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, 2023

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,April 28, 2023, there were 481,324,177413,291,033 shares of common stock, par value $1.00 per share, of the registrant outstanding.







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



PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

ArconicStatements and Supplementary Data.

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

(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,
 20232022
Sales (C)
$1,603 $1,324 
Cost of goods sold (exclusive of expenses below)1,164 950 
Selling, general administrative, and other expenses75 69 
Research and development expenses
Provision for depreciation and amortization69 66 
Restructuring and other charges (D)
Operating income285 230 
Loss on debt redemption (N)
— 
Interest expense, net57 58 
Other expense, net (F)
Income before income taxes220 171 
Provision for income taxes (G)
72 40 
Net income$148 $131 
Amounts Attributable to Howmet Aerospace Common Shareholders (H):
Net income$147 $130 
Earnings per share:
Basic$0.36 $0.31 
Diluted$0.35 $0.31 
Average Shares Outstanding (H):
Basic412 419 
Diluted418 425 
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)

(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,
20232022
Net income$148 $131 
Other comprehensive income (loss), net of tax (I):
Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits10 
Foreign currency translation adjustments34 (31)
Net change in unrecognized (losses) gains on cash flow hedges(4)20 
Total Other comprehensive income (loss), net of tax35 (1)
Comprehensive income$183 $130 
The accompanying notes are an integral part of the consolidated financial statements.

3

4

Arconic

Howmet Aerospace Inc. and subsidiaries

Consolidated Balance Sheet (unaudited)

(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, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$537 $791 
Receivables from customers, less allowances of $1 in both 2023 and 2022 (J)
655 506 
Other receivables16 31 
Inventories (K)
1,662 1,609 
Prepaid expenses and other current assets187 206 
Total current assets3,057 3,143 
Properties, plants, and equipment, net (L)
2,321 2,332 
Goodwill4,024 4,013 
Deferred income taxes59 54 
Intangibles, net518 521 
Other noncurrent assets (M)
195 192 
Total assets$10,174 $10,255 
Liabilities
Current liabilities:
Accounts payable, trade (B)
$877 $962 
Accrued compensation and retirement costs193 195 
Taxes, including income taxes (G)
64 48 
Accrued interest payable63 75 
Other current liabilities (M)(P)
206 202 
Total current liabilities1,403 1,482 
Long-term debt, less amounts due within one year (N)(O)
3,988 4,162 
Accrued pension benefits (E)
625 633 
Accrued other postretirement benefits (E)
108 109 
Other noncurrent liabilities and deferred credits (M)
289 268 
Total liabilities6,413 6,654 
Contingencies and commitments (P)
Equity
Howmet Aerospace shareholders’ equity:
Preferred stock55 55 
Common stock412 412 
Additional capital3,941 3,947 
Retained earnings1,159 1,028 
Accumulated other comprehensive loss (I)
(1,806)(1,841)
Total equity3,761 3,601 
Total liabilities and equity$10,174 $10,255 
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)

(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 
  

 

 

  

 

 

 

Three months ended
 March 31,
 20232022
Operating activities
Net income$148 $131 
Adjustments to reconcile net income to cash provided from operations:
Depreciation and amortization69 66 
Deferred income taxes31 28 
Restructuring and other charges
Net realized and unrealized losses
Net periodic pension cost (E)
Stock-based compensation14 11 
Loss on debt redemption (N)
— 
Other22 
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
Increase in receivables (J)
(137)(123)
Increase in inventories(45)(87)
Decrease in prepaid expenses and other current assets12 
(Decrease) increase in accounts payable, trade(67)68 
Decrease in accrued expenses(19)(54)
Increase in taxes, including income taxes16 
Pension contributions(9)(11)
Decrease (increase) in noncurrent assets(1)
Decrease in noncurrent liabilities(12)(17)
Cash provided from operations23 55 
Financing Activities
Net change in short-term borrowings— (3)
Repurchases and payments on debt (N)
(176)— 
Premiums paid on early redemption of debt (N)
(1)— 
Repurchase of common stock(25)(175)
Proceeds from exercise of employee stock options
Dividends paid to shareholders(17)(9)
Other(1)(14)
Cash used for financing activities(214)(194)
Investing Activities
Capital expenditures (C)
(64)(62)
Proceeds from the sale of assets and businesses— 
Cash used for investing activities(64)(61)
Effect of exchange rate changes on cash, cash equivalents and restricted cash— 
Net change in cash, cash equivalents and restricted cash(254)(200)
Cash, cash equivalents and restricted cash at beginning of period792 722 
Cash, cash equivalents and restricted cash at end of period$538 $522 
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)

(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 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

 Preferred
stock
Common
stock
Additional
capital
Retained earningsAccumulated
other
comprehensive
loss
Total
Equity
Balance at December 31, 2021$55 $422 $4,291 $603 $(1,863)$3,508 
Net income— — — 131 — 131 
Other comprehensive loss (I)
— — — — (1)(1)
Cash dividends declared:
Preferred-Class A @ $0.9375 per share— — — (1)— (1)
Common @ $0.02 per share— — — (8)— (8)
Repurchase and retirement of common stock (H)
— (5)(170)— — (175)
Stock-based compensation— — 11 — — 11 
Common stock issued: compensation plans— (9)— — (8)
Balance at March 31, 2022$55 $418 $4,123 $725 $(1,864)$3,457 

 Preferred
stock
Common
stock
Additional
capital
Retained earningsAccumulated
other
comprehensive
loss
Total
Equity
Balance at December 31, 2022$55 $412 $3,947 $1,028 $(1,841)$3,601 
Net income— — — 148 — 148 
Other comprehensive income (I)
— — — — 35 35 
Cash dividends declared:
Preferred-Class A @ $0.9375 per share— — — (1)— (1)
Common @ $0.04 per share— — — (16)— (16)
Repurchase and retirement of common stock (H)
— — (25)— — (25)
Stock-based compensation— — 14 — — 14 
Common stock issued: compensation plans— — — — 
Balance at March 31, 2023$55 $412 $3,941 $1,159 $(1,806)$3,761 

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 share and per-share amounts)

A. Basis of Presentation

The interim Consolidated Financial Statements of ArconicHowmet Aerospace Inc. and its subsidiaries (“Arconic”Howmet” or the “Company” or “we” or “our”) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The 20162022 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, 2016,2022 (the “Form 10-K”), 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

In the first quarter of Alcoa Inc. into two standalone, publicly-traded companies, Arconic Inc. (the new name for Alcoa Inc.) and Alcoa Corporation, became effective on November 1, 2016 (the “Separation Transaction”). The financial results2023, the Company derived approximately 47% of Alcoa Corporation for all periods priorits revenue from products sold to the Separation Transaction have been retrospectively reflectedcommercial aerospace market which is substantially less than the pre-pandemic 2019 annual rate of approximately 60%. During the global COVID-19 pandemic and its impact on the commercial aerospace industry to date, there was a decrease in domestic and international air travel, which in turn adversely affected demand for narrow body and wide body aircraft. Domestic air travel has rebounded and approximates pre-pandemic levels. International air travel continues to recover and is approximately 80% of pre-pandemic levels. We expect commercial aerospace growth to continue with narrow body demand returning faster than wide body demand. The commercial wide body aircraft market is taking longer to recover, which is creating a shift in our product mix compared to pre-pandemic conditions. In addition to the impact from the pandemic, the timing and level of future aircraft builds by original equipment manufacturers are subject to changes and uncertainties, which may cause our future results to differ from prior periods due to changes in product mix in certain segments.
The preparation of the Consolidated Financial Statements of the Company in conformity with GAAP requires management to make certain judgments, estimates, and assumptions. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience, including considerations relating to the impact of COVID-19 and changes in the Statement of Consolidated Operationsaerospace industry 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. The cash flows, equity and comprehensive income related to Alcoa Corporation have not been segregated and are included in the accompanying Statement of Consolidated Cash Flows, Statement of Changes in Consolidated Equity and Statement of Consolidated Comprehensive Income, respectively, for the third quarter and nine months ended September 30, 2016.

Pursuant to the authorization provided at a special meeting of Arconic common shareholders held on October 5, 2016, shareholders approved a 1-for-3 reverse stock split of Arconic’s outstanding and authorized shares of common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, every three sharespandemic. The impact of issuedthese changes is rapidly changing and outstanding common stock were combined into one issuedof unknown duration and outstanding sharemacroeconomic 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 common stock, without any change ingoodwill, intangible and long-lived assets, the par value per share. The Reverse Stock Split reduced the numberrealizability of shares of common stock outstanding from approximately 1.3 billion shares to approximately 0.4 billion shares. The Company’s common stock began trading on a reverse stock split-adjusted basis on the New York Stock Exchange on October 6, 2016.

deferred tax assets and other judgments and estimations and assumptions.

B. Recently Adopted and Recently Issued Accounting Guidance

Adopted

In March 2016,September 2022, the Financial Accounting Standards Board (“FASB”) issued changesguidance to employee share-based payment accounting. Previously, an entity determined for each share-based payment award whetherenhance the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes resulted in either an excess tax benefit or a tax deficiency. Excess tax benefits were recognized in additional paid-in capital; tax deficiencies were recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. Excess tax benefits were not recognized until the deduction reduced taxes payable. The changes require all excess tax benefits and tax deficiencies related to share-based payment awards to be recognized as income tax expense or benefit in the income statement. The tax effectstransparency of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. In addition, the presentation of excess tax benefits related to share-based payment awards in the statement of cash flows changed. Previously, excess tax benefits were separated from other income tax cash flows and classified as a financing activity. The changes require excess tax benefits to be classified along with other income tax cash flows as an operating activity. Also, the changes require cash paid by an employer when directly withholding shares for tax-withholding purposes to be classified as a financing activity. Further, for a share-based award to qualify for equity classification it previously could not be partially settled in cash in-excess of the employer’s minimum statutory withholding requirements. The changes permit equity classification of share-based awards for withholdings up to the maximum statutory tax rates in applicable jurisdictions. These changes became effective for Arconic on January 1, 2017. The prospective transition method was utilized for excess tax benefits in the Statement of Consolidated Cash Flows. Management concluded that the adoption of this guidance did not have a material impact on the Consolidated Financial Statements.

8


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

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

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

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

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

Issued

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

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

9


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

In January 2016, the FASB issued changes to equity investments. These changes require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Also, the impairment assessment of equity investments without readily determinable fair values has been simplified by requiring a qualitative assessment to identify impairment. Also, the new guidance will require changes in fair value of equity securities to be recognized immediately as a component of net income instead of being reported in accumulated other comprehensive loss until the gain (loss) is realized. These changes, which will be applied on a prospective basis, become effective 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.regarding supplier finance programs. These changes become effective for Arconicfiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023.

On January 1, 2019.2023, the Company adopted the changes issued by the FASB related to disclosure requirements of supplier finance program obligations. We offer voluntary supplier finance programs to suppliers who may elect to sell their receivables to third parties at the sole discretion of both the suppliers and the third parties. The program is at no cost to the Company and provides additional liquidity to our suppliers, if they desire, at their cost. Under these programs, the Company pays the third party bank rather than the supplier, the stated amount of the confirmed invoices on the original maturity date of the invoices. The Company or the third party bank may terminate a program upon at least 30 days’ notice. Supplier invoices under the program require payment in full no more than 120 days of the invoice date. As of March 31, 2023 and December 31, 2022, supplier invoices that are subject to future payment under these programs were $237 and $240, respectively, and are included in Accounts payable, trade in the Consolidated Balance Sheet.

8

Issued
In March 2020, the FASB issued amendments that provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In December 2022, the FASB deferred the sunset date to December 31, 2024. The Company has amended its agreements in accordance with the new guidance (See Note J and Note N). Management is currently evaluatinghas concluded that the potential impact of these changes on the Consolidated Financial Statements, which will require right of use assets and lease liabilities be recorded in the consolidated balance sheet for operating leases. An estimate of the impact of this standard is not currently determinable.

In June 2016, the FASB added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. These changes become effective for Arconic 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. The guidance identifies eight specific cash flow items and the sections where they must be presented within the statement of cash flows. These changes become effective for Arconic on January 1, 2018. Management does not expect these changes to have a material impact on the Consolidated Financial Statements.

In November 2016, the FASB issued changes to the classification of cash

C. Segment Information
Howmet is a global leader in lightweight metals engineering and cash equivalents within the cash flow statement. Restricted cashmanufacturing. Howmet’s innovative, multi-material products, which include nickel, titanium, aluminum, and restricted cash equivalents will be included within the cash and cash equivalents line on the cash flow statement and a reconciliation must be prepared to the statement of financial position. Transfers between restricted cash and restricted cash equivalents and cash and cash equivalents will no longer be presented as cash flow activitiescobalt, are used worldwide in the statementaerospace (commercial and defense), commercial transportation, and industrial and other markets. Segment performance under Howmet’s management reporting system is evaluated based on a number of cash flowsfactors; however, the primary measure of performance is Segment Adjusted EBITDA. Howmet’s definition of Segment Adjusted EBITDA (Earnings before interest, taxes, depreciation, and material balances of restricted cashamortization) is net margin plus an add-back for depreciation and restricted cash equivalents must disclose information regardingamortization. Net margin is equivalent to Sales minus the nature of the restrictions. These changes become effective for Arconic on January 1, 2018. Management determined that the adoption of these changes will not have a material impact on the Consolidated Financial Statements.

In March 2017, the FASB issued changes to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. These changes become effective for Arconic on January 1, 2019 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. The new guidance requires registrants to present the service cost component of net periodic benefit cost in the same income statement line item or items as other employee compensation costs arising from services rendered during the period. Also, only the service cost component will be eligible for asset capitalization. Registrants will present the other components of net periodic benefit cost separately from the service 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 cost withinfollowing items: Cost of goods sold,sold; Selling, general administrative, and other expenses andexpenses; Research and development expensesexpenses; and uponProvision for depreciation and amortization. Special items, including Restructuring and other charges, are excluded from net margin and Segment Adjusted EBITDA. Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Differences between the adoptiontotal segment and consolidated totals are in Corporate.

Howmet’s operations consist of this standard will be recorded separately from service costfour worldwide reportable segments as follows:
Engine Products
Engine Products produces investment castings, including airfoils, and seamless rolled rings primarily for aircraft engines and industrial gas turbines. Engine Products produces rotating parts as well as structural parts.
Fastening Systems
Fastening Systems produces aerospace fastening systems, as well as commercial transportation, industrial and other fasteners. The business’s high-tech, multi-material fastening systems are found nose to tail on aircraft and aero engines. Fastening Systems’ products are also critical components of commercial transportation vehicles, automobiles, construction and industrial equipment, and renewable energy sectors.
Engineered Structures
Engineered Structures produces titanium ingots and mill products for aerospace and defense applications and is vertically integrated to produce titanium forgings, extrusions, forming and machining services for airframe, wing, aero-engine, and landing gear components. Engineered Structures also produces aluminum forgings, nickel forgings, and aluminum machined components and assemblies for aerospace and defense applications.
Forged Wheels
Forged Wheels provides forged aluminum wheels and related products for heavy-duty trucks and the commercial transportation market.
9

The operating results of the Company’s reportable segments were as follows:
Engine ProductsFastening SystemsEngineered StructuresForged WheelsTotal
Segment
First quarter ended March 31, 2023
Sales:
Third-party sales$795 $312 $207 $289 $1,603 
Inter-segment sales— — — 
Total sales$797 $312 $207 $289 $1,605 
Profit and loss:
Provision for depreciation and amortization$32 $11 $12 $$64 
Segment Adjusted EBITDA212 58 30 79 379 
Restructuring and other charges— — — 
Capital expenditures33 10 61 
First quarter ended March 31, 2022
Sales:
Third-party sales$631 $264 $182 $247 $1,324 
Inter-segment sales— — 
Total sales$632 $264 $183 $247 $1,326 
Profit and loss:
Provision for depreciation and amortization$31 $12 $12 $10 $65 
Segment Adjusted EBITDA173 56 23 67 319 
Restructuring and other charges (credits)(3)— 
Capital expenditures27 15 58 
The following table reconciles Total Segment Adjusted EBITDA to Income before income taxes. Differences between the total segment and consolidated totals are in the Other income, net line itemCorporate.
First quarter ended
March 31,
20232022
Total Segment Adjusted EBITDA$379 $319 
Segment provision for depreciation and amortization(64)(65)
Unallocated amounts:
Restructuring and other charges(1)(2)
Corporate expense(29)(22)
Operating income$285 $230 
Loss on debt redemption(1)— 
Interest expense, net(57)(58)
Other expense, net(7)(1)
Income before income taxes$220 $171 

10

The following table reconciles total segment capital expenditures with Capital expenditures as presented in the Statement of Consolidated Operations. The impact of the retrospective adoption of this standard update will be an increase to consolidated operating income of approximately $150 while there will be no impact to consolidated net income for the year ended December 31, 2017. Management is currently evaluating the potential impact of prospectively adopting the asset capitalization of only the service cost component on the Consolidated Financial Statements.

In May 2017, the FASB issued clarification to guidance on the modification accounting criteria for share-based payment awards. The new guidance requires registrants to apply modification accounting unless three specific criteria are met. The three criteria are 1) the fair value of the award is the same before and after the modification, 2) the vesting conditions are the same before and after the modification 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 as of the beginning of the fiscal year in which the amendment is adopted. The amended presentation and disclosure guidance is required only prospectively. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

11


C. Accumulated Other Comprehensive Loss

Cash Flows.

First quarter ended
March 31,
20232022
Total segment capital expenditures$61 $58 
Corporate
Capital expenditures$64 $62 
The following table detailsdisaggregates segment revenue by major market served. Differences between the activitytotal segment and consolidated totals are in Corporate.
Engine ProductsFastening SystemsEngineered StructuresForged WheelsTotal
Segment
First quarter ended March 31, 2023
Aerospace - Commercial$432 $170 $152 $— $754 
Aerospace - Defense163 44 44 — 251 
Commercial Transportation— 63 — 289 352 
Industrial and Other200 35 11 — 246 
Total end-market revenue$795 $312 $207 $289 $1,603 
First quarter ended March 31, 2022
Aerospace - Commercial$329 $148 $109 $— $586 
Aerospace - Defense137 32 57 — 226 
Commercial Transportation— 53 — 247 300 
Industrial and Other165 31 16 — 212 
Total end-market revenue$631 $264 $182 $247 $1,324 
The Company derived 63% and 61% of its revenue from the aerospace (commercial and defense) market for the first quarter ended March 31, 2023 and 2022, respectively.
General Electric Company and Raytheon Technologies Corporation represented approximately 13% and 10%, respectively, of the four components that comprise Accumulated other comprehensive loss for both Arconic’s shareholdersCompany’s third-party sales in the first quarter ended March 31, 2023. General Electric Company 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 Consolidated 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


Raytheon Technologies Corporation represented approximately 13% and 9%, respectively, of the Company’s third-party sales in the first quarter ended March 31, 2022. These sales were primarily from the Engine Products segment.

D. Restructuring and Other Charges

First quarter ended
March 31,
20232022
Reversals of previously recorded layoff reserves$(1)$(1)
Pension and Other post-retirement benefits - net settlements (E)
— 
Other
Restructuring and other charges$$

In the thirdfirst quarter of 2017, Arconic2023, the Company recorded Restructuring and other charges of $19 ($13 after-tax),$1, which included $11 ($8 after-tax)were primarily due to exit related costs, including accelerated depreciation, of $2, partially offset by a reversal of $1 for a layoff costsreserve 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.

prior period.

In the first nine monthsquarter of 2017, Arconic2022, the Company recorded Restructuring and other charges of $118 ($99 after-tax),$2, which included $59 ($40 after-tax)were primarily due to exit related costs of $2 and charges for layoff costs related to cost reduction initiatives including the separationU.S. pension plan settlement 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,$1, 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 $1 for a number of small layoff reservesreserve related to a 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.

period.

11

Layoff costsOther exit costsTotal
Reserve balances at December 31, 2022$$$
Cash payments(1)(1)(2)
Restructuring charges(1)
Other(1)
— (1)(1)
Reserve balances at March 31, 2023$$$
(1)In the first nine monthsquarter of 2016, Arconic recorded Restructuring and2023, 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; andexit costs included a net favorable benefit of $15 ($8 after-tax)$1 charge 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.

accelerated depreciation.

The remaining reserves as of March 31, 2023 are expected to be paid in cash during the remainder of 2017, except for approximately $15 to $20, which is expected to be paid2023 and 2024.
E. Pension and Other Postretirement Benefits
The components of net periodic cost (benefit) were as follows:
First quarter ended
 March 31,
20232022
Pension benefits
Service cost$$
Interest cost20 12 
Expected return on plan assets(19)(20)
Recognized net actuarial loss13 
Settlements— 
Net periodic cost(1)
$$
Other postretirement benefits  
Service cost$— $— 
Interest cost
Recognized net actuarial gain(1)— 
Amortization of prior service benefit(2)(2)
Net periodic benefit(1)
$(1)$(1)
(1)Service cost was included within the next year for layoffs.

As partCost 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 Transportationgoods sold, and Construction Solutions segment. The charge relates to the noncash impairment of the net book value of the business.

E. AcquisitionsSelling, general administrative, 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). 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 businessother expenses; settlements were included in the Engineered ProductsRestructuring and Solutions segment. Remmele Medical generated third-party sales of $23 from January 1, 2016 through the divestiture date,other charges; and at the time of the divestiture, had approximately 330 employees. This transaction is no longer subject 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 millall other cost components were includedrecorded in Other expense, net in the Global Rolled Products segment. As partStatement of Consolidated Operations.

Pension benefits
In the transaction, Arconic injected $10first quarter of cash into2022, the business and provided a third-party guarantee with a fair valueCompany applied settlement accounting to certain U.S. pension plans due to lump sum payments made to participants, which resulted in settlement charges of $5 related to Slim Aluminium’s environmental remediation. The Company recorded a loss on the sale of $60, which was$1 that were recorded in Restructuring and other charges (see in the Statement of Consolidated Operations. Settlement accounting did not occur in 2023.
For the first quarter of 2023 and 2022, Howmet’s combined pension contributions and other postretirement benefit payments were approximately $12 and $13, respectively.
12

F. Other Expense, Net
First quarter ended
 March 31,
20232022
Non-service costs - pension and other postretirement benefits (E)
$$
Interest income(5)— 
Foreign currency gains, net(2)(3)
Net realized and unrealized losses
Deferred compensation(3)
Other expense, net$$
G. Income Taxes
The Company’s year-to-date tax provision is comprised of the most recent estimated annual effective tax rate applied to year-to-date pre-tax ordinary income. The tax impacts of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur. In addition, the tax provision is adjusted for the interim period impact of non-benefited pre-tax losses.
The estimated annual effective tax rate, before discrete items, applied to ordinary income was 23.4% in the first quarter of 2023 and 24.3% in the first quarter of 2022. The 2023 and 2022 rates were higher than the U.S. federal statutory rate of 21% primarily due to additional estimated U.S. tax on Global Intangible Low-Taxed Income (“GILTI”) and other foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax, foreign earnings subject to tax in higher rate jurisdictions, and nondeductible expenses.
For the first quarter of 2023 and 2022, the tax rate including discrete items was 32.7% and 23.4%, respectively. For the first quarter of 2023, the Company recorded a charge for a tax reserve established in France of $20 (See Note D)P) and a discrete net tax charge of $1 for other small items. For the first quarter of 2022, the Company recorded a discrete net tax benefit of $2 for other small items.
The tax provision was comprised of the following:
First quarter ended
 March 31,
 20232022
Pre-tax income at estimated annual effective income tax rate before discrete items$51 $42 
Tax reserve (P)
20 — 
Other discrete items(2)
Provision for income taxes$72 $40 
13


H. Earnings Per Share and Common Stock
Basic earnings per share (“EPS”) amounts are computed by dividing earnings, after the deduction of preferred stock dividends declared, by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive share equivalents outstanding.
The information used to compute basic and diluted EPS attributable to Howmet common shareholders was as follows (shares in millions in table below):
First quarter ended
 March 31,
 20232022
Net income attributable to common shareholders$148 $131 
Less: preferred stock dividends declared
Net income available to Howmet Aerospace common shareholders - basic and diluted$147 $130 
Average shares outstanding - basic412 419 
Effect of dilutive securities:
Stock and performance awards
Average shares outstanding - diluted418 425 
Common stock outstanding as of March 31, 2023 and 2022 was approximately 412 million and 418 million, respectively.
On August 18, 2021, the Company announced that its Board of Directors authorized a share repurchase program of up to $1,500 of the Company's outstanding common stock. After giving effect to the share repurchases made through March 31, 2023, approximately $922 Board authorization remains available. In the quarter ended March 31, 2023, the Company repurchased approximately 0.6 million shares of its common stock at an average price of $43.36 per share (excluding commissions cost) for approximately $25 in cash. In the quarter ended March 31, 2022, the Company repurchased approximately 5 million shares of its common stock at an average price of $34.00 per share (excluding commissions costs) for approximately $175 in cash. All of the shares repurchased have been retired.
Under the Company’s share repurchase program (the “Share Repurchase Program”), the Company may repurchase shares by means of trading plans established from time to time in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, block trades, private transactions, open market repurchases and/or accelerated share repurchase agreements, or other derivative transactions. There is no stated expiration for the Share Repurchase Program. Under its Share Repurchase Program, the Company may repurchase shares from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations. The Company is not obligated to repurchase any specific number of shares or to do so at any particular time, and the Share Repurchase Program may be suspended, modified or terminated at any time without prior notice.
The approximately 7 million decrease in average shares outstanding (basic) for the first quarter of 2023 compared to the first quarter of 2022 was primarily due to the approximately 7 million shares repurchased between April 1, 2022 and March 31, 2023. As average shares outstanding are used in the calculation for both basic and diluted EPS, the full impact of share repurchases may not be fully realized in EPS in the period of repurchase since share repurchases may occur at varying points during a period.
There were no shares relating to outstanding stock options excluded from the calculation of average shares outstanding – diluted for the first quarter ended March 31, 2023 and 2022.
14

I. Accumulated Other Comprehensive Loss
The following table details the activity of the three components that comprise Accumulated other comprehensive loss:
First quarter ended
March 31,
20232022
Pension and other postretirement benefits (E)
Balance at beginning of period$(653)$(799)
Other comprehensive income (loss):
Unrecognized net actuarial gain and prior service cost/benefit
Tax expense(1)— 
Total Other comprehensive income before reclassifications, net of tax
Amortization of net actuarial loss and prior service cost(1)
12 
Tax expense(2)
(1)(3)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)
Total Other comprehensive income10 
Balance at end of period$(648)$(789)
Foreign currency translation
Balance at beginning of period$(1,193)$(1,062)
Other comprehensive income (loss)34 (31)
Balance at end of period$(1,159)$(1,093)
Cash flow hedges
Balance at beginning of period$$(2)
Other comprehensive (loss) income:
Net change from periodic revaluations(4)25 
Tax income (expense)(6)
Total Other comprehensive (loss) income before reclassifications, net of tax(3)19 
Net amount reclassified to earnings(1)
Total amount reclassified from Accumulated other comprehensive (loss) income, net of tax(3)
(1)
Total Other comprehensive (loss) income(4)20 
Balance at end of period$$18 
Accumulated other comprehensive loss$(1,806)$(1,864)
(1)These amounts were recorded in Other expense, net (See Note F) and Restructuring and other charges (See Note D) in the Statement of Consolidated Operations.
(2)These amounts were included in Provision for income taxes (See Note G) in the Statement of Consolidated Operations.
(3)A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings.
J. Receivables
Sale of Receivables Programs
The Company maintains an accounts receivables securitization arrangement through a wholly-owned special purpose entity (“SPE”). The net cash funding from the sale of accounts receivable through the SPE was neither a use of cash nor a source of cash for the first quarter of 2023 or 2022.
The accounts receivables securitization arrangement is one in which the Company, through an SPE, has a receivables purchase agreement (the “Receivables Purchase Agreement”) pursuant to which the SPE may sell certain receivables to financial institutions until the earlier of August 30, 2024 or a termination event. The Receivables Purchase Agreement 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 Receivables Purchase Agreement was amended on February 17, 2023 to update the reference rate and reduce the facility limit to $250 from $325, with a provision to increase the limit to $325.
15

The facility limit under the Receivables Purchase Agreement was $250 and $325 as of March 31, 2023 and December 31, 2022, respectively. A total of $250 was drawn as of both March 31, 2023 and December 31, 2022. As collateral against the sold receivables, the SPE maintains a certain level of unsold receivables, which were $155 and $190 as of March 31, 2023 and December 31, 2022, respectively.
The Company sold $337 and $464 of its receivables without recourse and received cash funding under this program during the three months ended March 31, 2023 and March 31, 2022, respectively, resulting in derecognition of the receivables from the Company’s Consolidated Balance Sheet. Costs associated with the sales of receivables are reflected in the Company’s Statement of Consolidated Operations for the nine months ended September 30, 2017. The rolling mill generated third-partyperiods in which the sales occur. Cash receipts from sold receivables under the Receivables Purchase Agreement are presented within operating activities in the Statement of approximately $54 and $128Consolidated Cash Flows.
Other Customer Receivable Sales
In the first quarter of 2023, the Company sold $138 of certain customers’ receivables in exchange for cash ($144 was outstanding from customers as of March 31, 2023), the nine-month periods ended September 30, 2017 and 2016, respectively. proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. In the first quarter of 2022, the Company sold $106 of certain customers’ receivables in exchange for cash ($110 was outstanding from customers as of March 31, 2022), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows.
K. Inventories
March 31, 2023December 31, 2022
Finished goods$501 $490 
Work-in-process782 748 
Purchased raw materials322 317 
Operating supplies57 54 
Total inventories$1,662 $1,609 

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, 2023 and December 31, 2016,2022, the portion of inventories valued on a last-in, first-out (LIFO)(“LIFO”) basis was $1,148$438 and $947,$441, respectively. If valued on an average-cost basis, total inventories would have been $449$224 and $371$220 higher at September 30, 2017as of March 31, 2023 and December 31, 2016,2022, respectively.

G. Separation Transaction

L. Properties, Plants, and Discontinued Operations

On November 1, 2016, Arconic completed the Separation Transaction. Alcoa Inc.,Equipment, net
March 31, 2023December 31, 2022
Land and land rights$85 $84 
Structures997 986 
Machinery and equipment3,986 3,941 
5,068 5,011 
Less: accumulated depreciation and amortization2,919 2,858 
2,149 2,153 
Construction work-in-progress172 179 
Properties, plants, and equipment, net$2,321 $2,332 

The Company incurred capital expenditures which was re-named Arconic Inc., continued to own the Engineered Productsremained unpaid as of March 31, 2023 and Solutions, the Global Rolled Products (except for the Warrick, IN rolling operationsMarch 31, 2022 of $32 and the equity interest$29, respectively, and will result in cash outflows within investing activities 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 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 resulted in cash proceeds of $888 which were recorded in Sale of investments within Investing Activities in the accompanying Statement of Consolidated Cash Flows in subsequent periods.

16


M. Leases
Operating lease cost, which includes short-term leases and a gainvariable lease payments and approximates cash paid, was $16 in both the first quarter of $351,2023 and 2022.
Operating lease right-of-use assets and lease liabilities in the Consolidated Balance Sheet were as follows:
March 31, 2023December 31, 2022
Right-of-use assets classified in Other noncurrent assets$108 $111 
Current portion of lease liabilities classified in Other current liabilities
$33 $32 
Long-term portion of lease liabilities classified in Other noncurrent liabilities and deferred credits79 83 
Total lease liabilities$112 $115 
N. Debt
March 31, 2023December 31, 2022
5.125% Notes, due 2024$905 $1,081 
6.875% Notes, due 2025600 600 
5.900% Notes, due 2027625 625 
6.750% Bonds, due 2028300 300 
3.000% Notes, due 2029700 700 
5.950% Notes, due 2037625 625 
4.750% Iowa Finance Authority Loan, due 2042250 250 
Other(1)
(17)(19)
Total long-term debt$3,988 $4,162 
(1)Includes various financing arrangements related to subsidiaries, unamortized debt discounts, and unamortized debt issuance costs related to outstanding notes and bonds listed in the table above.
Public Debt
In January 2023, the Company repurchased approximately $26 aggregate principal amount of its 5.125% Notes due October 2024 (the “5.125% Notes”) through an open market repurchase (“OMR”). The OMR was settled at slightly less than par.
In March 2023, the Company completed the early partial redemption of an additional $150 aggregate principal amount of its 5.125% Notes in accordance with the terms of the notes, and paid an aggregate of $155, including accrued interest and an early termination premium of approximately $4 and $1, respectively, which waswere recorded in Other income,Interest expense, net, and Loss on debt redemption, respectively, in the accompanying Statement of Consolidated Operations.

In April and May 2017,

Credit Facility
On September 28, 2021, the Company acquiredamended and restated its Five-Year Revolving Credit Agreement (the “Credit Agreement”). The Credit Agreement provides a portion$1,000 senior unsecured revolving credit facility that matures on September 28, 2026, unless extended or earlier terminated in accordance with the provisions of the Credit Agreement. Capitalized terms used in this “Credit Facility” section but not otherwise defined shall have the meanings given to such terms in the Credit Agreement. In February 2023, the Company amended its outstanding notes held by two investment banks (the “Investment Banks”) in exchangeCredit Agreement to replace LIBOR with the term secured overnight financing rate as the reference rate for cash andU.S. dollar-denominated loans.
Under the Credit Agreement, the Company’s remaining 12,958,767 Alcoa Corporation shares (valuedratio of Consolidated Net Debt to Consolidated EBITDA as of the end of each fiscal quarter for the period of the four fiscal quarters of the Company most recently ended is required to be no greater than 3.50 to 1.00.
There were no amounts outstanding under the Credit Agreement as of March 31, 2023 or December 31, 2022, and no amounts were borrowed during 2023 or 2022 under the Credit Agreement. As of March 31, 2023, 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 ratio referenced above.
17

O. Fair Value of Financial Instruments
The carrying values of Cash and cash equivalents, restricted cash, derivatives, noncurrent receivables, and Short-term debt included in the Consolidated Balance Sheet approximate their fair value. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities and are carried at $35.91 per share) (the “Debt-for-Equity Exchange”) (See Note L). A gainfair value based on quoted market prices. The aforementioned securities are classified in Level 1 of $167 on the Debt-for-Equity Exchange was recordedfair value hierarchy and are included in Other income, netnoncurrent assets 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 retainedLong-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 Alcoa CorporationLevel 2 of the fair value hierarchy.
 March 31, 2023December 31, 2022
 Carrying
value
Fair
value
Carrying
value
Fair
value
Long-term debt, less amounts due within one year$3,988 $3,977 $4,162 $4,059 

Restricted cash, which is included in Prepaid expenses and other current assets in the Consolidated Balance Sheet, was $0 and $1,020 at September 30, 2017$1 as of both March 31, 2023 and December 31, 2016, respectively. 2022.
P. Contingencies and Commitments
Contingencies
The fair value was based onfollowing information supplements and, as applicable, updates the closing stock pricediscussion of Alcoa Corporation as of September 30, 2017,the contingencies and December 31, 2016 multiplied bycommitments in Note V to 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 interestConsolidated Financial Statements in Alcoa Corporation common stock.

In connectionour Form 10-K, and should be read in conjunction 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 receivablecomplete descriptions provided 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 in the first quarter of 2017 and the Company received proceeds of $238 in the first quarter of 2017 and the remaining $5 in the second quarter of 2017. The $243 proceeds were included in Other within Investing Activities 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

ArconicMatters. Howmet participates in environmental assessments and cleanups at more than 10030 locations. These include owned or operating facilities and adjoining properties, previously owned or operatingoperated 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 at September 30, 2017$17 and $308 at$16 as of March 31, 2023 and December 31, 20162022, respectively, and was recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which $39$7 and $48,$6, respectively, was 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, 2023 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

Tax. In December 2013 and 2014, the current statusCompany received audit assessment notices from the French Tax Authority (“FTA”) for the 2010 through 2012 tax years. In 2016, the Company appealed to the Committee of the most significant reserve related toAbuse of Tax Law, where it received a current Arconic site.

Massena West, NY—Arconic has an ongoing remediation project relatedfavorable nonbinding decision. The FTA disagreed with the Committee of the Abuse of Law’s opinion, and the Company appealed to the Grasse River, whichMontreuil Administrative Court, where in 2020 the Company prevailed on the merits. The FTA appealed this decision to the Paris Administrative Court of Appeal in 2021. On March 31, 2023, the Company received an adverse decision from the Paris Administrative Court of Appeal. The Company estimates the assessment amount to be $19 (€18), including interest and penalties. The Company is adjacentcurrently evaluating its remaining dispute resolution methods, including an appeal to Arconic’s Massena plant site. Many years ago,the French Administrative Supreme Court.

As a result of the adverse decision from the Paris Administrative Court of Appeal, the Company has concluded that it was determined that sediments and fishis no longer more likely than not to sustain its position. In the first quarter of 2023, the Company recorded an income tax reserve in Provision for income taxes in the river contain varying levelsStatement of polychlorinated biphenyls (PCBs). Consolidated Operations of $20 (€19), which includes estimated interest and penalties, for the 2010 through 2012 tax years, as well as the remaining tax years open for reassessment. In accordance with FTA dispute resolution practices, the Company is expecting that a payment to the FTA will be necessary in 2023. If an appeal to the French Administrative Supreme Court is successful, any payment would be refunded with interest.
18

Indemnified Matters. 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 riverSeparation and dredging PCB contaminated sediments in the near-shore areas where total PCBs exceed one part per million. At September 30, 2017 and DecemberDistribution Agreement, dated October 31, 2016, that 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 AgreementCompany entered into between Arconic andwith Alcoa Corporation in connection with the Separation Transaction, Arconic shares responsibility withits separation from Alcoa Corporation, provides for cross-indemnities between the Company and Alcoa Corporation has agreedfor claims subject to partially indemnify Arconic, 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.indemnification. The Spanish Tax Administration did not file an appeal within the applicable period. Based on this decisionSeparation 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 inDistribution Agreement, dated 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 possible31, 2020, that the Company may receive similar assessmentsentered into with Arconic Corporation in connection with its separation from Spain’s tax authoritiesArconic Corporation, provides for years subsequentcross-indemnities between the Company and Arconic Corporation for claims subject to 2013. Theindemnification. Among other claims that are covered by these indemnities, Arconic Corporation indemnifies the Company believes it has meritorious arguments to support its tax position(f/k/a Arconic Inc. and f/k/a Alcoa Inc.) for all years and intends to vigorously litigate assessments through Spain’s court system. However, inpotential liabilities associated with 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,fire that occurred at the Grenfell Tower in London, UK caught fire resultingU.K. on June 14, 2017, including the following legal proceedings, as updated from the Form 10-K:

United Kingdom Litigation (various claims on behalf of survivors and estates of decedents). The substantial majority of these suits were settled pursuant to the terms of a confidential settlement agreement and are now discontinued and closed. Those suits that have not been settled are stayed until the next case management conference, which will be heard on June 27, 2023.
Behrens et al. v. Arconic Inc. et al. (various claims on behalf of survivors and estates of decedents). On September 16, 2020, the court dismissed the U.S. case, determining that the U.K. is the appropriate jurisdiction for the case. On July 8, 2022, the Third Circuit Court of Appeals affirmed the dismissal. A petition for a rehearing was filed before the Third Circuit Court, which the Third Circuit Court denied on October 7, 2022. On January 5, 2023, the plaintiffs filed a petition for a writ of certiorari in fatalities, injuriesthe U.S. Supreme Court, which the Supreme Court denied on February 21, 2023. This case is fully dismissed and damage. A French subsidiaryclosed.
Howard v. Arconic Inc. et al. (securities law related claims). On February 3, 2023, the court issued an order referring the case to mediation. In March 2023, following successive mediation sessions, the parties reached a settlement in principle that remains subject to court approval and, among other things, is in the amount of Arconic, Arconic Architectural Products SAS (AAP SAS), supplied a product, Reynobond PE,$74 and is to its customer, a cladding system fabricator, which usedbe covered by insurance proceeds, in exchange for the product as one componentdismissal of the overall cladding systemaction and a release of all claims against the defendants. The settlement is without admission of fault or wrongdoing by the defendants. Plaintiffs filed the Stipulation of Settlement, a motion to preliminarily approve the settlement, and related papers with the court on Grenfell Tower. The fabricator supplied its portionApril 21, 2023. On May 2, 2023, the court issued an order granting plaintiffs’ motion to preliminarily approve the settlement and setting August 9, 2023 as the date of the cladding systemfinal settlement approval hearing.
With respect toRaul v. Albaugh, et al.(derivative related claim), the façade installer, whoregulatory investigations and the stockholder demands specified in the Form 10-K, there are no updates.
Lehman Brothers International (Europe) (“LBIE”) Legal Proceeding. On June 26, 2020, Lehman Brothers International (Europe) (“LBIE”) filed proceedings in the High Court of Justice, Business and Property Courts of England and Wales (the “Court”) against two subsidiaries of the Company, FR Acquisitions Corporation (Europe) Ltd and JFB Firth Rixson Inc. (collectively, the “Firth Rixson Entities”). The proceedings concern two interest rate swap transactions with LBIE (collectively, the “ISDAs”). In 2007 and 2008, the Firth Rixson Entities, then completed and installedowned by Oak Hill, entered into the systemISDAs in order to meet their obligation to hedge interest rate exposure under a lending agreement with LBIE. When LBIE went into bankruptcy in 2008, the Firth Rixson Entities entered into alternative swap agreements with another counterparty in order to meet this hedging obligation. The Firth Rixson Entities were acquired by the Company as part of its acquisition of the Firth Rixson business from Oak Hill in 2014. In the LBIE legal proceeding, LBIE claims the amounts owing by the Firth Rixson Entities under the direction ofISDAs to be approximately $64, plus applicable interest. The Court issued its ruling in these proceedings on October 11, 2022. In its ruling, 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.

18


In August and September 2017, two purported class action complaints were filed against Arconic and certain officers, directors and/or other parties, allegingCourt determined that in light of the Grenfell Tower fire, certain Company filings with the Securities and Exchange Commission contained false and misleading disclosures and omissions in violation of the federal securities laws.

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.default under the ISDAs caused by LBIE as a result of its insolvency in 2008 and other defaults will conclude upon LBIE’s expected emergence from administration under the Insolvency Act of 1986. The BoardCourt ruled that upon such future event and other relevant steps being completed, the timing of Directors has also received letters, purportedly sent on behalfwhich is unknown, the Firth Rixson Entities will be obligated to pay amounts due under the ISDAs. In late 2022, the Court granted LBIE a three-year extension of shareholders, reciting allegations similar to those madeits bankruptcy administration. The Company recorded $65 in Other current liabilities in the federal court lawsuitsConsolidated Balance Sheet and demanding thattook a pre-tax charge of this amount in Other expense, net in the Board authorizeStatement of Consolidated Operations in 2022. The matter of interest was not specifically addressed in the proceeding and no related amounts have been reserved. The Company vigorously disagrees with the ruling including as to any payment obligation in respect of the principal as well as any interest. In December 2022, the Company was granted permission to initiate litigation against membersappeal the Court’s decision. The Company has been given hearing dates for its appeal before the English Court 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,Appeal, which the Company contests, to inspect the Company’s books and records related to the Grenfell Tower fire and Reynobond PE.

Other

will take place on June 20-21, 2023.


19

Other.In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against Arconic,theCompany, 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, Arconic

As of March 31, 2023, 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 20172023 and 2026,2040, was $25 at September 30, 2017.

$13 as of March 31, 2023.

Pursuant to the Separation and Distribution Agreement, dated as of October 31, 2016, 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$6 as of $270 and $354 at September 30, 2017both March 31, 2023 and December 31, 2016. These guarantees expire2022, and were included in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet. The remaining guarantee, for which the Company and Arconic Corporation are secondarily liable in the event of a payment default by Alcoa Corporation, relates to a long-term energy supply agreement that expires in 2047 at various times between 2017an Alcoa Corporation facility. The Company currently views the risk of an Alcoa Corporation payment default on its obligations under the contract to be remote. The Company and 2024, and relate to project financing for Alcoa Corporation’s aluminum complex in Saudi Arabia. Furthermore, Arconic wasCorporation are required to provide guaranteesa guarantee 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$1,040 as of both March 31, 2023 and Distribution Agreement, Arconic is only liable for these guaranteed amountsDecember 31, 2022 in the event of an Alcoa Corporation payment default. In December 2016, Arconic entered into2022, a one-year claims purchase agreementsurety bond with a bank covering claims up to $245 related to the Saudi Arabian aluminum complex and two long-term energy supply agreements. Mostlimit of the premium related$80 relating to this claims purchase agreement is being paidguarantee was obtained 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 was included in Other noncurrent liabilities and deferred creditsCorporation to protect Howmet’s obligation. This surety bond will be renewed 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 annual basis by Alcoa Corporation facility.

Arconic was also required to provide guarantees of $50 related to two Alcoa Corporation energy supply contracts. These guarantees expired in March 2017. Additionally, Arconic was required to provide guarantees of $53 related to certain Alcoa Corporation environmental liabilities. Notification of a change in guarantor to Alcoa Corporation was made to the appropriate environmental agencies and as such, Arconic no longer provides these guarantees.

Corporation.

Letters of Credit

Arconic

The Company has outstanding letters of credit primarily related to workers’ compensation, environmental obligations, and environmentalinsurance obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, primarilymostly in 2017,2023 and 2024, was $127 at September 30, 2017.

19


$119 as of March 31, 2023.

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$52 (which are included in the $119 in the above paragraph) that had previously been provided related to boththe Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims whichthat 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 beingproportionally 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 $17 of outstanding letters of credit were cancelledrelating to such liabilities (which are also included in 2017 when Alcoa Corporation issued its own letters of credit to cover these obligations.

the $119 in the above paragraph).

Surety Bonds

Arconic

The Company has outstanding surety bonds primarily related to tax matters, contract performance, workers’ compensation, environmental-related matters, energy contracts, and customs duties. The total amount committed under these annual surety bonds, which expire and automatically renew at various dates, primarily in 2017,2023 and 2024, was $128 at September 30, 2017.

$43 as of March 31, 2023.

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 $22 (which are included in the $43 in the above paragraph) that had previously been provided related to the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims whichthat 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 and surety bond fees paid by Arconicthe Company are beingproportionately billed to, and are being fully reimbursed by, Arconic Corporation and Alcoa Corporation.

I. Segment Information

Arconic

Q. Subsequent Events
Management evaluated all activity of Howmet and concluded that no subsequent events have occurred that would require recognition in the Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial Statements.
20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(U.S. dollars in millions, except per share amounts)
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto included in Part I, Item 1 (Financial Statements and Supplementary Data) of this Form 10-Q.
Overview
Howmet is a producer ofglobal leader in lightweight metals engineering and manufacturing. Howmet’s innovative, multi-material products, including sheet, plate, precision castings, forgings, rolled rings, extrusions, wheelswhich include nickel, titanium, aluminum, and fasteners. Arconic’s productscobalt, are used worldwide in transportation (includingthe aerospace automotive, truck, trailer, rail,(commercial and shipping)defense), packaging, building and construction, oil and gas, defense,commercial transportation, and industrial applications. Arconic’s segments are organized by product on a worldwide basis. and other markets.
In the first quarter of 2017,2023, the Company changedderived approximately 47% of its primary measurerevenue from products sold to the commercial aerospace market which is substantially less than the pre-pandemic 2019 annual rate of segment performanceapproximately 60%. During the global COVID-19 pandemic and its impact on the commercial aerospace industry to date, there was a decrease in domestic and international air travel, which in turn adversely affected demand for narrow body and wide body aircraft. Domestic air travel has rebounded and approximates pre-pandemic levels. International air travel continues to recover and is approximately 80% of pre-pandemic levels. We expect commercial aerospace growth to continue with narrow body demand returning faster than wide body demand. The commercial wide body aircraft market is taking longer to recover, which is creating a shift in our product mix compared to pre-pandemic conditions. In addition to the impact from After-tax operatingthe pandemic, the timing and level of future aircraft builds by original equipment manufacturers (“OEM”) are subject to changes and uncertainties, which may cause our future results to differ from prior periods due to changes in product mix in certain segments.
For additional information regarding the ongoing risks related to our business, see section Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Results of Operations
Earnings Summary:
Sales. Sales were $1,603 in the first quarter of 2023 compared to $1,324 in the first quarter of 2022. The increase of $279, or 21%, in the first quarter of 2023 was primarily due to higher aerospace sales including $168, or 29%, from the commercial aerospace market and $25, or 11%, from the defense aerospace market, an increase in inflationary cost pass through of approximately $35, and favorable product pricing of $17. Product price increases are in excess of inflationary cost pass through to our customers.
Cost of goods sold (“COGS”). COGS as a percentage of Sales was 72.6% in the first quarter of 2023 compared to 71.8% in the first quarter of 2022. The increase in the first quarter of 2023 was primarily due to inflationary cost pass through and increased headcount, primarily in the Engine Products and Fastening Systems segments, in anticipation of future revenue increases, partially offset by higher volumes and favorable product pricing. Additionally, the Company recorded total COGS charges of $4 in the first quarter of 2023 related to fires that occurred at a Fastening Systems plant in France in 2019 (the “France Plant Fire”) and a mechanical failure resulting in substantial heat and fire-related damage to equipment at the Company’s cast house in Barberton, Ohio in the third quarter of 2022 (the “Barberton Cast House Incident”), compared to total COGS charges of $5 related to the France Plant Fire and a fire that occurred at a Forged Wheels plant in Barberton, Ohio in mid-February 2020 (the “Barberton Plant Fire”) in the first quarter of 2022. The Company has submitted insurance claims related to these plant fires. During the fourth quarter of 2022, the Company settled the insurance claim related to the Barberton Plant Fire. The Company anticipates additional charges of approximately $1 to $5 in the second quarter of 2023, with further impacts in subsequent quarters as the businesses continue to recover from the fires.
Selling, general administrative, and other expenses (“SG&A”). SG&A expenses were $75 in the first quarter of 2023 compared to $69 in the first quarter of 2022. The increase of $6, or 9%, in the first quarter of 2023 was primarily due to higher employment and lease costs.
Research and development expenses (“R&D”). R&D expenses were $9 in the first quarter of 2023 and $7 in the first quarter of 2022, an increase of $2, or 29%. The increase in the first quarter of 2023 was primarily due to higher spending on technology projects intended to support the aerospace business.
Restructuring and other charges. Restructuring and other charges were $1 in the first quarter of 2023 compared to $2 in the first quarter of 2022 or a decrease of $1. Restructuring and other charges for the first quarter of 2023 were primarily due to exit related costs, including accelerated depreciation, of $2, partially offset by a reversal of $1 for a layoff reserve related to a prior period. Restructuring and other charges for the first quarter of 2022 were primarily due to exit related costs of $2.
See Note D to the Consolidated Financial Statements in Part I, Item I of this Form 10-Q for additional detail.
21

Interest expense, net. Interest expense, net was $57 in the first quarter of 2023 compared to $58 in the first quarter of 2022. The decrease of $1 in the first quarter of 2023 was primarily due to a reduced average level of long-term debt. As a result of the reduction in the outstanding aggregate principal amount of the 5.125% Notes due October 2024 (the “5.125% Notes”), Interest expense, net is expected to be reduced annually by $9.
See Note N to the Consolidated Financial Statements in Part I, Item I of this Form 10-Q for additional detail related to the Company’s debt.
Loss on debt redemption. Debt redemption or tender premiums include the cost to redeem or repurchase certain of the Company’s notes at a price which may be equal to the greater of the principal amount or the sum of the present values of the remaining scheduled payments, discounted using a defined treasury rate plus a spread, or a price based on the market price of its notes. Loss on debt redemption was $1 in the first quarter of 2023 compared to zero in the first quarter of 2022. The increase of $1 in the first quarter of 2023 was primarily due to the debt premiums paid on the early partial redemption of the 5.125% Notes in the first quarter of 2023.
See Note N to the Consolidated Financial Statements in Part I, Item I of this Form 10-Q for additional detail related to the Company’s debt.
Other expense, net. Other expense, net was $7 in the first quarter of 2023 compared to $1 in the first quarter of 2022. The increase of $6 in the first quarter of 2023 was primarily due to the impacts of deferred compensation arrangements of $6 and higher non-service related net periodic benefit costs related to pension and other postretirement benefit plans of $3, partially offset by higher interest income (ATOI)of $5. Non-service related net periodic benefit costs related to Adjusteddefined benefit plans is expected to increase by approximately $20 for the full year 2023 versus 2022.
Provision for income taxes. The estimated annual effective tax rate, before discrete items, applied to ordinary income was 23.4% in the first quarter of 2023 compared to 24.3% in the first quarter of 2022. The tax rate including discrete items was 32.7% in the first quarter of 2023 compared to 23.4% in the first quarter of 2022. A discrete net tax charge of $21, which includes the income tax reserve recorded as a result of the French tax litigation (See Note P to the Consolidated Financial Statements in Part I, Item I of this Form 10-Q for additional detail), was recorded in the first quarter of 2023 compared to a discrete net tax benefit of $2 in the first quarter of 2022. The estimated annual effective tax rate has decreased primarily due to increased domestic deductions, lower non-deductible expenses, and a decrease in apportioned state tax rates, partially offset by increased earnings before interest, tax, depreciationin high rate jurisdictions and amortization (“Adjusted EBITDA”).decreased earnings in low rate jurisdictions.
See Note G to the Consolidated Financial Statements in Part I, Item I of this Form 10-Q for additional detail.
Net income. Net income was $148, or $0.35 per diluted share, in the first quarter of 2023 compared to $131, or $0.31 per diluted share, in the first quarter of 2022. The increase of $17 in the first quarter of 2023 was primarily due to higher sales in the commercial aerospace and defense aerospace markets as well as favorable product pricing, partially offset by an increase in Provision for income taxes and Other expense, net.
Segment Information
The Company’s operations consist of four worldwide reportable segments: Engine Products, Fastening Systems, Engineered Structures, and 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 Segment Adjusted EBITDA. Arconic’sHowmet’s definition of Segment Adjusted EBITDA is net margin plus an add-back for(Earnings before interest, taxes, 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 below 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 included 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) in the nine months ended September 30, 2017.

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

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

L. Debt

   September 30,
2017
   December 31,
2016
 

6.50% Bonds, due 2018

  $—     $250 

6.75% Notes, due 2018

   —      750 

5.72% Notes, due 2019

   500    750 

1.63% Convertible Notes, due 2019*

   403    403 

6.150% Notes, due 2020

   1,000    1,000 

5.40% Notes due 2021

   1,250    1,250 

5.87% Notes, due 2022

   627    627 

5.125% Notes, due 2024

   1,250    1,250 

5.90% Notes, due 2027

   625    625 

6.75% Bonds, due 2028

   300    300 

5.95% Notes, due 2037

   625    625 

Iowa Finance Authority Loan, due 2042

   250    250 

Other**

   (27   (32
  

 

 

   

 

 

 

Total debt

   6,803    8,048 

Less: amount due within one year

   1    4 
  

 

 

   

 

 

 

Total long-term debt

  $6,802   $8,044 
  

 

 

   

 

 

 

*Amount was assumed in conjunction with the July 2015 acquisition of RTI International Metals, Inc.
**Includes various financing arrangements related to subsidiaries, unamortized debt discounts related to outstanding notes and bonds listed in the table above, an equity option related to the convertible notes due in 2019, adjustments to the carrying value of long-term debt related to an interest rate swap contract accounted for as a fair value hedge, and unamortized debt issuance costs.

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

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 premium for the early redemption of the notes, a benefit of $8 for the proceeds of a related interest rate swap agreement, and a charge of $2 for legal fees associated with the transaction in Interest expense, and recorded a gain of $167 in Other income, net in the accompanying Statement of Consolidated Operations for the nine months ended September 30, 2017 for the Debt-for-Equity Exchange.

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

M. Pension and Other Postretirement Benefits

The components of net periodic benefit cost were as follows:

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

Pension benefits

  2017   2016   2017   2016 

Service cost

  $22   $43   $67   $124 

Interest cost

   59    114    175    358 

Expected return on plan assets

   (82   (187   (248   (558

Recognized net actuarial loss

   55    104    165    308 

Amortization of prior service cost (benefits)

   1    4    4    12 

Settlements

   —      13    —      15 

Special termination benefits

   —      —      —      1 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost*

  $55   $91   $163   $260 

Discontinued operations

   —      41    —      114 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized in Statement of Consolidated Operations

  $55   $50   $163   $146 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other postretirement benefits

                

Service cost

  $2   $3   $6   $10 

Interest cost

   7    16    22    53 

Recognized net actuarial loss

   2    8    4    19 

Amortization of prior service cost (benefits)

   (2   (6   (6   (19

Special termination benefits

   —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost*

  $9   $21   $26   $63 

Discontinued operations

   —      12    —      37 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized in Statement of Consolidated Operations

  $9   $9   $26   $26 
  

 

 

   

 

 

   

 

 

   

 

 

 

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

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:

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])

Overview

Our Business

Arconic (“Arconic” or the “Company”) is a global leader in lightweight metals engineering and manufacturing. Arconic’s innovative, multi-material products, which include aluminum, titanium, and nickel alloys, are used worldwide in aerospace, automotive, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications.

The separation of Alcoa Inc. into two standalone, publicly-traded companies, Arconic Inc. (the new name for Alcoa Inc.) and Alcoa Corporation, became effective on November 1, 2016 (the “Separation Transaction”). The financial results of Alcoa Corporation for all periods prior to the 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. The cash flows, equity and comprehensive income related to Alcoa Corporation have not been segregated and are included in the accompanying Statement of Consolidated Cash Flows, Statement of Changes in Consolidated Equity and Statement of Consolidated Comprehensive Income, respectively, for the third quarter and nine months ended September 30, 2016.

Results of Operations

Earnings Summary:

Sales.Sales increased $98, or 3%, and $262, or 3%, in the third quarter 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 Products and Solutions and Transportation and Construction Solutions segments and higher aluminum pricing, partially offset by the planned ramp down and Toll Processing and Services Agreement (the “Toll Processing Agreement”) relating to the Company’s North America packaging business in Tennessee in the Global Rolled Products segment, as well as unfavorable 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.

Cost of goods sold (COGS). COGS as a percentage of Sales was 81.1% and 79.5% in the third quarter and nine months ended September 30, 2017, respectively, compared to 79.8% and 78.9% in the third quarter and nine months ended September 30, 2016, respectively. The increase in both periods was primarily attributable to cost increases, including higher aluminum prices and ramp-up costs related to new commercial aerospace engines, and a lower margin product mix, partially offset by net cost savings.

29


Selling, general administrative, and other expenses (SG&A). SG&A expenses decreased $74 in the third quarter of 2017 compared to the third quarter of 2016 as a result of expenses related to the Separation Transaction of $54 in the prior year period and ongoing 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, 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 $7 in the current year period.

Restructuring and other charges. Restructuring and other charges were $19 ($13 after-tax) in the third quarter of 2017 compared to $3 ($2 after-tax) in the third quarter of 2016. Restructuring and other charges were $118 ($99 after-tax) in the nine months ended September 30, 2017 compared to $33 ($22 after-tax) in the nine months ended September 30, 2016.

In the 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 
  

 

 

   

 

 

   

 

 

   

 

 

 

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 part 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, or 21%, in the third quarter of 2017 compared to the third quarter of 2016 due to lower outstanding debt. During the second quarter of 2017, Arconic redeemed all of the Company’s 6.50% Bonds due 2018 and 6.75% Notes due 2018, and a portion of the Company’s 5.72% Notes due 2019 (see Note L) in advance of the expiration date. Interest expense increased $27, or 7%, during the nine months ended September 30, 2017 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 $10 in the third quarter of 2017 compared to the third quarter of 2016, primarily due to the favorable post-closing adjustment related to the November 2014 acquisition of Firth Rixson that was recorded in the third quarter of 2016.

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

Provision for income taxes. For the nine months ended September 30, 2017, Arconic’s estimated annual effective tax rate, before discrete items, was 28.5%. This rate is lower than the federal statutory rate of 35% due to foreign income taxed in lower rate jurisdictions, a tax basis in excess of book basis in Alcoa Corporation common stock sold (see Note G), and a nontaxable gain on the Debt-for-Equity Exchange (see Note L). These beneficial items were partially offset by a loss on the sale of 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 recorded in the quarter ended September 30, 2017 and primarily relate to the tax effects of expired stock compensation partially offset by other insignificant adjustments. Discrete items of $7 were recorded in the quarter ended September 30, 2016 and primarily relate to Arconic’s share of a valuation allowance recorded by one of our joint ventures and as-filed adjustments related to the Company’s 2015 U.S. tax return, partially offset by other discrete benefits.

31


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

   Third quarter ended
September 30,
   Nine months ended
September 30,
 
   2017   2016   2017   2016 

Pretax income at estimated annual effective income tax rate before discrete items

  $49   $69   $264   $257 

Catch-up adjustment to revalue previous quarter pre-tax income at current estimated annual effective tax rate

   1    10    —      
—  
 

Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized

   1    (30   5    (37

Other discrete items

   2    7    3    10 
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

  $53   $56   $272   $230 
  

 

 

   

 

 

   

 

 

   

 

 

 

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

Income from continuing operations after income taxes was $653 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 from discontinued operations after income taxes and $20 from discontinued operations attributable to noncontrolling interests. In the nine months ended September 30, 2016, net income attributable to Arconic included income of $146 from discontinued operations after income taxes and $58 from discontinued operations attributable to noncontrolling interests.

Segment Information

In the first quarter of 2017, the Company changed its primary measure 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 EBITDAamortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. TheSpecial items, including Restructuring and other charges, are excluded from net margin and Segment Adjusted EBITDA. Segment Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

Differences between the total segment and consolidated totals are in Corporate (See Note C to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a description of each segment).

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

22

Engine Products
First quarter ended
 March 31,
 20232022
Third-party sales$795 $631 
Segment Adjusted EBITDA212 173 
Segment Adjusted EBITDA Margin26.7 %27.4 %
Third-party sales for the Engine Products segment increased $164, or 26%, in the first quarter of 2023 compared to the first quarter of 2022, primarily due to higher volumes in the commercial aerospace, defense aerospace, industrial gas turbine, and oil and gas markets.
Segment Adjusted EBITDA for the Engine Products segment increased $39, or 23%, in the first quarter of 2023 compared to the first quarter of 2022, primarily due to higher volumes in the commercial aerospace, defense aerospace, industrial gas turbine, and oil and gas markets. The segment added approximately 260 net headcount in the first quarter in anticipation of future revenue increases.
Segment Adjusted EBITDA Margin for the Engine Products segment decreased approximately 70 basis points in the first quarter of 2023 compared to the first quarter of 2022, primarily due to an increase in inflationary costs and headcount, partially offset by higher volumes in the commercial aerospace, defense aerospace, industrial gas turbine, and oil and gas markets.
The collective bargaining agreement between Howmet and the United Autoworkers at our Whitehall, Michigan location expired on March 31, 2023. The Whitehall, Michigan location has been preparing for the expiration of this collective bargaining agreement over the course of several months, and the contract has been extended by mutual agreement while negotiations continue.
In 2023, as compared to 2022, demand in the commercial aerospace, defense aerospace, industrial gas turbine, and oil and gas markets is expected to increase.
Fastening Systems
First quarter ended
March 31,
20232022
Third-party sales$312 $264 
Segment Adjusted EBITDA58 56 
Segment Adjusted EBITDA Margin18.6 %21.2 %
Third-party sales for the Fastening Systems segment increased $48, or 18%, in the first quarter of 2023 compared to the first quarter of 2022, primarily due to higher volumes in the narrow body commercial aerospace and defense aerospace markets.
Segment Adjusted EBITDA for the Fastening Systems segment increased $2, or 4%, in the first quarter of 2023 compared to the first quarter of 2022, primarily due to higher volumes in the narrow body commercial aerospace and defense aerospace markets, partially offset by inflationary costs. The segment added approximately 215 net headcount in the first quarter in anticipation of future revenue increases.
Segment Adjusted EBITDA Margin for the Fastening Systems segment decreased approximately 260 basis points in the first quarter of 2023 compared to the first quarter of 2022, primarily due to an increase in inflationary costs and headcount, partially offset by higher volumes in the narrow body commercial aerospace and defense aerospace markets.
In 2023, as compared to 2022, demand in the commercial aerospace and industrial markets are expected to increase.
23

Engineered Products 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 

Structures
First quarter ended
 March 31,
 20232022
Third-party sales$207 $182 
Segment Adjusted EBITDA30 23 
Segment Adjusted EBITDA Margin14.5 %12.6 %

Third-party sales for the Engineered Products and SolutionsStructures segment increased 5%$25, or 14%, in the thirdfirst quarter of 20172023 compared to the thirdfirst quarter of 2016. The increase was2022, primarily due to higher volumes in the result of volume growthcommercial aerospace market, partially offset by lower product pricing, primarilyvolumes in the defense 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.

Segment Adjusted EBITDA for the Engineered Products and Solutions Structuressegment increased $16$7, or 30%, in the thirdfirst quarter of 20172023 compared to the thirdfirst quarter of 2016. The increase was the result of2022, primarily due to higher volumes and net cost savingsin the commercial aerospace market, partially offset by lower product pricing and ramp up costs associated with increasing production volumes of newin the defense aerospace engine parts, such as higher scrap rates, production inefficiencies, new process development and employee training.market.
Segment Adjusted EBITDA decreased by $2Margin for the Engineered Structuressegment increased approximately 190 basis points in the nine months ended September 30, 2017first quarter of 2023 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 fourthfirst quarter of 2017, growth2022, primarily due to higher volumes 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 withlower volumes in the introduction of newdefense aerospace market.

In 2023, as compared to 2022, demand in the 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).

market is expected to increase. However, demand in the defense aerospace market is expected to be down.

Forged Wheels
First quarter ended
March 31,
20232022
Third-party sales$289 $247 
Segment Adjusted EBITDA79 67 
Segment Adjusted EBITDA Margin27.3 %27.1 %
Third-party sales for the Global Rolled ProductsForged Wheels segment decreased 4%increased $42, or 17%, in the thirdfirst quarter of 20172023 compared to the thirdfirst quarter of 2016. The decrease was2022, 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 increasedhigher 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.

market.

Segment Adjusted EBITDA for the Transportation and Construction SolutionsForged Wheels segment increased $7 and $21$12, or 18%, in the thirdfirst quarter and nine months ended September 30, 2017, respectively,of 2023 compared to the corresponding periods in 2016. The change was principally the resultfirst quarter of net cost savings and2022, primarily due to 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 Solutionsforeign currency movements.
Segment Adjusted EBITDA margin by $4 or 120Margin for the Forged Wheels segment increased approximately 20 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 period2023 compared to higher base metal prices (LME) at September 30, 2016 indexed to December 31, 2015 for the 2016 thirdfirst 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, 2016of 2022, primarily 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.volumes and a decreasedecline 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.,metal price pass through, partially offset by proxy, advisoryinflationary cost pass through and governance-relatedunfavorable foreign currency impacts.
For the full year of 2023, as compared to 2022, demand in the commercial transportation markets served by Forged Wheels is expected to decrease in most regions due to lower OEM builds. A decrease in metal costs incurred in 2017;

partially offset by an increase in other inflationary costs is expected to contribute to a net decrease in sales as the Company generally passes through these costs.
24

Reconciliation of Total Segment Adjusted EBITDA to Income before income taxes
First quarter ended
March 31,
20232022
Income before income taxes$220 $171 
Loss on debt redemption— 
Interest expense, net57 58 
Other expense, net
Operating income$285 $230 
Segment provision for depreciation and amortization64 65 
Unallocated amounts:
Restructuring and other charges
Corporate expense29 22 
Total Segment Adjusted EBITDA$379 $319 
Total Segment Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because it provides additional information with respect to the Company’s operating performance and the Company’s ability to meet its financial obligations. Differences between the total segment and consolidated totals are in Corporate.
See Restructuring and other charges, Interest expense, net, Loss on debt redemption, and Other income,expense, net in the nine months ended September 30, 2017, largely the resultdiscussions above, under “Results of the $351 gain on the sale of a portion of Arconic’s investment in Alcoa Corporation common stockOperations” for reference.
Corporate expense increased $7, or 32%, 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 20172023 compared to the thirdfirst quarter of 20162022, primarily due to lower outstanding debthigher nonrecurring legal and an increaseother advisory reimbursements received in Interest expense in the nine months ended September 30, 20172022 compared to the nine months ended September 30, 2016 due to premiums paid for the early redemption2023 of $1,250$3, 2023 costs of the Company’s long-term debt during the second quarter of 2017$1 associated with closures, shutdowns, and other items which did not occur in 2022, and higher employment and lease costs in 2023, 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 comparedcosts related to the nine months ended September 30, 2016 attributable to higher pretax income, exclusiveFrance Plant Fire, the Barberton Plant Fire, and the Barberton Cast House Incident of the previously noted gain on the Debt-for-Equity Exchange.$1.

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

Subsequent Events

On October 2, 2017, all outstanding 24,975,978 depositary shares (each depositary share representing 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

See Note Q to the Separation and Distribution Agreement between Arconic and Alcoa Corporation, Arconic was required to provide a guarantee up to an estimated present value amountConsolidated Financial Statements in Part I, Item 1 of approximately $485 related to this electricity contractForm 10-Q 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.

subsequent events.


25

Liquidity and Capital Resources

The cash flows related to Alcoa Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows for the nine 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

Operating Activities
Cash provided from operations was $89$23 in the ninethree months ended September 30, 2017March 31, 2023 compared to $208$55 in the ninethree months ended September 30, 2016.March 31, 2022. The decrease in cash provided from operations of $119,$32, or 57%58%, was primarily due to lower operating results (net income plus net add-back for noncash transactions in earnings)higher working capital of $673,$55, partially offset by higher operating results of $13 and lower cash used forpayments on noncurrent liabilities of $5. The components of the change in working capital primarily included unfavorable changes in accounts payable of $251$135 and a positive change associated with noncurrentreceivables of $14, partially offset by inventories of $42, accrued expenses of $35, taxes, including income taxes, of $10, and prepaid expenses and other current assets of $247 due$7.
Management expects Howmet’s estimated pension contributions and other postretirement benefit payments in 2023 to the prepayment of $200 made in April 2016 related to a gas supply agreement for the Australia alumina refineries.

be approximately $56.

Financing Activities

Cash used for financing activities was $918$214 in the ninethree months ended September 30, 2017March 31, 2023 compared to $350$194 in the ninethree months ended September 30, 2016.March 31, 2022. The increase in cash used for financing activitiesof $20, or 10%, was primarily relateddue to payments made in connection with the reduction of long-term debt of $176 (See Note N to the early redemptionConsolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference) and increased dividends paid to common stock shareholders of $8, partially offset by a reduction in common stock repurchases of $150. As a result of the Company’s 6.50% Bonds due 2018, 6.75% Notes due 2018, and a portionreduction in the aggregate principal amount of the 5.72%outstanding 5.125% Notes, due 2019 (see Note L).

ArconicInterest expense, net is expected to be reduced annually by $9.

The Company maintains a credit facility pursuant to its Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein which provides(See Note N to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference). As a $3,000 senior unsecured revolving credit facility (the “Credit Facility”) which maturesresult of the end of the covenant relief period on July 25, 2020 unless extended or earlier terminatedDecember 31, 2022, there is no longer a restriction on common stock dividends and share repurchases under the Credit Agreement.
The Company may opportunistically issue new debt securities in accordance with securities laws, including, but not limited to, in order to refinance existing indebtedness.
The Company may, in the provisionsfuture from time to time, redeem portions of its debt securities or repurchase portions of its debt or equity securities, in either the Credit Agreement.open market or through privately negotiated transactions, in accordance with applicable SEC and other legal requirements. The purposetiming, prices, and sizes of any borrowingspurchases depend upon prevailing trading prices, general economic and market conditions, and other factors, including applicable securities laws. Such purchases may be completed by means of trading plans established from time to time in accordance with Rule 10b5-1 under the Credit Facility is to provide for working capital requirements and forSecurities Exchange Act of 1934, as amended, block trades, private transactions, open market repurchases, tender offers, and/or accelerated share repurchase agreements or 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. derivative transactions.

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-term 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 DebtShort-Term DebtOutlookOutlookDate of Last Update

Standard and Poor’s

Ratings Service (“S&P”)
BB+BBB-A-3PositiveStableMay 1, 2017April 25, 2023

Moody’s

Investors Service (“Moody’s”)
Ba1Ba2Speculative Grade
Liquidity-2Stable
StableNovember 2, 2017April 27, 2023

Fitch

Investors Service (“Fitch”)
BBB-BB+BStableStableJuly 3, 2017March 22, 2022

On April 27, 2023, Moody’s affirmed the following ratings for Howmet: long-term debt at Ba1 and the current outlook as stable.
On April 25, 2023, S&P affirmed Howmet’s long-term debt rating at BB+ and upgraded the current outlook from stable to positive, citing strong demand in the commercial aerospace market and the Company’s improved financial leverage.
Investing Activities

Cash provided fromused for investing activities was $776$64 in the ninethree months ended September 30, 2017March 31, 2023 compared to $79$61 in the ninethree months ended September 30, 2016.

Cash provided from investing activities for the nine months ended September 30, 2017 included proceedsMarch 31, 2022. The increase of $888 from the sale of a portion of Arconic’s investment$3 was primarily due to an increase 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, primarily related to $457 in proceeds from the redemption of Company-owned life insurance policies, proceeds of $120 related to the sale of the Intalco smelter wharf property, and proceeds of $102 from the sale 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 partially offset by $814 in capital expenditures, including the aerospace expansion (thick plate stretcher) at the Davenport, Iowa plant.

37


Noncash Financing and Investing Activities

In the second quarter of 2017, the Company completed a Debt-for-Equity Exchange with 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 for $465 including accrued and unpaid interest.

$2.

Recently Adopted and Recently Issued Accounting Guidance

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


26

Forward-Looking Statements

This report contains (and oral communications made by Howmet Aerospace may contain) statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect Arconic’sHowmet Aerospace’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements, forecasts and expectationsoutlook relating to the aerospace, automotive, commercial transportation and othercondition of end markets; statements and guidance regarding future financial results or operating performance; statements about Arconic’sfuture strategic actions; Howmet Aerospace’s strategies, outlook, and business and financial prospects; and statements regarding potential share gains.any future debt redemptions or repurchases of its debt or equity securities. These statements reflect beliefs and assumptions that are based on Arconic’sHowmet Aerospace’s perception of historical trends, current conditions and expected future developments, as well as other factors managementHowmet Aerospace believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. 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) deterioration in global economic and financial market conditions generally; (b) unfavorable changes in the markets served by Arconic;Howmet Aerospace; (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; (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(d) the loss of significant customers or adverse changes in customers’ business or financial conditions; (e) manufacturing difficulties or other issues that impact product performance, quality or safety; (f) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (g) failure to attract and retain a qualified workforce and key personnel; (h) political,uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet Aerospace’s business, results of operations, and financial condition; (i) the inability to achieve revenue growth, cash generation, restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (j) inability to meet increased demand, production targets or commitments; (k) competition from new product offerings, disruptive technologies or other developments; (l) 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 Aerospace’s global operations, including fluctuations in London Metal Exchange-based aluminum prices; (j) the impact of changes ingeopolitical and diplomatic tensions, instabilities and conflicts, as well as compliance with U.S. and foreign currency exchange rates on coststrade and results; (k)tax laws, sanctions, embargoes and other regulations; (m) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose ArconicHowmet Aerospace to substantial costs and liabilities; (n) failure to comply with government contracting regulations; (o) adverse changes in discount rates or investment returns on pension assets; and (l)(p) the other risk factors summarized in Arconic’sHowmet Aerospace’s Form 10-K for the year ended December 31, 2016, including under Part I, Item 1A thereof, in Arconic’s Form 10-Q for2022 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 sectionsmarket. The statements in this report are made as of the date of the filing of this report: Note H to the financial statements, and the discussion included above under Segment Information. Arconicreport. Howmet Aerospace disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law. 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

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

(b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the thirdfirst quarter of 2017,2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

27


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 P 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.

39


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, 20152022.

Item 2. Unregistered Sales of Equity Securities and 2016, its 2012, 2013, 2014, 2015 and 2016 Annual Reports, and its 2016 Annual Highlights Report about management’s recognitionUse of Proceeds.
The following table presents information with respect to the Company’s repurchases of its responsibility to conductcommon stock during 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.

Whilequarter ended March 31, 2023:
PeriodTotal Number of Shares Purchased
Average Price Paid Per Share(1)
Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(1)(2)
January 1 - January 31, 2023— $— — $947
February 1 - February 28, 2023— $— — $947
March 1 - March 31, 2023576,629 $43.36 576,629 $922
Total for quarter ended March 31, 2023576,629 $43.36 576,629 

(1)Excludes commissions cost.
(2)On August 18, 2021, the Company believesannounced 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. Theits Board of Directors has also received letters, purportedly sent on behalfauthorized a share repurchase program of shareholders, reciting allegations similarup to those$1,500 million of the Company's outstanding common stock. After giving effect to the share repurchases made inthrough March 31, 2023, approximately $922 million Board authorization remains available. Under the federal court lawsuits and demanding that the Board authorizeCompany’s share repurchase program (the “Share Repurchase Program”), the Company may repurchase shares by means of trading plans established from time to initiate litigation against memberstime in accordance with Rule 10b5-1 under the Securities Exchange Act of management,1934, as amended, block trades, private transactions, open market repurchases and/or accelerated share repurchase agreements or other derivative transactions. There is no stated expiration for the 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 byShare Repurchase Program. Under its Share Repurchase Program, the Company concerning the shareholder’s claimed right, whichmay repurchase shares from time to time, in amounts, at prices, and at such times as the Company contests,deems appropriate, subject to inspectmarket conditions, legal requirements and other considerations. The Company is not obligated to repurchase any specific number of shares or to do so at any particular time, and the Company’s books and records related to the Grenfell Tower fire and Reynobond PE.

40

Share Repurchase Program may be suspended, modified or terminated at any time without prior notice.

28

Item 6. Exhibits.

Second Amendment, effective January 1, 2023, to the Howmet Aerospace Hourly Retirement Savings Plan, as Amended and Restated.
10(a)Letter Agreement, by and between Arconic Inc. and Charles P. Blankenship, dated as of October 19, 2017, incorporated by reference to Exhibit 10.1First Amendment, effective January 1, 2023, to the Company’s Current Report on Form 8-K dated October 23, 2017Howmet Aerospace Hourly Salaried Retirement Savings Plan, as Amended and Restated.
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, 2023, 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.

November 6, 2017

May 2, 2023

/s/ Ken Giacobbe

DateKen Giacobbe
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
May 2, 2023/s/ Barbara L. Shultz

November 6, 2017

Date

/s/ Paul Myron

DatePaul MyronBarbara L. Shultz
Vice President and Controller
(Principal Accounting Officer)

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