UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period Ended September 30, 2017

March 31, 2021

OR

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

(State of

incorporation)

(I.R.S. Employer

Identification No.)

390 Park Avenue, New York, New YorkDelaware10022-460825-0317820
(AddressState of principal executive offices)incorporation)(Zip code)I.R.S. Employer Identification No.)


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)

(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 SymbolName of each exchange on which registered 
Common Stock, par value $1.00 per shareHWMNew York Stock Exchange
$3.75 Cumulative Preferred Stock,
par value $100.00 per share
HWM PRNYSE 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 filerxAccelerated filer
Non-accelerated filerSmaller reporting company
Non-accelerated filer☐  (Do not check if a smaller reporting company)Smaller reporting company
Emerging growth Companycompany

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

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

x

As of October 20, 2017,May 3, 2021, there were 481,324,177434,325,032 shares of common stock, par value $1.00 per share, of the registrant outstanding.








TABLE OF CONTENTS
Page(s)
Part I
Item 1.
Item 2.
Item 3.
Item 4.
Part II
Item 1.
Item 1A.
Item 6.




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 
  

 

 

  

 

 

  

 

 

  

 

 

 

First quarter ended
 March 31,
 20212020
Sales (D)
$1,209 $1,634 
Cost of goods sold (exclusive of expenses below)873 1,183 
Selling, general administrative, and other expenses65 79 
Research and development expenses
Provision for depreciation and amortization68 71 
Restructuring and other charges (E)
39 
Operating income189 258 
Interest expense, net72 84 
Other expense (income), net (F)
(24)
Income before income taxes113 198 
Provision for income taxes (H)
33 45 
Income from continuing operations after income taxes80 153 
Income from discontinued operations after income taxes (B)
62 
Net income$80 $215 
Amounts Attributable to Howmet Aerospace Common Shareholders (I):
Net income$79 $214 
Earnings per share - basic
Continuing operations$0.18 $0.35 
Discontinued operations$$0.14 
Earnings per share - diluted
Continuing operations$0.18 $0.35 
Discontinued operations$$0.14 
Average Shares Outstanding (I):
Average shares outstanding - basic434 435 
Average shares outstanding - diluted439 440 
The accompanying notes are an integral part of the consolidated financial statements.

2


3

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 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

First quarter ended
 March 31,
20212020
Net income$80 $215 
Other comprehensive income (loss), net of tax (J):
Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits42 37 
Foreign currency translation adjustments(44)(65)
Net change in unrealized gains on debt securities
Net change in unrecognized gains (losses) on cash flow hedges(13)
Total Other comprehensive income (loss), net of tax(40)
Comprehensive income$82 $175 
The accompanying notes are an integral part of the consolidated financial statements.

3

4

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 
  

 

 

  

 

 

 

March 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$1,238 $1,610 
Receivables from customers, less allowances of $1 in 2021 and $1 in 2020 (K)
339 328 
Other receivables (K)
96 29 
Inventories (L)
1,453 1,488 
Prepaid expenses and other current assets202 217 
Total current assets3,328 3,672 
Properties, plants, and equipment, net (M)
2,524 2,592 
Goodwill (D)
4,086 4,102 
Deferred income taxes227 272 
Intangibles, net563 571 
Other noncurrent assets (N)
243 234 
Total assets$10,971 $11,443 
Liabilities
Current liabilities:
Accounts payable, trade$596 $599 
Accrued compensation and retirement costs171 205 
Taxes, including income taxes93 102 
Accrued interest payable88 89 
Other current liabilities (N)
243 289 
Short-term debt (O)
489 376 
Total current liabilities1,680 1,660 
Long-term debt, less amount due within one year (O and P)
4,224 4,699 
Accrued pension benefits (G)
941 985 
Accrued other postretirement benefits (G)
159 198 
Other noncurrent liabilities and deferred credits (N)
305 324 
Total liabilities7,309 7,866 
Contingencies and commitments (R)
00
Equity
Howmet Aerospace shareholders’ equity:
Preferred stock55 55 
Common stock434 433 
Additional capital4,671 4,668 
Retained earnings443 364 
Accumulated other comprehensive loss (J)
(1,941)(1,943)
Total equity3,662 3,577 
Total liabilities and equity$10,971 $11,443 
The accompanying notes are an integral part of the consolidated financial statements.

4

5

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 
  

 

 

  

 

 

 

First quarter ended
 March 31,
 20212020
Operating activities
Net income$80 $215 
Adjustments to reconcile net income to cash used for operations:
Depreciation and amortization68 129 
Deferred income taxes10 19 
Restructuring and other charges21 
Net loss from investing activities—asset sales
Net periodic pension benefit cost (G)
26 
Stock-based compensation13 
Other14 25 
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
Increase in receivables(144)(210)
Decrease (increase) in inventories20 (136)
Decrease (increase) in prepaid expenses and other current assets23 (2)
Increase (decrease) in accounts payable, trade (A)
26 (132)
Decrease in accrued expenses(92)(173)
Increase in taxes, including income taxes12 90 
Pension contributions(29)(56)
Increase in noncurrent assets(2)
Decrease in noncurrent liabilities(14)(39)
Cash used for operations(6)(208)
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)
1,200 
Payments on debt (original maturities greater than three months) (O)
(361)
Debt issuance costs (B)(O)
(1)(45)
Proceeds from exercise of employee stock options30 
Dividends paid to shareholders(9)
Other(12)(33)
Cash (used for) provided from financing activities(368)1,145 
Investing Activities
Capital expenditures (A)(D)
(55)(152)
Proceeds from the sale of assets and businesses (B)
114 
Cash receipts from sold receivables (K)
57 48 
Other
Cash provided from investing activities11 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(1)(8)
Net change in cash, cash equivalents and restricted cash(372)940 
Cash, cash equivalents and restricted cash at beginning of period1,611 1,703 
Cash, cash equivalents and restricted cash at end of period$1,239 $2,643 
The accompanying notes are an integral part of the consolidated financial statements.

5

6

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
Retained earningsAccumulated
other
comprehensive
loss
Noncontrolling InterestsTotal
Equity
Balance at December 31, 2019$55 $433 $7,319 $113 $(3,329)$14 $4,605 
Net income— — — 215 — — 215 
Other comprehensive loss (J)
— — — — (40)— (40)
Cash dividends declared:
Preferred-Class A @ $0.9375 per share— — — (1)— — (1)
Common @ $0.02 per share— — — (8)— — (8)
Stock-based compensation— — 13 — — — 13 
Common stock issued: compensation plans— (6)— — — (3)
Balance at March 31, 2020$55 $436 $7,326 $319 $(3,369)$14 $4,781 

 Howmet Aerospace Shareholders 
 Preferred
stock
Common
stock
Additional
capital
Retained earningsAccumulated
other
comprehensive
loss
Total
Equity
Balance at December 31, 2020$55 $433 $4,668 $364 $(1,943)$3,577 
Net income— — — 80 — 80 
Other comprehensive income (J)
— — — — 
Cash dividends declared:
Preferred-Class A @ $0.9375 per share— — — (1)— (1)
Stock-based compensation— — — — 
Common stock issued: compensation plans— (3)— — (2)
Balance at March 31, 2021$55 $434 $4,671 $443 $(1,941)$3,662 

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

6



7

Arconic


Howmet Aerospace Inc. and subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

(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 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

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

7


Arconic 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 20162020 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’sthe Company's Annual Report on Form 10-K for the year ended December 31, 2016,2020, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period presentation.

The separation of AlcoaArconic Inc. into two2 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 effectiveoccurred on NovemberApril 1, 2016 (the “Separation Transaction”).2020. The financial results of AlcoaArconic 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 the third quarter and nine months ended September 30, 2016.all periods presented. The cash flows, equity and comprehensive income, and equity related to AlcoaArconic Corporation have not been segregated and are included in the accompanying Statement of Consolidated Cash Flows, Statement of Consolidated Comprehensive Income 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.

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

In the first quarter of Arconic common shareholders held on October 5, 2016, shareholders approved a 1-for-3 reverse stock split2021 and 2020, the Company derived approximately 60% and 73%, respectively, 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, everyglobal coronavirus (“COVID-19”) pandemic and its impact on the aerospace industry to-date, the possibility exists that there could be a sustained impact to our operations and financial results. Since the start of the pandemic, certain original equipment manufacturer (“OEM”) customers have reduced production or suspended manufacturing operations in North America and Europe on a temporary basis. While the pandemic has resulted in the temporary closure of a small number of the Company's manufacturing facilities during 2020, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, management has taken a series of actions to address the financial impact, including announcing certain headcount reductions and reducing the level of capital expenditures to preserve cash and maintain liquidity.
The preparation of the Consolidated Financial Statements of the Company in conformity with GAAP requires management to make certain judgments, estimates, and assumptions. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience, including considerations relating to the impact of COVID-19. The impact of COVID-19 is rapidly changing and of unknown duration and macroeconomic impact and as a result, these considerations remain highly uncertain. Management has made its best estimates using all relevant information available at the time, but it is possible that our estimates will differ from our actual results and affect the Consolidated Financial Statements in future periods and potentially require adverse adjustments to the recoverability of goodwill, intangible and long-lived assets, the realizability of deferred tax assets and other judgments and estimations and assumptions that may be impacted by COVID-19.
As previously disclosed, during the third quarter of 2020, the Company identified a misclassification in the presentation of changes in accounts payable and capital expenditures in its previously issued Statement of Consolidated Cash Flows for the first quarter ended March 31, 2020 and six months ended June 30, 2020. Although management has determined that such misclassification did not materially misstate the Statement of Consolidated Cash Flows for the first quarter ended March 31, 2020 or six months ended June 30, 2020, the Company revised the first quarter, resulting in an $83 increase to previously reported capital expenditures and decrease to cash provided from investing activities with a corresponding reduction (decrease) in accounts payable, trade and increase in cash provided by operations.
Also as previously disclosed, in the third quarter of 2020, a $16 deferred tax error was identified related to periods prior to 2018. Although management determined it was not material to any periods, the Company has revised its Statement of Changes in Consolidated Equity for the three sharesmonths ended March 31, 2020 and will revise the three and six months ended June 30, 2020 to present the correction as a reduction to Retained earnings as of issuedDecember 31, 2019.
B. Arconic Inc. Separation Transaction and Discontinued Operations
On April 1, 2020, the Company completed the separation of its business into 2 independent, publicly-traded companies. Following the Arconic Inc. Separation Transaction, Arconic Corporation held the Global Rolled Products (“GRP”) businesses
8


(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 intoof 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 offor every four shares of common stock outstanding from approximately 1.3 billion shares to approximately 0.4 billion shares. Thethe Company’s common stock began tradingheld as of the Record Date. The Company did not issue fractional shares of Arconic Corporation common stock in the Distribution. Instead, each stockholder otherwise entitled to a fractional share of Arconic Corporation common stock received cash in lieu of fractional shares.
In connection with the Arconic Inc. Separation Transaction, the Company entered into several agreements with Arconic Corporation that govern the relationship between the Company and Arconic Corporation following the Distribution, including the following:a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, certain Patent, Know-How, Trade Secret License and Trademark License Agreements, and Raw Material Supply Agreements.
On February 7, 2020, Arconic Corporation completed an offering of $600 aggregate principal amount of 6.125% senior secured second-lien notes due 2028. On March 25, 2020, Arconic Corporation entered into a credit agreement which provided for a $600 aggregate principal amount seven-year senior secured first-lien loan B facility and a revolving credit facility which is guaranteed by certain of Arconic Corporation's wholly-owned domestic subsidiaries and secured on a reverse stock split-adjustedfirst-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.

On February 1, 2020, the Company completed the sale of its rolling mill in Itapissuma, Brazil for $50 in cash which resulted in a loss of $59, of which $53 was recognized in Restructuring and other charges within discontinued operations in the second half of 2019 and $6 in the first quarter of 2020. On March 1, 2020, Arconic Corporation sold its hard alloy extrusions plant in South Korea for $62 in cash, which resulted in a $27 gain that was recognized in Restructuring and other charges within discontinued operations in the first quarter of 2020.
Discontinued Operations
The results of operations of Arconic Corporation are presented as discontinued operations in the Statement of Consolidated Operations as summarized below:
First quarter ended
March 31,
2020
Sales$1,575 
Cost of goods sold1,293 
Selling, general administrative, research and development and other expenses101 
Provision for depreciation and amortization58 
Restructuring and other charges(18)
Operating income from discontinued operations141 
Interest expense
Other expense, net41 
Income from discontinued operations93 
Provision for income taxes31 
Income from discontinued operations after income taxes$62 


9


The following table presents purchases of properties, plants, and equipment, proceeds from the sale of businesses and the provision for depreciation and amortization of discontinued operations related to Arconic Corporation:
First quarter ended
March 31,
2020
Capital expenditures$72 
Proceeds from the sales of businesses$112 
Provision for depreciation and amortization$58 
The cash flows and equity related to Arconic Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows or Statement of Comprehensive Income for all periods presented prior to the Arconic Inc. Separation Transaction.
C. Recently Adopted and Recently Issued Accounting Guidance

Adopted

In March 2016,

On January 1, 2021, the Company adopted changes issued by the Financial Accounting Standards Board (“FASB”) issued changesthat were intended to employee share-based payment accounting. Previously, an entity determinedsimplify various aspects of accounting for each share-based payment award whether the difference between the deduction for tax purposesincome taxes by eliminating certain exceptions contained in existing guidance 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 offsetamending other guidance 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 fromsimplify several other income tax cash flows and classified as a financing activity.accounting matters. 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 new guidance did not have a material impact on the Consolidated Financial Statements.

8


Issued
In March 2016,2020, the FASB issued changes eliminating the requirementamendments that provide optional expedients and exceptions for an investorapplying GAAP to adjust an equity method investment, results of operations,contracts, hedging relationships, and retained earnings retroactively on a step-by-step basis asother transactions affected by reference rate reform, if the equity method had been in effect during all previous periodscertain criteria are met. The amendments apply only to contracts and hedging relationships that the investment had been held as a result of an increase in the level of ownership interestreference London Inter-bank Offered Rate (“LIBOR”) 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 continueanother reference rate expected to be met.discontinued due to reference rate reform. These changes becameamendments are 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 currentimmediately 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

9


believes that revenue under certain of those contracts, primarily within the Engineered Products and Solutions segment, may be recognized over time dueapplied prospectively 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 practicesmade and hedging relationships entered into or controls. The Company is continuing to assess the impact that over-time revenue recognition will haveevaluated 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 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.before December 31, 2022. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements,Statements.

D. Segment Information
Howmet is a global leader in lightweight metals engineering and manufacturing. Howmet’s innovative, multi-material products, which will require right of use assetsinclude nickel, titanium, aluminum, and lease liabilities be recordedcobalt, are used worldwide in the aerospace (commercial and defense), commercial transportation, and industrial and other end markets. Segment performance under Howmet’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Segment operating profit. Howmet’s definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and Other charges. Segment operating profit may not be comparable to similarly titled measures of other companies. Differences between segment totals and consolidated balance sheetHowmet are in Corporate.
Howmet’s operations consist of 4 worldwide reportable segments as follows:
Engine Products
Engine Products produces investment castings, including airfoils, and seamless rolled rings primarily for operating leases. An estimateaircraft engines and industrial gas turbines. Engine Products produces rotating parts as well as structural parts.
Fastening Systems
Fastening Systems produces aerospace fastening systems, as well as commercial transportation, industrial and other fasteners. The business’s high-tech, multi-material fastening systems are found nose to tail on aircraft and aero engines. The business’s products are also critical components of commercial transportation vehicles, automobiles, construction and industrial equipment and renewable energy sector.

10


Engineered Structures
Engineered Structures produces titanium ingots and mill products for aerospace and defense applications and is vertically integrated to produce titanium forgings, extrusions forming and machining services for airframe, wing, aero-engine, and landing gear components. Engineered Structures also produces aluminum forgings, nickel forgings, and aluminum machined components and assemblies for aerospace and defense applications.
Forged Wheels
Forged Wheels provides forged aluminum wheels and related products for heavy-duty trucks and the commercial transportation markets.
Goodwill
The Company had $4,086 of Goodwill at March 31, 2021 and reviews it annually for impairment in the fourth quarter, or more frequently, if indicators exist or if a decision is made to sell or realign a business.
On January 1, 2020, management transferred the Savannahbusiness from the Engine Products segment to the Engineered Structures segment, based on synergies with forgings technologies and manufacturing capabilities. As a result of the impactreorganization, goodwill of $17 was reallocated from Engine Products to Engineered Structures, and these reporting units were evaluated for impairment during the first quarter of 2020. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was 0 goodwill impairment at the date the business was transferred.
During the first quarter of 2020, Howmet's market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, global sales to customers in the aerospace and commercial transportation industries impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this standard isassessment, the Company performed a quantitative impairment test in the first quarter of 2020 for the Engineered Structures reporting unit and concluded that though the margin between the fair value of the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not currently determinable.

In June 2016, the FASB addedimpaired. Consistent with prior practice, a new impairmentdiscounted cash flow model (known aswas 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 credit loss (CECL) model) that is based on expected losses rather than incurred losses. Underto negatively impact the new guidance, an entity recognizes as an allowance its estimateCompany’s sales globally in the aerospace industry. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and could be material. Since the first quarter of 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 not2020, there have a minimum threshold for recognitionbeen no indicators of impairment lossesidentified for the Engineered Structures reporting unit or any other reporting units or indefinite-lived intangible assets.

11


The operating results of the Company’s reportable segments were as follows. Differences between total segment and entities will needconsolidated totals are in Corporate.
Engine ProductsFastening SystemsEngineered StructuresForged WheelsTotal
Segment
First quarter ended March 31, 2021
Sales:
Third-party sales$534 $272 $176 $227 $1,209 
Inter-segment sales
Total sales$535 $272 $177 $227 $1,211 
Profit and loss:
Segment operating profit$101 $45 $10 $70 $226 
Restructuring and other charges
Provision for depreciation and amortization31 12 12 10 65 
Capital expenditures11 30 
First quarter ended March 31, 2020
Sales:
Third-party sales$781 $385 $275 $191 $1,632 
Inter-segment sales
Total sales$783 $385 $278 $191 $1,637 
Profit and loss:
Segment operating profit$165 $96 $28 $50 $339 
Restructuring and other charges13 17 34 
Provision for depreciation and amortization30 12 13 10 65 
Capital expenditures19 37 
The following table reconciles Total segment operating profit to measure expected credit lossesIncome from continuing operations before income taxes:
First quarter ended
March 31,
20212020
Total segment operating profit$226 $339 
Unallocated amounts:
Restructuring and other charges(9)(39)
Corporate expense(28)(42)
Consolidated operating income$189 $258 
Interest expense(72)(84)
Other (expense) income, net(4)24 
Income from continuing operations before income taxes$113 $198 
The following table reconciles Total segment capital expenditures, which are presented on assets that have a low risk of loss. These changes become effective for Arconican accrual basis, with Capital expenditures as presented on January 1, 2020. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

In August 2016, the FASB issued changes to the classification of certain cash receipts and cash payments within the statement of cash flows. Differences between segment and consolidated totals are in Corporate and discontinued operations, including the impact of changes in accrued capital expenditures during the period.

First quarter ended
March 31,
20212020
Total segment capital expenditures$30 $37 
Corporate and discontinued operations25 115 
Capital expenditures$55 $152 
12


The guidance identifies eight specific cash flow itemsfollowing table disaggregates segment revenue by major end market served. Differences between total segment and consolidated totals are in Corporate.
Engine ProductsFastening SystemsEngineered StructuresForged WheelsTotal
Segment
First quarter ended March 31, 2021
Aerospace - Commercial$227 $148 $80 $$455 
Aerospace - Defense151 42 77 270 
Commercial Transportation46 227 273 
Industrial and Other156 36 19 211 
Total end-market revenue$534 $272 $176 $227 $1,209 
First quarter ended March 31, 2020
Aerospace - Commercial$507 $257 $184 $$948 
Aerospace - Defense127 44 70 241 
Commercial Transportation46 191 237 
Industrial and Other147 38 21 206 
Total end-market revenue$781 $385 $275 $191 $1,632 

The Company derived 60% and 73% of its revenue from aerospace end markets in the sections where they must be presented withinfirst quarter of 2021 and 2020, respectively.
General Electric Company represented approximately 11% and 13% of the statementCompany’s third-party sales for the first quarter of cash flows. These changes become effective2021 and 2020, respectively, primarily from Engine Products.

E. Restructuring and Other Charges
First quarter ended
March 31,
20212020
Layoff costs$$22 
Adjustments to (reversals of) previously recorded layoff reserves(2)
Pension, Other post-retirement benefits and Deferred Compensation - net settlements
Net loss related to divestitures of assets and businesses16 
Other
Restructuring and other charges$$39 

In the first quarter of 2021, the Company recorded Restructuring and other charges of $9, which included a $4 charge for Arconic on January 1, 2018. Management does not expect these changesimpairment of assets associated with an agreement to havesell a material impact onsmall manufacturing business in France, a $3 charge for U.S. pension plans' settlement accounting, a $1 adjustment related to a number of prior period program reserves and a $1 charge for exit costs including accelerated depreciation.
In the Consolidated Financial Statements.

In November 2016,first quarter of 2020, the FASB issued changesCompany recorded Restructuring and other charges of $39, which included a $22 charge for layoff costs, including the separation of 460 employees (175 in Engine Products, 106 in Fastening Systems, 100 in Engineered Structures, 56 in Forged Wheels and 23 in Corporate); a $12 charge for impairment of assets associated with an agreement to sell a small manufacturing business in the United Kingdom (U.K.); a $6 post closing adjustment related to the classification2019 sale of cash and cash equivalents within the cash flow statement. Restricted cash and restricted cash equivalents will be included within the cash and cash equivalents line on the cash flow statementCompany’s U.K. forgings business and a reconciliation must be prepared$3 charge for various other exit costs related to prior programs. These charges were partially offset by a benefit of $2 related to the statementreversal of financial position. Transfers between restricted casha number of prior period program reserves and restricted cash equivalentsa $2 gain on sale of assets.

13


Layoff costsOther��exit costsTotal
Reserve balances at December 31, 2020$54 $$54 
Cash payments(24)(24)
Restructuring charges
Other(1)
(5)(5)(10)
Reserve balances at March 31, 2021$29 $$29 

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

The remaining Layoff cost reserves are expected to be amortized topaid in cash by 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, 2019end of 2021.
F. Other Expense (Income), Net
First quarter ended
 March 31,
20212020
Non-service related net periodic benefit cost$$
Interest income(4)
Foreign currency losses, net
Net loss from asset sales
Deferred compensation(10)
Other, net(6)(18)
Total$$(24)

14


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.

10


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 servicewere as follows:
First quarter ended
 March 31,
20212020
Pension benefits
Service cost$$
Interest cost12 47 
Expected return on plan assets(23)(70)
Recognized net actuarial loss14 42 
Settlements
Net periodic benefit cost(1)
26 
Discontinued operations20 
Net amount recognized in continuing operations in Statement of Consolidated Operations$$
Other postretirement benefits  
Service cost$$
Interest cost
Recognized net actuarial loss
Amortization of prior service benefit(1)(2)
Net periodic benefit cost(1)
Discontinued operations
Net amount recognized in continuing operations in Statement of Consolidated Operations$$
(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 costcontinuing operations was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development expensesexpenses; settlements and upon the adoption of this standard will becurtailments were included in Restructuring and other charges; and all other cost components were recorded separately from service cost in the Other income,expense (income), net line item in the Statement of Consolidated Operations. The impact of the retrospective adoption of this standard update will be an increaseamounts included in Net periodic benefit cost include costs related to consolidated operating income of approximately $150 while there will be no impact to consolidated net incomeboth continuing and discontinued operations for the yearfirst quarter ended DecemberMarch 31, 2017.2020.
Pension benefits
In the first quarter ended March 31, 2021, the Company applied settlement accounting to certain U.S. pension plans due to lump sum payments made to participants, which resulted in settlement charges of $3 that were recorded in Restructuring and other charges.
On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA 2021”) was signed into law in the United States. ARPA 2021, in part, provides temporary relief for employers who sponsor defined benefit pension plans related to funding contributions under the Employee Retirement Income Security Act of 1974. As a result, management expects Howmet’s estimated minimum required pension funding to decline. Management is currently evaluating the potentialimpact.
Other postretirement benefits
In the first quarter of 2021, the Company announced a plan administration change of certain of its Medicare-eligible prescription drug benefits to an Employer Group Waiver Plan with wrap-around secondary plan effective July 1, 2021. The administration change is expected to reduce costs to the Company through the usage of Medicare Part D and drug manufacturer subsidies. Due to this amendment, along with the associated plan remeasurements, the Company recorded a decrease to its Accrued other postretirement benefits liability of $39, which was offset in Accumulated other comprehensive loss in the Consolidated Balance Sheet.
H. Income Taxes
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 prospectively adoptingnon-benefited pre-tax losses.
15


For the asset capitalizationfirst quarter of only2021 and 2020, the service cost componentestimated annual effective tax rate, before discrete items, applied to ordinary income was 30.4% and 26.9%, respectively. The 2021 and 2020 rates were higher than the U.S. federal statutory rate of 21% primarily due to additional estimated U.S. tax on Global Intangible Low-Taxed Income and other foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax, and nondeductible expenses.
For the Consolidated Financial Statements.

In May 2017,first quarter of 2021 and 2020, the FASB issued clarificationtax rate including discrete items was 29.2% and 22.7%, respectively. For the first quarter of 2021, the Company recorded a discrete net tax benefit of $1 for other items. For the first quarter of 2020, the Company recorded a discrete tax benefit of $8 related primarily to guidance onstock compensation.

The tax provisions for the modification accounting criteria 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 valuefirst quarter ended March 31, 2021 and 2020 were comprised of the award is the same before andfollowing:
First quarter ended
 March 31,
 20212020
Pre-tax income at estimated annual effective income tax rate before discrete items$34 $53 
Other discrete items(1)(8)
Provision for income taxes$33 $45 

I. Earnings Per Share
Basic earnings per share (“EPS”) amounts are computed by dividing earnings, after the modification, 2)deduction of preferred stock dividends declared, by the vesting conditions areaverage number of common shares outstanding. Diluted EPS amounts assume the same beforeissuance of common stock for all potentially dilutive share equivalents outstanding.
The information used to compute basic and afterdiluted EPS attributable to Howmet common shareholders was as follows (shares in millions):
First quarter ended
 March 31,
 20212020
Net income from continuing operations attributable to common shareholders$80 $153 
Income from discontinued operations62 
Net income attributable to common shareholders80 215 
Less: preferred stock dividends declared
Net income available to Howmet Aerospace common shareholders - basic and diluted$79 $214 
Average shares outstanding - basic434 435 
Effect of dilutive securities:
Stock options
Stock and performance awards
Average shares outstanding - diluted439 440 
Common stock outstanding at March 31, 2021 and 2020 was 434 and 436, respectively.
The following shares were excluded from the modificationcalculation of average shares outstanding – diluted as their effect was anti-dilutive (shares in millions):
First quarter ended
 March 31,
 20212020
Stock options(1)
(1)The weighted average exercise price per share of options excluded from diluted EPS was $31.86 and 3) the classification 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 impact of these changes on the Consolidated Financial Statements.

In August 2017, 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 as to the scope and results 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 other comprehensive income with a corresponding adjustment to the opening balance of retained earnings$27.65 as of the beginning of the fiscal year in which the amendment is adopted. The amended presentationMarch 31, 2021 and disclosure guidance is required only prospectively. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

11

2020, respectively.

16

C.


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 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 Consolidatedloss:
First quarter ended
March 31,
20212020
Pension and other postretirement benefits (G)
Balance at beginning of period$(980)$(2,732)
Other comprehensive income:
Unrecognized net actuarial loss and prior service cost/benefit37 
Tax expense(8)
Total Other comprehensive income before reclassifications, net of tax29 
Amortization of net actuarial loss and prior service cost(1)
16 43 
Tax expense(2)
(3)(7)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)
13 36 
Total Other comprehensive income42 37 
Balance at end of period$(938)$(2,695)
Foreign currency translation
Balance at beginning of period$(966)$(596)
Foreign currency translation(44)(79)
Net amount reclassified from Accumulated other comprehensive loss(4)
14 
Other comprehensive loss(44)(65)
Balance at end of period$(1,010)$(661)
Debt securities
Balance at beginning of period$$
Other comprehensive income(5)
Balance at end of period$$
Cash flow hedges
Balance at beginning of period$$(1)
Other comprehensive income (loss):
Net change from periodic revaluations(11)
Tax expense(2)(1)
Total Other comprehensive income (loss) before reclassifications, net of tax(12)
Net amount reclassified to earnings(3)(1)
Tax expense(2)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)
(2)(1)
Total Other comprehensive income (loss)(13)
Balance at end of period$$(14)
Accumulated other comprehensive loss$(1,941)$(3,369)
(1)These amounts were recorded in Other expense (income), net on the Statement of Consolidation Operations in the line items indicated in footnotes 2 through 4.

12


   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.

13


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.

14


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 for income taxes on the Engineered ProductsStatement of Consolidated Operations.
(3)A positive amount indicates a corresponding 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 corresponding 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.
17


K. Receivables
Sale of Receivables Programs
The Company has 2 accounts receivables securitization arrangements.
The first is an arrangement with financial institutions to sell certain customer receivables without recourse on a revolving basis (“Receivables Sale Program”). The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is a consolidated subsidiary of the Company. This arrangement historically provided up to a maximum funding of $400 for receivables sold. The Company maintains a beneficial interest, or a right to collect cash, on the sold receivables that have not been funded (deferred purchase program receivable).
In the first quarter of 2020, the Company entered into an amendment to remove subsidiaries of the GRP business from the sale of receivables program in preparation for the nineArconic Inc. Separation Transaction and repurchased the remaining $282 unpaid receivables of GRP customers in a non-cash transaction by reducing the amount of the deferred purchase program receivable. This amendment also reduced the maximum funding for receivables sold to $300. The concentration limit of one customer may be reduced at the discretion of the financial institutions or automatically upon the downgrade of its debt rating as defined in the Receivables Sale Program agreement. A reduction in the customer's concentration limit would reduce the eligible receivable funding base thereby reducing the amount of future draws available and may require repayment of a portion of existing draws.
The Company had net cash repayments totaling $26 ($18 in draws and $44 in repayments) and $52 ($98 in draws and $150 in repayments) for the three months ended September 30, 2017. The rolling mill generated third-party salesMarch 31, 2021 and March 31, 2020, respectively.
As of approximately $54 and $128 for the nine-month periods ended September 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 
  

 

 

   

 

 

 

15


At September 30, 2017March 31, 2021 and December 31, 2016,2020, the deferred purchase program receivable was $68 and $12, respectively, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving program, the sale of new receivables will result in an increase in the deferred purchase program receivable. The Company services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.

Cash receipts from customer payments on sold receivables (which are cash receipts on the underlying trade receivables that have been previously sold) as well as cash receipts and cash disbursements from draws and repayments under the program are presented as cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash Flows.
The second arrangement is one in which the Company, through a wholly-owned special purpose entity (“SPE”), has a receivables purchase agreement (the “Receivables Purchase Agreement”) such that the SPE may sell certain receivables to financial institutions until the earlier of March 30, 2022 or a termination event. The Receivables Purchase Agreement also contains customary representations and warranties, as well as affirmative and negative covenants. Pursuant to the Receivables Purchase Agreement, the Company does not maintain effective control over the transferred receivables, and therefore accounts for these transfers as sales of receivables.
The SPE sold $84 of its receivables without recourse and received cash funding under this program during the first quarter ended March 31, 2021, resulting in derecognition of the receivables from the Company’s consolidated balance sheets. As of March 31, 2021 and December 31, 2020, $65 and $46 remained outstanding from the customer, respectively. Cash received from collections of sold receivables is used by the SPE to fund additional purchases of receivables on a revolving basis, not to exceed $125, which is the aggregate maximum limit. As collateral against the sold receivables, the SPE maintains a certain level of unsold receivables, which was $16 and $33 at March 31, 2021 and December 31, 2020, respectively. Costs associated with the sales of receivables are reflected in the Company’s Consolidated statements of operations for the periods in which the sales occur. Cash receipts from sold receivables under the Receivables Purchase Agreement are presented within operating activities in the Statement of Consolidated Cash Flows.
The Company had accounts receivable securitization arrangements totaling $425 at March 31, 2021 and December 31, 2020, respectively, of which $243 and $250 was drawn at March 31, 2021 and at December 31, 2020, respectively. The $7 reduction in the amount drawn resulted in a corresponding reduction in Cash and cash equivalents.
Other Customer Receivable Sales
In the first quarter of 2021 and 2020, the Company sold $7 and $14, respectively, of a certain customer’s receivables in exchange for cash (of which $7 remained outstanding from the customer at March 31, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows.
In the first quarter 2021 and 2020, the Company sold $59 and $17, respectively, of a certain customer’s receivables in exchange for cash (of which $57 remained outstanding from the customer at March 31, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. The sale of these customer receivables was undertaken to offset a change in the customer’s payment patterns (customer had been taking an early payment discount).
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L. Inventories
March 31, 2021December 31, 2020
Finished goods$516 $528 
Work-in-process627 629 
Purchased raw materials271 292 
Operating supplies39 39 
Total inventories$1,453 $1,488 

At March 31, 2021 and December 31, 2020, the portion of inventories valued on a last-in, first-out (LIFO)(“LIFO”) basis was $1,148$472 and $947,$458, respectively. If valued on an average-cost basis, total inventories would have been $449$139 and $371$131 higher at September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively.

G. Separation Transaction

M. Properties, Plants, and Discontinued Operations

On November 1, 2016, Arconic completed the Separation Transaction. Alcoa Inc.,Equipment, net

March 31, 2021December 31, 2020
Land and land rights$92 $98 
Structures1,020 1,033 
Machinery and equipment3,856 3,879 
4,968 5,010 
Less: accumulated depreciation and amortization2,644 2,626 
2,324 2,384 
Construction work-in-progress200 208 
Properties, plants, and equipment, net$2,524 $2,592 

The Company incurred capital expenditures which was re-named Arconic Inc., continued to own the Engineered Productsremained unpaid at March 31, 2021 and Solutions, the Global Rolled Products (except for the Warrick, IN rolling operationsMarch 31, 2020 of $28 and the equity interest 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 interest in the rolling mill at the joint venture in Saudi Arabia, both of$48, respectively, 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 operations in the accompanying Statement of Consolidated Operations.

Arconic completed 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 as of the close of business on October 20, 2016. Arconic retained 19.9% of the Alcoa Corporation common stock (36,311,767 shares).

In February 2017, the Company sold 23,353,000 shares of Alcoa Corporation common stock at $38.03 per share, which resultedresult in cash proceeds of $888outflows for investing activities in subsequent periods.

N. Leases
Operating lease cost, which were recorded in Sale of investments within Investing Activities in the accompanying Statement of Consolidated Cash Flowsincludes short-term leases and a gain of $351, whichvariable lease payments and approximates cash paid, was recorded in Other income, net in the accompanying Statement of Consolidated Operations.

In April$17 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.

The Company had recorded the retained interest as a cost method investment in Investment in common stock of Alcoa Corporation in the accompanying Consolidated Balance Sheet. The fair value of Arconic’s retained interest in Alcoa Corporation was $0 and $1,020 at September 30, 2017 and December 31, 2016, respectively. The fair value was based on the closing stock price of Alcoa Corporation as of September 30, 2017, and December 31, 2016 multiplied by the number of shares of Alcoa Corporation common stock owned by the Company at those respective dates. As of May 4, 2017, the Company no longer maintained a retained interest in Alcoa Corporation common stock.

In connection with the Separation Transaction, on October 31, 2016, Arconic and Alcoa Corporation entered into 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 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 of the Yadkin Hydroelectric Project. The transaction closed$18 in the first quarter of 20172021 and 2020, respectively.

Operating lease right-of-use assets and lease liabilities in the Consolidated Balance Sheet were as follows:
March 31, 2021December 31, 2020
Right-of-use assets classified in Other noncurrent assets$125 $131 
Current portion of lease liabilities classified in Other current liabilities
37 38 
Long-term portion of lease liabilities classified in Other noncurrent liabilities94 100 
Total lease liabilities$131 $138 

19


O. Debt
March 31, 2021December 31, 2020
5.400% Notes, due 2021(1)
$$361 
5.870% Notes, due 2022(2)
476 476 
5.125% Notes, due 20241,250 1,250 
6.875% Notes, due 20251,200 1,200 
5.900% Notes, due 2027625 625 
6.750% Bonds, due 2028300 300 
5.950% Notes due 2037625 625 
4.750% Iowa Finance Authority Loan, due 2042250 250 
Other(3)
(13)(12)
4,713 5,075 
Less: amount due within one year489 376 
Total long-term debt$4,224 $4,699 
(1)Redeemed on January 15, 2021.
(2)Redeemed on May 3, 2021.
(3)Includes various financing arrangements related to subsidiaries, unamortized debt discounts and unamortized debt issuance costs related to outstanding notes and bonds listed in the table above.
Public Debt.
On January 15, 2021, the Company received proceedscompleted the early redemption of $238all the remaining $361 of its 5.400% Notes due 2021 at par and paid $5 in accrued interest. On an annual basis, the redemption of these 5.400% Notes will decrease Interest expense, net by approximately $19.
On May 3, 2021, the Company completed the early redemption of all the remaining $476 aggregate principal amount of its 5.870% Notes due 2022 and paid an aggregate of $503, including $5 of accrued interest. The Company also incurred an early termination premium of $22, which will be recorded in the second quarter of 2021 in Interest expense, net. On an annual basis, the redemption of these 5.870% Notes will decrease Interest expense, net by approximately $28.
Credit Facilities.
During 2020, the Company entered into several amendments to its Five-Year Revolving Credit Agreement (the “Credit Agreement”) to permit the Arconic Inc. Separation Transaction and to amend certain terms of the Credit Agreement, including a change to the existing financial covenant, a reduction of total commitments available from $3,000 to $1,000 and extension of the maturity date from June 29, 2023 to April 1, 2025. On March 29, 2021, the Company entered into another amendment to its Credit Agreement to provide extended relief from its existing financial covenant for the quarters ended March 31, 2021 through December 31, 2022.
20


The Company is required to maintain a ratio of Consolidated Net Debt (as defined in the Credit Agreement) to Consolidated EBITDA (as defined in the Credit Agreement) of no greater than 3.50 to 1.00 as of the end of each fiscal quarter for the period of the four fiscal quarters of the Company most recently ended, except as of the end of each fiscal quarter noted below for the period of the four fiscal quarters then ended:
No greater than
(i) for the quarter ending March 31, 20215.50 to 1.00
(ii) for the quarter ending June 30, 20215.50 to 1.00
(iii) for the quarter ending September 30, 20215.00 to 1.00
(iv) for the quarter ending December 31, 20214.75 to 1.00
(v) for the quarter ending March 31, 20224.50 to 1.00
(vi) for the quarter ending June 30, 20224.50 to 1.00
(vii) for the quarter ending September 30, 20224.25 to 1.00
(viii) for the quarter ending December 31, 20223.75 to 1.00
Under the March 2021 amendment to the Credit Agreement, during the covenant relief period through December 31, 2022 (unless the Company ends the covenant relief period earlier in accordance with the amendment), common stock dividends and share repurchases are permitted only if no loans under the Credit Agreement are outstanding at the time and are limited to an aggregate amount not to exceed $250 during the year ending December 31, 2021 with an incremental amount of $400 available during the year ending December 21, 2022 provided that any amount that remains unused as of December 31, 2021 may be carried forward and used during the year ending December 31, 2022.
There were 0 amounts outstanding at March 31, 2021 or December 31, 2020, and 0 amounts were borrowed during 2021 or 2020 under the Credit Agreement. At March 31, 2021, the Company was in compliance with all covenants under the Credit Agreement. Availability under the Credit Agreement could be reduced in future periods if the Company fails to maintain the required ratios referenced above.
P. Fair Value of Financial Instruments
The carrying values of Cash and cash equivalents, Restricted cash, Derivatives, Noncurrent receivables, and Short-term debt included in the Consolidated Balance Sheet approximate their fair value. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities that are carried at fair value which is based on quoted market prices which are classified in Level 1 of the fair value hierarchy. The fair value of Long-term debt, less amounts due within one year was based on quoted market prices for public debt and on interest rates that are currently available to Howmet for issuance of debt with similar terms and maturities for non-public debt. The fair value amounts for all Long-term debt were classified in Level 2 of the fair value hierarchy.
 March 31, 2021December 31, 2020
 Carrying
value
Fair
value
Carrying
value
Fair
value
Long-term debt, less amount due within one year$4,224 $4,831 $4,699 $5,426 
Restricted cash, which was included in Prepaid assets and other current liabilities in the Consolidated Balance Sheet, was $1 at both March 31, 2021 and December 31, 2020.
Q. Divestitures
2021 Divestiture
On March 15, 2021, the Company reached an agreement to sell a small manufacturing plant in France within the Fastening Systems segment for $9 in cash, subject to working capital and other adjustments, and therefore was classified as held for sale. The result was a charge of $4 related to the non-cash impairment of the net book value of the business, primarily goodwill, in the first quarter of 20172021 which was recorded in Restructuring and other charges in the remaining $5Statement of Consolidated Operations.
2020 Divestiture
On January 31, 2020, the Company reached an agreement to sell a small manufacturing plant in the United Kingdom within the Engineered Structures segment for $12 in cash, and therefore was classified as held for sale. As a result of entering into the agreement, a charge of $12 was recognized related to a non-cash impairment of the net book value of the business, primarily properties, plants, and equipment in the first quarter of 2020, which was recorded in Restructuring and other charges in the Statement of Consolidated Operations. As the sale did not close, the Company changed the classification from held for sale to
21


held for use in the second quarter of 2017. 2020.
R. Contingencies and Commitments
Contingencies
The $243 proceeds were includedfollowing information supplements and, as applicable, updates the discussion of the contingencies and commitments in Other within Investing ActivitiesNote V to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020, and should be read in conjunction with the complete descriptions provided in the Statement of Consolidated Cash Flows.

16


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. Contingencies and Commitments

Contingencies

Form 10-K.

Environmental Matters

Arconic

Howmet participates in environmental assessments and cleanups at more than 10030 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$10 at September 30, 2017March 31, 2021 and $308$10 at December 31, 20162020, recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which $39$5 and $48,$5, respectively, waswere 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 $17less than $1 in the thirdfirst quarter ended March 31, 2021 and nine months ended September 30, 2017, respectively. This amount includesincluded expenditures currently mandated, as well as those not required by any regulatory authority or third party.

17


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

The following discussion provides details regarding the current status of the most significant reserve related to a current Arconic site.

Massena West, NY—Arconic has an ongoing remediation project related to the Grasse River, which is adjacent to Arconic’s Massena plant site. Many years ago, it was determined that sediments and fish in the river contain varying levels of polychlorinated biphenyls (PCBs). The project, which was selected by the U.S. Environmental Protection Agency (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 channel of the river and dredging PCB contaminated sediments in the near-shore areas where total PCBs exceed one part per million. At September 30, 2017 and December 31, 2016, the reserve balance associated with this matter was $221 and $228, respectively. Arconic is in the planning and design phase, which is expected 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

Pursuant to the Tax Matters Agreement entered into between Arconic and Alcoa Corporation in connection with the Separation Transaction, Arconic shares responsibility with Alcoa Corporation, and Alcoa Corporation has agreed to partially indemnify Arconic, with

Reynobond PE
With respect to the following matter.

As previously reported, in September 2010, following a corporate income tax audit covering the 2003 through 2005 tax years, an assessment was received as a result of Spain’s tax authorities 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 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 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 in July 2013. The assessment for the 2006 through 2009 tax years is $152 (€129), including interest.

Finally, the Spanish consolidated tax group had been under audit (beginning in September 2015) for the 2010 through 2013 tax years. In August 2017, the Company reached a settlement of this audit. The settlement amount is not material to 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 support its tax position for all years and intends to vigorously litigate assessments through Spain’s court system. However, in the event the Company is unsuccessful, a portion of the assessments may be offset with existing net operating losses available to the Spanish consolidated tax group, which would be shared between Arconic and Alcoa Corporation as provided for in the Tax Matters Agreement related to the Separation Transaction. At this time, the Company is unable to reasonably predict an outcome for this matter.

Reynobond PE

As previously reported, on June 13, 2017,regulatory investigations into 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 usedmatter, including 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, no update is available.

Pursuant to the Separation and Distribution Agreement, dated as of March 31, 2020, Arconic Corporation agreed to indemnify the Company for certain liabilities and the Company agreed to indemnify Arconic Corporation for certain liabilities. As a consumer protection inquiryresult of the Arconic Inc. Separation Transaction, Arconic Corporation holds the building and construction systems businesses previously held by the Company and Arconic Architectural Products SAS (“AAP SAS”) is a French public authority. AAP SASsubsidiary of Arconic Corporation; accordingly, Arconic Corporation has filed an application seeking core participant statusagreed 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 Public Inquiry.

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In August and September 2017, two purported class action complaints were filed againstfollowing legal proceedings in which Arconic and certain officers, directorsInc. and/or other parties, alleging that, in lightits then directors were named as parties:

United Kingdom Litigation. On December 23, 2020, claimant groups comprised of survivors and estates of decedents of the Grenfell Tower fire certainfiled suits in the U.K. arising from that fire, against 23 defendants, including Howmet Aerospace Inc., AAP SAS, and Arconic Corporation. The Company filingshas recently been served with claim forms in the Securities and Exchange Commission contained false and misleading disclosures and omissions in violationproceedings, which contain brief details of the federal securities laws.

Whileclaims. However, the suits remain at a preliminary stage, and the Company believesis still waiting to be served with full particulars of the claimants’ substantive allegations and the relief that these casesclaimants seek. Following a recent application by legal representatives acting for the claimant groups, the current stay of the suits has been extended until July 7, 2021, when they will be heard together at a case management hearing in the High Court in London on July 7-8, 2021.

Behrens et al. v. Arconic Inc. et al. On June 6, 2019, 247 plaintiffs comprised of survivors and estates of decedents of the Grenfell Tower fire filed a complaint against “Arconic Inc., Alcoa Inc. and Arconic Architectural Products, LLC” (collectively, for purposes of the description of such proceeding, the “Arconic Defendants”), as well as Saint-Gobain Corporation, d/b/a Celotex and Whirlpool Corporation alleging claims under Pennsylvania state law for products liability and wrongful death related to the fire. The case was removed to the United States District Court for the Eastern District of Pennsylvania. Defendants moved to dismiss the case on numerous grounds, including forum non conveniens. Defendant Saint-Gobain Corporation was subsequently voluntarily dismissed from the case. On September 16, 2020, the court issued an order granting the remaining defendants’ motion to dismiss on forum non conveniens grounds, subject to certain conditions, determining that the United Kingdom, and not the United States, is the appropriate place for plaintiffs to bring their case. Plaintiffs subsequently filed a motion for reconsideration, which the court denied on November 23, 2020. Plaintiffs are without meritappealing the judgment; the Arconic Defendants are cross-appealing one of the conditions. Plaintiffs filed their opening appeal brief on March 8, 2021; the Arconic Defendants’ opening brief was filed on April 21, 2021.
22


With respect to the Howard v. Arconic Inc. et al. and intendsRaul v. Albaugh, et al. proceedings, no updates to challenge them vigorously,such proceedings are available.
While there can be no assurances regarding the ultimate resolution of these matters. Given the preliminary nature of these matters, Arconic Corporation has agreed to assume and the uncertainty of litigation,indemnify the Company cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of lossesagainst potential liabilities associated with them.
Lehman Brothers International (Europe) (“LBIE”) Claim. On June 26, 2020, LBIE filed formal proceedings against two Firth Rixson entities (“Firth”) in the High Court of Justice, Business and Property Courts of England and Wales. The proceedings relate to interest rate swap transactions that Firth entered into with LBIE in 2007 to 2008. In 2008, LBIE commenced insolvency proceedings, an event of an unfavorable outcome.default under the agreements, rendering LBIE unable to meet its obligations under the swaps and suspending Firth’s payment obligations. In the Court proceedings, LBIE seeks a declaration that Firth has a contractual obligation to pay the amounts owing to LBIE under the agreements, which LBIE claims to be approximately $64, plus applicable interest. The Boardparties filed position papers on July 24, 2020 and October 19, 2020 (LBIE) and September 21, 2020 (Firth). A virtual hearing in this matter occurred on January 13 and 14, 2021 in London, England. A decision is expected within six months of Directorsthe January 2021 hearing. The Company believes it has also received letters, purportedly sent on behalf of shareholders, reciting allegations similarmeritorious defenses and intends to those made in the federal court lawsuits and demanding that the Board authorize the Company to initiate litigationvigorously defend 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, 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 to the Grenfell Tower fire and Reynobond PE.

claims.

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 taxantitrust 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 30, 2017, ArconicMarch 31, 2021, Howmet had outstanding bank guarantees related to tax matters, outstanding debt, workers’ compensation, environmental obligations, energy contracts, and customs duties, among others. The total amount committed under these guarantees, which expire at various dates between 20172021 and 2026,2040, was $25$33 at September 30, 2017.

March 31, 2021.

Pursuant to the Separation and Distribution Agreement between ArconicHowmet and Alcoa Corporation, ArconicHowmet was required to provide maximum potential future paymentcertain guarantees for Alcoa Corporation, issued on behalfwhich had a fair value of a third party of $270$6 and $354$12 at September 30, 2017March 31, 2021 and December 31, 2016. These guarantees expire at various times between 20172020, respectively, 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 periods and waswere 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, ArconicThe Company was required to provide guaranteesa guarantee up to an estimated present value amount of $53 relatedapproximately $1,356 and $1,398 at March 31, 2021 and December 31, 2020, respectively. For this guarantee, subject to certainits 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 guarantorpayment 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, accounts receivable securitization and environmentalleasing obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, primarilymostly in 2017,2021, was $127$113 at September 30, 2017.

19


March 31, 2021.

Pursuant to the Separation and Distribution Agreement,Agreements between the Company and Arconic wasCorporation and between the Company and Alcoa Corporation, the Company is required to retain letters of credit of $61$53 that had previously been provided related to boththe 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’sCorporation workers’ compensation claims and letterletters of credit fees paid by Arconicthe Company are being proportionally billed to and are being fully reimbursed by Arconic Corporation and Alcoa Corporation. Additionally, ArconicCorporation, respectively. Also, the Company was required to provide letters of credit totaling $103 for certain AlcoaArconic Corporation equipment leasesenvironmental obligations and, energy contracts. The entire $103as a result, the Company has $23 of outstanding letters of credit were cancelledrelating to liabilities (which are included in 2017 when Alcoa Corporation issued its ownthe $113 in the above paragraph). $6 of these outstanding letters of credit are pending cancellation and will be deemed cancelled once returned by the beneficiary. Arconic Corporation has issued surety bonds to cover these environmental obligations.

Arconic Corporation is being billed for these letter of credit fees paid by the Company and will reimburse the Company for any payments made under these letters of credit.

23


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 annual surety bonds, which expire and automatically renew at various dates, primarily in 2017,2021, was $128$46 at September 30, 2017.

March 31, 2021.

Pursuant to the Separation and Distribution Agreement,Agreements between the Company and Arconic wasCorporation and between the Company and Alcoa Corporation, the Company is required to provide surety bonds of $25 (which are included in the $46 in the above paragraph) that had previously been provided related to the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 20162016. Arconic Corporation and as a result, Arconic has $25 in outstanding surety bonds relating to these liabilities. Alcoa Corporation workers’ compensation claims paid and surety bond fees paid by Arconicthe 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, wheelsHowmet 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.

20


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 
  

 

 

   

 

 

   

 

 

   

 

 

 

21


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 
  

 

 

   

 

 

   

 

 

   

 

 

 

22


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 belowconcluded 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.

23


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,Notes to 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 reducedFinancial Statements, except 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.

24


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 premiumnoted below:

See Note O for the early redemption of the notes, a benefitdebt.

24


Item 2. Management’s Discussion and Analysis of $8 for the proceedsFinancial Condition and Results 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.

25


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:

Operations.
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 and unobservable.

The carrying values and fair values 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 

26


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.

27


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.

28


Item2. Management’s Discussion and Analysis of Financial Condition and Results of 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 Inc.) (“Arconic”Howmet” or the “Company”) is a global leader in lightweight metals engineeringcompleted the separation of its business into two independent, publicly-traded companies (the “Arconic Inc. Separation Transaction”). Following the Arconic Inc. Separation Transaction, Arconic Corporation holds the Global Rolled Products businesses (global rolled products, aluminum extrusions, and 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 oilsystems) 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 separationfollowing Management’s Discussion and Analysis of Alcoa Inc. into two standalone, publicly-traded companies,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 effectiveSeparation Transaction occurred on NovemberApril 1, 2016 (the “Separation Transaction”).2020. The financial results of AlcoaArconic 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 the third quarter and nine months ended September 30, 2016.all periods presented. The cash flows, equity and comprehensive income, and equity related to AlcoaArconic Corporation have not been segregated and are included in the accompanying Statement of Consolidated Cash Flows, Statement of Consolidated Comprehensive Income and Statement of Changes in Consolidated Equity, and Statement of Consolidated Comprehensive Income, respectively, for all periods prior to the third quarterArconic Inc. Separation Transaction.
COVID-19
Year to date 2021, the Company derived approximately 60% of its revenue from products sold to the aerospace end-market. As a result of the global coronavirus (“COVID-19”) pandemic and nine monthsits impact on the aerospace industry to-date, the possibility exists that there could be a sustained impact to our operations and financial results. Since the start of the pandemic, certain original equipment manufacturer (“OEM”) customers have reduced production or suspended manufacturing operations in North America and Europe on a temporary basis. While the pandemic has resulted in the temporary closure of a small number of the Company's manufacturing facilities during 2020, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, management has taken a series of actions to address the financial impact, including announcing certain headcount reductions and reducing the level of capital expenditures to preserve cash and maintain liquidity.
For additional information regarding the risks of COVID-19 on our business, see section Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended September 30, 2016.

December 31, 2020, “Risk Factors — Our business, results of operations, financial condition and/or cash flows have been and could continue to be materially adversely affected by the effects of the COVID-19 pandemic.”

Results of Operations

Earnings Summary:

Sales.Sales increased $98,were $1,209 in the first quarter of 2021 compared to $1,634 in the first quarter of 2020. The decrease of $425, or 3%, and $262, or 3%26%, in the thirdfirst quarter of 2021 was primarily due to lower sales volumes in the commercial aerospace market driven by the impacts of COVID-19, and nine months ended September 30, 2017, respectively, compared to the corresponding periods in 2016. The increase in both periods was the result of strong volume growth in our Engineered ProductsBoeing 737 MAX (“737 MAX”) and Solutions and Transportation and Construction Solutions segments and higher aluminum pricing,Boeing 787 production declines, 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 Tennesseegrowth in the Global Rolled Products segment,commercial transportation, defense aerospace and industrial gas turbine markets as well as unfavorablefavorable 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.

$17.

Cost of goods sold (COGS). COGS as a percentage of Sales was 81.1% and 79.5%72.2% in the thirdfirst quarter and nine months ended September 30, 2017, respectively,of 2021 compared to 79.8% and 78.9%72.4% in the thirdfirst quarter and nine months ended September 30, 2016, respectively.of 2020. The increasedecrease in both periodsthe first quarter of 2021 was primarily attributabledue to cost increases, including higher aluminum pricesnet costs savings and ramp-up costsfavorable product pricing. Additionally, in 2020, the Company recorded total COGS charges of $11 related to new commercial aerospace engines,fires that occurred at a Fastening Systems’ plant in France in 2019 and at a lower margin product mix, partially offset by net cost savings.

29


Forged Wheels plant in Barberton, Ohio in mid-February 2020. The Company recorded total COGS charges of $9 related to the fires at France and Barberton in 2021. The Company anticipates additional charges of approximately $3 to $7 in the second quarter of 2021, with further impacts in subsequent quarters as the businesses continue to recover from the fires.

Selling, general administrative, and other expenses (SG&A). SG&A expenses decreased $74were $65 in the thirdfirst quarter of 20172021 compared to $79 in the thirdfirst quarter of 2016 as a result2020. The decrease of expenses related to the Separation Transaction of $54$14, or 18%, in the prior year period and ongoingfirst quarter of 2021 was primarily due to overhead cost reduction efforts (see Note D), partially offset by external legal and other advisory costs related to Grenfell Tower of $7 in the current year period

SG&A expenses decreased $93 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 as a result of expenses related to the Separation Transaction of $117 in the prior year period compared to $18 in the current year period,reductions as well as 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 $7incurred in the current year period.

first quarter of 2020 associated with the Arconic Inc. Separation Transaction.

Research and development expenses (R&D). R&D expenses were $5 in the first quarter of 2021 compared to $4 in the first quarter of 2020, an increase of $1, or 25%.
Restructuring and other charges.charges. Restructuring and other charges were $19 ($13 after-tax)$9 in the thirdfirst quarter of 20172021 compared to $3 ($2 after-tax)$39 in the thirdfirst quarter of 2016. 2020 or a decrease of $30.
25


Restructuring and other charges were $118 ($99 after-tax) infor the nine months ended September 30, 2017 compared to $33 ($22 after-tax) in the nine months ended September 30, 2016.

In the thirdfirst quarter of 2017, Arconic recorded 2021 were primarily comprised of a $4 charge for impairment of assets associated with an agreement to sell a small manufacturing business in France and a $3 charge for U.S. pension plans' settlement accounting.

Restructuring and other charges for the first quarter of $19 ($13 after-tax), which included $11 ($8 after-tax)2020 were primarily comprised of a $22 charge for layoff costs partially offset by a benefit of $2 related to cost reduction initiatives including the separationreversal of 124 employees (111a number of prior period program reserves, a $12 charge for impairment of assets associated with an agreement to sell a small manufacturing business in the Engineered Products and Solutions segment, 12 in Corporate and 1 in the Global Rolled Products segment);U.K., 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)$6 post closing adjustment related to the sale of the Fusina, Italy rolling mill; a net benefit of $6 ($4 after-tax),Company’s U.K. forgings business that occurred in December 2019.

See Note E to the Consolidated Financial Statements for additional detail.
Interest expense. Interest expense was $72 in 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 thirdfirst quarter of 2016, Arconic recorded Restructuring and other charges of $3 ($2 after-tax), which included $4 ($2 after-tax) for layoff costs related2021 compared to cost reduction initiatives and the separation of Alcoa Inc. (see Note G), including the separation of approximately 70 employees (60$84 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 
  

 

 

   

 

 

   

 

 

   

 

 

 

30


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.

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 part2020. The decrease of the Transportation and Construction Solutions segment. The charge relates to the noncash impairment of the net book value of the business.

Interest expense. Interest expense decreased $26,$12, or 21%14%, in the thirdfirst quarter of 2017 compared to the third quarter of 20162021 was primarily due to lower debt outstanding debt. Duringin the first quarter of 2021 driven by the early redemption of $1,000, $889, and $151 of the principal amounts of the 6.150% Notes due 2020, 5.400% Notes due 2021 (the “5.400% Notes”) and 5.870% Notes due 2022 (the “5.870% Notes”), respectively, in the second quarter of 2017, Arconic redeemed all2020 and $361 of the Company’s 6.50% Bonds due 2018 and 6.75%principal amount of the 5.400% Notes, which was offset by the issuance on April 24, 2020 of the 6.875% Notes due 2018, and a portion2025 in the aggregate principal amount of $1,200.

Other expense (income), net. Other expense, net was $4 in the Company’s 5.72% Notes due 2019 (see Note L) in advancefirst quarter of the expiration date. Interest expense increased $27, or 7%, during the nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016 due to $76 of premiums paid for the early redemption noted above, partially offset by lower interest expense due to lower outstanding debt.

Other income, net. Other income, net decreased $10of $24 in the thirdfirst quarter of 2017 compared to2020. The increase of $28, or 117%, in the thirdfirst quarter of 2016,2021 was primarily due to the favorable post-closing adjustment relatedimpacts of deferred compensation arrangements of $12 and lower interest income of $4.

Provision for income taxes. The tax rate including discrete items was 29.2% in the first quarter of 2021 compared to 22.7% in the November 2014 acquisitionfirst quarter of Firth Rixson that2020. A discrete tax benefit of $1 was recorded in the thirdfirst quarter of 2016.

Other income, net increased $4862021 compared to $8 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the gain on the salefirst 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’s2020. The estimated annual effective tax rate, before discrete items, applied to ordinary income was 28.5%. This rate is lower than30.4% in the federal statutory ratefirst quarter of 35%2021 compared to 26.9% in the first quarter of 2020. See Note H to the Consolidated Financial Statements.

Net Income from Continuing Operations. Income from continuing operations was $80, or $0.18 per diluted share, in the first quarter of 2021 compared to $153, or $0.35 per diluted share, in the first quarter of 2020. The decrease of $73, or 48%, in the first quarter of 2021 was primarily due to foreigna reduction in operating income taxedof $69 due to lower sales volumes in lower rate jurisdictions, a tax basisthe commercial aerospace market driven by the impacts of COVID-19, and 737 MAX and Boeing 787 production declines and an increase in excessother expense of book basis in Alcoa Corporation common stock sold (see Note G), and a nontaxable gain on the Debt-for-Equity Exchange (see Note L). These beneficial items were$28, partially offset by a loss on the salereduction in interest expense of $12 and a rolling mill in Fusina, Italy for which no net tax benefit 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 recordeddecrease in the quarter ended September 30, 2017 and primarily relate toprovision for income taxes of $12.

Net Income. As 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.

31


The tax provisionsArconic Inc. Separation Transaction occurred on April 1, 2020, there is no income from discontinued operations for the thirdfirst 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 after2021. Net income taxes. Income from continuing operations after income taxes was $119$80 for the thirdfirst quarter of 2017, or $0.22 per diluted share, compared to2021 all of which was composed of $80 of income from continuing operations, afteror $0.18 per diluted share.

Net income taxes of $66was $215 for the thirdfirst quarter of 2016, or $0.11 per diluted share. The increase2020 composed of $53 was primarily attributable to higher volumes and net cost savings across the businesses and the absence$153 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 for the nine months ended September 30, 2017, or $1.31 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 of $424 was primarily attributable 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 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 of the Fusina, Italy rolling mill of $60; unfavorable product pricing, primarily in aerospace; and lower-margin product mix.

Discontinued operations.In the third quarter of 2016, net income attributable to Arconic included income of $120$62 from discontinued operations, after income taxesor $0.35 and $20 from discontinued$0.14 per diluted share, respectively.

Segment Information
The Company’s operations attributable to noncontrolling interests. In the nine months ended September 30, 2016, net income attributable to Arconic included incomeconsist of $146 from discontinued operations after income taxesfour worldwide reportable segments: Engine Products, Fastening Systems, Engineered Structures, and $58 from discontinued operations attributable to noncontrolling interests.

Segment Information

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”).Forged Wheels. Segment performance under Arconic’sHowmet’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Adjusted EBITDA. Arconic’sSegment operating profit. Howmet's definition of Adjusted EBITDASegment operating profit is net margin plus an add-back for depreciationOperating income excluding Special items. Special items include Restructuring and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. The Adjusted EBITDA presentedOther charges. Segment operating profit may not be comparable to similarly titled measures of other companies.

Engineered Products Differences between segment totals 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%consolidated Howmet are 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.

32


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.

33


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

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.

34


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 
  

 

 

   

 

 

   

 

 

   

 

 

 

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.

35


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 ofCorporate. (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 representing10-Q for a 1/10th interestdescription of each segment).

In the second quarter of 2020, the Company realigned its operations consistent with how the Co-Chief Executive Officers assess operating performance and allocating capital in conjunction with the Arconic Inc. Separation Transaction (see Note B to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q). Prior period financial information has been recast to conform to current year presentation.
The Company produces aerospace engine parts and components and aerospace fastening systems for 737 MAX airplanes. In late December 2019, Boeing announced a sharetemporary suspension of production of the mandatory convertible preferred stock) were converted at737 MAX airplanes. This decline in production had a ratenegative impact on sales and segment operating profit in the Engine Products, Fastening Systems and Engineered Structures segments. While regulatory authorities in the United States and certain other jurisdictions lifted grounding orders beginning in late 2020, our sales could continue to be negatively affected from the residual impacts of 1.56996 into 39,211,286 common shares; 24,022 depositary shares were previously tenderedthe 737 MAX grounding.

26


Engine Products
First quarter ended
 March 31,
 20212020
Third-party sales$534 $781 
Segment operating profit101 165 
Third-party sales for early conversion into 31,428 sharesthe Engine Products segment decreased $247, or 32%, in the first quarter 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. Pursuant2021 compared to the Separationfirst quarter of 2020, primarily due to lower commercial aerospace volumes from production declines for the 737 MAX 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 facilityCOVID-19 productivity impacts, partially offset by higher volumes in the eventdefense aerospace and industrial gas turbines end markets as well as favorable product pricing.

Segment operating profit for the Engine Products segment decreased $64, or 39%, in the first quarter of an Alcoa Corporation payment default. As2021 compared to the first quarter of 2020, primarily due to lower commercial aerospace volumes from production declines for the 737 MAX and COVID-19 productivity impacts, partially offset by cost reductions, favorable sales volumes in the defense aerospace and industrial gas turbine end markets, and favorable product pricing.
In 2021 compared to 2020, demand in industrial gas turbines and defense aerospace end markets is expected to increase while demand in the commercial aerospace end market is expected to be down driven by the impact of COVID-19. Favorable product pricing and cost reductions are expected to continue.
Fastening Systems
First quarter ended
March 31,
20212020
Third-party sales$272 $385 
Segment operating profit45 96 
Third-party sales for the Fastening Systems segment decreased $113, or 29%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to lower volumes in the commercial aerospace end market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines.
Segment operating profit for the Fastening Systems segment decreased $51, or 53%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to lower volumes in the commercial aerospace end market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by cost reductions.
In 2021 compared to 2020, demand in the commercial aerospace end market is expected to be down driven by the impact of COVID-19. Favorable cost reductions are expected to continue.
Engineered Structures
First quarter ended
 March 31,
 20212020
Third-party sales$176 $275 
Segment operating profit10 28 
Third-party sales for the Engineered Structures segment decreased $99, or 36%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to lower volumes in the commercial aerospace end market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by higher volumes in the defense aerospace end market.
Segment operating profit for the Engineered Structuressegment decreased $18, or 64%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to lower volumes in the commercial aerospace end market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, partially offset by higher volumes in the defense aerospace end market and cost reductions.
In 2021 compared to 2020, demand in the commercial aerospace end market is expected to be down driven by the impact of COVID-19. Favorable cost reductions are expected to continue.
27


Forged Wheels
First quarter ended
March 31,
20212020
Third-party sales$227 $191 
Segment operating profit70 50 
Third-party sales for the Forged Wheels segment increased $36, or 19%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to higher volumes in the North America commercial transportation end market.
Segment operating profit for the Forged Wheels segment increased $20, or 40%, in the first quarter of 2021 compared to the first quarter of 2020, primarily due to higher commercial transportation sales volumes and cost reductions.
In 2021 compared to 2020, demand in the commercial transportation markets served by Forged Wheels is expected to increase in most regions. Commercial transportation OEMs are expected to increase output as global economies recover from 2020 COVID-19 lows. However, sales in the Forged Wheels segment could be negatively impacted by customer supply chain constraints.
Reconciliation of Income from continuing operations before income taxes to Total segment operating profit
First quarter ended
March 31,
20212020
Income from continuing operations before income taxes$113 $198 
Interest expense72 84 
Other expense (income), net(24)
Consolidated operating income$189 $258 
Unallocated amounts:
Restructuring and other charges39 
Corporate expense28 42 
Total segment operating profit$226 $339 
Total segment operating profit is a resultnon-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of the terminationsegments of the electricity contract by Alcoa Corporation, Arconic expects to record noncash non-operating incomeCompany excluding Corporate results.
See Restructuring and other charges, Interest expense, and Other expense (income), net discussions above under Results of Operations for reference.
Corporate expense decreased $14, or 33%, in the fourthfirst quarter of 20172021 compared with the first quarter of approximately $25 ($16 after-tax)2020 primarily due to costs associated with the reversalArconic Inc. Separation Transaction of $4 and impairment costs related to facility closures of $3 incurred in 2020 that did not recur in 2021 and lower costs driven by overhead cost reductions.
Environmental Matters
See the fair valueEnvironmental Matters section of Note R to the guarantee which was includedConsolidated Financial Statements in Other noncurrent liabilities and deferred credits onPart I, Item 1 of this Form 10-Q.
Subsequent Events
See Note S to the accompanying Consolidated Balance Sheet.

Financial Statements in Part I, Item 1 of this Form 10-Q for subsequent events.

Liquidity and Capital Resources

As previously disclosed, during the third quarter of 2020, the Company identified a misclassification in the presentation of changes in accounts payable and capital expenditures in its previously issued Statement of Consolidated Cash Flows for the first quarter ended March 31, 2020 and six months ended June 30, 2020. Although management has determined that such misclassification did not materially misstate the Statement of Consolidated Cash Flows for the first quarter ended March 31, 2020 or six months ended June 30, 2020, the Company revised the first quarter, resulting in an $83 increase to previously reported capital expenditures and decrease to cash provided from investing activities with a corresponding reduction (decrease) in accounts payable, trade and increase in cash provided by operations.
The cash flows related to AlcoaArconic Corporation have not been segregated and are included in the Statement of Consolidated
28


Cash Flows for all periods prior to the nineArconic Inc. Separation Transaction. See Note A to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference.
Operating Activities
Cash used for operations was $6 in the three months ended September 30, 2016. As a result, the cash flow amounts reported for the nine months ended September 30, 2017 are not comparable to the amounts reported for the nine months ended September 30, 2016.

36


Cash from Operations

Cash provided from operations was $89 in the nine months ended September 30, 2017March 31, 2021 compared to $208 in the ninethree months ended September 30, 2016.March 31, 2020. The decrease in cash provided fromused for operations of $119,$202, or 57%97%, was primarily due to lower operating results (net income plus net add-back for noncash transactions in earnings) of $673, partially$256 which were more than offset by lower cash used for working capital of $251$408, lower pension contributions of $27, and a positivenoncurrent liabilities of $25. The components of the change associated with noncurrentin working capital included favorable changes in receivables of $66, inventories of $156, accounts payable of $158, accrued expenses of $81, and prepaid expenses and other current assets of $247 due to the prepayment$25, offset by taxes, including income taxes of $200 made in April 2016 related to a gas supply agreement for the Australia alumina refineries.

$78.

Financing Activities

Cash used for financing activities was $918$368 in the ninethree months ended September 30, 2017March 31, 2021 compared to $350cash provided from financing activities of $1,145 in the ninethree months ended September 30, 2016.March 31, 2020. The increase in cash used for financing activitieschange of $1,513, or 132%, was primarily relateddue to debt issued of $1,200 in the first quarter of 2020 (which went with Arconic Corporation in the Arconic Inc. Separation Transaction) partially offset by debt issuance costs of $44, while the first quarter of 2021 had payments on the redemption of long-term debt of $361. (See Note O to the earlyConsolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference). On an annual basis, the redemption of the Company’s 6.50% Bonds due 2018, 6.75%5.400% Notes due 2018, and the 5.870% Notes will decrease Interest expense, net by approximately $47.
Howmet expects to re-instate a portionquarterly dividend of $0.02 per share of the 5.72% Notes due 2019 (see Note L).

ArconicCompany’s common stock, beginning in the third quarter 2021, subject to the discretion and final approval of the Board of Directors each quarter after the Board’s consideration of all factors it deems relevant and subject to applicable law and contractual considerations.

The Company maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein, which providestherein. On March 29, 2021, the Company entered into another amendment to its Credit Agreement to provide extended relief from its existing financial covenant through December 31, 2022. See Note O to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a $3,000 senior unsecured revolving credit facility (the “Credit Facility”) which matures on July 25, 2020 unless extendedreference.
The Company may in the future repurchase additional portions of its debt or earlier terminatedequity securities from time to time, in either the open market or through privately negotiated transactions, in accordance with the provisionsapplicable SEC and other legal requirements. The timing, prices, and sizes of the Credit Agreement. purchases depend upon prevailing trading prices, general economic and market conditions, and other factors, including applicable securities laws.
The purpose of any borrowings under the Credit Facility is to provide for working capital requirements and for other general corporate purposes.

In addition to the Credit Agreement above, Arconic has a number of other credit agreements that provide a combined borrowing capacity of $715 as of September 30, 2017, of which $175 is due to expire in 2017 and $540 is due to expire in 2018. 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’sCompany’s costs of borrowing and ability to access the capital markets are affected not only by market conditions but also by the short-short and long-term debt ratings assigned to Arconicthe Company by the major credit rating agencies.

Arconic’s

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

Issuer RatingLong-Term DebtOutlookShort-Term DebtOutlookDate of Last Update

Standard and Poor’s

Ratings Service (S&P)
BB+BBB-NegativeA-3StableMay 1, 2017September 9, 2020

Moody’s

Investors Service (Moody’s)
Ba2Ba2StableSpeculative Grade
Liquidity-2
StableNovember 2, 2017April 20, 2021

Fitch

Investors Service (Fitch)
BBB-BB+StableBStableJuly 3, 2017March 26, 2021

On March 26, 2021, Fitch affirmed the following ratings for Howmet: long-term debt at BBB- and the current outlook as stable.
On April 20, 2021, Moody’s upgraded Howmet’s long-term debt rating from Ba3 to Ba2 and the current outlook from negative to stable, citing the Company’s considerable revenues and well-established market position.
Investing Activities

Cash provided from investing activities was $776$3 in the ninethree months ended September 30, 2017March 31, 2021 compared to $79$11 in the ninethree months ended September 30, 2016.

CashMarch 31, 2020. The decrease in cash provided from investing activities for the nine months ended September 30, 2017 includedof $8, or 73%, was primarily due to proceeds of $888 from the sale of a portion 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 offset by cash used for capital expenditures of $360 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 proceeds of $683 from the sale of assets and businesses,business of $114 primarily related to $457 in proceeds from the redemption of Company-owned life insurance policies, proceeds of $120 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 proceedsfirst quarter of $102 from the sale2020 (both of the Remmele Medical business, and $280 in proceeds received from the sale of investments, including $145 for the sale of an equity interest in a natural gas pipeline in Australia and $130 for fixed income and equity securities held by Arconic’s captive insurance company. These cash flows were partiallywhich related to Arconic Corporation), substantially offset by $814a decrease in capital expenditures includingof $97 and increase in cash receipts from sold receivables of $9.

Goodwill. Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more frequently if indicators 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
29


flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.
Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. For the first quarter of 2021, Howmet had four reporting units (Engine Products, Fastening Systems, Engineered Structures and Forged Wheels).
In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the quantitative impairment test (described below), otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the quantitative impairment test.
The Company determines annually, based on facts and circumstances, which of its reporting units will be subject to the qualitative assessment. For those reporting units where a qualitative assessment is either not performed or for which the conclusion is that an impairment is more likely than not, a quantitative impairment test will be performed. Howmet’s policy is that a quantitative impairment test be performed for each reporting unit at least once during every three-year period.
Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact they would have on the estimated fair value using positive, neutral, and adverse categories based on current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using high, medium, and low weighting. Furthermore, management considers the results of the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital (“WACC”) between the current and prior years for each reporting unit.
During the first quarter of 2020, Howmet’s market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, sales globally to customers in the aerospace expansion (thick plate stretcher) atand commercial transportation industries impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test in the Davenport, Iowa plant.

37


Noncash Financingfirst quarter to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this assessment, the Company performed a quantitative impairment test in the first quarter for the Engineered Structures reporting unit and Investing Activities

concluded that though the margin between the fair value of the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not impaired. Consistent with prior practice, a discounted cash flow model was used to estimate the current fair value of the reporting unit. The significant assumptions and estimates utilized to determine fair value were developed utilizing current market and forecast information reflecting the disruption in demand that has had and is expected to have a negative impact on the Company’s global sales in the aerospace industry. Since the first quarter of 2020, the Company did not identify an indication of impairment of goodwill related to any of its reporting units or indefinite-lived intangible assets.

In the secondfirst quarter of 2017,2021, there was no indication of impairment identified for any reporting unit as the Company completed a Debt-for-Equity Exchange with the Investment Banksmargin between fair value of the remaining portionreporting unit and its carrying value exceeded 20%. As such, the fair values of Arconic’s retained interest in Alcoa Corporation common stock for a portionall of the Company’s outstanding notes held by the Investment Banks for $465 including accruedour reporting units substantially exceeded their carrying values at March 31, 2021. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and 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’sHowmet’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements, forecasts and expectationsoutlook relating to the aerospace, automotive, commercial transportation and othercondition of end markets; statements and guidance regarding future financial results, operating performance, or operating performance; statements about Arconic’sestimated or expected future capital expenditures; future strategic actions; Howmet’s strategies, outlook, and business and financial prospects; and statements regarding potentialany future dividends or share gains.repurchases. These statements reflect beliefs and assumptions that are based on Arconic’sHowmet’s perception of historical trends,
30


current conditions and expected future developments, as well as other factors managementHowmet 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 mayto 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)a) uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet’s business, results of operations, and financial condition; (b) deterioration in global economic and financial market conditions generally; (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 pandemic continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations); (c) unfavorable changes in the markets served by Arconic; (c) 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;Howmet; (d) changes in discount rates or investment returns on pension assets; (e) Arconic’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) the impact of potential cyber attacks and potential information technology or data security breaches; (g) any(e) the loss of significant customers or adverse changes in customers’ business or financial conditions; (f) manufacturing difficulties or other issues that impact product performance, quality or safety; (g) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (h) political,the inability to achieve revenue growth, cash generation, cost savings, restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (i) competition from new product offerings, disruptive technologies or other developments; (j) geopolitical, economic, and regulatory risks in the countries in which Arconic operates or sells products; (i) material adverse changes in aluminum industry conditions,relating to Howmet’s global operations, including fluctuations in London Metal Exchange-based aluminum prices; (j) the impact of changes incompliance with U.S. and foreign currency exchange rates on coststrade and results;tax laws, sanctions, embargoes and other regulations; (k) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose ArconicHowmet to substantial costs and liabilities; (l) failure to comply with government contracting regulations; (m) adverse changes in discount rates or investment returns on pension assets; and (l)(n) the other risk factors summarized in Arconic’sHowmet’s Form 10-K for the year ended December 31, 2016, including under Part I, Item 1A thereof, in Arconic’s Form 10-Q for2020 and other reports filed with the quarter ended June 30, 2017,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. Arconicmarket. 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

38


Arconic’s Interim Chief

The Company's Co-Chief Executive OfficerOfficers 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 thirdfirst quarter of 2017,2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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 a petition for review by the Supreme CourtConsolidated Financial Statements in Part I, Item 1 of the State of California. On September 13, 2017, the California Supreme Court denied Northrop’s petition for review. The remaining claims against Northropthis Form 10-Q.
Item 1A. Risk Factors.
There have been remanded tono material changes from the trial court. No claims against Arconic are pendingrisk factors previously disclosed in Part I, Item 1A, “Risk Factors” in the remanded case. No further reports will be madeCompany’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.

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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 yearsyear ended December 31, 2012, 2013, 2014, 2015 and 2016, its 2012, 2013, 2014, 2015 and 2016 Annual Reports, and its 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 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 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. The Board of Directors has also received letters, purportedly sent on behalf of shareholders, 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 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, 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 to the Grenfell Tower fire and Reynobond PE.

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2020.


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Item 6. Exhibits.

10(a)Letter Agreement, by and between Arconic Inc. and Charles P. Blankenship,Amendment No. 5 dated as of October 19, 2017,March 29, 2021, 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., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 23, 2017filed on March 29, 2021.
12.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 20022002.
32.Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002.
101.INS
101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema DocumentDocument.
101.CAL
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.
101.DEF
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentDocument.
101.LAB
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentDocument.
101.PRE
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument.
104.Cover Page Interactive Data File - the cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments).

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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.

ArconicHowmet Aerospace Inc.

NovemberMay 6, 2017

2021

/s/ Ken Giacobbe

DateKen Giacobbe
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
May 6, 2021/s/ Paul Myron
DatePaul Myron

November 6, 2017

/s/ Paul Myron

DatePaul Myron
Vice President and Controller
(Principal Accounting Officer)

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