   —   0.23 —   0.20


Net income per share - basic
   $ 0.23 $ 0.34 $ 1.36 $ 0.60


Earnings per share - diluted

Continuing operations
   $ 0.22 $ 0.11 $ 1.31 $ 0.40
Discontinued operations
   —   0.22 —   0.20


Net income per share - diluted
   $ 0.22 $ 0.33 $ 1.31 $ 0.60


Dividends paid per share
   $ 0.06 $ 0.09 $ 0.18 $ 0.27


Weighted Average Shares Outstanding (J):

Average shares outstanding - basic
   442 438 441 438


Average shares outstanding - diluted
   462 453 501 443


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Sales (D)	$	1,253	$	1,818	$	2,887	$	3,570
Cost of goods sold (exclusive of expenses below)	923		1,335		2,106		2,628
Selling, general administrative, and other expenses	74		102		153		218
Research and development expenses	4		7		8		16
Provision for depreciation and amortization	73		78		144		154
Restructuring and other charges (E)	105		472		144		516
Operating income (loss)	74		(176)		332		38
Interest expense	144		86		228		171
Other expense (income), net (F)	16		6		(8)		18
Income (loss) before income taxes	(86)		(268)		112		(151)
Provision (benefit) for income taxes (H)	(2)		(132)		43		(101)
Income (loss) from continuing operations after income taxes	$	(84)	$	(136)	$	69	$	(50)
Income (loss) from discontinued operations after income taxes	$	(12)	$	15	$	50	116
Net income (loss)	$	(96)	$	(121)	$	119	$	66

Amounts Attributable to Howmet Aerospace Common Shareholders (H):
Net income (loss)	$	(96)	$	(121)	118		65
Earnings (loss) per share - basic
Continuing operations	$	(0.19)	$	(0.31)	$	0.16	$	(0.11)
Discontinued operations	$	(0.03)	$	0.03	$	0.11	$	0.25
Earnings (loss) per share - diluted
Continuing operations	$	(0.19)	$	(0.31)	$	0.15	$	(0.11)
Discontinued operations	$	(0.03)	$	0.03	$	0.11	$	0.25
Average Shares Outstanding (I):
Average shares outstanding - basic	436		445		436		458
Average shares outstanding - diluted	436		445		440		462

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

~~Arconic~~

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Comprehensive Income (Loss) (unaudited)

(U.S. dollars in millions)

   Arconic Noncontrolling
Interests Total
   Third quarter ended
September 30, Third quarter ended
September 30, Third quarter ended
September 30,
   2017 2016 2017    2016 2017 2016
Net income
   $ 119 $ 166 $ —      $ 20 $ 119 $ 186
Other comprehensive income (loss), net of tax (C):

Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits
   31 (462 ) —      (1 ) 31 (463 )
Foreign currency translation adjustments
   85 157 —      45 85 202
Net change in unrealized gains/losses on available-for-sale securities
   1 —   —      —   1 —
Net change in unrecognized gains/losses on cash flow hedges
   10 (338 ) —      (10 ) 10 (348 )




Total Other comprehensive income (loss), net of tax
   127 (643 ) —      34 127 (609 )




Comprehensive income (loss)
   $ 246 $ (477 ) $ —      $ 54 $ 246 $ (423 )




   Arconic Noncontrolling
Interests Total
   Nine months ended
September 30, Nine months ended
September 30, Nine months ended
September 30,
   2017 2016 2017    2016 2017 2016
Net income
   $ 653 $ 317 $ —      $ 58 $ 653 $ 375
Other comprehensive income (loss), net of tax (C):

Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits
   110 (365 ) —      2 110 (363 )
Foreign currency translation adjustments
   251 505 —      184 251 689
Net change in unrealized gains/losses on available-for-sale securities
   (133 ) 4 —      —   (133 ) 4
Net change in unrecognized gains/losses on cash flow hedges
   13 (571 ) —      4 13 (567 )




Total Other comprehensive income (loss), net of tax
   241 (427 ) —      190 241 (237 )




Comprehensive income (loss)
   $ 894 $ (110 ) $ —      $ 248 $ 894 $ 138


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Net income (loss)	$	(96)	$	(121)	$	119	$	66
Other comprehensive income (loss), net of tax (J):
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits	9		23		46		63
Foreign currency translation adjustments	(8)		(30)		(73)		(4)
Net change in unrealized gains (losses) on available-for-sale securities	(1)		—		—		3
Net change in unrecognized gains (losses) on cash flow hedges	9		(10)		(4)		(3)
Total Other comprehensive income (loss), net of tax	9		(17)		(31)		59
Comprehensive income (loss)	$	(87)	$	(138)	$	88	$	125

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

~~Arconic~~

Howmet Aerospace Inc. and subsidiaries

Consolidated Balance Sheet (unaudited)

(U.S. dollars in millions)

   September 30,
2017 December 31,
2016
Assets

Current Assets:

Cash and cash equivalents
   $ 1,815 $ 1,863
Receivables from customers, less allowances of $7 in 2017 and $13 in 2016 (K)
   1,150 974
Other receivables (G & K)
   373 477
Inventories (F)
   2,453 2,253
Prepaid expenses and other current assets
   357 325


Total current assets
   6,148 5,892
Properties, plants, and equipment
   11,791 11,572
Less: accumulated depreciation and amortization
   6,265 6,073


Properties, plants, and equipment, net
   5,526 5,499


Goodwill
   5,246 5,148
Deferred income taxes
   1,024 1,234
Investment in common stock of Alcoa Corporation (G & N)
   —   1,020
Other noncurrent assets
   1,293 1,245


Total Assets
   $ 19,237 $ 20,038


Liabilities

Current liabilities:

Short-term borrowings
   $ 54 $ 36
Accounts payable, trade
   1,656 1,744
Accrued compensation and retirement costs
   379 398
Taxes, including income taxes
   74 85
Accrued interest payable
   101 153
Other current liabilities
   412 329
Long-term debt due within one year
   1 4


Total current liabilities
   2,677 2,749
Long-term debt, less amount due within one year (L & N)
   6,802 8,044
Accrued pension benefits
   2,110 2,345
Accrued other postretirement benefits
   811 889
Other noncurrent liabilities and deferred credits
   876 870


Total liabilities
   13,276 14,897


Contingencies and commitments (H)

Equity

Arconic shareholders’ equity:

Preferred stock
   55 55
Mandatory convertible preferred stock
   3 3
Common stock
   442 438
Additional capital
   8,294 8,214
Accumulated deficit
   (519 ) (1,027 )
Accumulated other comprehensive loss (C)
   (2,327 ) (2,568 )


Total Arconic shareholders’ equity
   5,948 5,115


Noncontrolling interests
   13 26


Total equity
   5,961 5,141


Total Liabilities and Equity
   $ 19,237 $ 20,038


	June 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,281	$	1,577
Receivables from customers, less allowances of $1 in 2020 and $1 in 2019 (K)	364		583
Other receivables (K)	163		349
Inventories (L)	1,673		1,607
Prepaid expenses and other current assets	221		285
Current assets of discontinued operations	—		1,442
Total current assets	3,702		5,843
Properties, plants, and equipment, net (M)	2,558		2,629
Goodwill (D)	4,051		4,067
Deferred income taxes	194		225
Intangibles, net	589		599
Other noncurrent assets (N)	269		316
Noncurrent assets of discontinued operations	—		3,899
Total assets	$	11,363	$	17,578
Liabilities
Current liabilities:
Accounts payable, trade	$	632	$	976
Accrued compensation and retirement costs	201		285
Taxes, including income taxes	66		65
Accrued interest payable	91		112
Other current liabilities (N)	277		229
Short-term debt (O)	391		1,034
Current liabilities of discontinued operations	—		1,424
Total current liabilities	1,658		4,125
Long-term debt, less amount due within one year (O and P)	4,695		4,906
Accrued pension benefits (G)	1,006		1,030
Accrued other postretirement benefits (G)	190		200
Other noncurrent liabilities and deferred credits (N)	365		438
Noncurrent liabilities of discontinued operations	—		2,258
Total liabilities	7,914		12,957
Contingencies and commitments (R)
Equity
Howmet Aerospace shareholders’ equity:
Preferred stock	55		55
Common stock	436		433
Additional capital	4,703		7,319
Retained earnings	223		129
Accumulated other comprehensive loss (J)	(1,968)		(3,329)
Total Howmet Aerospace shareholders’ equity	3,449		4,607
Noncontrolling interests	—		14
Total equity	3,449		4,621
Total liabilities and equity	$	11,363	$	17,578

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

~~Arconic~~

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(U.S. dollars in millions)

   Nine months ended
September 30,
   2017 2016
Cash from Operations

Net income
   $ 653 $ 375
Adjustments to reconcile net income to cash from operations:

Depreciation, depletion and amortization
   410 938
Deferred income taxes
   24 (67 )
Equity income, net of dividends
   —   32
Restructuring and other charges
   118 134
Net gain from investing activities - asset sales (G)
   (514 ) (152 )
Net periodic pension benefit cost (M)
   163 246
Stock-based compensation
   59 73
Other
   60 67
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:

(Increase) in receivables
   (278 ) (226 )
(Increase) decrease in inventories
   (168 ) 7
Decrease (increase) in prepaid expenses and other current assets
   6 (10 )
(Decrease) in accounts payable, trade
   (94 ) (196 )
(Decrease) in accrued expenses
   (138 ) (417 )
Increase in taxes, including income taxes
   144 63
Pension contributions
   (257 ) (227 )
(Increase) in noncurrent assets
   (37 ) (284 )
(Decrease) in noncurrent liabilities
   (62 ) (148 )


Cash provided from operations
   89 208


Financing Activities

Net change in short-term borrowings (original maturities of three months or less)
   15 (6 )
Additions to debt (original maturities greater than three months)
   664 1,313
Payments on debt (original maturities greater than three months) (L)
   (1,484 ) (1,324 )
Proceeds from exercise of employee stock options
   48 3
Dividends paid to shareholders
   (132 ) (171 )
Distributions to noncontrolling interests
   (14 ) (176 )
Other
   (15 ) 11


Cash used for financing activities
   (918 ) (350 )


Investing Activities

Capital expenditures
   (360 ) (814 )
Proceeds from the sale of assets and businesses (E)
   (9 ) 683
Additions to investments
   (2 ) (23 )
Sales of investments (G)
   890 280
Net change in restricted cash
   11 (72 )
Other (G)
   246 25


Cash provided from investing activities
   776 79


Effect of exchange rate changes on cash and cash equivalents
   5 7


Net change in cash and cash equivalents
   (48 ) (56 )
Cash and cash equivalents at beginning of year
   1,863 1,919


Cash and cash equivalents at end of period
   $ 1,815 $ 1,863


	Six months ended
	June 30,
	2020		2019
Operating activities
Net income	$	119	$	66
Adjustments to reconcile net income to cash used for operations:
Depreciation and amortization	203		276
Deferred income taxes	25		(78)
Restructuring and other charges	126		511
Net loss from investing activities—asset sales	4		4
Net periodic pension benefit cost (G)	34		58
Stock-based compensation	23		27
Other	48		14
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
(Increase) in receivables	(70)		(743)
(Increase) in inventories	(136)		(117)
(Increase) decrease in prepaid expenses and other current assets	(11)		18
(Decrease) in accounts payable, trade	(403)		(29)
(Decrease) in accrued expenses	(173)		(46)
Increase in taxes, including income taxes	96		41
Pension contributions	(102)		(140)
(Increase) in noncurrent assets	(6)		(5)
(Decrease) in noncurrent liabilities	(37)		(9)
Cash used for operations	(260)		(152)
Financing Activities
Net change in short-term borrowings (original maturities of three months or less)	(2)		—
Additions to debt (original maturities greater than three months) (B)(O)	2,400		226
Debt issuance costs (B)(O)	(61)		—
Payments on debt (original maturities greater than three months) (O)	(2,041)		(226)
Premiums paid on early redemption of debt (O)	(59)		—
Proceeds from exercise of employee stock options	30		11
Dividends paid to shareholders	(10)		(39)
Repurchase of common stock	—		(900)
Net cash transferred to Arconic Corporation at separation (B)	(500)		—
Other	(34)		(14)
Cash used for financing activities	(277)		(942)
Investing Activities
Capital expenditures	(101)		(304)
Proceeds from the sale of assets and businesses (B)	114		12
Sale of debt securities	—		47
Cash receipts from sold receivables (K)	114		417
Other	—		(1)
Cash provided from investing activities	127		171
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(8)		1
Net change in cash, cash equivalents and restricted cash	(418)		(922)
Cash, cash equivalents and restricted cash at beginning of period	1,703		2,282
Cash, cash equivalents and restricted cash at end of period	$	1,285	$	1,360

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

~~Arconic~~

Howmet Aerospace Inc. and subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

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

   Arconic Shareholders
   Preferred
stock    Mandatory
convertible
preferred
stock    Common
stock Additional
capital Retained
earnings Treasury
stock Accumulated
other
comprehensive
loss Noncontrolling
interests Total
Equity
Balance at June 30, 2016
   $ 55    $ 3    $ 1,391 $ 9,877 $ 8,871 $ (2,647 ) $ (5,215 ) $ 2,194 $ 14,529
Net income
   —      —      —   —   166 —   —   20 186
Other comprehensive (loss) income (C)
   —      —      —   —   —   —   (643 ) 34 (609 )
Cash dividends declared:

Preferred-Class A @ $1.875 per share
   —      —      —   —   (1 ) —   —   —   (1 )
Preferred-Class B @ $6.71875 per share
   —      —      —   —   (16 ) —   —   —   (16 )
Common @ $0.18 per share
   —      —      —   —   (80 ) —   —   —   (80 )
Stock-based compensation
   —      —      —   18 —   —   —   —   18
Common stock issued:

compensation plans
   —      —      —   (12 ) —   8 —   —   (4 )
Retirement of Treasury stock
   —      —      (76 ) (2,563 ) —   2,639 —   —   —
Reverse stock split
   —      —      (877 ) 877 —   —   —   —   —
Distributions
   —      —      —   —   —   —   —   (92 ) (92 )
Other
   —      —      —   —   —   —   —   14 14






Balance at September 30, 2016
   $ 55    $ 3    $ 438 $ 8,197 $ 8,940 $ —   $ (5,858 ) $ 2,170 $ 13,945

   Arconic Shareholders
   Preferred
stock    Mandatory
convertible
preferred
stock    Common
stock    Additional
capital    Accumulated
deficit Treasury
stock    Accumulated
other
comprehensive
loss Noncontrolling
interests    Total
Equity
Balance at June 30, 2017
   $ 55    $ 3    $ 441    $ 8,262    $ (567 ) $ —      $ (2,454 ) $ 13    $ 5,753
Net income
   —      —      —      —      119 —      —   —      119
Other comprehensive income (C)
   —      —      —      —      —   —      127 —      127
Cash dividends declared:

Preferred-Class A @ $1.875 per share
   —      —      —      —      (1 ) —      —   —      (1 )
Preferred-Class B @ $6.71875 per share
   —      —      —      —      (17 ) —      —   —      (17 )
Common at $0.12 per share
   —      —      —      —      (53 ) —      —   —      (53 )
Stock-based compensation
   —      —      —      11    —   —      —   —      11
Common stock issued:

compensation plans
   —      —      1    21    —   —      —   —      22
Other
   —      —      —      —      —   —      —   —      —














Balance at September 30, 2017
   $ 55    $ 3    $ 442    $ 8,294    $ (519 ) $ —      $ (2,327 ) $ 13    $ 5,961


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling Interests		Total Equity
Balance at March 31, 2019	$	55	$	453	$	7,644	$	(134)	$	(2,852)	$	12	$	5,178

Net loss	—		—		—		(121)		—		—		(121)
Other comprehensive loss (J)	—		—		—		—		(17)		—		(17)
Repurchase and retirement of common stock	—		(13)		(187)		—		—		—		(200)



Stock-based compensation	—		—		17		—		—		—		17
Common stock issued: compensation plans	—		—		10		—		—		—		10


Other	—		—		—		(1)		—		—		(1)
Balance at June 30, 2019	$	55	$	440	$	7,484	$	(256)	$	(2,869)	$	12	$	4,866


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at March 31, 2020	$	55	$	436	$	7,326	$	335	$	(3,369)	$14		$	4,797

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




Stock-based compensation	—		—		10		—		—		—		10

Distributions to Arconic Corp (B)	—		—		(2,633)		—		1,392		(14)		(1,255)
Other (H)	—		—		—		(16)		—		—		(16)
Balance at June 30, 2020	$	55	$	436	$	4,703	$	223	$	(1,968)	$	—	$	3,449

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

~~Arconic~~

Howmet Aerospace Inc. and subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

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

   Arconic Shareholders
   Preferred
stock    Mandatory
convertible
preferred
stock    Common
stock Additional
capital Retained
earnings Treasury
stock Accumulated
other
comprehensive
loss Noncontrolling
interests Total
Equity
Balance at December 31, 2015
   $ 55    $ 3    $ 1,391 $ 10,019 $ 8,834 $ (2,825 ) $ (5,431 ) $ 2,085 $ 14,131
Net income
   —      —      —   —   317 —   —   58 375
Other comprehensive (loss) income (C)
   —      —      —   —   —   —   (427 ) 190 (237 )
Cash dividends declared:

Preferred-Class A @ $3.75 per share
   —      —      —   —   (2 ) —   —   —   (2 )
Preferred-Class B @ $20.1563 per share
   —      —      —   —   (50 ) —   —   —   (50 )
Common @ $0.36 per share
   —      —      —   —   (159 ) —   —   —   (159 )
Stock-based compensation
   —      —      —   73 —   —   —   —   73
Common stock issued:

compensation plans
   —      —      —   (209 ) —�� 186 —   —   (23 )
Retirement of Treasury stock
   —      —      (76 ) (2,563 ) —   2,639 —   —   —
Reverse stock split
   —      —      (877 ) 877 —   —   —   —   —
Distributions
   —      —      —   —   —   —   —   (176 ) (176 )
Other
   —      —      —   —   —   —   —   13 13






Balance at September 30, 2016
   $ 55    $ 3    $ 438 $ 8,197 $ 8,940 $ —   $ (5,858 ) $ 2,170 $ 13,945

   Arconic Shareholders
   Preferred
stock    Mandatory
convertible
preferred
stock    Common
stock    Additional
capital    Accumulated
deficit Treasury
stock    Accumulated
other
comprehensive
loss Noncontrolling
interests Total
Equity
Balance at December 31, 2016
   $ 55    $ 3    $ 438    $ 8,214    $ (1,027 ) $ —      $ (2,568 ) $ 26 $ 5,141
Net income
   —      —      —      —      653 —      —   —   653
Other comprehensive income (C)
   —      —      —      —      —   —      241 —   241
Cash dividends declared:

Preferred-Class A @ $3.75 per share
   —      —      —      —      (2 ) —      —   —   (2 )
Preferred-Class B @ $20.1563 per share
   —      —      —      —      (51 ) —      —   —   (51 )
Common @ $0.24 per share
   —      —      —      —      (107 ) —      —   —   (107 )
Stock-based compensation
   —      —      —      59    —   —      —   —   59
Common stock issued:

compensation plans
   —      —      4    21    —   —      —   —   25
Distributions
   —      —      —      —      —   —      —   (14 ) (14 )
Other
   —      —      —      —      15 —      —   1 16












Balance at September 30, 2017
   $ 55    $ 3    $ 442    $ 8,294    $ (519 ) $ —      $ (2,327 ) $ 13 $ 5,961


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at December 31, 2018	$	55	$	483	$	8,319	$	(358)	$	(2,926)	$	12	$	5,585
Adoption of accounting standards ⁽¹⁾	—		—		—		75		(2)		—		73
Net income	—		—		—		66		—		—		66
Other comprehensive income (J)	—		—		—		—		59		—		59
Cash dividends declared:
Preferred-Class A @ $1.875 per share	—		—		—		(1)		—		—		(1)

Common @ $0.08 per share	—		—		—		(38)		—		—		(38)
Repurchase and retirement of common stock	—		(45)		(855)		—		—		—		(900)
Stock-based compensation	—		—		25		—		—		—		25
Common stock issued: compensation plans	—		2		(5)		—		—		—		(3)




Balance at June 30, 2019	$	55	$	440	$	7,484	$	(256)	$	(2,869)	$	12	$	4,866


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at December 31, 2019	$	55	$	433	$	7,319	$	129	$	(3,329)	$	14	$	4,621
Net income	—		—		—		119		—		—		119
Other comprehensive income (J)	—		—		—		—		(31)		—		(31)
Cash dividends declared:
Preferred-Class A @ $1.875 per share	—		—		—		(1)		—		—		(1)
Common @ $0.02 per share	—		—		—		(8)		—		—		(8)
Stock-based compensation	—		—		23		—		—		—		23
Common stock issued: compensation plans	—		3		(6)		—		—		—		(3)
Distributions to Arconic Corp (B)	—		—		(2,633)		—		1,392		(14)		(1,255)
Other (H)	—		—		—		(16)		—		—		(16)
Balance at June 30, 2020	$	55	$	436	$	4,703	$	223	$	(1,968)	$	—	$	3,449

⁽¹⁾ The Company entered into a sale leaseback arrangement in October 2018 for a cast house that is now part of Arconic Corporation, and due to continuing involvement, the gain on sale was deferred. In connection with the adoption of the new lease accounting standard on January 1, 2019, the arrangement no longer required that the gain be deferred. As such, the associated $73 deferred gain, net of tax was recognized as a cumulative effect of an accounting change within Accumulated deficit. Also, the Company adopted the new hedge accounting guidance on January 1, 2019. As a result, an adjustment of $2 was recognized as a cumulative effect of an accounting change within Accumulated deficit with an offset to Accumulated other comprehensive loss related to the elimination of a separate measurement of ineffectiveness for its cash flow hedges.

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

~~Arconic~~

Howmet Aerospace Inc. and subsidiaries

Notes to the Consolidated Financial Statements (unaudited)

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

A. Basis of Presentation

The interim Consolidated Financial Statements of Howmet Aerospace Inc. (formerly known as Arconic Inc.) and its subsidiaries (“~~Arconic”~~Howmet” or the “Company”) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The ~~2016~~2019 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 ~~Arconic’s~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period ~~presentation.~~

presentation (see Note D).

The separation of ~~Alcoa~~Arconic Inc. into ~~two~~2 standalone, publicly-traded companies, Howmet Aerospace Inc. and Arconic Corporation, (the “Arconic Inc. ~~(the new name for Alcoa Inc.~~Separation Transaction”) ~~and Alcoa Corporation,~~ became effective on ~~November~~April 1, ~~2016 (the “Separation Transaction”~~2020 (see Note B). The financial results of ~~Alcoa~~Arconic Corporation for all periods prior to the Arconic Inc. Separation Transaction have been retrospectively reflected in the Statement of Consolidated Operations as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. In addition, the ~~third quarter~~related assets and ~~nine months ended September 30, 2016.~~liabilities associated with Arconic Corporation in the December 2019 Consolidated Balance Sheet are classified as assets and liabilities of discontinued operations. The cash flows, ~~equity and~~ comprehensive income, and equity related to ~~Alcoa~~Arconic Corporation have not been segregated and are included in the ~~accompanying~~ Statement of Consolidated Cash Flows, Statement of Consolidated Comprehensive Income (Loss), and Statement of Changes in Consolidated Equity, ~~and Statement of Consolidated Comprehensive Income,~~ respectively, for ~~the third quarter and nine months ended September 30, 2016.~~

~~Pursuant~~all periods prior to the ~~authorization provided at a special meeting~~Arconic Inc. Separation Transaction. See Note B for additional information related to the Arconic Inc. Separation Transaction and discontinued operations.

The Company derives approximately 70% of Arconic common shareholders held on October 5, 2016, shareholders approved a 1-for-3 reverse stock split of Arconic’s outstanding and authorized shares of common stock (the “Reverse Stock Split”).its revenue from products sold to the aerospace end-market. As a result of the ~~Reverse Stock Split, every three shares~~global pandemic coronavirus (“COVID-19”) and its impact on the aerospace industry to-date, the possibility exists that there could be a sustained impact to our operations and financial results. Since the start of ~~issued~~the pandemic, certain original equipment manufacturer (“OEM”) customers have reduced production or suspended manufacturing operations in North America and Europe on a temporary basis. While the pandemic has resulted in the temporary closure of a small number of the Company's manufacturing facilities, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, the Company is taking a series of actions to address the financial impact, including announcing certain headcount reductions and reducing certain cash outflows by suspending dividends on common stock and reducing the level of its capital expenditures to preserve cash and maintain liquidity.

The preparation of the Consolidated Financial Statements of the Company in conformity with GAAP requires management to make certain judgments, estimates, and assumptions. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience, including considerations relating to the impact of COVID-19. The impact of COVID-19 is rapidly changing and of unknown duration and macroeconomic impact and as a result, these considerations remain highly uncertain. We have made our 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 judgements and estimations and assumptions that may be impacted by COVID-19.

B. Arconic Inc. Separation Transaction and Discontinued Operations

On April 1, 2020, the Company completed the previously announced separation of its business into 2 independent, publicly-traded companies. Following the Arconic Inc. Separation Transaction, Arconic Corporation holds the Global Rolled Products businesses (global rolled products, aluminum extrusions, and building and construction systems) previously held by the Company. The Company retained the Engineered Products and Forgings businesses (engine products, fastening systems, engineered structures, and forged wheels).

The Company's Board of Directors approved the completion of the separation on February 5, 2020, which was effected by the distribution (the “Distribution”) by the Company of all of the outstanding common stock ~~were combined into~~of Arconic Corporation on April 1, 2020 to the Company’s stockholders who held shares as of the close of business on March 19, 2020 (the “Record Date”). In the Distribution, each Company stockholder of record as of the Record Date received one ~~issued and outstanding~~ share of Arconic Corporation common stock ~~without any change in the par value per share. The Reverse Stock Split reduced the number of~~for every four shares of ~~common stock outstanding from approximately 1.3 billion shares to approximately 0.4 billion shares. The~~the Company’s common stock ~~began trading~~held as of the Record Date. The Company did not issue fractional shares of Arconic Corporation common stock in the Distribution. Instead, each stockholder otherwise entitled to a fractional share of Arconic Corporation common stock received cash in lieu of fractional shares.

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

On February 7, 2020 Arconic Corporation completed an offering of $600 aggregate principal amount of 6.125% senior secured second-lien notes due 2028. On March 25, 2020. Arconic Corporation entered into a credit agreement which provided for a $600 aggregate principal amount seven-year senior secured first-lien loan B facility and a revolving credit facility which is guaranteed by certain of Arconic Corporation's wholly-owned domestic subsidiaries and secured on a ~~reverse stock split-adjusted~~first-priority basis by liens on substantially all assets of Arconic Corporation and subsidiary guarantors. Arconic Corporation used the ~~New York Stock Exchange on October 6, 2016.~~

B.proceeds to make payment to the Company to fund the transfer of certain assets to Arconic Corporation relating to the Arconic Inc. Separation Transaction and for general corporate purposes. The Company incurred debt issuance costs of $45 associated with these issuances for the first quarter of 2020 and six months ended June 30, 2020.

On February 1, 2020, Arconic Corp completed the sale of its rolling million in Itapissuma, Brazil for $50 in cash which resulted in a loss of $59, of which $53 was recognized in discontinued operations in the second half of 2019 and $6 in the first quarter of 2020 and six months ended June 30, 2020. On March 1, 2020, Arconic Corporation sold its hard alloy extrusions plant in South Korea for $62 in cash, which resulted in a gain that was recognized in discontinued operations in the first quarter of 2020 and six months ended June 30, 2020.

Discontinued Operations

The results of operations of Arconic Corporation are presented as discontinued operations in the Statement of Consolidated Operations as summarized below:


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Sales	$	—	$	1,874	$	1,576	$	3,662
Cost of goods sold	—		1,603		1,292		3,129
Selling, general administrative, research and development and other expenses	4		85		106		160
Provision for depreciation and amortization	—		61		59		122
Restructuring and other charges	—		27		(18)		(5)
Interest expense	—		—		7		—
Other expense, net	—		24		42		43
Income (loss) from discontinued operations	(4)		74		88		213
Provision for income taxes	8		59		38		97
Income (loss) from discontinued operations after income taxes	$	(12)	$	15	$	50	$	116

The following table presents purchases of property, plant and equipment of the discontinued operations related to Arconic Corporation:


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Capital Expenditures	$	—	$	35	$	25	$	81
Proceeds from the sales of businesses	$	—	$	—	$	112	$	—
Provision for depreciation and amortization	$	—	$	61	$	59	$	122

On April 1, 2020, management evaluated the net assets of Arconic Corporation for potential impairment and determined that no impairment charge was required.

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

The carrying amount of the major classes of assets and liabilities related to Arconic Corporation classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheet consisted of the following:


	December 31, 2019
Total Assets of Discontinued Operations
Cash and cash equivalents	$	71
Receivables from customers	385
Other receivables	135
Inventories	822
Prepaid expenses and other current assets	29
Current assets of discontinued operations	1,442
Properties, plants, and equipment, net	2,834
Goodwill	426
Intangibles, net	60
Deferred income taxes	383
Other noncurrent assets	196
Noncurrent assets of discontinued operations	3,899
Total assets of discontinued operations	$	5,341

Total Liabilities of Discontinued Operations:
Accounts payable, trade	$	1,067
Accrued compensation and retirement costs	147
Taxes, including income taxes	22
Other current liabilities	188
Current liabilities of discontinued operations	1,424
Accrued pension benefits	1,430
Accrued other postretirement benefits	514
Other noncurrent liabilities and deferred credits	314
Noncurrent liabilities of discontinued operations	2,258
Total liabilities of discontinued operations	$	3,682

C. Recently Adopted and Recently Issued Accounting Guidance

Adopted

~~In March 2016,~~

On January 1, 2020, the Company adopted changes issued by the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued changes to employee share-based payment accounting. Previously, an entity determined for each share-based payment award whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes resulted in either an excess tax benefit or a tax deficiency. Excess tax benefits were recognized in additional paid-in capital; tax deficiencies were recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. Excess tax benefits were not recognized until the deduction reduced taxes payable. The changes require all excess tax benefits and tax deficiencies related to share-based payment awards to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. In addition, the presentation of excess tax benefits related to share-based payment awards in the statement of cash flows changed. Previously, excess tax benefits were separated from other income tax cash flows and classified as a financing activity. The changes require excess tax benefits to be classified along with other income tax cash flows as an operating activity. Also, the changes require cash paid by an employer when directly withholding shares for tax-withholding purposes to be classified as a financing activity. Further, for a share-based award to qualify for equity classification it previously could not be partially settled in cash in-excess of the employer’s minimum statutory withholding requirements. The changes permit equity classification of share-based awards for withholdings up to the maximum statutory tax rates in applicable jurisdictions. These changes became effective for Arconic on January 1, 2017. The prospective transition method was utilized for excess tax benefits in the Statement of Consolidated Cash Flows. Management concluded that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued changes eliminating the requirement for an investor to adjust an equity method investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held as a result of an increase in the level of ownership interest or degree of influence. In addition, an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting must recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. These changes became effective for Arconic on January 1, 2017. Management determined that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued changes to derivative instruments designated as hedging instruments. These changes clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. These changes became effective for Arconic on January 1, 2017. Management determined that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

In October 2016, the FASB issued changes to the accounting for Intra-Entity transactions, other than inventory. Previously, no immediate tax impact was recognized in the consolidated financial statements as a result of intra-entity transfers of assets. The previous standard precluded an entity from reflecting a tax benefit or expense from an intra-entity transfer between entities that file separate tax returns, whether or not such entities were in different tax jurisdictions, until the asset was sold to a third party or otherwise recovered. The previous standard also prohibited recognition by the buyer of a deferred tax asset for the temporary difference arising from the excess of the buyer’s tax basis over the cost to the seller. The changes require the current and deferred income tax consequences of the intra-entity transfer to be recorded when the transaction occurs. The exception to defer the tax consequences of inventory transactions is maintained. These changes became effective for Arconic on January 1, 2017. Management determined that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

In January 2017, the FASB issued changes to the subsequent measurement of goodwill by eliminating step 2 from the goodwill impairment test, which previously required measurement of any goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. An entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value without exceeding the total amount of goodwill allocated to that reporting unit. Arconic has elected to early adopt this guidance as of January 1, 2017, and will apply it on a prospective basis. Management does not anticipate that the adoption of these changes will have a material impact on the Consolidated Financial Statements.

In January 2017, the FASB issued changes which narrow the definition of a business and require an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which would not constitute the acquisition of a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. Arconic has elected to early adopt this guidance as of January 1, 2017, and will apply it on a prospective basis. Management does not anticipate that the adoption of these changes will have a material impact on the Consolidated Financial Statements.

~~Issued~~

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB deferred the effective date of the new guidance by one year, making these changes effective for Arconic on January 1, 2018.

Arconic will adopt the new guidance using the modified retrospective transition approach, reflecting the cumulative effect of initially applying the new standard to revenue recognition in the first quarter of 2018. The Company formed a project assessment and adoption team and is currently reviewing contract terms and assessing the impact of adopting the new guidance on the Consolidated Financial Statements. While the Company generally recognizes revenue at a point in time upon delivery and transfer of title and risk of loss for most arrangements, based on the contract assessments to date, it

believes that revenue under certain of those contracts, primarily within the Engineered Products and Solutions segment, may be recognized over time due to the customized nature of certain of its products that have no alternative use combined with an enforceable right of payment from the customer in the event of termination of the contract. The Company is assessing the modification of certain contract terms that may impact point-in-time versus over-time revenue recognition. It is not anticipated that these modifications would result in significant changes to revenue, business practices or controls. The Company is continuing to assess the impact that over-time revenue recognition will have on its Consolidated Financial Statements; therefore an estimate of the impact of adopting this standard is not currently determinable. In addition, the Company is in the process of identifying appropriate changes to its business processes and controls, as well as preparing for revisions to accounting policies and expanded disclosures related to revenue recognition in the notes to the Consolidated Financial Statements.

In January 2016, the FASB issued changes to equity investments. These changes require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Also, the impairment assessment of equity investments without readily determinable fair values has been simplified by requiring a qualitative assessment to identify impairment. Also, the new guidance will require changes in fair value of equity securities to be recognized immediately as a component of net income instead of being reported in accumulated other comprehensive loss until the gain (loss) is realized. ~~These changes, which will be applied on a prospective basis, become effective~~model for ~~Arconic on January 1, 2018. Management determined that the adoption of these changes will not have a material impact on the Consolidated Financial Statements.~~

In February 2016, the FASB issued changes to the accounting and presentation of leases. These changes require lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option, or not exercise an option to terminate the lease. These changes become effective for Arconic on January 1, 2019. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements, which will require right of use assets and lease liabilities be recorded in the consolidated balance sheet for operating leases. An estimate of the impact of this standard is not currently determinable.

~~In June 2016, the FASB added a~~expected credit losses. The new impairment model (known as the current expected credit loss ~~(CECL)~~("CECL") model) ~~that~~ is based on expected losses rather than incurred losses. ~~Under the new guidance, an entity~~The Company recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan ~~commitments. The CECL model does not have a minimum threshold for recognition~~commitments and requires the measurement of ~~impairment losses and entities will need to measure~~ expected credit losses on assets including those that have a low risk of loss. The adoption of this new guidance did not have a material impact on the Consolidated Financial Statements.

Issued

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

In December 2019, the FASB issued guidance that is intended to simplify various aspects related to the accounting for income taxes. These changes become effective on January 1, ~~2020.~~2021, with early adoption permitted. Management is currently evaluating the potential impact of these changes on the Consolidated Financial ~~Statements.~~

Statements and plans to adopt on January 1, 2021.

In ~~August 2016,~~March 2020, the FASB issued ~~changes~~amendments that provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. Management is currently evaluating the ~~classification~~potential impact of certain cash receipts and cash payments within the statement of cash flows. The guidance identifies eight specific cash flow items and the sections where they must be presented within the statement of cash flows. These changes become effective for Arconic on January 1, 2018. Management does not expect these changes ~~to have a material impact~~ on the Consolidated Financial Statements.

~~In November 2016,~~

D. Segment Information

Following the ~~FASB issued changes~~Arconic Inc. Separation Transaction, Howmet’s operations consist of 4 worldwide reportable segments as follows:

Engine Products

Engine Products produces investment castings 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 fasteners. The business’s high-tech, multi-material fastening systems are found nose to tail on aircraft and aero engines. The business’s products are also critical components of industrial gas turbines, automobiles, commercial transportation vehicles, and construction and industrial equipment.

Engineered Structures

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

Forged Wheels

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

Goodwill

The Company had $4,051 of Goodwill at June 30, 2020, and the Company reviews it for impairment annually in the fourth quarter or more frequently if indicators exist or if a decision is made to sell or realign a business.

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

During the first quarter of 2020, Howmet's market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, sales globally to customers in the aerospace and commercial transportation industries that are impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value.

As a result of this assessment, the Company performed a quantitative impairment test in the first quarter for the Engineered Structures reporting unit and concluded that though the margin between the fair value of the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not impaired. Consistent with prior practice, a discounted cash flow model was used to estimate the current fair value of the reporting unit. The significant assumptions and estimates utilized to determine fair value were developed utilizing current market and forecast information reflecting the disruption in demand that has and is expected to negatively impact the Company’s sales globally in the aerospace industry. In the second quarter of 2020, there were no indicators of impairment identified for the Engineered Structures reporting unit as the margin between fair value of the reporting unit and carrying value exceeded 20%. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and could be material.

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


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

Second quarter ended June 30, 2019
Sales:
Third-party sales	$	835	$	399	$	331	$	257	$	1,822
Inter-segment sales	3		—		3		—		6
Total sales	$	838	$	399	$	334	$	257	$	1,828
Profit and loss:
Segment operating profit	$	163	$	99	$	25	$	73	$	360
Restructuring and other charges	250		1		193		1		445
Provision for depreciation and amortization	35		12		14		8		69
Capital expenditures	55		8		7		20		90

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

Six months ended June 30, 2019
Sales:
Third-party sales	$	1,648	$	794	$	625	$	511	$	3,578
Inter-segment sales	8		—		6		—		14
Total sales	$	1,656	$	794	$	631	$	511	$	3,592
Profit and loss:
Segment operating profit	$	304	$	195	$	41	$	133	$	673
Restructuring and other charges	253		6		197		5		461
Provision for depreciation and amortization	69		24		31		16		140
Capital expenditures	126		17		18		45		206

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


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Total segment operating profit	$	200	$	360	$	539	$	673
Unallocated amounts:
Restructuring and other charges	(105)		(472)		(144)		(516)
Corporate expense	(21)		(64)		(63)		(119)
Consolidated operating income (loss)	$	74	$	(176)	$	332	$	38
Interest expense	(144)		(86)		(228)		(171)
Other expense, net	(16)		(6)		8		(18)
Income (loss) from continuing operations before income taxes	$	(86)	$	(268)	$	112	$	(151)

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


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Second quarter ended June 30, 2020
Aerospace	$	437	$	263	$	208	$	—	$	908
Commercial Transportation	—		35		—		113		148
Industrial and Other	148		28		21		—		197
Total end-market revenue	$	585	$	326	$	229	$	113	$	1,253

Second quarter ended June 30, 2019
Aerospace	$	676	$	304	$	303	$	—	$	1,283
Commercial Transportation	5		62		—		257		324
Industrial and Other	154		33		28		—		215
Total end-market revenue	$	835	$	399	$	331	$	257	$	1,822

Six months ended June 30, 2020
Aerospace	$	1,071	$	564	$	462	$	—	$	2,097
Commercial Transportation	—		80		—		304		384
Industrial and Other	295		67		42		—		404
Total end-market revenue	$	1,366	$	711	$	504	$	304	$	2,885

Six months ended June 30, 2019
Aerospace	$	1,348	$	610	$	575	$	—	$	2,533
Commercial Transportation	12		120		—		513		645
Industrial and Other	288		64		50		(2)		400
Total end-market revenue	$	1,648	$	794	$	625	$	511	$	3,578

In the six months ended June 30, 2020, the Company derived 73% of its revenue from aerospace end markets of which 12% related to General Electric Company.

E. Restructuring and Other Charges

In the second quarter of 2020, the Company recorded Restructuring and other charges of $105 ($80 after-tax), which included $64 ($53 after-tax) charge for United Kingdom (U.K.) and U.S. pension plans' settlement accounting; $54 ($38 after-tax) charge for layoff costs, including the separation of approximately 2,521 employees (1,169 in Fastening Systems, 1,116 in Engine Products, 200 in Engineered Structures and 36 in Forged Wheels); and $2 ($2 after-tax) charge for various other exit costs.These charges were partially offset by $8 ($6 after-tax) benefit from the reversal of several existing layoff reserves; and a $7 ($7 after-tax) benefit from the reversal of an impairment due to change in classification from held for sale to held for use related to a U.K. plant.

In the six months ended June 30, 2020 the Company recorded Restructuring and other charges of ~~cash~~$144 ($114 after-tax), which included $76 ($55 after-tax) for layoff costs, including the separation of approximately 2,981 employees (1,291 in Engine Products, 1,275 in Fastening Systems, 300 in Engineered Structures, 92 in Forged Wheels and ~~cash equivalents~~23 in Corporate ); $64 ($53 after-tax) charge for U.K. and U.S. pension plans' settlement accounting; a $6 ($6 after-tax) post-closing adjustment related to the sale of the Company’s U.K. forgings business; $5 ($5 after-tax) for impairment of assets associated with an agreement to sell an aerospace components business in the U.K.;and $5 ($5 after-tax) charge for various other exit costs.These charges were partially offset by a benefit of $10 ($8 after-tax) related to the reversal of a number of prior period programs; and a gain of $2 ($2 after-tax) on the sale of assets.

In the second quarter of 2019, the Company recorded Restructuring and other charges of $472 ($377 after-tax), which included a $ $428 ($345 after-tax) charge for impairment of the Disks long-lived asset group; a $15 ($11 after-tax) charge for layoff costs including the separation of approximately 220 employees (53 in Engine Products, 53 in Engineered Structures, 69 in Corporate, 39 in Fastening Systems and 6 in Forged Wheels); a $12 ($9 after-tax) charge for other exit costs from lease terminations, primarily related to the exit of the corporate aircraft; a $12 ($9 after-tax) loss on sale primarily related to a small additive business within the Engineered Structures segment; a $6 ($5 after-tax) charge for impairment of properties, plant, and equipment; a $2 ($1 after-tax) charge for pension plan settlement accounting; offset by a benefit of $3 ($3 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

In the six months ended June 30, 2019, the Company recorded Restructuring and other charges of $516 ($411 after-tax), which included a $428 ($345 after-tax) charge for impairment of the Disks long-lived asset group; a $68 ($52 after-tax) charge for layoff costs, including the separation of approximately 901 employees (103 in Engine Products, 112 in Engineered Structures, 132 in Fastening Systems, 60 in Forged Wheels and 494 in Corporate); a $12 ($9 after-tax) charge for other exit costs from lease terminations, primarily related to the exit of the corporate aircraft; a $12 ($9 after-tax) loss on sale of assets primarily related to a small additive business; a $6 ($5 after-tax) charge for impairment of properties, plant, and equipment; a $4 ($3 after-tax) charge for pension plan settlement accounting; a $2 ($1 after-tax) net charge for executive severance net of the benefit of forfeited executive stock compensation and $3 ($3 after-tax) charge for other exit costs; partially offset by a benefit of $15 ($12 after-tax) related to the elimination of the life insurance benefit for the U.S. salaried and non-bargaining hourly retirees of the Company and its subsidiaries, and a benefit of $4 ($4 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

The Company recorded an impairment charge of $428 related to the Disks long-lived asset group in the second quarter and six months ended 2019, of which $247 and $181 was related to the Engine Products and Engineered Structures segments, respectively, as the carrying value exceeded the forecasted undiscounted cash ~~flow statement. Restricted cash~~flows composed of a write-down of properties, plant and ~~restricted cash equivalents will be~~equipment, intangible assets and certain other noncurrent assets.


	Layoff costs		Other exit costs		Total
Reserve balances at December 31, 2019	$	13	$	—	13
Cash payments	(24)		—		(24)
Restructuring charges	131		13		144
Other⁽¹⁾	(64)		(13)		(77)
Reserve balances at June 30, 2020	$	56	$	—	$	56

(1) In 2020, Layoff costs included ~~within~~a $64 charge for U.K. and U.S. pension plans' settlement accounting while Other exit costs included a charge of $6 for impairment of assets and a $6 post-closing adjustment, both associated with an agreement to sell an aerospace component business in the ~~cash~~U.K.; and ~~cash equivalents line~~a $3 charge for other exit costs which were offset by a gain of $2 on the ~~cash flow statement and a reconciliation must be prepared to the statement~~sale of financial position. Transfers between restricted cash and restricted cash equivalents and cash and cash equivalents will no longer be presented as cash flow activities in the statement of cash flows and material balances of restricted cash and restricted cash equivalents must disclose information regarding the nature of the restrictions. These changes become effective for Arconic on January 1, 2018. Management determined that the adoption of these changes will not have a material impact on the Consolidated Financial Statements.

~~In March 2017, the FASB issued changes to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium~~assets.

The remaining reserves are expected to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. These changes become effective for Arconic on January 1, 2019paid in cash during 2020.

F. Other Expense (Income), Net


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Non-service related net periodic benefit cost	$	5	$	4	11		8
Interest income	—		(5)		(4)		(15)
Foreign currency (gains) losses, net	(7)		(4)		(7)		1
Net loss from asset sales	2		5		4		7

Deferred compensation	7		5		(3)		15
Other, net	9		1		(9)		2
	$	16	$	6	$	(8)	$	18

G. Pension and ~~early adoption is permitted. Management determined that the adoption of these changes will not have a material impact on the Consolidated Financial Statements.~~

~~In March 2017, the FASB issued changes to the presentation of net periodic pension cost and net periodic postretirement benefit cost.~~ Other Postretirement Benefits

The new guidance requires registrants to present the service cost component of net periodic benefit cost in the same income statement line item or items as other employee compensation costs arising from services rendered during the period. Also, only the service cost component will be eligible for asset capitalization. Registrants will present the other components of net periodic benefit cost ~~separately from the service~~were as follows:


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Pension benefits
Service cost	$	2	$	6	$	9	$	13
Interest cost	17		59		64		118
Expected return on plan assets	(24)		(71)		(94)		(143)
Recognized net actuarial loss	12		34		54		69
Amortization of prior service cost (benefit)	—		1		—		1
Settlements	64		2		64		4


Net periodic benefit cost⁽¹⁾	71		31		97		62
Discontinued operations	—		24		20		48
Net amount recognized in Statement of Consolidated Operations	$	71	$	7	$	77	$	14

Other postretirement benefits
Service cost	$	1	$	2	$	2	$	4
Interest cost	1		7		7		14
Recognized net actuarial loss	—		1		2		2
Amortization of prior service cost (benefit)	(1)		(2)		(3)		(3)
Curtailments	—		—		—		(58)

Net periodic benefit cost⁽¹⁾	1		8		8		(41)
Discontinued operations	—		7		6		(29)
Net amount recognized in Statement of Consolidated Operations	$	1	$	1	$	2	$	(12)

⁽¹⁾Service cost component; and, the line item or items used in the income statement to present the other components of net periodic benefit cost must be disclosed. These changes become effective for Arconic on January 1, 2018, including interim periods within those fiscal years. The new standard must be adopted retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement, and prospectively for the asset capitalization of the service cost component of net periodic benefit cost. The Company currently records non-service related net periodic pension cost and net periodic postretirement benefit costwas included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development ~~expenses~~expenses; settlements and ~~upon the adoption of this standard will be~~curtailments were included in Restructuring and other charges; and all other cost components were recorded ~~separately from service cost~~in Other expense, net in the ~~Other income, net line item~~Statement of Consolidated Operations.

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

In the second quarter of 2020, the Company communicated to plan participants that for its U.S. salaried and non-bargained hourly retirees of the ~~retrospective adoption of this standard update will be an increase to consolidated operating income of approximately $150 while there will be no impact to consolidated net income for the year ended~~Company and its subsidiaries, it would eliminate certain health care subsidies effective December 31, ~~2017. Management is currently evaluating the potential impact of prospectively adopting the asset capitalization of only the service cost component on the Consolidated Financial Statements.~~

~~In May 2017, the FASB issued clarification to guidance on the modification accounting criteria~~2021 and that for ~~share-based payment awards. The new guidance requires registrants to apply modification accounting unless three specific criteria are met. The three criteria are 1) the fair value~~certain bargained retirees of the ~~award is~~Company, it would eliminate certain health care subsidies effective December 31, 2021 and the ~~same before and after the modification, 2) the vesting conditions are the same before and after the modification and 3) the classification as~~life insurance benefit effective August 1, 2020. As a debt or equity award is the same before and after the modification. These changes become effective for Arconic on January 1, 2018 and are to be applied prospectively to new awards granted after adoption. Management is currently evaluating the potential impactresult of these changes, onin the ~~Consolidated Financial Statements.~~

~~In August 2017,~~second quarter of 2020, the FASB issued guidance that will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency asCompany recorded a decrease to the ~~scope and results~~Accrued other postretirement benefits liability of hedging programs. These changes become effective for Arconic on January 1, 2019. For cash flow and net investment hedges existing at the date of adoption, Arconic will apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated$6, which was offset in Accumulated other comprehensive ~~income with a corresponding adjustment~~loss.

In the first quarter of 2019, the Company communicated to ~~the opening balance of retained earnings as~~plan participants that for its U.S. salaried and non-bargained hourly retirees of the ~~beginning of~~Company and its subsidiaries, it would eliminate the ~~fiscal year in which the amendment is adopted. The amended presentation~~life insurance benefit effective May 1, 2019, and ~~disclosure guidance is required only prospectively. Management is currently evaluating the potential impact~~certain health care subsidies effective December 31, 2019. As a result of these changes, in the first quarter of 2019, the Company recorded a decrease to the Accrued other postretirement benefits liability of $75, which was offset by a curtailment benefit of $58 in Restructuring and other charges in the Statement of Consolidated Operations and $17 in Accumulated other comprehensive loss in the Statement of Changes in Consolidated Equity.

In the second quarter and six months ended June 30, 2019, the Company applied settlement accounting to a U.S. pension plan due to lump sum payments to participants, which resulted in settlement charges of $2 and $4, respectively, that were recorded in Restructuring and other charges.

H. Income Taxes

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

The estimated annual effective tax rate, before discrete items, applied to ordinary income was 36.1% in both the second quarter and six months ended June 30, 2020, and 51.8% in both the second quarter and six months ended June 30, 2019. The 2020 rate was higher than the U.S. federal statutory rate of 21% primarily due to U.S. tax on foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax and higher nondeductible expenses. The 2019 rate was higher due to U.S. tax on foreign earnings including estimated U.S. tax on Global Intangible Low Taxed Income, nondeductible impairment of certain domestic and foreign long-lived assets and other nondeductible expenses.

For the second quarter of 2020 and 2019, the tax rate including discrete items was 2.3% and 49.3% (both are benefits on losses), respectively. For the second quarter of 2020, the Company recorded a discrete tax charge of $10 related to a $6 charge for the remeasurement of deferred tax balances in various jurisdictions as a result of the Arconic Inc. Separation Transaction and a net $4 charge for prior year items. For the second quarter of 2019, the Company recorded a discrete tax benefit of $37 related to a $25 benefit to deduct prior year foreign taxes rather than claim a U.S. foreign tax credit and a $12 benefit to remeasure certain deferred tax assets as a result of a foreign tax rate change.

For the six months ended June 30, 2020 and 2019, the tax rate including discrete items was 2.3% (provision on income) and 49.3% (benefit on loss), respectively. For the six months ended June 30, 2019, the Company recorded a discrete tax benefit of $37 related to a $25 benefit to deduct prior year foreign taxes rather than claim a U.S. foreign tax credit and a $12 benefit to remeasure certain deferred tax assets as a result of a foreign tax rate change.

The tax provisions for the second quarter and six months ended June 30, 2020 and 2019 were comprised of the following:


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Pre-tax income (loss) at estimated annual effective income tax rate before discrete items	$	(31)	$	(139)	$	40	$	(78)
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	18		31		—		—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	1		13		1		14
Other discrete items	10		(37)		2		(37)
Provision (benefit) for income taxes	$	(2)	$	(132)	$	43	$	(101)

During the period, a $16 tax adjustment was identified related to periods prior to 2018. The adjustment was evaluated and determined not to be material to any periods. As such, it was corrected through Retained earnings in the Statement of Changes in Consolidated ~~Financial Statements.~~

Equity.

I. Earnings Per Share

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

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


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Net income (loss) attributable to common shareholders:
Income (loss) from continuing operations attributable to common shareholders	$	(84)	$	(136)	$	69	$	(50)
Income (loss) attributable from discontinued operations	(12)		15		50		116
Net income (loss) attributable to common shareholders	(96)		(121)		119		66
Less: preferred stock dividends declared	—		—		(1)		(1)
Net income available to the Company's common shareholders - basic	(96)		(121)		118		65
Add: Interest expense related to convertible notes	—		3		—		6
Net income available to the Company's common shareholders - diluted	$	(96)	$	(118)	$	118	$	71

Average shares outstanding - basic	436		445		436		458
Effect of dilutive securities:
Stock options	—		—		—		—
Stock and performance awards	—		—		4		4
Convertible notes⁽¹⁾	—		—		—		—
Average shares outstanding - diluted	436		445		440		462

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

Common stock outstanding at June 30, 2020 and 2019 was 436 and 440, respectively. The decrease in common stock outstanding at June 30, 2020 was primarily due to the impact of 8 of share repurchases during the second half of 2019. As average shares outstanding are used in the calculation for both basic and diluted EPS, the full impact of share repurchases was not realized in EPS in the second quarter and six months ended June 30, 2019, as the share repurchases occurred at varying points during 2019.

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


	Second quarter ended			Six months ended
	June 30,			June 30,
	2020	2019	2020	2019
Convertible notes	—	14	—	14
Stock options⁽¹⁾	3	3	3	3
Stock and performance awards	3	4	—	—

⁽¹⁾The weighted average exercise price per share of options excluded from diluted EPS was $26.04 and $32.66 as of June 30, 2020 and June 30, 2019, respectively.

J. Accumulated Other Comprehensive Loss

The following table details the activity of the four components that comprise Accumulated other comprehensive ~~loss for both Arconic’s shareholders and noncontrolling interests:~~

   Arconic    Noncontrolling Interests
   Third quarter ended    Third quarter ended
   September 30,    September 30,
   2017    2016    2017    2016
Pension and other postretirement benefits (M)

Balance at beginning of period
   $ (1,931 )    $ (3,514 )    $ —      $ (53 )
Other comprehensive income (loss):

Unrecognized net actuarial loss and prior service cost
   (7 )    (819 )    —      (1 )
Tax benefit
   1    286    —      —








Total Other comprehensive loss before reclassifications, net of tax
   (6 )    (533 )    —      (1 )








Amortization of net actuarial loss and prior service cost⁽¹⁾
   56    109    —      1
Tax expense⁽²⁾
   (19 )    (38 )    —      (1 )








Total amount reclassified from Accumulated other comprehensive income, net of tax⁽⁵⁾
   37    71    —      —








Total Other comprehensive income (loss)
   31    (462 )    —      (1 )








Balance at end of period
   $ (1,900 )    $ (3,976 )    $ —      $ (54 )








Foreign currency translation

Balance at beginning of period
   $ (523 )    $ (2,064 )    $ (2 )    $ (641 )
Other comprehensive income⁽³⁾
   85    157    —      45








Balance at end of period
   $ (438 )    $ (1,907 )    $ (2 )    $ (596 )








Available-for-sale securities

Balance at beginning of period
   $ (2 )    $ (1 )    $ —      $ —
Other comprehensive income⁽⁴⁾
   1    —      —      —








Balance at end of period
   $ (1 )    $ (1 )    $ —      $ —








Cash flow hedges

Balance at beginning of period
   $ 2    $ 364    $ —      $ 11
Other comprehensive income (loss):

Net change from periodic revaluations
   15    (430 )    —      20
Tax (expense) benefit
   (5 )    126    —      (6 )








Total Other comprehensive income (loss) before reclassifications, net of tax
   10    (304 )    —      14








Net amount reclassified to earnings
   —      (46 )    —      (34 )
Tax benefit⁽²⁾
   —      12    —      10








Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾
   —      (34 )    —      (24 )








Total Other comprehensive income (loss)
   10    (338 )    —      (10 )








Balance at end of period
   $ 12    $ 26    $ —      $ 1

⁽¹⁾

~~These amounts were included in the computation of~~loss:


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Pension and other postretirement benefits (G)
Balance at beginning of period	$	(2,695)	$	(2,304)	$	(2,732)	$	(2,344)
Other comprehensive income:
Unrecognized net actuarial loss and prior service cost/benefit	(60)		(6)		(59)		66
Tax expense	8		1		8		(15)
Total Other comprehensive income (loss) before reclassifications, net of tax	(52)		(5)		(51)		51
Amortization of net actuarial loss and prior service cost⁽¹⁾	74		36		117		15
Tax (expense) benefit ⁽²⁾	(13)		(8)		(20)		(3)
Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽³⁾	61		28		97		12
Total Other comprehensive income	9		23		46		63
Transfer to Arconic Corporation	$	1,820	$	—	$	1,820	$	—
Balance at end of period	$	(866)	$	(2,281)	$	(866)	$	(2,281)
Foreign currency translation
Balance at beginning of period	$	(661)	$	(557)	$	(596)	$	(583)
Foreign currency translation	(8)		(30)		(87)		(4)
Net amount reclassified from Accumulated other comprehensive loss⁽⁴⁾	—		—		14		—
Other comprehensive (loss) income	(8)		(30)		(73)		(4)
Transfer to Arconic Corporation	(428)		—		(428)		—
Balance at end of period	$	(1,097)	$	(587)	$	(1,097)	$	(587)
Available-for-sale securities
Balance at beginning of period	$	1	$	—	$	—	$	(3)
Other comprehensive income (loss)⁽⁵⁾	(1)		—		—		3
Balance at end of period	$	—	$	—	$	—	$	—
Cash flow hedges
Balance at beginning of period	$	(14)	$	9	$	(1)	$	4
Adoption of accounting standard	—		—		—		(2)
Other comprehensive (loss) income:
Net change from periodic revaluations	3		(13)		(8)		(5)
Tax expense	1		3		—		2
Total Other comprehensive loss (income) before reclassifications, net of tax	4		(10)		(8)		(3)
Net amount reclassified to earnings	5		(1)		4		(1)
Tax expense⁽²⁾	—		1		—		1
Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽³⁾	5		—		4		—
Total Other comprehensive (loss) income	9		(10)		(4)		(3)
Balance at end of period	$	(5)	$	(1)	$	(5)	$	(1)

Accumulated other comprehensive loss	$	(1,968)	$	(2,869)	$	(1,968)	$	(2,869)

⁽¹⁾These amounts were recorded in Other expense (income), net ~~periodic benefit cost for pension and other postretirement benefits (see Note M).~~

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

⁽³⁾	~~In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.~~

⁽⁴⁾	~~Realized gains and losses were included in Other income, net on the accompanying Statement of Consolidated Operations.~~

⁽⁵⁾	A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings. These amounts were reflected on the accompanying Statement of Consolidated Operations in the line items indicated in footnotes 2 through 4.

   Arconic    Noncontrolling Interests
   Nine months ended    Nine months ended
   September 30,    September 30,
   2017    2016    2017    2016
Pension and other postretirement benefits (M)

Balance at beginning of period
   $ (2,010 )    $ (3,611 )    $ —      $ (56 )
Other comprehensive income (loss):

Unrecognized net actuarial loss and prior service cost
   4    (883 )    —      —
Tax (expense) benefit
   (3 )    312    —      —








Total Other comprehensive income (loss) before reclassifications, net of tax
   1    (571 )    —      —








Amortization of net actuarial loss and prior service cost⁽¹⁾
   167    317    —      3
Tax expense⁽²⁾
   (58 )    (111 )    —      (1 )








Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾
   109    206    —      2








Total Other comprehensive income (loss)
   110    (365 )    —      2








Balance at end of period
   $ (1,900 )    $ (3,976 )    $ —      $ (54 )








Foreign currency translation

Balance at beginning of period
   $ (689 )    $ (2,412 )    $ (2 )    $ (780 )
Other comprehensive income⁽³⁾
   251    505    —      184








Balance at end of period
   $ (438 )    $ (1,907 )    $ (2 )    $ (596 )








Available-for-sale securities

Balance at beginning of period
   $ 132    $ (5 )    $ —      $ —
Other comprehensive (loss) income⁽⁴⁾
   (133 )    4    —      —








Balance at end of period
   $ (1 )    $ (1 )    $ —      $ —








Cash flow hedges

Balance at beginning of period
   $ (1 )    $ 597    $ —      $ (3 )
Other comprehensive income (loss):

Net change from periodic revaluations
   20    (772 )    —      35
Tax (expense) benefit
   (7 )    229    —      (10 )








Total Other comprehensive income (loss) before reclassifications, net of tax
   13    (543 )    —      25








Net amount reclassified to earnings
   —      (41 )    —      (29 )
Tax benefit²⁾
   —      13    —      8








Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾
   —      (28 )    —      (21 )








Total Other comprehensive income (loss)
   13    (571 )    —      4








Balance at end of period
   $ 12    $ 26    $ —      $ 1

⁽¹⁾	~~These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note M).~~

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

⁽³⁾	~~In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.~~

⁽⁴⁾	~~Realized gains and losses were included in Other income, net on the accompanying Statement of Consolidated Operations.~~

⁽⁵⁾	A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings. These amounts were reflected on the accompanying Statement of Consolidated Operations in the line items indicated in footnotes 2 through 4.

~~D. Restructuring and Other Charges~~

In the third quarter of 2017, Arconic recorded Restructuring and other charges of $19 ($13 after-tax), which included $11 ($8 after-tax) for layoff costs related to cost reduction initiatives including the separation of 124 employees (111 in the Engineered Products and Solutions segment, 12 in Corporate and 1 in the Global Rolled Products segment); and a net charge of $8 ($5 after-tax) for other miscellaneous items.

In the first nine months of 2017, Arconic recorded Restructuring and other charges of $118 ($99 after-tax), which included $59 ($40 after-tax) for layoff costs related to cost reduction initiatives including the separation of approximately 800 employees (350 in the Engineered Products and Solutions segment, 243 in the Global Rolled Products segment, 133 in the Transportation and Construction Solutions segment and 74 in Corporate); a charge of $60 ($60 after-tax) related to the sale of the Fusina, Italy rolling mill; a net benefit of $6 ($4 after-tax), for the reversal of forfeited executive stock compensation of $13, partially offset by a charge of $7 for the related severance; a net charge of $7 ($5 after-tax) for other miscellaneous items; and a favorable benefit of $2 ($2 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

In the third quarter of 2016, Arconic recorded Restructuring and other charges of $3 ($2 after-tax), which included $4 ($2 after-tax) for layoff costs related to cost reduction initiatives and the separation of Alcoa Inc. (see Note G), including the separation of approximately 70 employees (60 in the Engineered Products and Solutions segment and 10 in Corporate); a net charge of $7 ($5 after-tax) for other miscellaneous items; and a favorable benefit of $8 ($5 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

In the first nine months of 2016, Arconic recorded Restructuring and other charges of $33 ($22 after-tax), which included $34 ($21 after-tax) for layoff costs related to cost reduction initiatives and the separation of Alcoa Inc. (see Note G), including the separation of approximately 1,140 employees (860 in the Engineered Products and Solutions segment, 30 in the Global Rolled Products segment, 240 in the Transportation and Construction Solutions segment, and 10 in Corporate); a net charge of $14 ($9 after-tax) for other miscellaneous items; and a net favorable benefit of $15 ($8 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

~~Arconic does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of such charges to segment results would have been as follows:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Engineered Products and Solutions
   $ 10    $ (1 )    $ 24    $ 16
Global Rolled Products
   2    (1 )    76    1
Transportation and Construction Solutions
   2    (2 )    11    6








Segment Total
   14    (4 )    111    23
Corporate
   5    7    7    10








Total Restructuring and other charges
   $ 19    $ 3    $ 118    $ 33

As of September 30, 2017, approximately 155 of the 800 employees associated with 2017 restructuring programs, approximately 1,200 of the 1,750 employees (previously 1,800) associated with 2016 restructuring programs (with planned departures in 2017), and approximately 1,120 of the 1,220 employees (previously 1,240) associated with the 2015 restructuring programs were separated. The total number of employees associated with both the 2016 and 2015 restructuring programs was updated to reflect employees who, initially identified for separation, accepted other positions within Arconic, as well as natural attrition. Most of the remaining separations for the 2017 restructuring programs are expected to be completed in 2017 and 2018. All of the remaining separations for the 2016 and 2015 restructuring programs are expected to be completed by the end of 2017.

In the 2017 third quarter and nine-month period, cash payments of $11 and $13, respectively, were made against layoff reserves related to 2017 restructuring programs, cash payments of $3 and $23, respectively, were made against layoff reserves related to 2016 restructuring programs, and cash payments of $1 and $5, respectively, were made against the layoff reserves related to 2015 restructuring programs.

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

   Layoff
costs    Other exit
costs    Total
Reserve balances at December 31, 2015
   $ 84    $ 9    $ 93
2016:

Cash payments
   (73 )    (13 )    (86 )
Restructuring charges
   70    27    97
Other*
   (31 )    (14 )    (45 )






Reserve balances at December 31, 2016
   50    9    59






2017:

Cash payments
   (41 )    (5 )    (46 )
Restructuring charges
   54    —      54
Other*
   10    (1 )    9






Reserve balances at September 30, 2017
   $ 73    $ 3    $ 76

Other includes reversals of previously recorded restructuring charges and the effects of foreign currency translation. In 2017, Other for layoff costs includes the reclassification of a stock awards reversal of $13. In 2016, Other for other exit costs also included reclassifications of $8 in asset retirement, $2 in environmental obligations and $4 in legal obligations as these liabilities were included in Arconic’s separate reserves for asset retirement obligations, environmental remediation and legal costs.

~~The remaining reserves are expected to be paid in cash during the remainder of 2017, except for approximately $15 to $20, which is expected to be paid within the next year for layoffs.~~

As part of its ongoing restructuring in Brazil, the Company anticipates recognizing a restructuring-related charge of approximately $30 - $50 in the fourth quarter of 2017 related to its extrusions business which is part of the Transportation and Construction Solutions segment. The charge relates to the noncash impairment of the net book value of the business.

~~E. Acquisitions and Divestitures~~

~~In April 2016, Arconic completed the sale of the Remmele Medical business to LISI MEDICAL for $102 in cash ($99 net of transaction costs)~~F). This business, which was part of the RTI International Metals acquisition, manufactures precision-machined metal products for customers in the minimally invasive surgical device and implantable device markets. While owned by Arconic, the operating results and assets and liabilities of this business

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

⁽³⁾A positive amount indicates a charge to earnings and Solutions segment. Remmele Medical generated third-party sales of $23 from January 1, 2016 through the divestiture date, and, at the time of the divestiture, had approximately 330 employees. This transaction is no longer subjecta negative amount indicates a benefit to ~~post-closing adjustments.~~

In March 2017, Arconic completed the sale of its Fusina, Italy rolling mill to Slim Aluminium. While owned by Arconic, the operating results and assets and liabilities of the Fusina, Italy rolling millearnings.

⁽⁴⁾Foreign currency translation charges were included in the Global Rolled Products segment. As part of the transaction, Arconic injected $10 of cash into the business and provided a third-party guarantee with a fair value of $5 related to Slim Aluminium’s environmental remediation. The Company recorded a loss on the sale of $60, which was recorded in Restructuring and other charges ~~(see Note D)~~ on the Statement of Consolidated Operations due to the sale of foreign entities.

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

K. Receivables

Sale of Receivables Programs

The Company has 2 accounts receivable securitization arrangements.

The first is an arrangement with several financial institutions to sell certain customer receivables without recourse on a revolving basis ("Receivables Sale Program"). The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is a consolidated subsidiary of the Company. This arrangement historically provided up to a maximum funding of $400 for receivables sold. The Company maintains a beneficial interest, or a right to collect cash, on the sold receivables that have not been funded (deferred purchase program receivable). In the first quarter of 2020, the Company entered into an amendment to remove subsidiaries of Arconic Corporation from the sale of receivables program in preparation for the ~~nine~~Arconic Inc. Separation Transaction and repurchased the remaining $282 unpaid receivables of Arconic Corporation in a non-cash transaction by reducing the amount of the deferred purchase program receivable. This amendment also reduced the maximum funding for receivables sold to $300.

The Company had net cash repayments totaling $136 ($138 in draws and $274 in repayments) for the six months ended ~~September~~June 30, ~~2017. The rolling mill generated third-party sales~~2020.

As of ~~approximately $54 and $128 for the nine-month periods ended September~~June 30, ~~2017 and 2016, respectively. At the time of the divestiture, the rolling mill had approximately 312 employees.~~

~~F. Inventories~~

   September 30,
2017    December 31,
2016
Finished goods
   $ 651    $ 625
Work-in-process
   1,332    1,144
Purchased raw materials
   386    408
Operating supplies
   84    76




Total inventories
   $ 2,453    $ 2,253

~~At September 30, 2017~~2020 and December 31, ~~2016,~~2019, the deferred purchase program receivable was $97 and $246, respectively, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving program, the sale of new receivables will result in an increase in the deferred purchase program receivable. The Company services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.

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

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

The second arrangement is one in which the Company, through a wholly-owned special purpose entity (“SPE”), entered into a receivables purchase agreement (the “Receivables Purchase Agreement”) on June 30, 2020 such that the SPE may sell certain receivables to financial institutions until the earlier of June 30, 2021 or a termination event. The Receivables Purchase Agreement also contains customary representations and warranties, as well as affirmative and negative covenants. Pursuant to the Receivables Purchase Agreement, the Company does not maintain effective control over the transferred receivables, and therefore accounts for these transfers as sales of receivables.

The SPE sold $77 of its receivables without recourse and received cash funding under this program during the second quarter and six months ended June 30, 2020 resulting in derecognition of the receivables from the Company’s consolidated balance sheets. Cash received from collections of sold receivables is used by the SPE to fund additional purchases of receivables on a revolving basis, not to exceed $125, which is the aggregate maximum limit. As collateral against the sold receivables, the SPE maintains a certain level of unsold receivables, which was $30 at June 30, 2020. Costs associated with the sales of receivables are reflected in the Company’s Consolidated statements of operations for the periods in which the sales occur. Cash receipts from sold receivables are presented within Operating Activities in the Statement of Consolidated Cash Flows.

Other Customer Receivable Sales

In the second quarter and six months ended June 30, 2020, the Company supplemented the first accounts receivable securitization arrangement by selling $10 and $24 of a certain customer’s 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. The sale of these customer receivables partially offset the maximum funding reduction resulting from the Arconic Inc. Separation Transaction as well as customer concentration limits within the first accounts receivable securitization arrangement.

In the second quarter and six months ended June 30, 2020, the Company also began to sell another customer’s receivables of $48 and $65 in exchange for cash, the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. The sale of these customer receivables is being undertaken to offset a change in the customer’s payment patterns in which the customer had been taking a contractually available discount for paying early.

L. Inventories


	June 30, 2020		December 31, 2019
Finished goods	$	525	$	524
Work-in-process	764		741
Purchased raw materials	339		299
Operating supplies	45		43
Total inventories	$	1,673	$	1,607

At June 30, 2020 and December 31, 2019, the portion of inventories valued on a last-in, first-out (LIFO) basis was ~~$1,148~~$510 and ~~$947,~~$503, respectively. If valued on an average-cost basis, total inventories would have been ~~$449~~$124 and ~~$371~~$133 higher at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

M. Properties, Plants, and Equipment, net


	June 30, 2020		December 31, 2019
Land and land rights	$	96	$	101
Structures	1,004		1,058
Machinery and equipment	3,767		3,742
	4,867		4,901
Less: accumulated depreciation and amortization	2,506		2,620
	2,361		2,281
Construction work-in-progress	197		348
Properties, plants, and equipment, net	$	2,558	$	2,629

N. Leases

Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $18 and $22 in the second quarter of 2020 and 2019, respectively. Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $36 and $43 in the first half of 2020 and 2019, respectively.

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


	June 30, 2020		December 31, 2019
Right-of-use assets classified in Other noncurrent assets	$	118	$	125

Current portion of lease liabilitiesclassified in Other current liabilities	36		38
Long-term portion of lease liabilities classified in Other noncurrent liabilities	91		98
Total lease liabilities	$	127	$	136

O. Debt


	June 30, 2020		December 31, 2019
6.150% Notes, due 2020	—		1,000
5.400% Notes due 2021	361		1,250
5.870% Notes, due 2022	476		627
5.125% Notes, due 2024	1,250		1,250
6.875% Notes, due 2025	1,200		—
5.900% Notes, due 2027	625		625
6.750% Bonds, due 2028	300		300
5.950% Notes, due 2037	625		625
4.750% Iowa Finance Authority Loan, due 2042	250		250
Other ⁽¹⁾	(1)		13
	5,086		5,940
Less: amount due within one year	391		1,034
Total long-term debt	$	4,695	$	4,906

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

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

On April 24, 2020, the Company completed an offering of $1,200 aggregate principal amount of 6.875% Notes due 2025, the proceeds of which have been used to fund the cash tender offers noted below and to pay related transaction fees, including applicable premiums and expenses, with the remaining amount to be used for general corporate purposes. The Company incurred deferred financing costs of $14 associated with the issuance in second quarter of 2020.

On May 21, 2020, the Company completed a cash tender offer and redeemed $589 and $151 of principal amount of the 5.400% Notes due 2021 and its 5.870% Notes due 2022, respectively. The amount of early tender premium and accrued interest and associated with the notes accepted for early settlement were $24 and $4, respectively, which was recorded during the second quarter of 2020 in Interest expense, net in the Statement of Consolidated Operations.

Credit Facilities.

In March 2020, the Company entered into an amendment to its Five-Year Revolving Credit Agreement (the “Credit Agreement”). The amendment was entered into to permit the Arconic Inc. Separation Transaction and ~~Discontinued Operations~~

~~On November~~to amend certain terms of the Credit Agreement, including a change to the existing financial covenant and reduction of total commitments available from $3,000 to $1,500, effective April 1, ~~2016, Arconic completed~~2020 and extended the ~~Separation Transaction. Alcoa Inc., which~~maturity date from June 29, 2023 to April 1, 2025. The Company was ~~re-named Arconic Inc., continued~~required to ~~own the Engineered Products and Solutions, the Global Rolled Products (except for the Warrick, IN rolling operations and the equity interest~~maintain a ratio of Consolidated Net Debt (as defined in the rolling mill at the joint venture in Saudi Arabia), and the Transportation and Construction Solutions segments. Alcoa Corporation included the Alumina and Primary Metals segments and the Warrick, IN rolling operations and equity interestCredit Agreement) to Consolidated EBITDA (as defined in the ~~rolling mill at~~Credit Agreement) to be no greater than 3.50 to 1.00.

On June 26, 2020, the ~~joint venture in Saudi Arabia, both~~Company entered into another amendment to its Credit Agreement to provide relief from its existing financial covenant through December 31, 2021 and reduce total commitment available from $1,500 to $1,000. The Company will be required to maintain a ratio of which were formerly part of Arconic’s Global Rolled Products segment. The results of operations of Alcoa Corporation for the third quarter and nine months ended September 30, 2016 are presented as discontinued operationsConsolidated Net Debt (as defined in the ~~accompanying Statement of~~Credit Agreement) to Consolidated ~~Operations.~~

~~Arconic completed~~EBITDA (as defined in the ~~Separation Transaction by distribution on November 1, 2016 of 80.1% of the outstanding common stock of Alcoa Corporation to the Company’s shareholders of record~~Credit Agreement) as of the ~~close~~end of ~~business on October 20, 2016. Arconic retained 19.9%~~each fiscal quarter for the period of the ~~Alcoa Corporation common stock (36,311,767 shares).~~

~~In February 2017,~~four fiscal quarters of the Company ~~sold 23,353,000 shares~~most recently ended, to be no greater than (i)5.00 to 1.00 for any quarter ending on or prior to December 31, 2020, (ii) 5.25 to 1.00 for the quarter ending March 31, 2021, (iii) 5.00 to 1.00 for the quarter ending June 30, 2021, (iv) 4.50 to 1.00 for the quarter ending September 30, 2021, and (v) 4.00 to 1.00 for the quarter ending December 31, 2021. The ratio returns to 3.50 to 1.00 for all periods thereafter. There were 0 amounts outstanding at June 30, 2020 or December 31, 2019, and 0 amounts were borrowed during 2020 or 2019 under the Credit Agreement. At June 30, 2020, the Company was in compliance with all covenants under the Credit Agreement.

In addition to the Credit Agreement, the Company has a number of ~~Alcoa Corporation common stock~~other credit agreements that provide a combined borrowing capacity of $250 at ~~$38.03 per share,~~June 30, 2020 which ~~resulted in cash proceeds of $888 which were recorded in Sale of investments within Investing Activities~~is due to expire at various dates in the ~~accompanying Statement~~second half of ~~Consolidated~~2020. The purpose of any borrowings under these credit arrangements is to provide for working capital requirements and for other general corporate purposes. The covenants contained in all these arrangements are the same as the Credit Agreement. During the six months ended June 30, 2020, there were no borrowings or repayments under these other credit facilities.

P. Fair Value of Financial Instruments

The carrying values of Cash ~~Flows~~ and ~~a gain of $351, which was recorded in Other income, net~~cash equivalents, Restricted cash, Derivatives, Noncurrent receivables, and Short-term debt included in the ~~accompanying Statement of~~ Consolidated ~~Operations.~~

In April and May 2017, the Company acquired a portion of its outstanding notes held by two investment banks (the “Investment Banks”) in exchange for cash and the Company’s remaining 12,958,767 Alcoa Corporation shares (valued at $35.91 per share) (the “Debt-for-Equity Exchange”) (See Note L). A gain of $167 on the Debt-for-Equity Exchange was recorded in Other income, net in the accompanying Statement of Consolidated Operations. The share exchange had no impact on the accompanying Statement of Consolidated Cash Flows.

Balance Sheet approximate their fair value. The Company ~~had recorded~~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 ~~retained interest as a cost method investment in Investment in common stock of Alcoa Corporation in the accompanying Consolidated Balance Sheet.~~fair value hierarchy. The fair value of ~~Arconic’s retained~~Long-term debt, less amount due within one year was based on quoted market prices for public debt and on interest rates that are currently available to the Company for issuance of debt with similar terms and maturities for non-public debt. The fair value amounts for all Long-term debt were classified in ~~Alcoa Corporation~~Level 2 of the fair value hierarchy.


	June 30, 2020						December 31, 2019
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	4,695	$	4,997	$	4,906	$	5,337

Restricted cash, which was $0included in Prepaid assets and ~~$1,020~~other current liabilities in the Consolidated Balance Sheet, was $4 and $55 at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. ~~The fair value was based on the closing stock price of Alcoa Corporation as of September 30, 2017,~~

Q. Acquisitions and ~~December~~Divestitures

2020 Divestitures.

On January 31, ~~2016 multiplied by the number of shares of Alcoa Corporation common stock owned by~~2020, the Company ~~at those respective dates.~~reached an agreement to sell a small manufacturing plant in the U.K. for $12 in cash, subject to working capital and other adjustments. The operating results and assets and liabilities of this plant are included in the Engineered Structures segment. As a result of ~~May 4, 2017,~~entering into the agreement to sell, the Company ~~no longer maintained~~recognized a ~~retained interest in Alcoa Corporation common stock.~~

~~In connection with the Separation Transaction, on October 31, 2016, Arconic and Alcoa Corporation entered into~~charge of $12 related to a Toll Processing and Services Agreement (the “Toll Processing Agreement”) pursuant to which Arconic provides can body stock from its Tennessee operations to Alcoa Corporation’s Warrick, Indiana rolling mill. Aluminum for the can body stock is supplied by Alcoa Corporation. The Toll Processing Agreement expires on December 31, 2018, unless sooner terminated by the parties. Tolling revenues for the third quarter and nine months ended September 30, 2017, and accounts receivable at September 30, 2017, were not material to the consolidated results of operations and financial position, respectively.

~~As part~~non-cash impairment of the ~~Separation Transaction, Arconic had recorded a receivable in the accompanying Consolidated Balance Sheet as of December 31, 2016 for the~~ net ~~after-tax proceeds from Alcoa Corporation’s sale~~book value of the ~~Yadkin Hydroelectric Project. The transaction closed~~business, primarily properties, plants, and equipment in the first quarter of ~~2017 and~~2020. The sale is not expected to occur. As a result the Company ~~received proceeds~~changed the classification of ~~$238~~the assets from held for sale to held for use and recorded these assets at their lower of carrying value (assuming no initial reclassification for held for sale was made) or fair value. The result was a reversal of $7 related to a non-cash impairment in the second quarter of 2020. These charges were recorded in Restructuring and other charges in the Statement of Consolidated Operations.

2019 Divestiture.

On December 1, 2019, the Company completed the sale of its forgings business in the U.K. for $64 in cash, which resulted in a loss on sale of $46 that was recognized in 2019 and an incremental charge of $6 related to certain post-closing adjustments in the first quarter of ~~2017~~2020. These charges were recorded in Restructuring and other charges in the Statement of Consolidated Operations. Of the cash proceeds received, $53 was recorded as Restricted cash within Prepaid expenses and other current

assets on the Consolidated Balance Sheet at December 31, 2019 as its use is subject to restriction by the U.K. pension authority until certain U.K. pension plan changes were made and approved. In the second quarter of 2020, the restriction was removed, and the proceeds were reclassified to Cash and cash equivalents. The forgings business primarily produces steel, titanium, and nickel based forged components for aerospace, mining, and off-highway markets and its operating results and assets and liabilities were included in the Engine Products segment. The sale remains subject to certain remaining $5post-closing adjustments. This business generated sales of $34 and $66 in the second quarter and six months ended June 30, 2019, respectively, and had 540 employees at the time of divestiture.

On May 31, 2019, the Company sold a small additive manufacturing facility within the Engineered Structures segment for $1 in cash, which resulted in a loss of $13 related to the non-cash impairment of the net book value of the business recorded in Restructuring and other charges in the Statement of Consolidated Operations.

On August 15, 2019, the Company sold inventories and properties, plant and equipment related to a small energy business within the Engineered Structures segment for $13 in cash. As the sale was substantially complete as of June 30, 2019, and the sale price was estimated to be less than the carrying value, the Company recognized a charge of $9 in the second quarter of ~~2017. The $243 proceeds were included~~2019 related to inventory impairment and recorded the charge in ~~Other within Investing Activities~~Cost of goods sold in the Statement of Consolidated ~~Cash Flows.~~

~~The results of operations of Alcoa Corporation are presented as discontinued operations in the accompanying Statement of Consolidated Operations as summarized below:~~

   Third quarter ended
September 30,
2016    Nine months ended
September 30,
2016
Sales
   $ 2,075    $ 6,028
Cost of goods sold (exclusive of expenses below)
   1,714    5,038
Selling, general administrative, and other expenses
   46    148
Research and development expenses
   8    26
Provision for depreciation, depletion and amortization
   180    532
Restructuring and other charges
   15    101
Interest expense
   7    18
Other income, net
   (106 )    (80 )




Income from discontinued operations before income taxes
   211    245
Provision for income taxes
   91    99




Income from discontinued operations after income taxes
   120    146
Less: Net income from discontinued operations attributable to noncontrolling interests
   20    58




Net income from discontinued operations
   $ 100    $ 88

The cash flows related to Alcoa Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows for all periods presented. The following table presents depreciation, depletion and amortization, restructuring and other charges, and purchases of property, plant and equipment of the discontinued operations related to Alcoa Corporation:

   Nine months ended
September 30,
   2016
Depreciation, depletion and amortization
   $ 532
Restructuring and other charges
   $ 101
Capital expenditures
   $ 258

H.Operations.

R. Contingencies and Commitments

Contingencies

Environmental Matters

~~Arconic~~

The Company participates in environmental assessments and cleanups at more than ~~100~~30 locations. These include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act ~~(CERCLA)~~("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.

~~Arconic’s~~

The Company’s remediation reserve balance was ~~$292~~$8 at ~~September~~June 30, ~~2017~~2020 and ~~$308~~$8 at December 31, ~~2016~~2019, recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which ~~$39~~$4 and ~~$48,~~$3, respectively, ~~was~~were classified as a current liability), and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated.

Payments related to remediation expenses applied against the reserve were ~~$10 and $17~~less than $1 in the ~~third~~second quarter ~~and nine months~~ ended ~~September~~June 30, ~~2017, respectively. This amount~~2020, which includes expenditures currently mandated, as well as those not required by any regulatory authority or third party.

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

The ~~following discussion provides details regarding the current status of the most significant reserve related to~~Company previously reported on a ~~current Arconic site.~~

~~Massena West, NY—~~~~Arconic has an ongoing~~ remediation project related to the Grasse River, which is adjacent to ~~Arconic’s~~the Massena West, New York plant ~~site. Many years ago, it was determined~~site that ~~sediments~~is now part of Arconic Corporation. In connection with the Arconic Inc. Separation Transaction, the Company entered into a separation and ~~fish in~~distribution agreement (the “Separation and Distribution Agreement”) with Arconic Corporation, which, together with the ~~river contain varying levels of polychlorinated biphenyls (PCBs). The project,~~documents and agreements by which ~~was selected by~~ the U.S. Environmental Protection Agency (USEPA) in a Record of Decision issued in April 2013, is aimed at capping PCB contaminated sediments with concentration in excess of one part per million in the main channelinternal reorganization of the ~~river~~Company prior to the separation was effected, determined the allocation of assets and ~~dredging PCB contaminated sediments in~~liabilities between the ~~near-shore areas where total PCBs exceed one part per million. At September 30, 2017~~Company and ~~December 31, 2016,~~Arconic Corporation following the ~~reserve balance~~separation and included any necessary indemnifications related to liabilities and obligations. In general, the respective parties will be responsible for the environmental matters associated with ~~this matter was $221~~their operations, and ~~$228, respectively. Arconic is in~~with the ~~planning~~properties and ~~design phase, which is expected~~other assets assigned to be completed in 2018. In the third quarter of 2017, the New York State Department of Environmental Conservation (NYSDEC) sent a letter to USEPA requesting a revision to the draft design. The USEPA has not responded to the NYSDEC letter but the request has put on hold Arconic’s preparation of a final design and extended the expected submittal into 2018. Following submittal and USEPA approval of the final design, the actual remediation fieldwork is expected to commence and take approximately four years. The majority of the project funding is expected to be incurred between 2018 and 2022.

~~Tax~~

each. Pursuant to the Separation and Distribution Agreement, Arconic Corporation agreed to assume and indemnify the Company against potential liabilities associated with the remediation project related to the Grasse River. Therefore, the Company will no longer report on the Grasse River matter unless and until some event in the future causes it to become material and reportable.

Tax

Pursuant to the October 31, 2016 Tax Matters Agreement ~~entered into~~ between ~~Arconic~~the Company and Alcoa Corporation, ~~in connection with the Separation Transaction, Arconic~~Alcoa Corporation shares responsibility with ~~Alcoa Corporation,~~ and ~~Alcoa Corporation~~ has agreed to partially indemnify ~~Arconic, with respect to~~the Company for the following matter.

Additionally, as part of the March 31, 2020 Tax Matters Agreement between the Company and Arconic Corporation, Arconic Corporation also shares partial responsibility with and has agreed to partially indemnify the Company for its own share of the same matter. In connection with these indemnities, Alcoa Corporation and Arconic Corporation retain 49% and 34% of the total liability, respectively, for the following matter, and the Company retains the remaining 17% of the total liability.

As previously reported, in ~~September 2010,~~July 2013, following a Spanish corporate income tax audit covering the ~~2003~~2006 through ~~2005~~2009 tax years, an assessment was received ~~as a result of Spain’s tax authorities~~mainly disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by the Company. ~~An appeal of this assessment in Spain’s Central Tax Administrative Court by the Company was denied in October 2013.~~ In ~~December~~August 2013, the Company filed an appeal of the assessment in Spain’s National Court. On January 16, 2017, Spain’s National Court issued a decision in favor of the Company. The Spanish Tax Administration did not file an appeal within the applicable period. Based on this decision and recent confirming correspondence from the Spanish Tax Administration, the matter is now closed. The Company will not be responsible for any assessment related to the 2003 through 2005 tax years.

In addition, following a corporate income tax audit of the same Spanish consolidated tax group for the 2006 through 2009 tax years, Spain’s tax authorities issued an assessment in July 2013 similarly disallowing certain interest deductions. In August 2013, Arconic filed an appeal of this second assessment in Spain’s Central Tax Administrative Court, which was denied in January 2015. ~~Arconic~~The Company filed another appeal ~~of this second assessment~~ in Spain’s National Court in March ~~2015. Spain’s National Court has not yet rendered a decision related to the assessment received~~2015 which was denied in July ~~2013.~~2018. The National Court’s decision requires the assessment for the 2006 through 2009 tax years ~~is $152~~to be reissued to take into account the outcome of the 2003 to 2005 audit which was closed in 2017. The Company estimates the revised assessment to be $174 (€~~129)~~154), including interest.

~~Finally,~~

In March 2019, the ~~Spanish consolidated tax group had been under audit (beginning in September 2015) for~~Supreme Court of Spain accepted the ~~2010 through 2013 tax years. In August 2017,~~Company's petition to review the National Court’s decision, and the Company ~~reached~~has filed a ~~settlement~~formal appeal of ~~this audit.~~the assessment. The ~~settlement amount~~Supreme Court is ~~not material to~~reviewing the Company’s Consolidated Financial Statements. While the 2010 through 2013 tax years are closed to audit, it is possible that the Company may receive similar assessments from Spain’s tax authorities for years subsequent to 2013. The Company believes it has meritorious arguments to supportassessment on its ~~tax position for all years~~merits and ~~intends to vigorously litigate assessments through Spain’s court system. However, in~~will render a final decision. In the event the Company ~~is unsuccessful,~~receives an unfavorable ruling from the Supreme Court of Spain, a portion of the ~~assessments~~assessment may be offset with existing net operating losses and tax credits available to the Spanish consolidated tax group ~~which would be shared between Arconic~~in existence during the audit period.

In the third quarter of 2018, the Company established an income tax reserve and an indemnification receivable representing Alcoa ~~Corporation as provided for in~~Corporation’s 49% share of the liability. Pursuant to the Tax Matters Agreement ~~related~~with Arconic Corporation, as of the second quarter of 2020 the Company established an additional income tax receivable representing Arconic Corporation's 34% share of the total liability. As of June 30, 2020, the balances of the Company's reserve, including interest, and the receivables are $60 (€54) and $50 (€45), respectively.

The tax years 2010 through 2013 are closed to audit. In July of 2020, a Spanish corporate income tax audit covering the period 2014 through 2018 commenced. Any potential assessment for the tax period open to audit is not expected to be material to the Company’s consolidated operations.

Reynobond PE

Prior to the Arconic Inc. Separation ~~Transaction. At this time,~~Transaction on April 1, 2020, the Company ~~is unable~~was known as Arconic Inc.References to ~~reasonably predict an outcome for~~“Arconic Inc.” in this ~~matter.~~

~~Reynobond PE~~

~~As previously reported, on~~“Reynobond PE” section refer to Arconic Inc. only and do not include its subsidiaries, except as otherwise stated.

On June 13, 2017, the Grenfell Tower in London, UKU.K. caught fire resulting in fatalities, injuries and damage. A French subsidiary of Arconic Inc., Arconic Architectural Products SAS (AAP SAS), supplied a product, Reynobond PE, to its customer, a cladding system fabricator, which used the product as one component of the overall cladding system on Grenfell Tower. The fabricator supplied its portion of the cladding system to the façade installer, who then completed and installed the system under the direction of the general contractor. Neither Arconic Inc. nor AAP SAS was involved in the design or installation of the system used at the Grenfell Tower, nor did it have a role in any other aspect of the building’s refurbishment or original design. Regulatory investigations into the overall Grenfell Tower matter are being conducted, including a criminal investigation by the London ~~Metro~~Metropolitan Police Service (the “Police”), a Public Inquiry by the British government and a consumer protection inquiry by a French public authority. ~~AAP SAS has filed an application seeking core participant status in~~The Public Inquiry was announced by the ~~Public Inquiry.~~

~~In August~~U.K. Prime Minister on June 15, 2017 and ~~September 2017, two purported class action complaints were filed against Arconic~~subsequently was authorized to examine the circumstances leading up to and ~~certain officers, directors and/or other parties, alleging that, in light of~~surrounding the Grenfell Tower fire ~~certain Company filings~~in order to make findings of fact and recommendations to the U.K. Government on matters such as the design, construction and modification of the building, the role of relevant public authorities and contractors, the implications of the fire for the adequacy and enforcement of relevant regulations, arrangements in place for handling emergencies and the handling of concerns from residents, among other things. Hearings for Phase 1 of the Public Inquiry began on May 21, 2018 and concluded on December 12, 2018. Phase 2 hearings of the Public Inquiry began in early 2020, following which a final report will be written and subsequently published. AAP SAS is participating as a Core Participant in the Public Inquiry and is also cooperating with the ~~Securities and Exchange Commission contained false and misleading disclosures and omissions in violation of~~ongoing parallel investigation by the ~~federal securities laws.~~

~~While~~Police. The Company no longer sells the ~~Company believes that these cases are without merit and intends to challenge them vigorously, there can be no assurances regarding the ultimate resolution of these matters.~~PE product for architectural use on buildings. Given the preliminary nature of these ~~matters~~investigations and the uncertainty of potential future litigation, the Company cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of an unfavorable outcome.

Pursuant to the Separation and Distribution Agreement, Arconic Corporation agreed to indemnify the Company for certain liabilities and the Company agreed to indemnify Arconic Corporation for certain liabilities.As a result of the Arconic Inc. Separation Transaction, Arconic Corporation holds the building and construction systems businesses previously held by the Company and AAP SAS is a subsidiary of Arconic Corporation; accordingly, Arconic Corporation has agreed to assume and indemnify the Company against potential liabilities associated with the June 13, 2017 fire at the Grenfell Tower in London, U.K., including the following legal proceedings:

Behrens et al. v. Arconic Inc. et al. On June 6, 2019, 247 plaintiffs comprised of survivors and estates of decedents of the Grenfell Tower fire filed a complaint against “Arconic Inc., Alcoa Inc. and Arconic Architectural Products, LLC” (collectively, for purposes of the description of such proceeding, the “Arconic Defendants”), as well as Saint-Gobain Corporation, d/b/a Celotex and Whirlpool Corporation alleging claims under Pennsylvania state law for products liability and wrongful death related to the fire. In particular, the plaintiffs allege that the Arconic Defendants knowingly supplied a dangerous product ("Reynobond PE") for installation on the Grenfell Tower despite knowing that Reynobond PE was unfit for use above a certain height. The case has been removed to the United States District Court for the Eastern District of Pennsylvania and discovery is ongoing on defendants’ motion to have the case dismissed in favor of a UK forum (forum non conveniens).

Howard v. Arconic Inc. et al. A purported class action complaint related to the Grenfell Tower fire was filed on August 11, 2017 in the United States District Court for the Western District of Pennsylvania against Arconic Inc. and Klaus Kleinfeld. A related purported class action complaint was filed in the United States District Court for the Western District of Pennsylvania on September 15, 2017, under the caption Sullivan v. Arconic Inc. et al., against Arconic Inc., three former Arconic Inc. executives, several current and former directors, and certain banks Howard and Sullivan were subsequently consolidated and the lead plaintiffs in the consolidated purported class action filed a consolidated amended complaintalleging violations of the federal securities laws and seeking, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses. After the Court granted the defendants’ motion to dismiss in full, the lead plaintiffs filed a second amended complaint, and all defendants have moved to dismiss the second amended complaint.

Raul v. Albaugh, et al. On June 22, 2018, a derivative complaint was filed nominally on behalf of Arconic Inc. by a purported Arconic Inc. stockholder against the then members of Arconic Inc.’s Board of Directors and Klaus Kleinfeld and Ken Giacobbe, naming Arconic Inc. as a nominal defendant, in the United States District Court for the District of Delaware. The complaint raises similar allegations as the consolidated amended complaint and second amended complaint in Howard, as well as allegations that the defendants improperly authorized the sale of Reynobond PE for unsafe uses, and asserts claims under federal securities laws and Delaware state law. The case has been stayed until the final resolution of the Howard case, the Grenfell Tower Public Inquiry in London, and the investigation by the Police.

There can be no assurances regarding the ultimate resolution of these matters.

Stockholder Demands. Prior to the Arconic Inc. Separation Transaction the Board of Directors also received letters, purportedly sent on behalf of ~~shareholders,~~stockholders, reciting allegations similar to those made in the federal court lawsuits and demanding that the Board authorize the Company to initiate litigation against members of management, the Board and others. The Board of Directors ~~is reviewing these shareholder demand letters~~appointed a Special Litigation Committee of the Board to review, investigate, and ~~considering~~make recommendations to the Board regarding the appropriate course of ~~action. In addition, lawsuits are pending~~action with respect to these stockholder demand letters. On May 22, 2019, the Special Litigation Committee, following completion of its investigation into the claims demanded in ~~state court in New York and federal court in Pennsylvania, initiated, respectively, by another purported shareholder and by~~ the ~~Company, concerning the shareholder’s claimed right, which the Company contests, to inspect the Company’s books and records related~~demand letters, recommended to the ~~Grenfell Tower fire~~Board that it reject the demands to authorize commencement of litigation. On May 28, 2019, the Board adopted the Special Litigation Committee’s findings and ~~Reynobond PE.~~

recommendations and rejected the demands that it authorize commencement of actions to assert the claims set forth in the demand letters.

Other

In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against ~~Arconic,~~the Company, including those pertaining to environmental, product liability, safety and health, employment, tax and ~~tax~~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 ~~September~~June 30, ~~2017, Arconic~~2020, the Company had outstanding bank guarantees related to tax matters, outstanding debt, workers’ compensation, environmental obligations, energy contracts, and customs duties, among others. The total amount committed under these guarantees, which expire at various dates between ~~2017~~2020 and ~~2026,~~2040, was $25 at ~~September~~June 30, ~~2017.~~

~~Pursuant~~2020.

In addition, pursuant to the Separation and Distribution Agreement between ~~Arconic~~the Company and Alcoa Corporation, ~~Arconic~~the Company was required to provide ~~maximum potential future payment guarantees~~a guarantee for an energy supply agreement at an Alcoa Corporation ~~issued on behalf~~facility that expires in 2047. This guarantee had a fair value of ~~a third party of $270~~$16 and ~~$354~~$9 at ~~September~~June 30, ~~2017~~2020 and December 31, 2016. These guarantees expire at various times between 2017 and 2024, and relate to project financing for Alcoa Corporation’s aluminum complex in Saudi Arabia. Furthermore, Arconic was required to provide guarantees up to an estimated present value amount of approximately $1,660 related to two long-term supply agreements for energy for Alcoa Corporation facilities. In accordance with the Separation and Distribution Agreement, Arconic is only liable for these guaranteed amounts in the event of an Alcoa Corporation payment default. In December 2016, Arconic entered into a one-year claims purchase agreement with a bank covering claims up to $245 related to the Saudi Arabian aluminum complex and two long-term energy supply agreements. Most of the premium related to this claims purchase agreement is being paid by Alcoa Corporation. At September 30, 2017 and December 31, 2016, the combined fair value of the three required guarantees was $35 in both periods2019, respectively, and was included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet. ~~See Note O for further information on the guarantee related to one of the long-term supply agreements for energy for an Alcoa Corporation facility.~~

~~Arconic was also required to provide guarantees of $50 related to two Alcoa Corporation energy supply contracts. These guarantees expired in March 2017. Additionally, Arconic~~The Company was required to provide ~~guarantees~~a guarantee up to an estimated present value of ~~$53 related~~approximately $1,167 and $1,353 at June 30, 2020 and December 31, 2019, respectively. For this guarantee, subject to ~~certain~~its provisions, the Company is secondarily liable in the event of a payment default by Alcoa Corporation. The Company currently views the risk of an Alcoa Corporation ~~environmental liabilities. Notification of a change in guarantor~~payment default on its obligations under the contract to ~~Alcoa Corporation was made to the appropriate environmental agencies and as such, Arconic no longer provides these guarantees.~~

be remote.

Letters of Credit

~~Arconic~~

The Company has outstanding letters of credit, primarily related to workers’ compensation, environmental obligations, and ~~environmental~~leasing obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, ~~primarily~~mostly in ~~2017,~~2020, was ~~$127~~$66 at ~~September~~June 30, ~~2017.~~

2020.

Pursuant to the Separation and Distribution ~~Agreement,~~Agreements between the Company and Arconic Corporation and between the Company and Alcoa Corporation, the Company was required to retain letters of credit of ~~$61~~$54 (which are included in the above paragraph) that had previously been provided related to ~~both~~the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 2016. Arconic Corporation and Alcoa ~~Corporation’s~~Corporation workers’ compensation claims and letter of credit fees paid by ~~Arconic~~the Company are being proportionally billed to and are being fully reimbursed by Arconic Corporation and Alcoa Corporation. Additionally, Arconic was required to provide letters of credit totaling $103 for certain Alcoa Corporation equipment leases and energy contracts. The entire $103 of outstanding letters of credit were cancelled in 2017 when Alcoa Corporation issued its own letters of credit to cover these obligations.

Surety Bonds

~~Arconic~~

The Company has outstanding surety bonds, primarily related to tax matters, contract performance, workers’ compensation, environmental-related matters, and customs duties. The total amount committed under these surety bonds, which expire at various dates, primarily in ~~2017,~~2020, was ~~$128~~$43 at ~~September~~June 30, ~~2017.~~

2020.

Pursuant to the Separation and Distribution ~~Agreement,~~Agreements between the Company and Arconic Corporation and between the Company and Alcoa Corporation, the Company was required to provide surety bonds of $26 (which are included in the above paragraph) that had previously been provided related to the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, ~~2016~~2016. Arconic Corporation and ~~as a result, Arconic has $25 in outstanding surety bonds relating to these liabilities.~~ Alcoa Corporation workers’ compensation claims and surety bond fees paid by ~~Arconic~~the Company are being proportionately billed to and are being fully reimbursed by Arconic Corporation and Alcoa Corporation.

~~I. Segment Information~~

~~Arconic is a producer~~

S. Subsequent Events

Management evaluated all activity of multi-material products including sheet, plate, precision castings, forgings, rolled rings, extrusions, wheels and fasteners. Arconic’s products are used worldwide in transportation (including aerospace, automotive, truck, trailer, rail, and shipping), packaging, building and construction, oil and gas, defense, and industrial applications. Arconic’s segments are organized by product on a worldwide basis. In the first quarter of 2017, the Company ~~changed its primary measure of segment performance from After-tax operating income (ATOI) to Adjusted earnings before interest, tax, depreciation~~ and amortization (“Adjusted EBITDA”). Segment performance under Arconic’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Adjusted EBITDA. Arconic’s definition of Adjusted EBITDA is net margin plus an add-back for depreciation and amortization and special items. 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. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

Items required to reconcile Combined segment adjusted EBITDA to Net income attributable to Arconic include: the Provision for depreciation and amortization; Restructuring and other charges; the impact of LIFO inventory accounting; metal price lag (the timing difference created when the average price of metal sold differs from the average cost of the metal when purchased by the respective segment — generally, when the price of metal increases, metal price lag is favorable, and when the price of metal decreases, metal price lag is unfavorable); corporate expense (general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities and corporate research and development expenses); other items, including intersegment profit eliminations; Other income, net; Interest expense; Income tax expense; and the results of discontinued operations. Prior period information has been recast to conform to current year presentation.

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

   Engineered       Transportation
   Products and    Global Rolled    and Construction    Combined
   Solutions    Products    Solutions    Segment
Third quarter ended

September 30, 2017

Sales:

Third-party sales
   $ 1,476    $ 1,234    $ 517    $ 3,227
Intersegment sales
   —      36    —      36








Total sales
   $ 1,476    $ 1,270    $ 517    $ 3,263








Profit and loss:

Depreciation and amortization
   68    52    13    133
Adjusted EBITDA
   312    140    83    535








Third quarter ended

September 30, 2016

Sales:

Third-party sales
   $ 1,406    $ 1,285    $ 450    $ 3,141
Intersegment sales
   —      30    —      30








Total sales
   $ 1,406    $ 1,315    $ 450    $ 3,171








Profit and loss:

Depreciation and amortization
   63    52    12    127
Adjusted EBITDA
   296    143    76    515

   Engineered       Transportation
   Products and    Global Rolled    and Construction    Combined
   Solutions    Products    Solutions    Segment
Nine months ended

September 30, 2017

Sales:

Third-party sales
   $ 4,445    $ 3,751    $ 1,467    $ 9,663
Intersegment sales
   —      107    —      107








Total sales
   $ 4,445    $ 3,858    $ 1,467    $ 9,770








Profit and loss:

Depreciation and amortization
   198    153    37    388
Adjusted EBITDA
   928    475    237    1,640








Nine months ended

September 30, 2016

Sales:

Third-party sales
   $ 4,320    $ 3,785    $ 1,346    $ 9,451
Intersegment sales
   —      88    —      88








Total sales
   $ 4,320    $ 3,873    $ 1,346    $ 9,539








Profit and loss:

Depreciation and amortization
   190    152    35    377
Adjusted EBITDA
   930    461    216    1,607

~~The following table reconciles Combined segment adjusted EBITDA to Net income attributable to Arconic:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Combined segment adjusted EBITDA
   $ 535    $ 515    $ 1,640    $ 1,607
Unallocated amounts:

Depreciation and amortization
   (140 )    (136 )    (410 )    (402 )
Restructuring and other charges
   (19 )    (3 )    (118 )    (33 )
Impact of LIFO
   (48 )    (1 )    (78 )    (26 )
Metal price lag
   2    4    43    10
Corporate expense
   (42 )    (113 )    (224 )    (304 )
Other
   (17 )    (29 )    (56 )    (62 )








Operating income
   $ 271    $ 237    $ 797    $ 790
Other income, net
   1    11    526    40
Interest expense
   (100 )    (126 )    (398 )    (371 )








Income from continuing operations before income taxes
   $ 172    $ 122    $ 925    $ 459
Provision for income taxes
   (53 )    (56 )    (272 )    (230 )
Discontinued operations
   —      100    —      88








Net income attributable to Arconic
   $ 119    $ 166    $ 653    $ 317

~~J. 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 number of shares and per share amounts for all periods presented below~~concluded that no subsequent events have ~~been updated to reflect the Reverse Stock Split (see Note A).~~

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

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Income from continuing operations after income taxes
   $ 119    $ 66    $ 653    $ 229
Less: Preferred stock dividends declared
   (18 )    (18 )    (53 )    (52 )








Income from continuing operations available to Arconic common shareholders
   101    48    600    177
Income from discontinued operations after income taxes and noncontrolling interests
   —      100    —      88








Net income available to Arconic common shareholders - basic
   101    148    600    265
Add: Interest expense related to convertible notes
   2    2    7    —
Add: Dividends related to mandatory convertible preferred stock
   —      —      50    —








Net income available to Arconic common shareholders - diluted
   $ 103    $ 150    $ 657    $ 265








Weighted average shares outstanding - basic
   442    438    441    438
Effect of dilutive securities:

Stock options
   1    1    2    1
Stock and performance awards
   5    5    5    4
Mandatory convertible preferred stock
   —      —      39    —
Convertible notes
   14    9    14    —








Weighted average shares outstanding - diluted
   462    453    501    443

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

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Mandatory convertible preferred stock
   39    26    —      26
Convertible notes
   —      —      —      9

Also, options to purchase 3 million shares of common stock at a weighted average exercise price of $33.33 and options to purchase 8 million shares of common stock at a weighted average exercise price of $38.16 were outstanding as of September 30, 2017 and 2016, respectively, but were not includedoccurred that would require recognition in the ~~computation of diluted EPS because their effect was anti-dilutive as the exercise price of the options was greater than the average market price of Arconic’s common stock.~~

~~K. Receivables~~

Arconic has an arrangement with three financial institutions to sell certain customer receivables without recourse on a revolving basis. The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is a consolidated subsidiary of Arconic. This arrangement provides for minimum funding of $200 up to a maximum of $400 for receivables sold. On March 30, 2012, Arconic initially sold $304 of customer receivables in exchange for $50 cash and $254 of deferred purchase program under the arrangement. Arconic has received additional net cash funding of $300 ($2,208 in draws and $1,908 in repayments) since the program’s inception, including net cash draws totaling $0 ($450 in draws and $450 in repayments)Consolidated Financial Statements or disclosure in the ~~nine months ended September 30, 2017.~~

As of September 30, 2017, and December 31, 2016, the deferred purchase program receivable was $238 and $83, respectively, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving program, the sale of new receivables will result in an increase in the deferred purchase program receivable. The net change in the deferred purchase program receivable was reflected in the (Increase) in receivables line item on the accompanying Statement of Consolidated Cash Flows. This activity is reflected as an operating cash flow because the related customer receivables are the result of an operating activity with an insignificant, short-term interest rate risk.

The gross amount of receivables sold and total cash collected under this program since its inception was $34,004 and $33,416, respectively. Arconic services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.

~~L. Debt~~

   September 30,
2017    December 31,
2016
6.50% Bonds, due 2018
   $ —      $ 250
6.75% Notes, due 2018
   —      750
5.72% Notes, due 2019
   500    750
1.63% Convertible Notes, due 2019*
   403    403
6.150% Notes, due 2020
   1,000    1,000
5.40% Notes due 2021
   1,250    1,250
5.87% Notes, due 2022
   627    627
5.125% Notes, due 2024
   1,250    1,250
5.90% Notes, due 2027
   625    625
6.75% Bonds, due 2028
   300    300
5.95% Notes, due 2037
   625    625
Iowa Finance Authority Loan, due 2042
   250    250
Other**
   (27 )    (32 )




Total debt
   6,803    8,048
Less: amount due within one year
   1    4




Total long-term debt
   $ 6,802    $ 8,044

*	~~Amount was assumed in conjunction with the July 2015 acquisition of RTI International Metals, Inc.~~

Includes various financing arrangements related to subsidiaries, unamortized debt discounts related to outstanding notes and bonds listed in the table above, an equity option related to the convertible notes due in 2019, adjustments to the carrying value of long-term debt related to an interest rate swap contract accounted for as a fair value hedge, and unamortized debt issuance costs.

~~Public Debt~~ ~~– In April 2017, the Company announced three separate cash tender offers by the Investment Banks for the purchase of the Company’s 6.50% Bonds due 2018 (the “6.50% Bonds”), 6.75%~~ Notes ~~due 2018 (the “6.75% Notes”), and 5.72% Notes due 2019 (the “5.72% Notes”), up to a maximum purchase amount of $1,000 aggregate principal amount of notes, subject to certain conditions.~~

The Investment Banks purchased notes totaling $805 aggregate principal amount, including $150 aggregate principal amount of 6.50% Bonds, $405 aggregate principal amount of 6.75% Notes, and $250 aggregate principal amount of $5.72% Notes.

During the second quarter of 2017, the Company agreed to acquire the notes from the Investment Banks for $409 in cash plus its remaining investment in Alcoa Corporation common stock (12,958,767 shares valued at $35.91 per share) for total consideration of $874 including accrued and unpaid interest. The Company recorded a charge of $58 ($27 in cash) primarily for the premium for the early redemption of the notes, a benefit of $8 for the proceeds of a related interest rate swap agreement, and a charge of $2 for legal fees associated with the transaction in Interest expense, and recorded a gain of $167 in Other income, net in the accompanying Statement of Consolidated Operations for the nine months ended September 30, 2017 for the Debt-for-Equity Exchange.

On June 19, 2017, the Company completed the early redemption of its remaining outstanding 6.50% Bonds, with aggregate principal amount of $100, and its remaining outstanding 6.75% Notes, with aggregate principal amount of $345, for $479 in cash including accrued and unpaid interest. As a result of the early redemption of the 6.50% Bonds and 6.75% Notes, the Company recorded a charge of $24 in Interest expense in the accompanying Statement of Consolidated Operations for the nine months ended September 30, 2017 for the premium paid for the early redemption of these notes in excess of their carrying value.

~~M. Pension and Other Postretirement Benefits~~

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

   Third quarter ended
September 30,    Nine months ended
September 30,
Pension benefits
   2017    2016    2017    2016
Service cost
   $ 22    $ 43    $ 67    $ 124
Interest cost
   59    114    175    358
Expected return on plan assets
   (82 )    (187 )    (248 )    (558 )
Recognized net actuarial loss
   55    104    165    308
Amortization of prior service cost (benefits)
   1    4    4    12
Settlements
   —      13    —      15
Special termination benefits
   —      —      —      1








Net periodic benefit cost*
   $ 55    $ 91    $ 163    $ 260
Discontinued operations
   —      41    —      114








Net amount recognized in Statement of Consolidated Operations
   $ 55    $ 50    $ 163    $ 146








Other postretirement benefits

Service cost
   $ 2    $ 3    $ 6    $ 10
Interest cost
   7    16    22    53
Recognized net actuarial loss
   2    8    4    19
Amortization of prior service cost (benefits)
   (2 )    (6 )    (6 )    (19 )
Special termination benefits
   —      —      —      —








Net periodic benefit cost*
   $ 9    $ 21    $ 26    $ 63
Discontinued operations
   —      12    —      37








Net amount recognized in Statement of Consolidated Operations
   $ 9    $ 9    $ 26    $ 26

Components of Net periodic benefit cost were included within Cost of goods sold, Selling, general administrative, and other expenses, Research and development expenses as well as Restructuring and other charges in the Statement of Consolidated Operations.

In conjunction with the Separation Transaction, the Pension Benefit Guaranty Corporation approved management’s plan to separate the Alcoa Inc. pension plans between Arconic Inc. and Alcoa Corporation. The plan stipulates that Arconic will make cash contributions over a period of 30 months to its two largest pension plans. Payments are expected to be made in three increments of no less than $50 each ($150 total) over this 30-month period. The first payment of $50 was made on April 18, 2017.

~~N. Financial Instruments~~

~~Fair Value~~

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

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

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

~~Level 3 - Inputs that are both significant~~ to the ~~fair value measurement~~Consolidated Financial Statements.

Item 2. Management’s Discussion and ~~unobservable.~~

~~The carrying values~~Analysis of Financial Condition and ~~fair values~~Results of ~~Arconic’s financial instruments were as follows:~~

   September 30, 2017    December 31, 2016
   Carrying
value    Fair
value    Carrying
value    Fair
value
Cash and cash equivalents
   $ 1,815    1,815    $ 1,863    $ 1,863
Restricted cash
   5    5    15    15
Derivatives - current asset
   41    41    14    14
Noncurrent receivables
   18    18    21    21
Derivatives - noncurrent asset
   24    24    10    10
Available-for-sale securities
   106    106    102    102
Investment in common stock of Alcoa Corporation
   —      —      1,020    1,020
Short-term borrowings
   54    54    36    36
Derivatives - current liability
   31    31    5    5
Long-term debt due within one year
   1    1    4    4
Derivatives - noncurrent liability
   11    11    3    3
Contingent payment related to an acquisition
   81    81    78    78
Long-term debt, less amount due within one year
   6,802    7,440    8,044    8,519

~~The following methods were used to estimate the fair values of financial instruments:~~

~~Cash and cash equivalents, Restricted cash, and Short-term borrowings.~~The carrying amounts approximate fair value because of the short maturity of the instruments. The fair value amounts for Cash and cash equivalents and Restricted cash were classified in Level 1, and Short-term borrowings were classified in Level 2.

~~Derivatives.~~The fair value of derivative contracts classified as Level 1 was based on identical unrestricted assets and liabilities. The fair value of derivative contracts classified as Level 2 was based on inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates).

~~Noncurrent receivables.~~~~The fair value of noncurrent receivables was based on anticipated cash flows, which approximates carrying value, and was classified in Level 2 of the fair value hierarchy.~~

~~Available-for-sale securities.~~The fair value of such securities was based on quoted market prices. These financial instruments consist of exchange-traded fixed income and equity securities, which are carried at fair value and were classified in Level 1 of the fair value hierarchy.

~~Investment in common stock of Alcoa Corporation.~~The fair value was based on the closing stock price of Alcoa Corporation on the New York Stock Exchange at December 31, 2016 multiplied by the number of shares of Alcoa Corporation common stock owned by Arconic at that date. This investment was classified in Level 1 of the fair value hierarchy. The Company disposed of its remaining investment in Alcoa Corporation common stock in the second quarter of 2017.

~~Contingent payment related to an acquisition.~~ ~~The fair value was based on the net present value of expected future cash flows and was classified in Level 3 of the fair value hierarchy.~~

~~Long-term debt due within one year and Long-term debt, less amount due within one year.~~ The fair value was based on quoted market prices for public debt and on interest rates that are currently available to Arconic 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.

~~O. Subsequent Events~~

On October 2, 2017, all outstanding 24,975,978 depositary shares (each depositary share representing a 1/10th interest in a share of the mandatory convertible preferred stock) were converted at a rate of 1.56996 into 39,211,286 common shares; 24,022 depositary shares were previously tendered for early conversion into 31,428 shares of Arconic common stock. No gain or loss was recognized associated with this equity transaction.

On October 13, 2017, Alcoa Corporation announced that it had terminated an electricity contract with Luminant Generation Company LLC, effective as of October 1, 2017, that was tied to its Rockdale Operations in Texas. Pursuant to the Separation and Distribution Agreement between Arconic and Alcoa Corporation, Arconic was required to provide a guarantee up to an estimated present value amount of approximately $485 related to this electricity contract for Alcoa Corporation’s facility in the event of an Alcoa Corporation payment default. As a result of the termination of the electricity contract by Alcoa Corporation, Arconic expects to record noncash non-operating income in the fourth quarter of 2017 of approximately $25 ($16 after-tax) associated with the reversal of the fair value of the guarantee which was included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet.

Report of Independent Registered Public Accounting Firm*

~~To the Shareholders and Board of Directors of Arconic Inc.~~

We have reviewed the accompanying consolidated balance sheet of Arconic Inc. and its subsidiaries (Arconic) as of September 30, 2017, and the related statements of consolidated operations, consolidated comprehensive income (loss), and changes in consolidated equity for the three-month and nine-month periods ended September 30, 2017 and 2016 and the statement of consolidated cash flows for the nine-month periods ended September 30, 2017 and 2016. These consolidated interim financial statements are the responsibility of Arconic’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2016, and the related statements of consolidated operations, consolidated comprehensive loss, changes in consolidated equity, and consolidated cash flows for the year then ended (not presented herein), and in our report dated February 28, 2017 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

~~/s/ PricewaterhouseCoopers LLP~~

~~PricewaterhouseCoopers LLP~~

~~Pittsburgh, Pennsylvania~~

~~November 6, 2017~~

*	This report should not be considered a “report” within the meanings of Sections 7 and 11 of the Securities Act of 1933, and the independent registered public accounting firm’s liability under Section 11 does not extend to it.

~~Item~~

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

Operations.

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

amounts)

Overview

~~Our Business~~

On April 1, 2020, Howmet Aerospace Inc. (formerly known as Arconic ~~(“Arconic”~~Inc.) ("Howmet" or the “Company”) ~~is a global leader in lightweight metals engineering~~completed the previously announced separation of its business into two independent, publicly-traded companies (the “Arconic Inc. Separation Transaction”). Following the Arconic Inc. Separation Transaction, Arconic Corporation holds the Global Rolled Products businesses (global rolled products, aluminum extrusions, and ~~manufacturing. Arconic’s innovative, multi-material products, which include aluminum, titanium, and nickel alloys, are used worldwide in aerospace, automotive, commercial transportation, packaging,~~ building and construction ~~oil~~systems) previously held by the Company. The Company retained the Engineered Products and ~~gas, defense, consumer electronics,~~Forgings businesses (Engine Products, Engineered Structures, Fastening Systems, and ~~industrial applications.~~

Forged Wheels).

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

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations excludes the historical results of Arconic Corporation, as the Arconic Inc. ~~(the new name for Alcoa Inc.) and Alcoa Corporation, became effective~~Separation Transaction took place on ~~November~~April 1, ~~2016 (the “Separation Transaction”).~~2020. The financial results of ~~Alcoa~~Arconic Corporation for all periods prior to the Arconic Inc Separation Transaction have been retrospectively reflected in the Statement of Consolidated Operations as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. In addition, the ~~third quarter~~related assets and ~~nine months ended September 30, 2016.~~liabilities associated with Arconic Corporation in the December 2019 Consolidated Balance Sheet are classified as assets and liabilities of discontinued operations. The cash flows, ~~equity and~~ comprehensive income, and equity related to ~~Alcoa~~Arconic Corporation have not been segregated and are included in the ~~accompanying~~ Statement of Consolidated Cash Flows, Statement of Consolidated Comprehensive Income (Loss), and Statement of Changes in Consolidated Equity, ~~and Statement of Consolidated Comprehensive Income,~~ respectively, for all periods prior to the ~~third quarter~~Arconic Inc. Separation Transaction.

COVID-19

The Company derives approximately 70% of its revenue from products sold to the aerospace end-market. As a result of COVID-19 and ~~nine months ended September 30, 2016.~~

its impact on the aerospace industry to-date, the possibility exists that there could be a sustained impact to our operations and our financial results. Since the start of the pandemic, certain original equipment manufacturer (“OEM”) customers have suspended manufacturing operations in North America and Europe on a temporary basis. While the pandemic has resulted in temporary closure of a small number of the Company's manufacturing facilities, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, the Company is taking a series of actions to address the financial impact, including announcing certain headcount reductions and reducing certain cash outflows, by suspending our dividends and reducing the levels of our capital expenditures to preserve cash and maintain liquidity. For additional information regarding the risks of COVID-19 on our business, see the section entitled “Item 1A. Risk Factors — Our business, results of operations, financial condition and/or cash flows could be materially adversely affected by the effects of widespread public health epidemics/pandemics, including COVID-19, that are beyond our control.”

Results of Operations

Earnings Summary:

Sales.Sales ~~increased $98,~~were $1,253 in the second quarter of 2020 compared to $1,818 in the second quarter of 2019 and $2,887 in the six months ended June 30, 2020 compared to $3,570 in the six months ended June 30, 2019. The decrease of $565, or ~~3%, and $262, or 3%~~31%, in the ~~third~~second quarter of 2020 and ~~nine~~$683, or 19%, in the six months ended ~~September~~June 30, ~~2017, respectively, compared~~2020, was primarily due to lower volumes in the ~~corresponding periods~~commercial aerospace and commercial transportation markets driven by the impacts of COVID-19 and 737 MAX production declines and a decrease in ~~2016. The increase~~sales of $65 from the divestiture of the forgings business in ~~both periods was~~ the ~~result of strong volume growth~~U.K. in ~~our Engineered Products and Solutions and Transportation and Construction Solutions segments and higher aluminum pricing,~~December 2019, partially offset by ~~the planned ramp down and Toll Processing and Services Agreement (the “Toll Processing Agreement”) relating to the Company’s North America packaging business in Tennessee~~growth in the ~~Global Rolled Products segment,~~defense aerospace and industrial gas turbine markets as well as ~~unfavorable~~favorable product pricing in both the Engineered Products and Solutions and Global Rolled Products segments. Pursuant to the Toll Processing Agreement that Arconic entered into with Alcoa Corporation on October 31, 2016 in connection with the Separation Transaction. Arconic provides can body stock to Alcoa Corporation using aluminum supplied by Alcoa Corporation, resulting in the absence of metal sales in the 2017 periods compared to the corresponding periods in 2016.

pricing.

Cost of goods sold (COGS). COGS as a percentage of Sales was ~~81.1%~~73.7% in the second quarter of 2020 compared to 73.4% in the second quarter of 2019 and ~~79.5%~~was 72.9% in the six months ended June 30, 2020 compared to 73.6% in the six months ended June 30, 2019. The increase in the second quarter of 2020 was primarily due to lower volumes and the impacts of COVID-19

partially offset by intentional product exits, the impairment of energy business assets of $9 in the second quarter of 2019 and favorable pricing. In the second quarter of 2020, the Company incurred costs related to fires at two plants of $14. The Company submitted an insurance claim and received a partial settlement of $10, which was in excess of its $10 insurance deductible which has already been met. The decrease in the six months ended June 30, 2020 was primarily due to intentional product exits, the impairment of energy business assets of $9 in the second quarter of 2019, and favorable pricing partially offset by the impacts of COVID-19 and lower volumes in the second quarter. The Company anticipates charges of approximately $5 to $15 in the third quarter ~~and nine months ended September 30, 2017, respectively, compared~~of 2020, with additional impacts in subsequent quarters as the businesses continue to ~~79.8% and 78.9% in~~recover from the third quarter and nine months ended September 30, 2016, respectively. The increase in both periods was primarily attributable to cost increases, including higher aluminum prices and ramp-up costs related to new commercial aerospace engines, and a lower margin product mix, partially offset by net cost savings.

fires.

Selling, general administrative, and other expenses (SG&A). SG&A expenses ~~decreased~~were $74 in the ~~third~~second quarter of ~~2017~~2020 compared to $102 in the ~~third~~second quarter of ~~2016 as a result of expenses related to the Separation Transaction of $54~~2019 and $153 in the ~~prior year period~~six months ended June 30, 2020 compared to $218 in the six months ended June 30, 2019. The decrease of $28, or 27%, in the second quarter of 2020 and ~~ongoing~~$65, or 30%, in the six months ended June 30, 2020, was primarily due to lower costs driven by overhead cost ~~reduction efforts (see Note D), partially offset by external~~reductions and lower net legal and other advisory costs related to Grenfell Tower primarily due to insurance reimbursements, partially offset by higher costs associated with the Arconic Inc. Separation Transaction.

Research and development expenses (R&D). R&D expenses were $4 in the second quarter of 2020 compared to $7 in the ~~current year period~~

~~SG&A expenses decreased $93~~second quarter of 2019 and $8 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to $16 in the ~~nine~~six months ended ~~September~~June 30, ~~2016 as a result~~2019. The decrease of ~~expenses related~~$3, or 43%, in the second quarter of 2020 and $8, or 50%, in the six months ended June 30, 2020, was primarily due to the ~~Separation Transaction~~consolidation of ~~$117~~the Company's primary R&D facility in ~~the prior year period compared to $18 in the current year period, as well as~~conjunction with ongoing ~~overhead~~ cost reduction ~~efforts (see Note D), partially offset by proxy, advisory and governance-related costs of $58 and external legal and other advisory costs related to Grenfell Tower of $7 in the current year period.~~

efforts.

Restructuring and other ~~charges.~~charges. Restructuring and other charges ~~were $19 ($13 after-tax)~~was $105 in the ~~third~~second quarter of ~~2017~~2020 compared to ~~$3 ($2 after-tax)~~$472 in the ~~third~~second quarter of ~~2016. Restructuring~~2019 or a decrease of $367; and was $144 in the six months ended June 30, 2020 compared to $516 in the six months ended June 30, 2019 or a decrease of $372. The decrease for the six months ended June 30, 2020 was primarily due to a charge for impairment of a long-lived asset group of $428 and a loss on sale of an additives business of $12 both of which occurred in the second quarter of 2019 as well as a decrease in severance cost reversals of $6, a decrease in lease termination costs of $12 and a decrease in exit costs and other ~~charges~~items of $8; which were ~~$118 ($99 after-tax) in the nine months ended September 30, 2017 compared to $33 ($22 after-tax) in the nine months ended September 30, 2016.~~

In the first nine months of 2017, Arconic recorded Restructuring and other charges of $118 ($99 after-tax), which included $59 ($40 after-tax) for layoff costs related to cost reduction initiatives including the separation of approximately 800 employees (350 in the Engineered Products and Solutions segment, 243 in the Global Rolled Products segment, 133 in the Transportation and Construction Solutions segment and 74 in Corporate); a charge of $60 ($60 after-tax) related to the sale of the Fusina, Italy rolling mill; a net benefit of $6 ($4 after-tax), for the reversal of forfeited executive stock compensation of $13, partially offset by a ~~charge of $7 for the related severance; a~~ net ~~charge of $7 ($5 after-tax) for other miscellaneous items; and a favorable benefit of $2 ($2 after-tax) for the reversal of a number of small layoff reserves~~increase related to ~~prior periods.~~

~~In the third quarter of 2016, Arconic recorded Restructuring~~pension and other postretirement benefit settlement accounting of $75, an increase in layoff charges of ~~$3 ($2 after-tax), which included $4 ($2 after-tax) for layoff costs~~$8 and charges related to ~~cost reduction initiatives and the separation~~an impairment of ~~Alcoa Inc. (see Note G), including the separation of approximately 70 employees (60~~assets associated with agreements to sell two businesses in the ~~Engineered Products and Solutions segment and 10 in Corporate); a net charge~~United Kingdom of ~~$7 ($5 after-tax) for other miscellaneous items; and a favorable benefit of $8 ($5 after-tax) for the reversal of a number of small layoff reserves related to prior periods.~~

In the first nine months of 2016, Arconic recorded Restructuring and other charges of $33 ($22 after-tax), which included $34 ($21 after-tax) for layoff costs related to cost reduction initiatives and the separation of Alcoa Inc. (see Note G), including the separation of approximately 1,140 employees (860$11 in the ~~Engineered Products and Solutions segment,~~six months ended June 30, in the Global Rolled Products segment, 240 in the Transportation and Construction Solutions segment, and 10 in Corporate); a net charge of $14 ($9 after-tax) for other miscellaneous items; and a net favorable benefit of $15 ($8 after-tax) for the reversal of a number of small layoff reserves related to prior periods.

~~Arconic does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of such charges to segment results would have been as follows:~~

As part of its ongoing restructuring in Brazil, the Company anticipates recognizing a restructuring-related charge of approximately $30 - $50 in the fourth quarter of 2017 related to its extrusions business which is part of the Transportation and Construction Solutions segment. The charge relates2020. See Note E to the ~~noncash impairment of the net book value of the business.~~

Consolidated Financial Statements for additional detail.

Interest ~~expense.~~expense. Interest expense ~~decreased $26, or 21%,~~was $144 in ~~the third quarter of 2017 compared to the third quarter of 2016 due to lower outstanding debt. During~~ the second quarter of ~~2017, Arconic redeemed all~~2020 compared to $86 in the second quarter of 2019 and $228 in the Company’s 6.50% Bonds due 2018 and 6.75% Notes due 2018, and a portion of the Company’s 5.72% Notes due 2019 (see Note L) in advance of the expiration date. Interest expense increased $27, or 7%, during the ninesix months ended ~~September~~June 30, ~~2017~~2020 compared to $171 in the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019. The increase of $58, or 67%, in the second quarter of 2020 and an increase of $57, or 33%, in the six months ended June 30, 2020, were primarily due to ~~$76 of premiums~~a $59 premium paid ~~for~~on the early redemption ~~noted above,~~of debt.

Other expense (income), net. Other expense (income), net was $16 in the second quarter of 2020 compared to $6 in the second quarter of 2019. The increase of $10, or 167%, in the second quarter of 2020 was primarily due to $3 favorable change in foreign currency and $9 of various small items, partially offset by $2 higher deferred compensation. Other expense (income), net was $(8) income for the six months ended June 30, 2020 compared to $18 expense for the six months ended June 20, 2019 The lower expense of $(26), or (144)% was primarily due to the lower deferred compensation of $18, favorable foreign currency movements of $8 and various small items of $11, partially offset by lower interest ~~expense due to lower outstanding debt.~~

~~Other~~ income ~~net.~~ ~~Other~~of $11.

Provision for income ~~net decreased $10~~taxes. The tax rate including discrete items was 2.3% (benefit on a loss) in the ~~third~~second quarter of ~~2017~~2020 compared to 49.3% (benefit on a loss) in the ~~third~~second quarter of ~~2016, primarily due to the favorable post-closing adjustment related to the November 2014 acquisition~~2019. A discrete tax charge of ~~Firth Rixson that~~$10 was recorded in the ~~third~~second quarter of ~~2016.~~

~~Other income, net increased $486~~2020 compared to a discrete tax benefit of $37 in the ~~nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the gain on the sale~~second quarter of a portion of Arconic’s investment in Alcoa Corporation common stock of $351 and the gain of $167 on the debt-for-equity exchange with two investment banks (the “Investment Banks”) of the remaining portion of Arconic’s retained interest in Alcoa Corporation common stock for a portion of the Company’s outstanding notes held by the Investment Banks (the “Debt-for-Equity Exchange”) (See Note G).

~~Provision for income taxes.~~ ~~For the nine months ended September 30, 2017, Arconic’s~~2019. The estimated annual effective tax rate, before discrete items, applied to ordinary income was ~~28.5%. This rate is lower than~~36.1% in the ~~federal statutory rate~~second quarter of ~~35%~~2020 compared to 51.8% in the second quarter of 2019. See Note H to the Consolidated Financial Statements.

Income (loss) from Continuing and Discontinued Operations Income (loss) from continuing operations was $(84), or $(0.19) per diluted share, in the second quarter of 2020 compared to $(136), or $(0.31) per diluted share, in the second quarter of 2019, and $69, or $0.15 per diluted share, in the six months ended June 30, 2020 , compared to $(50), or $(0.11) per diluted share, in the six months ended June 30, 2019. The improvement of $52 in the second quarter of 2020 and $119 in the six months ended June 30, 2020, was primarily due to ~~foreign income taxed in~~ lower ~~rate jurisdictions, a tax basis in excess of book basis in Alcoa Corporation common stock sold (see Note G),~~Restructuring and ~~a nontaxable gain on~~other charges, higher Income taxes, higher SG&A expenses primarily related to costs related to the ~~Debt-for-Equity Exchange (see Note L). These beneficial items were~~Arconic Inc. Separation Transaction, and higher Other expense, net, partially offset by ~~a loss on the sale of a rolling mill in Fusina, Italy for which no~~volume growth, favorable product pricing, net ~~tax benefit~~cost savings, lower Interest expense, and lower R&D expenses.

Income (loss) from discontinued operations was ~~recognized (see Note E) and valuation allowances recorded against U.S. foreign tax credits.~~

For the nine months ended September 30, 2016, Arconic’s estimated annual effective tax rate, before discrete items, was 56.0%. This rate is higher than the federal statutory rate of 35% primarily due to book basis in excess of tax basis of company-owned life insurance contracts that were sold during 2016, and separation expenses for which no tax benefit was recognized, partially offset by foreign income taxed in lower rate jurisdictions.

For the third quarter ended September 30, 2017 and September 30, 2016, the tax rate including discrete items was 30.8% and 45.9% respectively. Discrete items of $2 were recorded in the quarter ended September 30, 2017 and primarily relate to the tax effects of expired stock compensation partially offset by other insignificant adjustments. Discrete items of $7 were recorded in the quarter ended September 30, 2016 and primarily relate to Arconic’s share of a valuation allowance recorded by one of our joint ventures and as-filed adjustments related to the Company’s 2015 U.S. tax return, partially offset by other discrete benefits.

~~The tax provisions for the third quarter and nine months ended September 30, 2017 and September 30, 2016 were comprised of the following:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Pretax income at estimated annual effective income tax rate before discrete items
   $ 49    $ 69    $ 264    $ 257
Catch-up adjustment to revalue previous quarter pre-tax income at current estimated annual effective tax rate
   1    10    —
—

Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized
   1    (30 )    5    (37 )
Other discrete items
   2    7    3    10








Provision for income taxes
   $ 53    $ 56    $ 272    $ 230

~~Income from continuing operations after income taxes.~~ ~~Income from continuing operations after income taxes was $119 for the third quarter of 2017,~~$(12) or ~~$0.22~~$(0.03) per diluted share for the second quarter of 2020 compared to ~~income from continuing operations after income taxes of $66~~$15 or $0.03 per diluted share for the ~~third~~second quarter of ~~2016,~~2019. Income from discontinued operations was $50 or $0.11 per diluted share. The increase of $53 was primarily attributable to higher volumes and net cost savings across the businesses and the absence of expenses associated with the Separation Transaction, partially offset by higher LIFO inventory expense associated with higher aluminum prices, unfavorable product pricing, primarily in aerospace, and lower-margin product mix.

~~Income from continuing operations after income taxes was $653~~share for the ~~nine months ended September 30, 2017,~~second quarter of 2020 compared to $116 or ~~$1.31~~$0.25 per diluted share ~~compared to income from continuing operations after income taxes of $229~~ for the ~~nine months ended September 30, 2016, or $0.40 per diluted share. The increase~~second quarter of ~~$424 was primarily attributable~~2019. See details of discontinued operations in Note B to ~~a gain of $351 on~~ the ~~sale of a portion of Arconic’s investment in Alcoa Corporation common stock and a gain of $167 on~~Consolidated Financial Statements.

Since the ~~Debt-for-Equity Exchange; net cost savings; and higher volumes across all segments; partially offset by higher LIFO inventory expense associated with higher aluminum prices; the loss on sale~~announcement of the ~~Fusina, Italy rolling mill of $60; unfavorable product pricing, primarily~~Arconic Inc. Separation Transaction in ~~aerospace; and lower-margin product mix.~~

~~Discontinued operations.~~In the third quarter of 2016, net income attributable to Arconic included income of $120 from discontinued operations after income taxes and $20 from discontinued operations attributable to noncontrolling interests. In the nine months ended September 30, 2016, net income attributable to Arconic included income of $146 from discontinued operations after income taxes and $58 from discontinued operations attributable to noncontrolling interests.

~~Segment Information~~

In the first quarter of ~~2017, the Company changed its primary measure~~2019, separation costs recorded in Income from discontinued operations and in Selling, general administrative, and other expenses totaled $124 as well as debt issuance costs and capital expenditures of ~~segment performance from After-tax operating income (ATOI) to Adjusted earnings before interest, tax, depreciation,~~$45 and ~~amortization (“Adjusted EBITDA”).~~ $10, respectively.

Segment Information

Segment performance under ~~Arconic’s~~the Company's management reporting system is evaluated based on a number of factors; however, the primary measure of performance is ~~Adjusted EBITDA. Arconic’s~~Segment operating profit. The Company's definition of ~~Adjusted EBITDA~~Segment operating profit 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,~~Operating income excluding Special items. Special items include Restructuring and other ~~expenses; Research~~charges and ~~development expenses; and Provision for depreciation and amortization. The Adjusted EBITDA presented~~Impairment of goodwill. Segment operating profit may not be comparable to similarly titled measures of other companies.

Differences between segment and consolidated totals are in Corporate. The Company has four segments - Engine Products, Fastening Systems, Engineered ~~Products~~Structures and ~~Solutions~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Third-party sales
   $ 1,476    $ 1,406    $ 4,445    $ 4,320
Adjusted EBITDA
   $ 312    $ 296    $ 928    $ 930

Third-party sales for the Engineered Products and Solutions segment increased 5% in the third quarter of 2017 compared to the third quarter of 2016. The increase was the result of volume growth partially offset by lower product pricing, primarily in the aerospace end market. Third-party sales increased 3% in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase was the result of volume growth, partially offset by lower product pricing, primarily in the aerospace end market, the effects of foreign currency fluctuations, and the absence of sales of $23 related to the Remmele Medical business, which was sold in April 2016.

Adjusted EBITDA for the Engineered Products and Solutions segment increased $16 in the third quarter of 2017 compared to the third quarter of 2016. The increase was the result of higher volumes and net cost savings partially offset by lower product pricing and ramp up costs associated with increasing production volumes of new aerospace engine parts, such as higher scrap rates, production inefficiencies, new process development and employee training. Adjusted EBITDA decreased by $2 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was the result of unfavorable product pricing, ramp up costs associated with increasing production volumes of new aerospace engine parts, and a lower margin product mix, largely offset by net cost savings and higher volumes.

In the fourth quarter of 2017, growth in demand from the commercial aerospace end market relative to the fourth quarter of 2016 is expected along with continued net cost savings. These benefits will be partially offset by continued ramp up costs associated with the introduction of new commercial aerospace engines and unfavorable product pricing.

~~Global Rolled Products~~⁽¹⁾

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Third-party sales
   $ 1,234    $ 1,285    $ 3,751    $ 3,785
Intersegment sales
   36    30    107    88








Total sales
   $ 1,270    $ 1,315    $ 3,858    $ 3,873
Adjusted EBITDA
   $ 140    $ 143    $ 475    $ 461
Third-party aluminum shipments (kmt)
   297    356    914    1,063
Average realized price per metric ton of aluminum⁽²⁾⁽³⁾
   $ 4,155    $ 3,610    $ 4,104    $ 3,561

⁽¹⁾	Excludes the Warrick, IN rolling operations and the equity interest in the rolling mill at the joint venture in Saudi Arabia, both of which were previously part of the Global Rolled Products segment but became part of Alcoa Corporation effective November 1, 2016.

⁽²⁾

Generally, average realized price per metric ton of aluminum includes two elements: a) the price of metal (the underlying base metal component based on quoted prices from the London Metal Exchange (“LME”), plus a regional premium which represents the incremental price over the base LME component that is associated with physical delivery of metal to a particular region), and b) the conversion price, which represents the incremental price over the metal price component that is associated with converting primary aluminum into sheet and plate.

⁽³⁾	~~The metal price component is a pass-through to this segment’s customers with limited exceptions (e.g., fixed-priced contracts, certain regional premiums).~~

Third-party sales for the Global Rolled Products segment decreased 4% in the third quarter of 2017 compared to the third quarter of 2016. The decrease was primarily related to the impact of $131 associated with the ramp-down and Toll Processing Agreement with Alcoa Corporation at the Company’s North America packaging business in Tennessee, the absence of sales of $39 from the rolling mill in Fusina, Italy, which was sold in March 2017, and unfavorable product pricing, partially offset by higher aluminum pricing. Third-party sales decreased 1% in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was primarily related to the impact of $365 associated with the ramp-down and Toll Processing Agreement with Alcoa Corporation at the Company’s North America packaging business in Tennessee, the absence of sales of $74 from the rolling mill in Fusina, Italy, and unfavorable product pricing, largely offset by volume growth in the automotive end market and higher aluminum pricing.

Adjusted EBITDA for the Global Rolled Products segment decreased $3 in the third quarter of 2017 compared to the third quarter of 2016. The decrease is the result of the planned ramp-down of the Company’s North America packaging business in Tennessee, lower aerospace volume from customer inventory destocking and reduced build rates as well as continued pricing pressure on regional specialty products, and higher aluminum prices of $7, partially offset by net cost savings. The higher aluminum prices negatively impacted the Global Rolled Products Adjusted EBITDA margin by 170 basis points in the third quarter of 2017 compared to the third quarter of 2016.

Adjusted EBITDA increased $14 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase is the result of net cost savings and increased automotive volumes, partially offset by lower aerospace volume from customer destocking and reduced build rates as well as continued pricing pressure on regional specialty products.

In the fourth quarter of 2017, demand in the automotive end market is expected to continue to grow relative to the fourth quarter of 2016 due to the increasing demand for innovative products and aluminum-intensive vehicles. While new programs continue to ramp-up, demand from the commercial airframe end market is expected to decline due to customer destocking and lower build rates for aluminum intensive wide-body programs. Sales to the packaging market are expected to decline due to continuing pricing pressure within this market and the impact of the ramp-down relating to the Company’s North America packaging business in Tennessee. Net cost savings are expected to continue.

~~Transportation and Construction Solutions~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Third-party sales
   $ 517    $ 450    $ 1,467    $ 1,346
Adjusted EBITDA
   $ 83    $ 76    $ 237    $ 216

Third-party sales for the Transportation and Construction Solutions segment increased 15% in the third quarter of 2017 compared to the third quarter of 2016 due to increased volumes in the commercial transportation and building and construction end markets, higher aluminum pricing, and the effects of foreign currency, partially offset by lower product pricing. Third-party sales increased 9% in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to increased volumes in the commercial transportation and building and construction end markets and higher aluminum pricing, partially offset by lower product pricing.

Adjusted EBITDA for the Transportation and Construction Solutions segment increased $7 and $21 in the third quarter and nine months ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The change was principally the result of net cost savings and higher volumes, partially offset by lower product pricing in the heavy-duty truck market, unfavorable product mix, and higher aluminum prices. The higher aluminum prices negatively impacted the Transportation and Construction Solutions Adjusted EBITDA margin by $4 or 120 basis points in the third quarter of 2017 compared to the third quarter of 2016.

In the fourth quarter of 2017, increased volumes are expected to continue relative to the fourth quarter of 2016 due to growth in the Commercial Transportation and Building and Construction markets, as well as growth in demand for innovative and new products. Additionally, net cost savings and pricing headwinds are anticipated to continue in the fourth quarter.

~~Reconciliation of Combined segment adjusted EBITDA to Net income attributable to Arconic~~

~~The following table reconciles Combined segment adjusted EBITDA to Net income attributable to Arconic:~~

The changes in the reconciling items between Combined segment adjusted EBITDA and Net income attributable to Arconic for the third quarter and nine months ended September 30, 2017 compared to corresponding periods in 2016 consisted of:

an increase in Restructuring and other charges primarily due to ongoing overhead cost reductions; the nine month period was also impacted by the loss on sale of the Fusina, Italy rolling mill in the first quarter of 2017;

a change in the Impact of LIFO, mostly due to a greater increase in the price of aluminum, driven by higher base metal prices (LME) and regional premiums at September 30, 2017 indexed to December 31, 2016 for the 2017 third quarter and nine month period compared to higher base metal prices (LME) at September 30, 2016 indexed to December 31, 2015 for the 2016 third quarter and nine month period;

~~a change in Metal price lag in the nine months ended September 30, 2017 compared to nine months ended September 30, 2016 due to higher prices for aluminum;~~

a decrease in Corporate expense in the third quarter of 2017 compared to the third quarter of 2016 primarily attributable to costs incurred in 2016 related to the separation of Alcoa Inc. and a decrease in Corporate expense in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily attributable to costs incurred in 2016 related to the separation of Alcoa Inc., partially offset by proxy, advisory and governance-related costs incurred in 2017;

an increase in Other income, net, in the nine months ended September 30, 2017, largely the result of the $351 gain on the sale of a portion of Arconic’s investment in Alcoa Corporation common stock in the first quarter of 2017 and a $167 gain on the Debt-for-Equity Exchange in the second quarter of 2017;

a decrease in Interest expense in the third quarter of 2017 compared to the third quarter of 2016 due to lower outstanding debt and an increase in Interest expense in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to premiums paid for the early redemption of $1,250 of the Company’s long-term debt during the second quarter of 2017 partially offset by lower expense due to lower outstanding debt; and

an increase in Provision for income taxes in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 attributable to higher pretax income, exclusive of the previously noted gain on the Debt-for-Equity Exchange.

~~Reconciliation of Net income attributable to Arconic to Consolidated adjusted EBITDA~~

Items required to reconcile Net income attributable to Arconic to Consolidated adjusted EBITDA include: Depreciation and amortization; Restructuring and other charges; Other income, net; Interest expense; Income tax expense; and Discontinued operations.

~~The following table reconciles Net income attributable to Arconic to Consolidated adjusted EBITDA:~~

   Third quarter ended
September 30,    Nine months ended
September 30,
   2017    2016    2017    2016
Net income attributable to Arconic
   $ 119    $ 166    $ 653    $ 317
Depreciation and amortization
   140    136    410    402
Restructuring and other charges
   19    3    118    33
Other income, net
   (1 )    (11 )    (526 )    (40 )
Interest expense
   100    126    398    371
Income taxes
   53    56    272    230
Discontinued operations
   —      (100 )    —      (88 )








Consolidated adjusted EBITDA⁽¹⁾
   $ 430    $ 376    $ 1,325    $ 1,225

⁽¹⁾

Consolidated adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Consolidated adjusted EBITDA provides additional information with respect to Arconic’s operating performance. Additionally, presenting Consolidated adjusted EBITDA pursuant to our debt agreements is appropriate to provide additional information to investors to demonstrate Arconic’s ability to comply with its financial debt covenants. The Consolidated adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

~~Environmental Matters~~

~~See the Environmental Matters section of~~Forged Wheels. (See Note HD to the Consolidated Financial Statements in Part I Item 1 of this Form ~~10-Q.~~

~~Subsequent Events~~

~~On October 2, 2017, all outstanding 24,975,978 depositary shares (each depositary share representing~~10-Q for a ~~1/10th interest~~description of each segment).

In the second quarter of 2020, the Company realigned its operations consistent with how the Co-Chief Executive Officers are assessing operating performance and allocating capital in ~~a share~~conjunction with the Arconic Inc. Separation Transaction (see Note B to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q). Prior period financial information has been recast to conform to current year presentation.

The Company produces aerospace engine parts and components and aerospace fastening systems for Boeing 737 MAX airplanes. The temporary reduction in the production rate of the mandatory convertible preferred stock) were converted at a rate of 1.56996 into 39,211,286 common shares; 24,022 depositary shares were previously tendered for early conversion into 31,428 shares of Arconic common stock. No gain or loss was recognized associated with this equity transaction.

~~On October 13, 2017, Alcoa Corporation announced that it had terminated an electricity contract with Luminant Generation Company LLC, effective as of October 1, 2017,~~737 MAX airplanes that was ~~tied~~announced by Boeing in April 2019 did not have a significant impact on the Company's sales or segment operating profit in 2019. In late December 2019, Boeing announced a temporary suspension of production of the 737 MAX airplanes. This decline in production had a negative impact on sales and segment operating profit in the Engine Products, Fastening Systems and Engineered Structures segments in the second quarter and six months ended June 30, 2020. The Company expects the reduction in 737 MAX production rates to continue to have a negative impact on its ~~Rockdale Operations~~financial performance for the remainder of 2020.

Engine Products


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Third-party sales	$	585	$	835	$	1,366	$	1,648
Inter-segment sales	1		3		3		8
Total sales	$	586	$	838	$	1,369	$	1,656
Segment operating profit	105		163		270		304

Third-party sales for the Engine Products segment decreased $250, or 30%, in ~~Texas. Pursuant~~the second quarter of 2020 compared to the ~~Separation and Distribution Agreement between Arconic and Alcoa Corporation, Arconic was required~~second quarter of 2019, primarily due to ~~provide a guarantee up to an estimated present value amount of approximately $485 related to this electricity contract for Alcoa Corporation’s facility~~lower volumes in the ~~event~~commercial aerospace end market driven by COVID-19 and 737 MAX production declines and a decrease in sales of ~~an Alcoa Corporation payment default. As a result~~$33 from the divestiture of the ~~termination~~forgings business in the U.K. (December 2019) (see Note Q to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q), partially offset by higher volumes in the industrial gas turbines and defense aerospace end markets as well as price increases.

Third-party sales for the Engine Products segment decreased $282, or 17% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to lower volumes in the commercial aerospace end market driven by COVID-19 and 737 MAX production declines and a decrease in sales of $65 from the divestiture of the ~~electricity contract by Alcoa Corporation, Arconic expects to record noncash non-operating income~~forgings business in the ~~fourth~~U.K. (December 2019) (see Note Q to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q), partially offset by higher volumes in the industrial gas turbines and defense aerospace end markets as well as price increases.

Segment operating profit for the Engine Products segment decreased $58, or 36%, in the second quarter of ~~2017~~2020 compared to the second quarter of ~~approximately $25 ($16 after-tax) associated with~~2019, primarily due to lower commercial aerospace volumes, partially offset by cost reductions, price increases, and favorable volumes and mix in the ~~reversal~~industrial gas turbines and defense aerospace end markets.

Segment operating profit for the Engine Products segment decreased $34, or 11%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to lower commercial aerospace volumes, partially offset by cost reductions, price increases and favorable volumes and mix in the industrial gas turbines and defense aerospace end markets.

Fastening Systems


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Third-party sales	$	326	$	399	$	711	$	794


Segment operating profit	70		99		166		195

Third-party sales for the Fastening Systems segment decreased $73, or 18%, in the second quarter of 2020 compared to the ~~fair value~~second quarter of 2019, primarily due to lower volumes in the ~~guarantee which was included~~commercial transportation and aerospace end markets driven by COVID-19 and 737 MAX production declines.

Third-party sales for the Fastening Systems segment decreased $83, or 10%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to lower volumes in the commercial transportation and aerospace end markets driven by COVID-19 and 737 MAX production declines.

Segment operating profit for the Fastening Systems segment decreased $29, or 29%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower volumes and COVID-19, partially offset by cost reductions.

Segment operating profit for the Fastening Systems segment decreased $29, or 15%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to lower volumes and COVID-19, partially offset by cost reductions.

Engineered Structures


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Third-party sales	$	229	$	331	$	504	$	625
Inter-segment sales	2		3		5		6
Total sales	$	231	$	334	$	509	$	631
Segment operating profit	19		25		47		41

Third-party sales for the Engineered Structures segment decreased $102, or 31%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower volumes in the commercial aerospace end market driven by COVID-19 and 737 MAX production declines, partially offset by price increases.

Third-party sales for the Engineered Structures segment decreased $121, or 19% , for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to lower volumes in the commercial aerospace end market driven by COVID-19 and 737 MAX production declines, partially offset by price increases.

Segment operating profit for the Engineered Structures segment decreased $6, or 24%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower sales volumes and COVID-19, partially offset by cost reductions, intentional product exits and price increases.

Segment operating profit for the Engineered Structures segment increased $6, or 15%, for the six months ended June 30, 2020 compared to six months ended June 30, 2019, primarily due to cost reductions, price increases and intentional product exits, partially offset by lower sales volumes.

Forged Wheels


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Third-party sales	$	113	$	257	$	304	$	511


Segment operating profit	6		73		56		133

Third-party sales for the Forged Wheels segment decreased $144, or 56%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower volumes in the commercial transportation market driven by market softness and COVID-19, unfavorable foreign currency movements and aluminum prices.

Third-party sales for the Forged Wheels segment decreased $207, or 41%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to lower volumes in the commercial transportation market driven by market softness and COVID-19, unfavorable foreign currency movements and aluminum prices.

Segment operating profit for the Forged Wheels segment decreased $67, or 92%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower volumes, COVID-19 disruptions and unfavorable aluminum prices, partially offset by cost reductions.

Segment operating profit for the Forged Wheels segment deceased $77, or 58%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to lower volumes and COVID-19 disruptions, partially offset by cost reductions.

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


	Second quarter ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Total segment operating profit	$	200	$	360	$	539	$	673
Unallocated amounts:
Restructuring and other charges	(105)		(472)		(144)		(516)
Corporate expense	(21)		(64)		(63)		(119)
Consolidated operating income (loss)	$	74	$	(176)	$	332	$	38
Interest expense	(144)		(86)		(228)		(171)
Other (expense) income, net	(16)		(6)		8		(18)
Income (loss) from continuing operations before income taxes	$	(86)	$	(268)	$	112	$	(151)

See Restructuring and other charges, Interest expense, and Other ~~noncurrent liabilities and deferred credits on~~(expense) income, net discussions above under Results of Operations for reference.

Environmental Matters

See the ~~accompanying~~Environmental Matters section of Note R to the Consolidated ~~Balance Sheet.~~

Financial Statements in Part I Item 1 of this Form 10-Q.

Subsequent Events

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

Liquidity and Capital Resources

~~The cash flows related to Alcoa Corporation have not been segregated and are included~~

Operating Activities

Cash used for operations was $260 in the ~~Statement of Consolidated Cash Flows for the nine~~six months ended ~~September~~June 30, ~~2016. As a result,~~2020, compared to $152 in the ~~cash flow amounts reported for the nine~~six months ended ~~September~~June 30, ~~2017 are not comparable to the amounts reported for the nine months ended September 30, 2016.~~

~~Cash from Operations~~

~~Cash provided from operations was $89 in the nine months ended September 30, 2017 compared to $208 in the nine months ended September 30, 2016.~~2019. The ~~decrease in cash provided from operations~~increase of ~~$119,~~$108, or ~~57%~~71%, was primarily due to lower operating results ~~(net income plus net add-back for noncash transactions in earnings)~~ of ~~$673,~~$296, partially offset by lower ~~cash used for~~ working capital of ~~$251~~$179. The components of the change in working capital included favorable changes in receivables of $673 and ~~a positive change associated with noncurrent~~in taxes, including income taxes of $55, partially offset by unfavorable changes in accounts payable of $374, accrued expenses of $127, prepaid expenses and other current assets of ~~$247 due to the prepayment~~$29 and inventories of ~~$200 made in April 2016 related to a gas supply agreement for the Australia alumina refineries.~~

$19.

Financing Activities

Cash used for financing activities was ~~$918~~$277 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$350~~$942 in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The increase ~~in cash used for financing activities~~of $665, or 71%, was primarily ~~related~~due to a decrease in repurchases of common stock of $900 and an increase in debt issued of $2,174, which were partially offset by an increase in long-term debt redemptions of $1,815, cash distributed to Arconic Corporation at the ~~early~~Arconic Inc. Separation Transaction of $500, debt issuance costs of $61 and premiums paid on the redemption of ~~the Company’s 6.50% Bonds due 2018, 6.75% Notes due 2018, and a portion~~debt of ~~the 5.72% Notes due 2019 (see Note L).~~

~~Arconic~~$59.

The Company maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein, which provides for a $3,000 senior unsecured revolving credit facility (the “Credit Facility”) which matures on July 25, 2020 unless extended or earlier terminated in accordance with the provisions of the Credit Agreement. The purpose of any borrowings under the Credit Facility is to provide for working capital requirements and for other general corporate purposes.

therein. In addition to the Credit Agreement, ~~above, Arconic~~the Company has a number of other credit ~~agreements that provide a combined borrowing capacity~~agreements. On June 26, 2020, the Company entered into an amendment to its Credit Agreement to modify certain terms which provided relief from its existing financial covenant through December 31, 2021 and reduced total commitment available from $1,500 to $1,000. See Note O to the Consolidated Financial Statements in Part I Item 1 of ~~$715 as of September 30, 2017, of which $175 is due to expire in 2017 and $540 is due to expire in 2018.~~ this Form 10-Q for reference.

The purpose of any borrowings under these credit arrangements is to provide for working capital requirements and for other general corporate purposes. The covenants contained in all these arrangements are the same as the Credit Agreement. During the third quarter and nine months ended September 30, 2017, Arconic borrowed and repaid $150 and $660, respectively, under these other credit facilities. The weighted-average interest rate and weighted-average days outstanding during the third quarter and nine months ended September 30, 2017 were 2.73% and 73 days and 2.48% and 43 days, respectively.

~~Arconic’s~~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 ~~Arconic~~the Company by the major credit rating agencies.

~~Arconic’s~~

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

Long-Term Debt

Short-Term Debt

Outlook

~~Outlook~~

Date of Last Update

Standard and Poor’s

BBB-

~~BBB-~~A-3

Negative

~~A-3~~

~~Stable~~

~~May 1, 2017~~April 22, 2020

Moody’s

Ba3

~~Ba2~~

Speculative Grade
Liquidity-2

Negative

~~Stable~~

~~November 2, 2017~~April 23, 2020

Fitch

BBB-

~~BB+~~B

Stable

~~Stable~~

~~July 3, 2017~~April 22, 2020

Investing Activities

Cash provided from investing activities was ~~$776~~$127 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$79~~$171 in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

2019. The decrease of $44, or 26%, was primarily due to decreases in Cash ~~provided~~receipts from ~~investing activities for the nine months ended September 30, 2017 included proceeds~~sold receivables of ~~$888 from the sale~~$303 and lower sales of ~~a portion~~fixed-income securities of ~~Arconic’s investment in Alcoa Corporation common stock and the receipt of proceeds from the sale of the Yadkin Hydroelectric Project of $243, somewhat~~$47, which were partially offset by ~~cash used for~~a decrease in capital expenditures of ~~$360~~$203 and ~~the injection of $10 into the Fusina rolling business prior to its sale.~~

~~Cash provided from investing activities for the nine months ended September 30, 2016 included~~an increase in proceeds ~~of $683~~ from the sale of assets and businesses ~~primarily related to $457 in proceeds from the redemption~~ of ~~Company-owned life insurance policies, proceeds of $120~~$102 primarily related to the sale of a hard extrusions plant in South Korea and an aluminum rolling mill in Brazil in the ~~Intalco smelter wharf property, and proceeds~~first quarter of ~~$102 from~~2020 (both of which related to Arconic Corporation) compared to the sale of a small additives business within the ~~Remmele Medical~~Engineered Structures segment in the first half of 2019.

Critical Accounting Policies and Estimates

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

Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. For the second quarter of 2020, Howmet had four reporting units (Engine Products, Fastening Systems, Engineered Structures and Forged Wheels).

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

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

Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact they would have on the estimated fair value using positive, neutral, and adverse categories based on current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using high, medium, and ~~$280~~low weighting. Furthermore, management considers the results of the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital (WACC) between the current and prior years for each reporting unit.

During the first quarter of 2020, Howmet’s market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, sales globally to customers in ~~proceeds received from~~ the ~~sale~~aerospace and commercial transportation industries that are impacted by COVID-19 have been and are expected to be negatively impacted as a result of ~~investments, including $145~~disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test in the first quarter to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this assessment, the Company performed a quantitative impairment test in the first quarter for the ~~sale~~Engineered Structures reporting unit and concluded that though the margin between the fair value of ~~an equity interest~~the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not impaired. Consistent with prior practice, a discounted cash flow model was used to estimate the current fair value of the reporting unit. The significant assumptions and estimates utilized to determine fair value were developed utilizing current market and forecast information reflecting the disruption in ~~a natural gas pipeline~~demand that has and is expected to negatively impact the Company’s sales globally in ~~Australia and $130 for fixed income and equity securities held by Arconic’s captive insurance company. These cash flows were partially offset by $814 in capital expenditures, including~~ the aerospace ~~expansion (thick plate stretcher) at the Davenport, Iowa plant.~~

~~Noncash Financing and Investing Activities~~

industry.

In the second quarter of ~~2017,~~2020, there were no indicators of impairment identified for the ~~Company completed a Debt-for-Equity Exchange with~~Engineered Structures reporting unit as the ~~Investment Banks~~margin between fair value of the ~~remaining portion~~reporting unit and carrying value exceeded 20%. As such, the fair values of ~~Arconic’s retained interest in Alcoa Corporation common stock for a portion~~all of ~~the Company’s outstanding notes held by the Investment Banks for $465 including accrued~~our reporting units substantially exceeded their carrying values at June 30, 2020. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and ~~unpaid interest.~~

could be material.

Recently Adopted and Recently Issued Accounting Guidance

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

Forward-Looking Statements

This report contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect ~~Arconic’s~~Howmet’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts and expectations relating to the growth of the aerospace, automotive, commercial transportation and other end markets; statements and guidance regarding future financial results or operating performance; statements regarding future strategic actions; and statements about ~~Arconic’s~~Howmet’s strategies, outlook, business and financial ~~prospects; and statements regarding potential share gains.~~prospects. These statements reflect beliefs and assumptions that are based on ~~Arconic’s~~Howmet’s perception of historical trends, current conditions and expected future developments, as well as other factors ~~management~~Howmet believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Although Arconic believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible thatpredict, which could cause actual results ~~may~~to differ materially from those indicated by these ~~forward-looking statements due to a variety of risks and uncertainties.~~statements. Such risks and uncertainties include, but are not limited to: (a) the impact of the separation of Arconic Corporation from Howmet on the businesses of Howmet; (b) deterioration in global economic and financial market conditions ~~generally; (b)~~generally including as a result of pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the COVID-19 outbreak continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations); (c) unfavorable changes in the markets served by ~~Arconic; (c)~~Howmet; (d) the inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations anticipated or targeted; ~~(d) changes in discount rates~~(e) competition from new product offerings, disruptive technologies or ~~investment returns on pension assets; (e) Arconic’s~~other developments; (f) political, economic, and regulatory risks relating to Howmet’s global operations, including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (g) manufacturing difficulties or other issues that impact product performance, quality or safety; (h) Howmet’s inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, expansions, or joint ventures; ~~(f)~~(i) the impact of potential cyber attacks and ~~potential~~ information technology or data security breaches; ~~(g) any manufacturing difficulties~~(j) the loss of significant customers or ~~other issues that impact product performance, quality or safety; (h) political, economic, and regulatory risks in the countries in which Arconic operates or sells products; (i) material~~ adverse changes in ~~aluminum industry conditions, including fluctuations~~customers’ business or financial conditions; (k) adverse changes in ~~London Metal Exchange-based aluminum prices; (j)~~discount rates or investment returns on pension assets; (l) the impact of changes in aluminum prices and foreign currency exchange rates on costs and results; ~~(k)~~(m) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose ~~Arconic~~Howmet to substantial costs and liabilities; and ~~(l)~~(n) the possible impacts and our preparedness to respond to implications of COVID-19; and (o) the other risk factors summarized in ~~Arconic’s~~Howmet’s Form 10-K for the year ended December 31, ~~2016, including under Part I, Item 1A thereof, in Arconic’s~~2019, Form 10-Q for the quarter ended ~~June 30, 2017,~~March 31, 2020, and other reports filed with the U.S. Securities and Exchange Commission. Market projections are subject to the risks discussed above and other risks in the ~~following sections of this report: Note H to the financial statements, and the discussion included above under Segment Information. Arconic~~market. Howmet disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law. ~~Market projections are subject to the risks discussed above and other risks in the market.~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not material.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

~~Arconic’s Interim Chief~~

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

(b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the ~~third~~second quarter of ~~2017,~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

~~Environmental Matters~~

As previously reported, by an amended complaint filed April 21, 2005, Alcoa Global Fasteners, Inc. (now known as Arconic Global Fasteners & Rings, Inc.) was added as a defendant in Orange County Water District (OCWD) v. Northrop Corporation, et al., civil action 04cc00715 (Superior Court of California, County of Orange). OCWD alleges contamination or threatened contamination of a drinking water aquifer by Arconic, certain of the entities that preceded Arconic at the same locations as property owners and/or operators, and other current and former industrial and manufacturing businesses that operated in Orange County in past decades. OCWD seeks to recover the cost of aquifer remediation and attorney’s fees. Trial on statutory, non-jury claims commenced on February 10, 2012. On October 29, 2013, the court issued its final Statement of Decision in favor of Arconic and the other Phase I trial defendants dismissing the statutory law liability claims. On June 20, 2014, following the full briefing by the parties, the trial court entered final judgment in favor of Arconic and the other trial defendants on the remaining tort claims. On August 18, 2014, the OCWD appealed the dismissal of the statutory law claims and common law claims (except for negligence). On March 29, 2017, oral argument on the appeal took place before a panel of three California Court of Appeal justices. On June 1, 2017, the Court of Appeal upheld the trial court’s decision in favor of Arconic on all claims. The OCWD did not file a petition for review

See Note R to the ~~California Supreme Court. On July 12, 2017, Northrop filed~~Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Item 1. Risk Factors.

Howmet’s business, financial condition and results of operations may be impacted by a ~~petition for review by the Supreme Court~~number of ~~the State of California. On September 13, 2017, the California Supreme Court denied Northrop’s petition for review. The remaining claims against Northrop have been remanded~~factors. In addition to the ~~trial court. No claims against Arconic are pending~~factors discussed elsewhere in ~~the remanded case. No further reports will be made~~this report, in Part I, Item 1A of Howmet’s Annual Report on ~~this matter unless there is a material development.~~

As previously reported, on June 21, 2017, the UK Environment Agency (the “Agency”) confirmed that it will prosecute Firth Rixson Metals Limited in Chesterfield (UK) Magistrates Court in relation to an environmental incident that took place on April 22, 2015 at the Company’s Glossop UK site. It is alleged that an acid scrubber unit at the site caused a leak into the local river resulting in environmental damage, including the death of approximately 200 fish. Arconic was not successful in persuading the Agency to drop the prosecution in lieu of an enforcement undertaking (a civil remedy) despite the fact that cyanide, a compound not used on the site, had been identified in the samples of water taken at the time. A hearing before the Court was held on September 13, 2017 at which Firth Rixson pled guilty to the underlying offense of allowing a release to occur to the nearby stream. The Agency was not ready to proceed to a full hearing on the culpability and harm elements of the allegations, and requested more time. The Court granted the Agency’s request and set a follow-up hearing for December 6, 2017. The Company expects that to be the final dispositive hearing, at or after which it expects the Court to render final decisions on culpability and harm, and impose a fine on the Company. The Company has recorded an amount to cover the estimated fine and this amount is not material to the Company’s Consolidated Financial Statements.

~~Reynobond PE~~

As previously reported, on June 13, 2017, the Grenfell Tower in London, UK caught fire resulting in fatalities, injuries and damage. A French subsidiary of Arconic, Arconic Architectural Products SAS (AAP SAS), supplied a product, Reynobond PE, to its customer, a cladding system fabricator, which used the product as one component of the overall cladding system on Grenfell Tower. The fabricator supplied its portion of the cladding system to the façade installer, who then completed and installed the system under the direction of the general contractor. Neither Arconic nor AAP SAS was involved in the design or installation of the system used at the Grenfell Tower, nor did it have a role in any other aspect of the building’s refurbishment or original design. Regulatory investigations into the overall Grenfell Tower matter are being conducted, including a criminal investigation by the London Metro Police, a Public Inquiry by the British government and a consumer protection inquiry by a French public authority. AAP SAS has filed an application seeking core participant status in the Public Inquiry.

~~Brave v. Arconic Inc., Kenneth J. Giacobbe and Klaus Kleinfeld~~. A purported class action complaint was filed on July 13, 2017 in the United States District Court for the Southern District of New York against Arconic Inc., Kenneth J. Giacobbe and Klaus Kleinfeld. The complaint alleged that the statements in Arconic’s 2016 10-K about management’s recognition of its responsibility to conduct the Company’s affairs according to the highest standards of personal and corporate conduct and within the laws of the host countries in which it operates, and its failure to disclose that Arconic knowingly supplied highly flammable Reynobond PE cladding panels for use in construction that significantly increased the risk of property damage, injury and death, were false and misleading in violation of the federal securities laws and artificially inflated the prices of Arconic’s securities. The plaintiffs sought, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses. On August 14, 2017, this case was dismissed by the plaintiff without prejudice.

~~Tripson v. Arconic Inc. and Klaus Kleinfeld~~. A purported class action complaint was filed on July 14, 2017 in the United States District Court for the Southern District of New York against Arconic Inc. and Klaus Kleinfeld. The complaint alleged that statements in Arconic’s 2012-2016 10-Ks, 2012-15 Annual Reports and the 2016 Annual Highlights Report about management’s recognition of its responsibility to conduct the Company’s affairs according to the highest standards of personal and corporate conduct and within the laws of the host countries in which it operates, and its failure to disclose that Arconic knowingly supplied highly flammable Reynobond PE cladding panels for use in construction that significantly increased the risk of property damage, injury and death, were false and misleading in violation of the federal securities laws and artificially inflated the prices of Arconic’s securities. The complaint also alleged that Arconic was motivated to conceal its potential liability to improve its credit ratings and enhance its ability to raise capital. The plaintiffs sought, among other things, unspecified compensatory damages and equitable relief and an award of attorney and expert fees and expenses. On August 25, 2017, this case was dismissed by the plaintiff without prejudice.

~~Sullivan v. Arconic Inc. et al.~~ A purported class action complaint was filed on July 18, 2017 in the United States District Court for the Southern District of New York against Arconic Inc., as well as two former Arconic executives and several current and former Arconic directors, and banks that acted as underwriters for Arconic’s September 18, 2014 preferred stock offering. The complaint alleges that statements in the registration statement for Arconic’s September 18, 2014 preferred stock offering were false and misleading in light of the subsequent Grenfell Tower fire. The complaint also alleges that Arconic’s failure to disclose at the time of the offering that it was obtaining significant profits through sales that exposed it to substantial liability violated the federal securities laws. The plaintiffs seek, among other things, unspecified compensatory and recissory damages and an award of attorney and expert fees and expenses. On August 25, 2017, this case was dismissed by the plaintiff without prejudice and re-filed on September 15, 2017 in the United States District Court for the Western District of Pennsylvania.

~~Howard v. Arconic Inc. et al.~~ A purported class action complaint was filed on August 11, 2017 in the United States District Court for Western District of Pennsylvania against Arconic Inc., and Klaus Kleinfeld. The complaint alleges that Arconic and Mr. Kleinfeld made various false and misleading statements, and omitted to disclose material information, about the company’s business and financial prospects and, specifically, the risks of the Reynobond PE product. The complaint alleges that the statements in Arconic’s Form 10-K for the ~~fiscal years~~year ended December 31, ~~2012, 2013, 2014, 2015~~2019, Part II, Item 1A. of Howmet’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and ~~2016,~~in other reports filed by Howmet with the Securities and Exchange Commission, the following risks and uncertainties, updated from and in addition to those in the Form 10-K and Form 10-Q, could materially harm its ~~2012, 2013, 2014, 2015~~business, financial condition or results of operations, including causing Howmet’s actual results to differ materially from those projected in any forward-looking statements. Additional risks and ~~2016 Annual Reports,~~uncertainties not presently known to Howmet or that Howmet currently deems immaterial also may materially adversely affect the Company in future periods.

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

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

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

•Business and operations risks: We continue to monitor the evolving situation relating to COVID-19 to determine whether we will need to significantly modify our business practices or take actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, suppliers and shareholders. We have had a number of smaller manufacturing locations that have experienced periods of shutdowns. Future shutdowns will be dependent on facts and circumstances as they unfold, including based on the restrictions and limitations noted above. Additional shutdowns, while not required by governmental authorities, may be necessary to match our production of materials to the reduced demand of our customers. In addition, given these factors and potential further disruptions, we may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. We may also face challenges in restoring our production levels if and when COVID-19 abates, including as a result of government-imposed or other limitations that prevent the return of all or a portion of our workforce and/or continue to disrupt demand and limit the capabilities of our suppliers. We continue to monitor the situation, to assess further possible implications to our business, employees, customers and supply chain, and to take actions in an effort to mitigate adverse consequences. As a result of COVID-19 and its ~~2016 Annual Highlights Report about management’s recognition~~potential impact on the aerospace industry, the possibility exists that a sustained impact to our operations, financial results and market capitalization may require material impairments of ~~its responsibility~~our assets including, but not limited to, ~~conduct~~goodwill, intangible assets, long-lived assets, and right-of-use assets. While we have already commenced plans to reduce costs, including certain headcount reductions, reductions in certain cash outflows, suspension of our common stock dividend and reductions in the ~~Company’s affairs according to the highest standards~~levels of personal and corporate conduct and within the laws of the host countries in which it operates, and its failure to disclose that Arconic knowingly supplied highly flammable Reynobond PE cladding panels for use in construction that significantly increased the risk of property damage, injury and death, were false and misleading in violation of the federal securities laws and artificially inflated the prices of Arconic’s securities. The plaintiffs seek, among other things, unspecified compensatory damages and an award of attorney and expert fees and expenses.

While the Company believes that these cases are without merit and intends to challenge them vigorously, there can be no assurances regarding the ultimate resolution of these matters. Given the preliminary nature of these matters and the uncertainty of litigation, the Companyour capital expenditures, we cannot ~~reasonably estimate~~ at this time predict the ~~likelihood~~longer term impact of the COVID-19 pandemic, but it could continue to have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

•Customer and supplier risks: We have limited visibility into future demand given the disruptions resulting from COVID-19. The sharp decrease in air travel resulting from the COVID-19 outbreak and the measures governments and private organizations worldwide have implemented in an ~~unfavorable outcome or the possible loss or range of losses~~attempt to contain its spread is adversely affecting, and will likely continue to adversely affect, airlines and airframers and their respective demand for our customers’ products and services. Aircraft manufacturers are reducing production rates due to fewer expected aircraft deliveries and, as a result, demand for products in the ~~event~~original equipment manufacturer market has significantly decreased. Several of our aerospace and commercial transportation customers have temporarily suspended operations at certain production sites, reduced operations and production rates and/or taken cost-cutting actions, the duration and extent of which we cannot predict, including, but not limited to, General Electric Company, The Boeing Company, and Raytheon Technologies Corporation, which represented approximately 12%, 9% and 9%, respectively, of our third party sales for the six months ended June 30, 2020. Due to these cost-cutting measures and others, we are experiencing, and expect to continue experiencing, lower demand and volume for products and services, customer requests for potential payment deferrals, pricing concessions or other contract modifications, delays of deliveries and the achievement of other billing milestones. COVID-19 may also limit the ability of our counterparties generally to perform their obligations to us, including, but not limited to, our customers’ ability to make timely payments to us. These trends may lead to charges, impairments and other adverse financial impacts over time, as noted above, as we have historically depended upon the strength of these industries, particularly the aerospace industry. In addition, the ongoing COVID-19 pandemic may negatively impact customer contract negotiations, including the ability to negotiate acceptable terms in contract renewal negotiations and our ability to obtain new customers. Similarly, our suppliers may not have the materials, capacity, or capability to manufacture our products according to our schedule and specifications. To date, we have not experienced significant disruption to our supply chain. If our suppliers’ operations were to be impacted, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers, each of which would affect our business, results of operations, financial condition and/or cash flows. The duration of the current disruptions to our customers and to our supply chain, and related financial impact to us, cannot be estimated at this time. Should such disruption continue for an ~~unfavorable outcome.~~extended period of time, the impact will have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Ultimately, the demand for our products is, in turn, driven by demand for transportation and for people to travel within and between various countries around the world. Should the COVID-19 outbreak cause a long term deterioration in demand for transportation or travel due to fear or anxiety related to health concerns, governmental restriction, economic hardships, or increased use of electronic communication technologies embraced during the COVID-19 related shutdowns, the effects of the COVID-19 virus on our business may extend well beyond the COVID-19 current health crisis and immediate related governmental actions.

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

•Liquidity and credit risks: We currently have the ability to borrow up to $1.0 billion under our revolving credit agreement, which was amended in June 2020. A prolonged period of generating lower financial results and cash from

operations could adversely affect our ability to draw under such amended revolving credit agreement, could also ~~received letters, purportedly sent~~adversely affect our financial condition, including in respect of satisfying both required and voluntary pension funding requirements, and could otherwise negatively affect our ability to achieve our strategic objectives. These factors could also adversely affect our ability to maintain compliance with the debt covenants under our amended revolving credit agreement, including as a result of potential increases in net debt or future reductions in EBITDA. There can also be no assurance that we will not face credit rating downgrades as a result of weaker than anticipated performance of our businesses or other factors including overall market conditions. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets, and a significant downgrade could have an adverse commercial impact on ~~behalf of shareholders, reciting allegations similar to those made~~our businesses. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding (including for receivables securitization or supply chain finance programs used to finance working capital) or our ability to refinance certain of our indebtedness, which could adversely affect our business, financial position, results of operations and/or cash flows. Although the U.S. federal ~~court lawsuits~~ and ~~demanding that the Board authorize the Company~~other governments have announced a number of funding programs to initiate litigation against members of management, the Board and others. The Board of Directors is reviewing these shareholder demand letters and considering the appropriate course of action. In addition, lawsuits are pending in state court in New York and federal court in Pennsylvania, initiated, respectively,support businesses, our ability or willingness to access funding under such programs may be limited by ~~another purported shareholder and~~regulations or other guidance, including eligibility criteria, or by ~~the Company, concerning the shareholder’s claimed right, which the Company contests, to inspect the Company’s books and records~~further change or uncertainty related to the ~~Grenfell Tower fire~~terms of these programs.

The COVID-19 pandemic may also exacerbate other risks disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 and ~~Reynobond PE.~~

Part II, Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, including, but not limited to, risks related to global economic conditions, competition, loss of customers, costs of supplies, manufacturing difficulties and disruptions, investment returns, our credit profile, our credit ratings and interest rates. We expect that the longer the period of disruption from COVID-19 continues, the more material the adverse impacts will be on our business operations, financial performance, results of operations and/or cash flows. In addition, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our business, results of operations, financial conditions and/or cash flows.

Item 6. Exhibits.


10.1
~~10(a)~~	Employment Letter Agreement ~~by and~~ between ~~Arconic~~Howmet Aerospace Inc. and ~~Charles P. Blankenship,~~John C. Plant, dated as of ~~October 19, 2017,~~June 9, 2020, incorporated by reference to Exhibit 10.1 to the ~~Company’s~~Company's Current Report on Form 8-K ~~dated October 23, 2017~~filed on June 12, 2020.
10.2		Amendment No. 4, dated as of June 26, 2020, to the Five-Year Revolving Credit Agreement dated as of July 25, 2014, among Howmet Aerospace Inc., the lenders and issuers named therein, Citibank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., as syndication agent, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 29, 2020.
~~12.~~ 31			~~Computations of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends~~

~~15.~~	~~Letter regarding unaudited interim financial information~~

~~31.~~	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.
32
~~32.~~	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.
101.INS
~~101.INS~~	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
~~101.SCH~~	XBRL Taxonomy Extension Schema ~~Document~~Document.
101.CAL
~~101.CAL~~	XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.
101.DEF
~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.
101.LAB
~~101.LAB~~	XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.
101.PRE
~~101.PRE~~	XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document.
104.		Cover Page Interactive Data File - the cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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.


								~~Arconic~~Howmet Aerospace Inc.

~~November 6, 2017~~ August 7, 2020								/s/ Ken Giacobbe
Date								Ken Giacobbe
								Executive Vice President and
								Chief Financial Officer
								(Principal Financial Officer)

~~November 6, 2017~~ August 7, 2020								/s/ Paul Myron
Date								Paul Myron
								Vice President and Controller
								(Principal Accounting Officer)


	Third quarter ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Sales (I)	$	3,236		$	3,138		$	9,689		$	9,427
Cost of goods sold (exclusive of expenses below)		2,626			2,503			7,701			7,436
Selling, general administrative, and other expenses		155			229			580			673
Research and development expenses		25			30			83			93
Provision for depreciation and amortization		140			136			410			402
Restructuring and other charges (D & E)		19			3			118			33

Operating income		271			237			797			790
Interest expense (L)		100			126			398			371
Other income, net (G)		(1	)		(11	)		(526	)		(40	)

Income from continuing operations before income taxes		172			122			925			459
Provision for income taxes		53			56			272			230

Income from continuing operations after income taxes		119			66			653			229
Income from discontinued operations after income taxes (G)		—			120			—			146

Net income		119			186			653			375
Less: Income from discontinued operations attributable to noncontrolling interests (G)		—			20			—			58

Net income attributable to Arconic	$	119		$	166		$	653		$	317

Amounts Attributable to Arconic Common Shareholders (J):
Net income	$	101		$	148		$	600		$	265

Earnings per share - basic
Continuing operations	$	0.23		$	0.11		$	1.36		$	0.40
Discontinued operations		—			0.23			—			0.20

Net income per share - basic	$	0.23		$	0.34		$	1.36		$	0.60

Earnings per share - diluted
Continuing operations	$	0.22		$	0.11		$	1.31		$	0.40
Discontinued operations		—			0.22			—			0.20

Net income per share - diluted	$	0.22		$	0.33		$	1.31		$	0.60

Dividends paid per share	$	0.06		$	0.09		$	0.18		$	0.27

Weighted Average Shares Outstanding (J):
Average shares outstanding - basic		442			438			441			438

Average shares outstanding - diluted		462			453			501			443


	Arconic						Noncontrolling Interests					Total
	Third quarter ended September 30,						Third quarter ended September 30,					Third quarter ended September 30,
	2017			2016			2017		2016			2017			2016
Net income	$	119		$	166		$	—	$	20		$	119		$	186
Other comprehensive income (loss), net of tax (C):
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits		31			(462	)		—		(1	)		31			(463	)
Foreign currency translation adjustments		85			157			—		45			85			202
Net change in unrealized gains/losses on available-for-sale securities		1			—			—		—			1			—
Net change in unrecognized gains/losses on cash flow hedges		10			(338	)		—		(10	)		10			(348	)

Total Other comprehensive income (loss), net of tax		127			(643	)		—		34			127			(609	)

Comprehensive income (loss)	$	246		$	(477	)	$	—	$	54		$	246		$	(423	)


	Arconic						Noncontrolling Interests					Total
	Nine months ended September 30,						Nine months ended September 30,					Nine months ended September 30,
	2017			2016			2017		2016			2017			2016
Net income	$	653		$	317		$	—	$	58		$	653		$	375
Other comprehensive income (loss), net of tax (C):
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits		110			(365	)		—		2			110			(363	)
Foreign currency translation adjustments		251			505			—		184			251			689
Net change in unrealized gains/losses on available-for-sale securities		(133	)		4			—		—			(133	)		4
Net change in unrecognized gains/losses on cash flow hedges		13			(571	)		—		4			13			(567	)

Total Other comprehensive income (loss), net of tax		241			(427	)		—		190			241			(237	)

Comprehensive income (loss)	$	894		$	(110	)	$	—	$	248		$	894		$	138


	September 30, 2017			December 31, 2016
Assets
Current Assets:
Cash and cash equivalents	$	1,815		$	1,863
Receivables from customers, less allowances of $7 in 2017 and $13 in 2016 (K)		1,150			974
Other receivables (G & K)		373			477
Inventories (F)		2,453			2,253
Prepaid expenses and other current assets		357			325

Total current assets		6,148			5,892
Properties, plants, and equipment		11,791			11,572
Less: accumulated depreciation and amortization		6,265			6,073

Properties, plants, and equipment, net		5,526			5,499

Goodwill		5,246			5,148
Deferred income taxes		1,024			1,234
Investment in common stock of Alcoa Corporation (G & N)		—			1,020
Other noncurrent assets		1,293			1,245

Total Assets	$	19,237		$	20,038

Liabilities
Current liabilities:
Short-term borrowings	$	54		$	36
Accounts payable, trade		1,656			1,744
Accrued compensation and retirement costs		379			398
Taxes, including income taxes		74			85
Accrued interest payable		101			153
Other current liabilities		412			329
Long-term debt due within one year		1			4

Total current liabilities		2,677			2,749
Long-term debt, less amount due within one year (L & N)		6,802			8,044
Accrued pension benefits		2,110			2,345
Accrued other postretirement benefits		811			889
Other noncurrent liabilities and deferred credits		876			870

Total liabilities		13,276			14,897

Contingencies and commitments (H)
Equity
Arconic shareholders’ equity:
Preferred stock		55			55
Mandatory convertible preferred stock		3			3
Common stock		442			438
Additional capital		8,294			8,214
Accumulated deficit		(519	)		(1,027	)
Accumulated other comprehensive loss (C)		(2,327	)		(2,568	)

Total Arconic shareholders’ equity		5,948			5,115

Noncontrolling interests		13			26

Total equity		5,961			5,141

Total Liabilities and Equity	$	19,237		$	20,038


	Arconic Shareholders
	Preferred stock		Mandatory convertible preferred stock		Common stock			Additional capital			Retained earnings			Treasury stock			Accumulated other comprehensive loss			Noncontrolling interests			Total Equity
Balance at June 30, 2016	$	55	$	3	$	1,391		$	9,877		$	8,871		$	(2,647	)	$	(5,215	)	$	2,194		$	14,529
Net income		—		—		—			—			166			—			—			20			186
Other comprehensive (loss) income (C)		—		—		—			—			—			—			(643	)		34			(609	)
Cash dividends declared:
Preferred-Class A @ $1.875 per share		—		—		—			—			(1	)		—			—			—			(1	)
Preferred-Class B @ $6.71875 per share		—		—		—			—			(16	)		—			—			—			(16	)
Common @ $0.18 per share		—		—		—			—			(80	)		—			—			—			(80	)
Stock-based compensation		—		—		—			18			—			—			—			—			18
Common stock issued:
compensation plans		—		—		—			(12	)		—			8			—			—			(4	)
Retirement of Treasury stock		—		—		(76	)		(2,563	)		—			2,639			—			—			—
Reverse stock split		—		—		(877	)		877			—			—			—			—			—
Distributions		—		—		—			—			—			—			—			(92	)		(92	)
Other		—		—		—			—			—			—			—			14			14

Balance at September 30, 2016	$	55	$	3	$	438		$	8,197		$	8,940		$	—		$	(5,858	)	$	2,170		$	13,945


	Arconic						Noncontrolling Interests
	Third quarter ended						Third quarter ended
	September 30,						September 30,
	2017			2016			2017			2016
Pension and other postretirement benefits (M)
Balance at beginning of period	$	(1,931	)	$	(3,514	)	$	—		$	(53	)
Other comprehensive income (loss):
Unrecognized net actuarial loss and prior service cost		(7	)		(819	)		—			(1	)
Tax benefit		1			286			—			—

Total Other comprehensive loss before reclassifications, net of tax		(6	)		(533	)		—			(1	)

Amortization of net actuarial loss and prior service cost⁽¹⁾		56			109			—			1
Tax expense⁽²⁾		(19	)		(38	)		—			(1	)

Total amount reclassified from Accumulated other comprehensive income, net of tax⁽⁵⁾		37			71			—			—

Total Other comprehensive income (loss)		31			(462	)		—			(1	)

Balance at end of period	$	(1,900	)	$	(3,976	)	$	—		$	(54	)

Foreign currency translation
Balance at beginning of period	$	(523	)	$	(2,064	)	$	(2	)	$	(641	)
Other comprehensive income⁽³⁾		85			157			—			45

Balance at end of period	$	(438	)	$	(1,907	)	$	(2	)	$	(596	)

Available-for-sale securities
Balance at beginning of period	$	(2	)	$	(1	)	$	—		$	—
Other comprehensive income⁽⁴⁾		1			—			—			—

Balance at end of period	$	(1	)	$	(1	)	$	—		$	—

Cash flow hedges
Balance at beginning of period	$	2		$	364		$	—		$	11
Other comprehensive income (loss):
Net change from periodic revaluations		15			(430	)		—			20
Tax (expense) benefit		(5	)		126			—			(6	)

Total Other comprehensive income (loss) before reclassifications, net of tax		10			(304	)		—			14

Net amount reclassified to earnings		—			(46	)		—			(34	)
Tax benefit⁽²⁾		—			12			—			10

Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾		—			(34	)		—			(24	)

Total Other comprehensive income (loss)		10			(338	)		—			(10	)

Balance at end of period	$	12		$	26		$	—		$	1


	Arconic						Noncontrolling Interests
	Nine months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Pension and other postretirement benefits (M)
Balance at beginning of period	$	(2,010	)	$	(3,611	)	$	—		$	(56	)
Other comprehensive income (loss):
Unrecognized net actuarial loss and prior service cost		4			(883	)		—			—
Tax (expense) benefit		(3	)		312			—			—

Total Other comprehensive income (loss) before reclassifications, net of tax		1			(571	)		—			—

Amortization of net actuarial loss and prior service cost⁽¹⁾		167			317			—			3
Tax expense⁽²⁾		(58	)		(111	)		—			(1	)

Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾		109			206			—			2

Total Other comprehensive income (loss)		110			(365	)		—			2

Balance at end of period	$	(1,900	)	$	(3,976	)	$	—		$	(54	)

Foreign currency translation
Balance at beginning of period	$	(689	)	$	(2,412	)	$	(2	)	$	(780	)
Other comprehensive income⁽³⁾		251			505			—			184

Balance at end of period	$	(438	)	$	(1,907	)	$	(2	)	$	(596	)

Available-for-sale securities
Balance at beginning of period	$	132		$	(5	)	$	—		$	—
Other comprehensive (loss) income⁽⁴⁾		(133	)		4			—			—

Balance at end of period	$	(1	)	$	(1	)	$	—		$	—

Cash flow hedges
Balance at beginning of period	$	(1	)	$	597		$	—		$	(3	)
Other comprehensive income (loss):
Net change from periodic revaluations		20			(772	)		—			35
Tax (expense) benefit		(7	)		229			—			(10	)

Total Other comprehensive income (loss) before reclassifications, net of tax		13			(543	)		—			25

Net amount reclassified to earnings		—			(41	)		—			(29	)
Tax benefit²⁾		—			13			—			8

Total amount reclassified from Accumulated other comprehensive loss, net of tax⁽⁵⁾		—			(28	)		—			(21	)

Total Other comprehensive income (loss)		13			(571	)		—			4

Balance at end of period	$	12		$	26		$	—		$	1


	Third quarter ended September 30,					Nine months ended September 30,
	2017		2016			2017		2016
Engineered Products and Solutions	$	10	$	(1	)	$	24	$	16
Global Rolled Products		2		(1	)		76		1
Transportation and Construction Solutions		2		(2	)		11		6

Segment Total		14		(4	)		111		23
Corporate		5		7			7		10

Total Restructuring and other charges	$	19	$	3		$	118	$	33


	Layoff costs			Other exit costs			Total
Reserve balances at December 31, 2015	$	84		$	9		$	93
2016:
Cash payments		(73	)		(13	)		(86	)
Restructuring charges		70			27			97
Other*		(31	)		(14	)		(45	)

Reserve balances at December 31, 2016		50			9			59

2017:
Cash payments		(41	)		(5	)		(46	)
Restructuring charges		54			—			54
Other*		10			(1	)		9

Reserve balances at September 30, 2017	$	73		$	3		$	76


	Third quarter ended September 30, 2016			Nine months ended September 30, 2016
Sales	$	2,075		$	6,028
Cost of goods sold (exclusive of expenses below)		1,714			5,038
Selling, general administrative, and other expenses		46			148
Research and development expenses		8			26
Provision for depreciation, depletion and amortization		180			532
Restructuring and other charges		15			101
Interest expense		7			18
Other income, net		(106	)		(80	)

Income from discontinued operations before income taxes		211			245
Provision for income taxes		91			99

Income from discontinued operations after income taxes		120			146
Less: Net income from discontinued operations attributable to noncontrolling interests		20			58

Net income from discontinued operations	$	100		$	88


	Nine months ended September 30,
	2016
Depreciation, depletion and amortization	$	532
Restructuring and other charges	$	101
Capital expenditures	$	258


	Engineered				Transportation
	Products and		Global Rolled		and Construction		Combined
	Solutions		Products		Solutions		Segment
Third quarter ended
September 30, 2017
Sales:
Third-party sales	$	1,476	$	1,234	$	517	$	3,227
Intersegment sales		—		36		—		36

Total sales	$	1,476	$	1,270	$	517	$	3,263

Profit and loss:
Depreciation and amortization		68		52		13		133
Adjusted EBITDA		312		140		83		535

Third quarter ended
September 30, 2016
Sales:
Third-party sales	$	1,406	$	1,285	$	450	$	3,141
Intersegment sales		—		30		—		30

Total sales	$	1,406	$	1,315	$	450	$	3,171

Profit and loss:
Depreciation and amortization		63		52		12		127
Adjusted EBITDA		296		143		76		515


	September 30, 2017			December 31, 2016
6.50% Bonds, due 2018	$	—		$	250
6.75% Notes, due 2018		—			750
5.72% Notes, due 2019		500			750
1.63% Convertible Notes, due 2019*		403			403
6.150% Notes, due 2020		1,000			1,000
5.40% Notes due 2021		1,250			1,250
5.87% Notes, due 2022		627			627
5.125% Notes, due 2024		1,250			1,250
5.90% Notes, due 2027		625			625
6.75% Bonds, due 2028		300			300
5.95% Notes, due 2037		625			625
Iowa Finance Authority Loan, due 2042		250			250
Other**		(27	)		(32	)

Total debt		6,803			8,048
Less: amount due within one year		1			4

Total long-term debt	$	6,802		$	8,044


	September 30, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Cash and cash equivalents	$	1,815		1,815	$	1,863	$	1,863
Restricted cash		5		5		15		15
Derivatives - current asset		41		41		14		14
Noncurrent receivables		18		18		21		21
Derivatives - noncurrent asset		24		24		10		10
Available-for-sale securities		106		106		102		102
Investment in common stock of Alcoa Corporation		—		—		1,020		1,020
Short-term borrowings		54		54		36		36
Derivatives - current liability		31		31		5		5
Long-term debt due within one year		1		1		4		4
Derivatives - noncurrent liability		11		11		3		3
Contingent payment related to an acquisition		81		81		78		78
Long-term debt, less amount due within one year		6,802		7,440		8,044		8,519