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~~June 30, ~~2020~~2021


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

Commission File Number 1-3610

HOWMET AEROSPACE INC.

(Exact name of registrant as specified in its charter)

Delaware

25-0317820

(State of incorporation)

(I.R.S. Employer Identification No.)

201 Isabella Street, Suite 200, Pittsburgh, Pennsylvania 15212-5872

(Address of principal executive offices) (Zip code)

~~Suite 200,Pittsburgh,Pennsylvania15212-5872(Address of principal executive offices)(Zip code)~~

Investor Relations 412-553-1950

Office of the Secretary 412-553-1940

(Registrant’s telephone number including area code)

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

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


Title of each class	Trading ~~Symbol(s)~~Symbol	Name of each exchange on which registered
Common Stock, par value $1.00 per share	HWM	New York Stock Exchange
$3.75 Cumulative Preferred Stock, par value ~~$100~~$100.00 per share	HWM PR	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ✓ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ✓ No

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


Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of ~~November 5, 2020,~~August 2, 2021, there were ~~433,603,919~~428,912,175 shares of common stock, par value $1.00 per share, of the registrant outstanding.

~~Explanatory Note~~

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

TABLE OF CONTENTS


		Page(s)
Part I
Item 1.	Financial Statements	3
	Statement of Consolidated Operations for the Second Quarter and Six Months Ended June 30, 2021 and 2020	3
	Statement of Consolidated Comprehensive Income (Loss) for the Second Quarter and Six Months Ended June 30, 2021 and 2020	4
	Consolidated Balance Sheet as of June 30, 2021 and December 31, 2020	5
	Statement of Consolidated Cash Flows for the Six Months Ended June 30, 2021 and 2020	6
	Statement of Changes in Consolidated Equity for the Second Quarter Ended June 30, 2021 and 2020	7
	Statement of Changes in Consolidated Equity for the Six Months Ended June 30, 2021 and 2020	8
	Notes to the Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
Part II
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37
	Signatures	37

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

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


		Third quarter ended				Nine months ended					Second quarter ended				Six months ended
		September 30,				September 30,					June 30,				June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Sales (D)	Sales (D)	$	1,134	$	1,794	$	4,021	$	5,364	Sales (D)	$	1,195	$	1,253	$	2,404	$	2,887
Cost of goods sold (exclusive of expenses below)	Cost of goods sold (exclusive of expenses below)	900		1,317		3,006		3,945		Cost of goods sold (exclusive of expenses below)	857		923		1,730		2,106
Selling, general administrative, and other expenses	Selling, general administrative, and other expenses	66		89		219		307		Selling, general administrative, and other expenses	55		74		120		153
Research and development expenses	Research and development expenses	5		6		13		22		Research and development expenses	4		4		9		8
Provision for depreciation and amortization	Provision for depreciation and amortization	68		70		212		224		Provision for depreciation and amortization	67		73		135		144
Restructuring and other charges (E)	Restructuring and other charges (E)	22		56		166		572		Restructuring and other charges (E)	5		105		14		144
Operating income	Operating income	73		256		405		294		Operating income	207		74		396		332
Interest expense, net	Interest expense, net	77		85		305		256		Interest expense, net	89		144		161		228
Other expense, net (F)		8		8		0		26
Other expense (income), net (F)										Other expense (income), net (F)	8		16		12		(8)
Income (loss) before income taxes	Income (loss) before income taxes	(12)		163		100		12		Income (loss) before income taxes	110		(86)		223		112
Provision (benefit) for income taxes (H)	Provision (benefit) for income taxes (H)	(48)		105		(5)		4		Provision (benefit) for income taxes (H)	36		(2)		69		43
Income from continuing operations after income taxes		$	36	$	58	$	105	$	8
Income from discontinued operations after income taxes (B)		$	0	$	37	$	50	153
Net income		$	36	$	95	$	155	$	161
Income (loss) from continuing operations after income taxes										Income (loss) from continuing operations after income taxes	$	74	$	(84)	$	154	$	69
(Loss) income from discontinued operations after income taxes (B)										(Loss) income from discontinued operations after income taxes (B)	0		(12)		0		50
Net income (loss)										Net income (loss)	$	74	$	(96)	$	154	$	119

Amounts Attributable to Howmet Aerospace Common Shareholders (I):	Amounts Attributable to Howmet Aerospace Common Shareholders (I):									Amounts Attributable to Howmet Aerospace Common Shareholders (I):
Net income		$	35	$	94	$	153	159
Earnings per share - basic
Net income (loss)										Net income (loss)	$	73	$	(96)	$	153	118
Earnings (loss) per share - basic										Earnings (loss) per share - basic
Continuing operations	Continuing operations	$	0.08	$	0.13	$	0.24	$	0.01	Continuing operations	$	0.17	$	(0.19)	$	0.35	$	0.16
Discontinued operations	Discontinued operations	$	0	$	0.09	$	0.11	$	0.34	Discontinued operations	$	0	$	(0.03)	$	0	$	0.11
Earnings per share - diluted
Earnings (loss) per share - diluted										Earnings (loss) per share - diluted
Continuing operations	Continuing operations	$	0.08	$	0.13	$	0.23	$	0.01	Continuing operations	$	0.17	$	(0.19)	$	0.35	$	0.15
Discontinued operations	Discontinued operations	$	0	$	0.08	$	0.11	$	0.34	Discontinued operations	$	0	$	(0.03)	$	0	$	0.11
Average Shares Outstanding (I):	Average Shares Outstanding (I):									Average Shares Outstanding (I):
Average shares outstanding - basic	Average shares outstanding - basic	436		436		436		451		Average shares outstanding - basic	432		436		433		436
Average shares outstanding - diluted	Average shares outstanding - diluted	439		457		440		455		Average shares outstanding - diluted	437		436		438		440

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

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Comprehensive Income (Loss) (unaudited)

(U.S. dollars in millions)


		Third quarter ended				Nine months ended						Second quarter ended				Six months ended
		September 30,				September 30,				June 30,		June 30,
		2020		2019		2020		2019				2021		2020		2021		2020
Net income		$	36	$	95	$	155	$	161
Net income (loss)											Net income (loss)	$	74	$	(96)	$	154	$	119
Other comprehensive income (loss), net of tax (J):	Other comprehensive income (loss), net of tax (J):										Other comprehensive income (loss), net of tax (J):
Change in unrecognized net actuarial loss and prior service cost (benefit) related to pension and other postretirement benefits		8		26		54		89
Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits											Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits	35		9		77		46
Foreign currency translation adjustments	Foreign currency translation adjustments	48		(87)		(25)		(91)			Foreign currency translation adjustments	18		(8)		(26)		(73)
Net change in unrealized gains on available-for-sale securities		0		1		0		4
Net change in unrealized losses on debt securities											Net change in unrealized losses on debt securities	0		(1)		0		0
Net change in unrecognized gains (losses) on cash flow hedges	Net change in unrecognized gains (losses) on cash flow hedges	5		1		1		(2)			Net change in unrecognized gains (losses) on cash flow hedges	4		9		8		(4)
Total Other comprehensive income (loss), net of tax	Total Other comprehensive income (loss), net of tax	61		(59)		30		0			Total Other comprehensive income (loss), net of tax	57		9		59		(31)
Comprehensive income		$	97	$	36	$	185	$	161
Comprehensive income (loss)											Comprehensive income (loss)	$	131	$	(87)	$	213	$	88

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

Howmet Aerospace Inc. and subsidiaries

Consolidated Balance Sheet (unaudited)

(U.S. dollars in millions)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,365	$	1,577	Cash and cash equivalents	$	715	$	1,610
Receivables from customers, less allowances of $1 in 2020 and $1 in 2019 (K)		310		583
Receivables from customers, less allowances of $0 in 2021 and $1 in 2020 (K)						Receivables from customers, less allowances of $0 in 2021 and $1 in 2020 (K)	316		328
Other receivables (K)	Other receivables (K)	120		349		Other receivables (K)	100		29
Inventories (L)	Inventories (L)	1,592		1,607		Inventories (L)	1,456		1,488
Prepaid expenses and other current assets	Prepaid expenses and other current assets	213		285		Prepaid expenses and other current assets	212		217
Current assets of discontinued operations (B)		0		1,442

Total current assets	Total current assets	3,600		5,843		Total current assets	2,799		3,672
Properties, plants, and equipment, net (M)	Properties, plants, and equipment, net (M)	2,552		2,629		Properties, plants, and equipment, net (M)	2,515		2,592
Goodwill (D)	Goodwill (D)	4,072		4,067		Goodwill (D)	4,090		4,102
Deferred income taxes (A)		262		209
Deferred income taxes						Deferred income taxes	188		272
Intangibles, net	Intangibles, net	584		599		Intangibles, net	557		571
Other noncurrent assets (N)	Other noncurrent assets (N)	269		316		Other noncurrent assets (N)	230		234
Noncurrent assets of discontinued operations (B)		0		3,899

Total assets	Total assets	$	11,339	$	17,562	Total assets	$	10,379	$	11,443
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable, trade	Accounts payable, trade	$	521	$	976	Accounts payable, trade	$	632	$	599
Accrued compensation and retirement costs	Accrued compensation and retirement costs	215		285		Accrued compensation and retirement costs	195		205
Taxes, including income taxes	Taxes, including income taxes	82		65		Taxes, including income taxes	80		102
Accrued interest payable	Accrued interest payable	99		112		Accrued interest payable	75		89
Other current liabilities (N)	Other current liabilities (N)	276		229		Other current liabilities (N)	232		289
Short-term debt (O)	Short-term debt (O)	384		1,034		Short-term debt (O)	13		376
Current liabilities of discontinued operations (B)		0		1,424

Total current liabilities	Total current liabilities	1,577		4,125		Total current liabilities	1,227		1,660
Long-term debt, less amount due within one year (O and P)	Long-term debt, less amount due within one year (O and P)	4,697		4,906		Long-term debt, less amount due within one year (O and P)	4,227		4,699
Accrued pension benefits (G)	Accrued pension benefits (G)	1,002		1,030		Accrued pension benefits (G)	868		985
Accrued other postretirement benefits (G)	Accrued other postretirement benefits (G)	191		200		Accrued other postretirement benefits (G)	156		198
Other noncurrent liabilities and deferred credits (N)	Other noncurrent liabilities and deferred credits (N)	371		438		Other noncurrent liabilities and deferred credits (N)	303		324
Noncurrent liabilities of discontinued operations (B)		0		2,258

Total liabilities	Total liabilities	7,838		12,957		Total liabilities	6,781		7,866
Contingencies and commitments (R)	Contingencies and commitments (R)					Contingencies and commitments (R)	0		0
Equity	Equity					Equity
Howmet Aerospace shareholders’ equity:	Howmet Aerospace shareholders’ equity:					Howmet Aerospace shareholders’ equity:
Preferred stock	Preferred stock	55		55		Preferred stock	55		55
Common stock	Common stock	434		433		Common stock	429		433
Additional capital	Additional capital	4,683		7,319		Additional capital	4,481		4,668
Retained earnings (A)		258		113
Retained earnings						Retained earnings	517		364
Accumulated other comprehensive loss (J)	Accumulated other comprehensive loss (J)	(1,929)		(3,329)		Accumulated other comprehensive loss (J)	(1,884)		(1,943)
Total Howmet Aerospace shareholders’ equity		3,501		4,591
Noncontrolling interests		0		14

Total equity	Total equity	3,501		4,605		Total equity	3,598		3,577
Total liabilities and equity	Total liabilities and equity	$	11,339	$	17,562	Total liabilities and equity	$	10,379	$	11,443

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

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(U.S. dollars in millions)


		Nine months ended					Six months ended
		September 30,					June 30,
		2020		2019			2021		2020
Operating activities	Operating activities					Operating activities
Net income	Net income	$	155	$	161	Net income	$	154	$	119
Adjustments to reconcile net income to cash used for operations:
Adjustments to reconcile net income to cash provided from (used for) operations:						Adjustments to reconcile net income to cash provided from (used for) operations:
Depreciation and amortization	Depreciation and amortization	271		407		Depreciation and amortization	135		203
Deferred income taxes	Deferred income taxes	25		(36)		Deferred income taxes	15		25
Restructuring and other charges	Restructuring and other charges	148		630		Restructuring and other charges	14		126
Net loss from investing activities—asset sales	Net loss from investing activities—asset sales	6		6		Net loss from investing activities—asset sales	4		4
Net periodic pension benefit cost (G)	Net periodic pension benefit cost (G)	42		87		Net periodic pension benefit cost (G)	9		34
Stock-based compensation	Stock-based compensation	35		44		Stock-based compensation	14		23
Other	Other	63		15		Other	46		48
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:	Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:					Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
(Increase) in receivables		(117)		(957)
(Increase) in inventories		(42)		(92)
Decrease in prepaid expenses and other current assets		1		17
(Decrease) in accounts payable, trade (A)		(439)		(2)
(Decrease) in accrued expenses		(177)		(90)
Increase in receivables						Increase in receivables	(231)		(70)
Decrease (increase) in inventories						Decrease (increase) in inventories	19		(136)
Decrease (increase) in prepaid expenses and other current assets						Decrease (increase) in prepaid expenses and other current assets	10		(11)
Increase (decrease) in accounts payable, trade (A)						Increase (decrease) in accounts payable, trade (A)	48		(320)
Decrease in accrued expenses						Decrease in accrued expenses	(93)		(173)
Increase in taxes, including income taxes	Increase in taxes, including income taxes	41		92		Increase in taxes, including income taxes	24		96
Pension contributions	Pension contributions	(110)		(217)		Pension contributions	(61)		(102)
(Increase) in noncurrent assets		(5)		(12)
(Decrease) in noncurrent liabilities		(39)		(36)
Cash (used for) provided by operations		(142)		17
Increase in noncurrent assets						Increase in noncurrent assets	(4)		(6)
Decrease in noncurrent liabilities						Decrease in noncurrent liabilities	(24)		(37)
Cash provided from (used for) operations						Cash provided from (used for) operations	79		(177)
Financing Activities	Financing Activities					Financing Activities
Net change in short-term borrowings (original maturities of three months or less)	Net change in short-term borrowings (original maturities of three months or less)	(8)		0		Net change in short-term borrowings (original maturities of three months or less)	(1)		(2)
Additions to debt (original maturities greater than three months) (B)(O)	Additions to debt (original maturities greater than three months) (B)(O)	2,400		300		Additions to debt (original maturities greater than three months) (B)(O)	0		2,400
Payments on debt (original maturities greater than three months) (O)	Payments on debt (original maturities greater than three months) (O)	(2,041)		(303)		Payments on debt (original maturities greater than three months) (O)	(838)		(2,041)
Debt issuance costs (B)(O)	Debt issuance costs (B)(O)	(61)		0		Debt issuance costs (B)(O)	(1)		(61)
Premiums paid on early redemption of debt (O)	Premiums paid on early redemption of debt (O)	(59)		0		Premiums paid on early redemption of debt (O)	(22)		(59)
Proceeds from exercise of employee stock options	Proceeds from exercise of employee stock options	30		19		Proceeds from exercise of employee stock options	15		30
Dividends paid to shareholders	Dividends paid to shareholders	(10)		(48)		Dividends paid to shareholders	(1)		(10)
Repurchase of common stock	Repurchase of common stock	(51)		(1,100)		Repurchase of common stock	(200)		0
Net cash transferred to Arconic Corporation at separation (B)	Net cash transferred to Arconic Corporation at separation (B)	(500)		0		Net cash transferred to Arconic Corporation at separation (B)	0		(500)
Other	Other	(39)		(12)		Other	(20)		(34)
Cash used for financing activities	Cash used for financing activities	(339)		(1,144)		Cash used for financing activities	(1,068)		(277)
Investing Activities	Investing Activities					Investing Activities
Capital expenditures (A )(D)		(220)		(532)
Capital expenditures (A)(D)						Capital expenditures (A)(D)	(91)		(184)
Proceeds from the sale of assets and businesses (B)(Q)	Proceeds from the sale of assets and businesses (B)(Q)	114		27		Proceeds from the sale of assets and businesses (B)(Q)	8		114
Sale of debt securities	Sale of debt securities	0		47		Sale of debt securities	5		0
Cash receipts from sold receivables (K)	Cash receipts from sold receivables (K)	258		630		Cash receipts from sold receivables (K)	172		114
Other		0		(1)

Cash provided from investing activities	Cash provided from investing activities	152		171		Cash provided from investing activities	94		44
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(6)		(2)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	0		(8)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(335)		(958)		Net change in cash, cash equivalents and restricted cash	(895)		(418)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	1,703		2,282		Cash, cash equivalents and restricted cash at beginning of period	1,611		1,703
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	1,368	$	1,324	Cash, cash equivalents and restricted cash at end of period	$	716	$	1,285

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

Howmet Aerospace Inc. and subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

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

Howmet Aerospace Shareholders
Preferred
stock Common
stock Additional
capital Accumulated deficit Accumulated
other
comprehensive
loss Noncontrolling Interests Total
Equity
Balance at June 30, 2019 $ 55 $ 440 $ 7,484 $ (272) $ (2,869) $ 12 $ 4,850
Net income — — — 95 — — 95
Other comprehensive loss (J)
— — — — (59) — (59)
Repurchase and retirement of common stock — (7) (193) — — — (200)
Cash dividends declared:
Preferred-Class A @ $0.9375 per share — — — (1) — — (1)
Common @ $0.04 per share — — — (17) — — (17)
Stock-based compensation — — 16 — — — 16
Common stock issued: compensation plans — 1 5 — — — 6
Other — — 2 — — 2 4
Balance at September 30, 2019 $ 55 $ 434 $ 7,314 $ (195) $ (2,928) $ 14 $ 4,694


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at March 31, 2020	$	55	$	436	$	7,326	$	319	$	(3,369)	$	14	$	4,781

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




Stock-based compensation	—		—		10		—		—		—		10


Distributions to Arconic Corporation (B)	—		—		(2,633)		—		1,392		(14)		(1,255)

Balance at June 30, 2020	$	55	$	436	$	4,703	$	223	$	(1,968)	$	0	$	3,449


		Howmet Aerospace Shareholders										Howmet Aerospace Shareholders
		Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss			Noncontrolling interests		Total Equity			Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at June 30, 2020		$	55	$	436	$	4,703	$	223	$	(1,968)		$	0	$	3,449
Balance at March 31, 2021																	Balance at March 31, 2021	$	55	$	434	$	4,671	$	443	$	(1,941)	$	3,662

Net income	Net income	—		—		—		36		—			—		36		Net income	—		—		—		74		—		74
Other comprehensive income (J)	Other comprehensive income (J)	—		—		—		—		61			—		61		Other comprehensive income (J)	—		—		—		—		57		57
Cash dividends declared:
Preferred-Class A @ $0.9375 per share		—		—		—		(1)		—			—		(1)

Repurchase and retirement of common stock	Repurchase and retirement of common stock	—		(2)		(49)		—		—			—		(51)		Repurchase and retirement of common stock	—		(6)		(194)		—		—		(200)
Stock-based compensation	Stock-based compensation	—		—		12		—		—			—		12		Stock-based compensation	—		—		8		—		—		8
Common stock issued: compensation plans	Common stock issued: compensation plans	—		—		(5)		—		—			—		(5)		Common stock issued: compensation plans	—		1		(4)		—		—		(3)
Distributions to Arconic Corp (B)		—		—		22		—		(22)			—		0

Balance at September 30, 2020		$	55	$	434	$	4,683	$	258	$	(1,929)		$	0	$	3,501

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

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

Howmet Aerospace Inc. and subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

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

Howmet Aerospace Shareholders
Preferred
stock Common
stock Additional
capital Accumulated
deficit Accumulated
other
comprehensive
loss Noncontrolling interests Total
Equity
Balance at December 31, 2018 $ 55 $ 483 $ 8,319 $ (374) $ (2,926) $ 12 $ 5,569
Adoption of accounting standards (1)
— — — 75 (2) — 73
Net income — — — 161 — — 161
Other comprehensive income (J)
— — — — — — 0
Cash dividends declared:
Preferred-Class A @ $2.8125 per share — — — (2) — — (2)
Common @ $0.12 per share — — — (55) — — (55)
Repurchase and retirement of common stock — (52) (1,048) — — — (1,100)
Stock-based compensation — — 41 — — — 41
Common stock issued: compensation plans — 3 — — — — 3
Other — — 2 — — 2 4
Balance at September 30, 2019 $ 55 $ 434 $ 7,314 $ (195) $ (2,928) $ 14 $ 4,694


		Howmet Aerospace Shareholders												Howmet Aerospace Shareholders
		Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests			Total Equity			Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at December 31, 2019	Balance at December 31, 2019	$	55	$	433	$	7,319	$	113	$	(3,329)	$	14		$	4,605	Balance at December 31, 2019	$	55	$	433	$	7,319	$	113	$	(3,329)	$	14	$	4,605

Net income	Net income	—		—		—		155		—		—			155		Net income	—		—		—		119		—		—		119
Other comprehensive income (J)		—		—		—		—		30		—			30
Other comprehensive loss (J)																	Other comprehensive loss (J)	—		—		—		—		(31)		—		(31)
Cash dividends declared:	Cash dividends declared:																Cash dividends declared:
Preferred-Class A @ $2.8125 per share		—		—		—		(2)		—		—			(2)
Preferred-Class A @ $1.875 per share																	Preferred-Class A @ $1.875 per share	—		—		—		(1)		—		—		(1)

Common @ $0.02 per share	Common @ $0.02 per share	—		—		—		(8)		—		—			(8)		Common @ $0.02 per share	—		—		—		(8)		—		—		(8)
Repurchase and retirement of common stock		—		(2)		(49)		—		—		—			(51)

Stock-based compensation	Stock-based compensation	—		—		35		—		—		—			35		Stock-based compensation	—		—		23		—		—		—		23
Common stock issued: compensation plans	Common stock issued: compensation plans	—		3		(11)		—		—		—			(8)		Common stock issued: compensation plans	—		3		(6)		—		—		—		(3)
Distributions to Arconic Corp (B)		—		—		(2,611)		—		1,370		(14)			(1,255)
Distributions to Arconic Corporation (B)																	Distributions to Arconic Corporation (B)	—		—		(2,633)		—		1,392		(14)		(1,255)

Balance at September 30, 2020		$	55	$	434	$	4,683	$	258	$	(1,929)	$	0		$	3,501

Balance at June 30, 2020																	Balance at June 30, 2020	$	55	$	436	$	4,703	$	223	$	(1,968)	$	0	$	3,449

~~(1)~~


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at December 31, 2020	$	55	$	433	$	4,668	$	364	$	(1,943)	$	3,577
Net income	—		—		—		154		—		154
Other comprehensive income (J)	—		—		—		—		59		59
Cash dividends declared:
Preferred-Class A @ $1.875 per share	—		—		—		(1)		—		(1)

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


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

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

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

Howmet Aerospace Inc. and subsidiaries

Notes to the Consolidated Financial Statements (unaudited)

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

A. Basis of Presentation

The interim Consolidated Financial Statements of Howmet Aerospace Inc. (formerly known as Arconic Inc.) and ~~its~~ subsidiaries (“Howmet” or the “Company”) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The ~~2019~~2020 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). This Form 10-Q report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period ~~presentation (see Note~~ D).presentation.

The separation of Arconic Inc. into 2 standalone, publicly-traded companies, Howmet Aerospace Inc. and Arconic Corporation, (the “Arconic Inc. Separation Transaction”) ~~became effective~~occurred on April 1, 2020. The financial results of Arconic Corporation for all periods prior to the Arconic Inc. Separation Transaction have been retrospectively reflected in the Statement of Consolidated Operations as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. Certain adjustments to equity and reclassifications have been made related to the Arconic Inc. Separation Transaction. In addition, the related assets and liabilities associated with Arconic Corporation in the December 2019 Consolidated Balance Sheet are classified as assets and liabilities of discontinued operations. The cash flows, comprehensive income, and equity related to Arconic Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows, Statement of Consolidated Comprehensive Income ~~(Loss),~~ and Statement of Changes in Consolidated Equity, respectively, for all periods prior to the Arconic Inc. Separation Transaction. See Note B for additional information related to the Arconic Inc. Separation Transaction and discontinued operations.

~~Year to date,~~For the six months ended June 30, 2021 and 2020, the Company derived approximately 60% and 70%, respectively, of its revenue from products sold to the aerospace end-market. As a result of the global ~~pandemic~~ coronavirus (“COVID-19”) pandemic and its impact on the aerospace industry to-date, the possibility exists that there could be a sustained impact to our operations and financial results. Since the start of the pandemic, certain original equipment manufacturer (“OEM”) customers have reduced production or suspended manufacturing operations in North America and Europe on a temporary basis. While the pandemic has resulted in the temporary closure of a small number of the Company's manufacturing facilities during 2020, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, ~~the Company is taking~~management has taken a series of actions to address the financial impact, including announcing certain headcount reductions and reducing ~~certain cash outflows by suspending dividends on common stock and reducing~~ the level of ~~its~~ capital expenditures to preserve cash and maintain liquidity.

The preparation of the Consolidated Financial Statements of the Company in conformity with GAAP requires management to make certain judgments, estimates, and assumptions. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience, including considerations relating to the impact of COVID-19. The impact of COVID-19 is rapidly changing and of unknown duration and macroeconomic impact and as a result, these considerations remain highly uncertain. ~~We have~~Management has made ~~our~~its best estimates using all relevant information available at the time, but it is possible that our estimates will differ from our actual results and affect the Consolidated Financial Statements in future periods and potentially require adverse adjustments to the recoverability of goodwill, intangible and long-lived assets, the realizability of deferred tax assets and other ~~judgements~~judgments and estimations and assumptions that may be impacted by COVID-19.

~~During~~As previously disclosed, during the third quarter ~~ended September 30,~~of 2020, the Company identified a misclassification in the presentation of changes in accounts payable and capital expenditures in its previously issued Statement of Consolidated Cash ~~Flows.~~Flows for the six months ended June 30, 2020. Although management has determined that such misclassification ~~did~~was not ~~materially misstate such prior financial statements,~~material, the Company ~~has~~ revised ~~its~~the accompanying Statement of Consolidated Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, resulting in ~~a $117~~an $83 increase to previously reported capital expenditures and decrease to cash provided from investing activities with a corresponding reduction in (decrease) in accounts payable, trade and increase in cash provided by operations. ~~The Company will also prospectively revise,~~

Also as previously disclosed, in connection with future filings, its Statement of Consolidated Cash Flows to increase its previously reported capital expenditures with a corresponding offset in accounts payable, trade of $55, $83 and $83 for the ~~twelve months ended December 31, 2019, three months ended March 31, 2020, and six months ended June 30, 2020, respectively.~~

~~During the second~~third quarter of 2020, a $16 deferred tax error was identified related to periods prior to 2018. Although management ~~has~~ determined it was not material to any periods, ~~it was corrected as an adjustment to Retained Earnings in the Statement of Changes in Consolidated Equity in the second quarter and six months ended June 30, 2020. During the third quarter,~~ the Company ~~determined that such correction to Retained Earnings should have been accounted for as a revision to its prior year's Retained Earnings (Accumulated Deficit) and~~ has ~~made this correction in~~revised the ~~current quarter. The Company will prospectively revise, in connection with future filings, its~~accompanying Statement of Changes in Consolidated Equity for the ~~second quarter~~three and six months ended June 30, 2020 to ~~properly~~ present the correction as a reduction to ~~prior year's~~ Retained ~~Earnings (Accumulated Deficit). The accompanying Consolidated Balance Sheet at~~earnings as of December 31, ~~2019 reflects the revision for such tax item.~~2019.

B. Arconic Inc. Separation Transaction and Discontinued Operations

On April 1, 2020, the Company completed the ~~previously announced~~ separation of its business into 2 independent, publicly-traded companies. Following the Arconic Inc. Separation Transaction, Arconic Corporation ~~holds~~held the Global Rolled Products (“GRP”) businesses (global rolled products, aluminum extrusions, and building and construction systems) previously held by the Company. The

Company retained the Engineered Products and Forgings businesses (engine products, fastening systems, engineered structures, and forged wheels).

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

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

On February 7, 2020, Arconic Corporation completed an offering of $600 aggregate principal amount of 6.125% senior secured second-lien notes due 2028. On March 25, 2020, Arconic Corporation entered into a credit agreement which provided for a $600 aggregate principal amount seven-year senior secured first-lien loan B facility and a revolving credit facility which is guaranteed by certain of Arconic Corporation's wholly-owned domestic subsidiaries and secured on a first-priority basis by liens on substantially all assets of Arconic Corporation and subsidiary guarantors. Arconic Corporation used the proceeds to make payment to the Company to fund the transfer of certain assets to Arconic Corporation relating to the Arconic Inc. Separation Transaction and for general corporate purposes. The Company incurred debt issuance costs of $45 associated with these issuances for the first quarter of ~~2020 and nine months ended September 30,~~ 2020.

On February 1, 2020, ~~Arconic Corporation~~the Company completed the sale of its rolling mill in Itapissuma, Brazil for $50 in cash which resulted in a loss of $59, of which $53 was recognized in Restructuring and other charges within discontinued operations in the second half of 2019 and $6 in the first quarter of ~~2020 and nine months ended September 30,~~ 2020. On March 1, 2020, Arconic Corporation sold its hard alloy extrusions plant in South Korea for $62 in cash, which resulted in a $27 gain that was recognized in Restructuring and other charges within discontinued operations in the first quarter of ~~2020 and nine months ended September 30,~~ 2020.

During the third quarter of 2020, the Company identified and corrected a prior period equity misclassification of $22 million related to the distribution of pension plans and their related financial statement impacts which related to the distributions to Arconic Corporation. Management evaluated the impact of the misclassification within the components of equity on previously issued financial statements and concluded that it was not material.

Discontinued Operations

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


	Second quarter ended		Six months ended
	June 30,		June 30,
	2020		2020
Sales	$	0	$	1,575
Cost of goods sold	0		1,293
Selling, general administrative, research and development and other expenses	5		106

Provision for depreciation and amortization	0		58
Restructuring and other charges	0		(18)
Operating (loss) income from discontinued operations	(5)		136
Interest expense	0		7
Other expense, net	0		41
(Loss) income from discontinued operations	(5)		88
Provision for income taxes	7		38
(Loss) income from discontinued operations after income taxes	$	(12)	$	50

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Sales $ 0 $ 1,765 $ 1,576 $ 5,427
Cost of goods sold 0 1,483 1,292 4,612
Selling, general administrative, research and development and other expenses 0 88 106 249
Provision for depreciation and amortization 0 61 59 183
Restructuring and other charges 0 63 (18) 58
Interest expense 0 0 7 0
Other expense, net 0 24 42 66
Income from discontinued operations 0 46 88 259
Provision for income taxes 0 9 38 106
Income from discontinued operations after income taxes $ 0 $ 37 $ 50 $ 153

The following table presents purchases of properties, ~~plant~~plants, and equipment, proceeds from the sale of businesses and the provision for depreciation and amortization of discontinued operations related to Arconic Corporation:

Third quarter ended Nine months ended
September 30, 2020
2020 2019 2020 2019
Capital expenditures $ 0 $ 40 $ 72 $ 175
Proceeds from the sales of businesses $ 0 $ 0 $ 112 $ 0
Provision for depreciation and amortization 0 61 59 183

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


	Second quarter ended		Six months ended
	June 30,		June 30,
	2020		2020
Capital expenditures	$	0	$	72
Proceeds from the sales of businesses	$	0	$	112
Provision for depreciation and amortization	$	0	$	58

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

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


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

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

Inc. Separation Transaction.

C. Recently Adopted and Recently Issued Accounting Guidance

Adopted

On January 1, ~~2020,~~2021, the Company adopted changes issued by the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) ~~related~~that were intended to ~~the impairment model~~simplify various aspects of accounting for ~~expected credit losses.~~ The new impairment model (known as the current expected credit loss ("CECL") model) is based on expected losses rather than incurred losses. The Company recognizes as an allowance its estimate of expected credit losses. The CECL model appliesincome taxes by eliminating certain exceptions contained in existing guidance and amending other guidance to ~~most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and~~simplify several other ~~loan commitments and requires the measurement of expected credit losses on assets including those that have a low risk of loss.~~income tax accounting matters. The adoption of this new guidance did not have a material impact on the Consolidated Financial Statements.

Issued

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

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

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 ~~LIBOR~~London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued

due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

The Securities and Exchange Commission issued amendments to modernize the Regulation S-K disclosure requirements about description of business, legal proceedings and risk factors. The amendments permit registrants to take a more principles based approach to tailor business and risk factors disclosures to their circumstances and calls for enhanced human capital disclosures. The amendments, which became effective on November 9, 2020, are designed to improve the readability of these disclosures and discourage the repetition of non-material information. The adoption of this new guidance did not have a material impact on this Form 10-Q.

D. Segment Information

~~Following~~Howmet is a global leader in lightweight metals engineering and manufacturing. Howmet’s innovative, multi-material products, which include nickel, titanium, aluminum, and cobalt, are used worldwide in the ~~Arconic Inc. Separation Transaction,~~ aerospace (commercial and defense), commercial transportation, and industrial and other end markets. Segment performance under Howmet’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Segment operating profit. Howmet’s definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and other charges. Segment operating profit may not be comparable to similarly titled measures of other companies. Differences between segment totals and consolidated Howmet are in Corporate.

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

Engine Products

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

Fastening Systems

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

Engineered Structures

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

Forged Wheels

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

Goodwill

The Company had ~~$4,072~~$4,090 of Goodwill at ~~September~~June 30, ~~2020,~~2021 and ~~the Company~~ reviews it annually for impairment ~~annually~~ in the fourth quarter, or more frequently, if indicators exist or if a decision is made to sell or realign a business.

On January 1, 2020, management transferred the Savannah business from the Engine Products segment to the Engineered Structures segment, based on synergies with forgings technologies and manufacturing capabilities. As a result of the reorganization, goodwill of $17 was reallocated from Engine Products to Engineered Structures, and these reporting units were evaluated for impairment during the first quarter of 2020. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was no0 goodwill impairment at the date the business was transferred.

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

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

1312

The operating results of the Company’s reportable segments were as follows. Differences between total segment and consolidated totals are in Corporate.

Engine Products Fastening Systems Engineered Structures Forged Wheels Total
Segment
Third quarter ended September 30, 2020
Sales:
Third-party sales $ 485 $ 271 $ 206 $ 172 $ 1,134
Inter-segment sales 1 0 1 0 2
Total sales $ 486 $ 271 $ 207 $ 172 $ 1,136
Profit and loss:
Segment operating profit $ 39 $ 33 $ 10 $ 35 $ 117
Restructuring and other charges 9 0 9 0 18
Provision for depreciation and amortization 31 12 13 10 66
Capital expenditures 15 9 3 6 33
Third quarter ended September 30, 2019
Sales:
Third-party sales $ 844 $ 391 $ 318 $ 241 $ 1,794
Inter-segment sales 1 0 4 0 5
Total sales $ 845 $ 391 $ 322 $ 241 $ 1,799
Profit and loss:
Segment operating profit $ 161 $ 102 $ 40 $ 60 $ 363
Restructuring and other charges 43 0 1 0 44
Provision for depreciation and amortization 31 12 15 8 66
Capital expenditures 39 7 4 11 61
Engine Products Fastening Systems Engineered Structures Forged Wheels Total
Segment
Nine months ended September 30, 2020
Sales:
Third-party sales $ 1,851 $ 982 $ 710 $ 476 $ 4,019
Inter-segment sales 4 0 6 0 10
Total sales $ 1,855 $ 982 $ 716 $ 476 $ 4,029
Profit and loss:
Segment operating profit $ 309 $ 199 $ 57 $ 91 $ 656
Restructuring and other charges 44 26 21 3 94
Provision for depreciation and amortization 92 36 40 29 197
Capital expenditures 48 24 11 17 100
Nine months ended September 30, 2019
Sales:
Third-party sales $ 2,492 $ 1,185 $ 943 $ 752 $ 5,372
Inter-segment sales 9 0 10 0 19
Total sales $ 2,501 $ 1,185 $ 953 $ 752 $ 5,391
Profit and loss:
Segment operating profit $ 465 $ 297 $ 81 $ 193 $ 1,036
Restructuring and other charges 296 6 198 5 505
Provision for depreciation and amortization 100 36 46 24 206
Capital expenditures 165 24 22 56 267


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Second quarter ended June 30, 2021
Sales:
Third-party sales	$	544	$	262	$	160	$	229	$	1,195
Inter-segment sales	1		0		2		0		3
Total sales	$	545	$	262	$	162	$	229	$	1,198
Profit and loss:
Segment operating profit	$	100	$	50	$	11	$	61	$	222
Restructuring and other charges	5		3		0		0		8
Provision for depreciation and amortization	30		13		13		9		65
Capital expenditures	16		9		5		13		43

Second quarter ended June 30, 2020
Sales:
Third-party sales	$	585	$	326	$	229	$	113	$	1,253
Inter-segment sales	1		0		2		0		3
Total sales	$	586	$	326	$	231	$	113	$	1,256
Profit and loss:
Segment operating profit	$	105	$	70	$	19	$	6	$	200
Restructuring and other charges (credits)	22		24		(5)		1		42
Provision for depreciation and amortization	31		12		14		9		66
Capital expenditures	14		7		5		4		30

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Six months ended June 30, 2021
Sales:
Third-party sales	$	1,078	$	534	$	336	$	456	$	2,404
Inter-segment sales	2		0		3		0		5
Total sales	$	1,080	$	534	$	339	$	456	$	2,409
Profit and loss:
Segment operating profit	$	201	$	95	$	21	$	131	$	448
Restructuring and other charges	10		5		1		0		16
Provision for depreciation and amortization	61		25		25		19		130
Capital expenditures	27		14		10		22		73

Six months ended June 30, 2020
Sales:
Third-party sales	$	1,366	$	711	$	504	$	304	$	2,885
Inter-segment sales	3		0		5		0		8
Total sales	$	1,369	$	711	$	509	$	304	$	2,893
Profit and loss:
Segment operating profit	$	270	$	166	$	47	$	56	$	539
Restructuring and other charges	35		26		12		3		76
Provision for depreciation and amortization	61		24		27		19		131
Capital expenditures	33		15		8		11		67

1413

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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Total segment operating profit	$	222	$	200	$	448	$	539
Unallocated amounts:
Restructuring and other charges	(5)		(105)		(14)		(144)
Corporate expense	(10)		(21)		(38)		(63)
Consolidated operating income	$	207	$	74	$	396	$	332
Interest expense	(89)		(144)		(161)		(228)
Other (expense) income, net	(8)		(16)		(12)		8
Income (loss) from continuing operations before income taxes	$	110	$	(86)	$	223	$	112

The following table reconciles Total segment capital expenditures, which are presented on an accrual basis, with Capital expenditures as presented on the ~~statement~~Statement of ~~cash flows.~~Consolidated Cash Flows. Differences between segment and consolidated totals are in Corporate and discontinued operations, including the impact of changes in accrued capital expenditures during the period.


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Total segment capital expenditures	$	43	$	30	$	73	$	67
Corporate and discontinued operations	(7)		2		18		117
Capital expenditures	$	36	$	32	$	91	$	184

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Total segment capital expenditures $ 33 $ 61 $ 100 $ 267
Corporate and discontinued operations 3 66 120 265
Capital expenditures $ 36 $ 127 $ 220 $ 532

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


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Second quarter ended June 30, 2021
Aerospace - Commercial	$	260	$	129	$	79	$	0	$	468
Aerospace - Defense	121		41		64		0		226
Commercial Transportation	0		49		0		229		278
Industrial and Other	163		43		17		0		223
Total end-market revenue	$	544	$	262	$	160	$	229	$	1,195

Second quarter ended June 30, 2020
Aerospace - Commercial	$	312	$	224	$	144	$	0	$	680
Aerospace - Defense	125		39		64		0		228
Commercial Transportation	0		34		0		113		147
Industrial and Other	148		29		21		0		198
Total end-market revenue	$	585	$	326	$	229	$	113	$	1,253

Six months ended June 30, 2021
Aerospace - Commercial	$	487	$	277	$	159	$	0	$	923
Aerospace - Defense	272		83		141		0		496
Commercial Transportation	0		95		0		456		551
Industrial and Other	319		79		36		0		434
Total end-market revenue	$	1,078	$	534	$	336	$	456	$	2,404

Six months ended June 30, 2020
Aerospace - Commercial	$	819	$	481	$	328	$	0	$	1,628
Aerospace - Defense	252		83		134		0		469
Commercial Transportation	0		80		0		304		384
Industrial and Other	295		67		42		0		404
Total end-market revenue	$	1,366	$	711	$	504	$	304	$	2,885

The Company derived 59% and 73% of its revenue from aerospace end markets for the six months ended June 30, 2021 and 2020, respectively.

General Electric Company represented approximately 12% of the Company’s third-party sales for both the six months ended June 30, 2021 and 2020, primarily from Engine Products.

E. Restructuring and Other Charges


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Layoff costs	$	2	$	54	$	2	$	76
Net reversals of previously recorded layoff reserves	(2)		(8)		(1)		(10)
Pension, Other post-retirement benefits and Deferred Compensation - net settlements (G)	3		64		6		64
Non-cash asset impairments	4		0		4		0
Net loss related to divestitures of assets and businesses (Q)	0		(7)		4		9
Other	(2)		2		(1)		5
Restructuring and other charges	$	5	$	105	$	14	$	144

Engine Products Fastening Systems Engineered Structures Forged Wheels Total
Segment
Third quarter ended September 30, 2020
Aerospace - Commercial $ 199 $ 169 $ 104 $ 0 $ 472
Aerospace - Defense 142 37 82 0 261
Commercial Transportation 0 38 0 172 210
Industrial and Other 144 27 20 0 191
Total end-market revenue $ 485 $ 271 $ 206 $ 172 $ 1,134
Third quarter ended September 30, 2019
Aerospace - Commercial $ 571 $ 267 $ 226 $ 0 $ 1,064
Aerospace - Defense 120 41 65 0 226
Commercial Transportation 5 59 0 241 305
Industrial and Other 148 24 27 0 199
Total end-market revenue $ 844 $ 391 $ 318 $ 241 $ 1,794
Nine months ended September 30, 2020
Aerospace - Commercial $ 1,018 $ 650 $ 432 $ 0 $ 2,100
Aerospace - Defense 394 120 216 0 730
Commercial Transportation 0 118 0 476 594
Industrial and Other 439 94 62 0 595
Total end-market revenue $ 1,851 $ 982 $ 710 $ 476 $ 4,019
Nine months ended September 30, 2019
Aerospace - Commercial $ 1,689 $ 803 $ 672 $ 0 $ 3,164
Aerospace - Defense 350 115 194 0 659
Commercial Transportation 17 179 0 754 950
Industrial and Other 436 88 77 (2) 599
Total end-market revenue $ 2,492 $ 1,185 $ 943 $ 752 $ 5,372

In the second quarter and six months ended June 30, 2021, the Company recorded Restructuring and other charges of $5 and $14, respectively, which was primarily due to charges for pension plan settlements and exit related costs.

In the ~~nine months ended September 30 , 2020, the Company derived 70% of its revenue from aerospace end markets of which 11% related to General Electric Company.~~

~~E. Restructuring and Other Charges~~

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Layoff costs $ 17 $ 0 $ 93 $ 68
Reversals of previously recorded layoff reserves 0 0 (10) (2)
Pension, Other post-retirement benefits and Deferred Compensation - net settlements and curtailments 3 4 67 (8)
Non-cash asset impairments 0 8 0 442
Net loss on divestitures of assets and businesses 0 42 9 54
Other 2 2 7 18
Restructuring and other charges $ 22 $ 56 $ 166 $ 572

~~In the third~~second quarter of 2020, the Company recorded Restructuring and other charges of ~~$22,~~$105, which included a ~~$17~~$64 charge for pension plan settlements; a $54 charge for layoff ~~costs, including the separation of 791 employees (415 in Engine Products and 376 in Engineered Structures); a $8 settlement accounting charge related to United Kingdom (U.K.) and U.S. pension plans,~~costs; and a $2 charge for ~~accelerated~~

~~depreciation.~~various other exit costs. These charges were partially offset by ~~a $3~~an $8 benefit from the ~~termination~~reversal of ~~a deferred compensation plan~~several existing layoff reserves and a ~~$2 curtailment~~$7 benefit from the reversal of an impairment due to change in classification from held for sale to held for use related to ~~a post-retirement plan.~~an aerospace components business in the United Kingdom (U.K.).

In the ~~nine~~six months ended ~~September~~June 30, 2020, the Company recorded Restructuring and other charges of ~~$166,~~$144, which included a ~~$93~~$76 charge for layoff ~~costs, including the separation of 3,772 employees (1,706 in Engine Products, 1,275 in Fastening Systems, 676 in Engineered Structures, 92 in Forged Wheels and 23 in Corporate);~~costs; a ~~$72~~$64 charge for ~~U.K. and U.S.~~ pension ~~plans' settlement accounting;~~plan settlements; a $6 post-closing adjustment related to the sale of the Company’s U.K. forgings ~~business; a~~business (which was formerly part of the Engine Products segment); $5 ~~charge~~ for impairment of assets associated with an agreement to sell an aerospace components business in the ~~U.K that did not occur and~~U.K. (within the ~~business was returned to held for use; a $2 charge for accelerated depreciation~~Engineered Structures segment); and a $5 charge for various other exit costs. These charges were partially offset by a benefit of $10 related to the reversal of ~~a number of~~ prior period ~~programs; a $3 benefit from the termination of a deferred compensation plan; a $2 curtailment benefit related to a post-retirement plan~~programs and a gain of $2 on the sale of assets.


	Layoff costs		Other exit costs		Total
Reserve balances at December 31, 2020	$	54	$	0	$	54
Cash payments	(32)		0		(32)
Restructuring charges	7		7		14
Other(1)	(8)		(7)		(15)
Reserve balances at June 30, 2021	$	21	$	0	$	21

(1)In the ~~third quarter of 2019, the Company recorded Restructuring and other charges of $56 which~~six months ended June 30, 2021, layoff costs included a ~~$43~~$6 charge for pension plan settlements and a $2 charge for other layoffs costs; while other exit costs included a $4 charge for impairment of assets associated with ~~an agreement to sell~~the sale of a ~~U.K. forging business;~~small manufacturing business and a $8$6 charge for impairment of properties, plants, and equipment related to the Company’s primary research and development facility; a $4 settlement accounting charge related to U.S. pension plans; a $2 charge for various other exit costs including accelerated ~~depreciation;~~depreciation, partially offset by a ~~net gain of $1 on the sale of assets.~~

In the nine months ended September 30, 2019, the Company recorded Restructuring and other charges of $572 which included a $428 charge for impairment of the Disks long-lived asset group; a $68 charge for layoff costs, including the separation of 901 employees (103 in Engine Products, 112 in Engineered Structures, 132 in Fastening Systems, 60 in Forged Wheels and 494 in Corporate); a $43 charge for impairment of assets associated with an agreement to sell the UK forging business; a $14 charge for impairment of properties, plants, and equipment$3 favorable working capital related to the Company’s primary research and development facility; a $12 charge for other exit costs from lease terminations primarily related to the exit of the corporate aircraft; a $12 loss on sale of assets primarily related to a small additive business; a $8 settlement accounting charge for U.S. pension plans; a $2 net charge for executive severance net of the benefit of forfeited executive stock compensation and a $4 charge for other exit costs; partially offset by a benefit of $16 related to the elimination of the life insurance benefit for the U.S. salaried and non-bargaining hourly retirees of the Company and its subsidiaries; a benefit of $2 for the reversal of a number of small layoff reserves related to prior periods and a net gain of $1 on the sales of assets.

The Company recorded an impairment charge of $428 related to the Disks long-lived asset group in the second quarter ended June 30, 2019 and nine months ended September 30, 2019, of which $247 and $181 was related to the Engine Products and Engineered Structures segments, respectively, as the carrying value exceeded the forecasted undiscounted cash flows composed of a write-down of properties, plants and equipment, intangible assets and certain other noncurrent assets.

Layoff costs Other exit costs Total
Reserve balances at December 31, 2019 $ 13 $ 0 $ 13
Cash payments (38) 0 (38)
Restructuring charges 150 16 166
Other(1)
(67) (16) (83)
Reserve balances at September 30, 2020 $ 58 $ 0 $ 58

~~(1)~~ In 2020, Layoff costs included $72 in settlement accounting charges related to U.K. and U.S. pension plans, a $3 benefit from the termination of a deferred compensation plan and a $2 curtailment benefit related to a post-retirement plan; while Other exit costs included a charge of $5 for impairment of assets and a $6 post-closing adjustment related to the sale of a business; a $2 charge for accelerated depreciation and a $5 charge for other exit costs, which were offset by a gain of $2 on the sale of assets.settlement.

The remaining Layoff cost reserves are expected to be paid in cash by the end of ~~the third quarter of~~ 2021.

F. Other Expense (Income), Net


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Non-service related net periodic benefit cost	$	3	$	5	$	6	$	11
Interest income	(1)		0		(1)		(4)
Foreign currency losses (gains), net	1		(7)		3		(7)
Net loss from asset sales	1		2		4		4

Deferred compensation	4		7		6		(3)
Other, net	0		9		(6)		(9)
Other expense (income), net	$	8	$	16	$	12	$	(8)

1716

~~F. Other Expense, Net~~

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Non-service related net periodic benefit cost $ 8 $ 7 $ 19 $ 15
Interest income (1) (5) (5) (20)
Foreign currency (gains) losses, net (5) 7 (12) 8
Net loss from asset sales 2 2 6 9
Deferred compensation 4 1 1 16
Other, net 0 (4) (9) (2)
Total $ 8 $ 8 $ 0 $ 26

G. Pension and Other Postretirement Benefits

The components of net periodic benefit cost were as follows:

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Pension benefits
Service cost $ 1 $ 6 $ 10 $ 19
Interest cost 17 59 81 177
Expected return on plan assets (21) (71) (115) (214)
Recognized net actuarial loss 12 35 66 104
Amortization of prior service cost (benefit) 0 0 0 1
Settlements 8 4 72 8
Net periodic benefit cost(1)
17 33 114 95
Discontinued operations 0 21 20 69
Net amount recognized in continuing operations in Statement of Consolidated Operations $ 17 $ 12 $ 94 $ 26
Other postretirement benefits
Service cost $ 1 $ 1 $ 3 $ 5
Interest cost 2 7 9 21
Recognized net actuarial loss 0 1 2 3
Amortization of prior service cost (benefit) (2) (1) (5) (4)
Curtailments (2) 0 (2) (58)
Net periodic benefit cost(1)
(1) 8 7 (33)
Discontinued operations 0 7 6 (22)
Net amount recognized in continuing operations in Statement of Consolidated Operations $ (1) $ 1 $ 1 $ (11)


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Pension benefits
Service cost	$	1	$	2	$	2	$	9
Interest cost	12		17		24		64
Expected return on plan assets	(23)		(24)		(46)		(94)
Recognized net actuarial loss	15		12		29		54

Settlements	3		64		6		64


Net periodic benefit cost(1)	8		71		15		97
Discontinued operations	0		0		0		20
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	8	$	71	$	15	$	77

Other postretirement benefits
Service cost	$	1	$	1	$	1	$	2
Interest cost	2		1		3		7
Recognized net actuarial loss	0		0		0		2
Amortization of prior service benefit	(3)		(1)		(4)		(3)


Net periodic benefit cost(1)	0		1		0		8
Discontinued operations	0		0		0		6
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	0	$	1	$	0	$	2

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

Pension benefits

In the second quarter of 2021, the Company applied settlement accounting to certain U.S. pension plans due to lump sum payments made to participants, which resulted in settlement charges of $3 and $6 in the second quarter and six months ended June 30, ~~2020~~2021, respectively, that were recorded in Restructuring and ~~nine months ended September 30,~~other charges.

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA 2021”) was signed into law in the United States. ARPA 2021, in part, provides temporary relief for employers who sponsor defined benefit pension plans related to funding contributions under the Employee Retirement Income Security Act of 1974. Management expects Howmet’s estimated pension contributions and other postretirement benefit payments in 2021 to be approximately $120.

In the second quarter of 2020, the Company undertook a number of actions to reduce pension obligations in the U.K. by offering lump sum payments to certain plan participants and entering into group annuity contracts with a ~~third-party~~third party carrier to pay and administer future annuity payments. The Company applied

settlement accounting to these U.K. pension plans which resulted in settlement charges of ~~$62~~$62 that were recorded in Restructuring and other charges in the Statement of Consolidated ~~Operations in the second quarter ended June 30, 2020 and nine months ended September 30, 2020.~~

~~In the third quarter and nine months ended September 30, 2020, the~~Operations. The Company also applied settlement accounting to ~~certain Canadian, U.K., and~~a U.S. pension ~~plans~~plan due to lump sum payments to participants which resulted in settlement charges of $8 ~~and $10, respectively,~~$2 that were recorded in Restructuring and other charges.

In the third quarter and nine months ended September 30, 2019, the Company applied settlement accounting to certain U.S. pension plans due to lump sum payments to participants which resulted in settlement charges of ~~$4 and $8, respectively, that were recorded in Restructuring and other charges.~~

Other postretirement benefits

In the ~~third~~first quarter of ~~2020,~~2021, the Company ~~applied curtailment accounting due~~announced a plan administration change of certain of its Medicare-eligible prescription drug benefits to ~~a workforce reduction resulting in~~an Employer Group Waiver Plan with wrap-around secondary plan effective July 1, 2021. The administration change is expected to reduce costs to the Company through the usage of Medicare Part D and drug manufacturer subsidies. Due to this amendment, along with the associated plan remeasurements, the Company recorded a decrease to its

Accrued other postretirement benefits liability of $39, which was offset in ~~expense of~~ $2 ~~which is recorded in Restructuring and~~Accumulated other ~~charges~~comprehensive loss in the ~~Statement of~~ Consolidated ~~Operations.~~ Balance Sheet.

In the second quarter of 2020, the Company communicated to plan participants that for its U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries, it would eliminate certain health care subsidies effective December 31, 2021 and that for certain bargained retirees of the Company, it would eliminate certain health care subsidies effective December 31, 2021 and the life insurance benefit effective August 1, 2020. As a result of these changes, in the second quarter ~~ended June 30, 2020 and nine months ended September 30,~~of 2020, the Company recorded a decrease to the Accrued other postretirement benefits liability of $6, which was offset in Accumulated other comprehensive loss.

In the first quarter of 2019, the Company communicated to plan participants that for its U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries, it would eliminate the life insurance benefit effective May 1, 2019, and certain health care subsidies effective December 31, 2019. As a result of these changes, in the first quarter of 2019, the Company recorded a decrease to the Accrued other postretirement benefits liability of $75, which was offset by a curtailment benefit of $58 (of which $16 was recorded in Restructuring and other charges and $42 in discontinued operations in the Statement of Consolidated Operations) and $17 in Accumulated other comprehensive loss in the Statement of Changes in Consolidated Equity.

H. Income Taxes

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

The estimated annual effective tax rate, before discrete items, applied to ordinary income was ~~34.5%~~29.1% in both the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, and ~~75.8%~~36.1% in both the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The 2021 rate was higher than the U.S. federal statutory rate of 21% primarily due to additional estimated U.S. tax on Global Intangible Low-Taxed Income and other foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax, and nondeductible expenses. The 2020 rate was higher than the U.S. federal statutory rate of 21% primarily due to U.S. tax on foreign earnings, incremental state tax and foreign taxes on earnings also subject to U.S. federal income tax and higher nondeductible expenses. The 2019 rate was higher due to U.S. tax on foreign earnings including estimated U.S. tax on Global Intangible Low-Taxed Income ("GILTI"), nondeductible impairment of certain domestic and foreign long-lived assets, and other nondeductible expenses.

For the ~~third~~second quarter of ~~2020~~2021 and ~~2019,~~2020, the tax rate including discrete items was ~~400.0%~~32.7% (provision on income) and 2.3% (benefit on ~~a relatively small~~ loss) ~~and 64.4% (provision on income)~~, respectively. For the ~~third~~second quarter of 2021, the Company recorded a discrete tax charge of $4 related to a $2 charge for a U.K. tax rate change and a net $2 charge for other items. For the second quarter of 2020, the Company recorded a discrete tax benefit of ~~$41~~$10 related to a ~~$36 benefit~~$6 charge for the remeasurement of deferred tax balances in various jurisdictions as a ~~U.S. tax law change as described below,~~result of the Arconic Inc. Separation Transaction and a net ~~$6 benefit~~$4 charge for prior year ~~items, and a net $1 charge for other~~ items.

For the ~~third quarter of 2019,~~six months ended June 30, 2021 and 2020, the tax rate including discrete items was 30.9% and 38.4% (both are provisions on income), respectively. For the six months ended June 30, 2021, the Company recorded a discrete tax charge of ~~$14~~$3 related to a ~~net $12~~$2 charge for ~~prior year items,~~a U.K. tax rate change and a net $2 charge of $1 for other items.

For the ~~nine~~six months ended ~~September 30, 2020 and 2019, the tax rate including discrete items was 5.0% (benefit on income) and 33.3% (provision on income), respectively. For the nine months ended September~~June 30, 2020, the Company recorded a discrete tax ~~benefit~~charge of ~~$39~~$2 related to ~~a $36 benefit for a U.S. tax law change as described below,~~ a $6 charge for the remeasurement of deferred tax balances in various jurisdictions as a result of the Arconic Inc. Separation Transaction, a ~~$5 benefit for stock compensation, a~~ net ~~$2 benefit~~$3 charge for prior year items, partially offset by a $5 benefit related to stock compensation and a net $2 benefit for other small items. ~~For~~

The tax provision (benefit) for the ~~nine~~second quarter and six months ended ~~September~~June 30, ~~2019,~~2021 and 2020 were comprised of the Company recorded a discrete tax benefit of $23 related to a $25 benefit to deduct prior year foreign taxes rather than claim a U.S. foreign tax credit, a $12 benefit to remeasure certain deferred tax assets as a result of a foreign tax rate change, a net $12 charge for prior year items, and a net $2 charge for other items.

following:


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Pre-tax income (loss) at estimated annual effective income tax rate before discrete items	$	32	$	(31)	$	65	$	40
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	(1)		18		0		0
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	1		1		1		1
Other discrete items	4		10		3		2
Provision (benefit) for income taxes	$	36	$	(2)	$	69	$	43

1918

The U.S. tax law change, applicable to taxable years beginning in 2018, relates to final regulations issued in July 2020 that provide for an exclusion of certain high-taxed foreign earnings from the calculation of tax on GILTI. The Company intends to amend its 2018 and 2019 U.S. income tax returns to elect the high-tax exclusion, thereby reducing the amount of GILTI in those years and resulting in a discrete tax benefit during the third quarter of 2020.

~~The tax provisions for the third quarter and nine months ended September 30, 2020 and 2019 were comprised of the following:~~

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Pre-tax income (loss) at estimated annual effective income tax rate before discrete items $ (4) $ 124 $ 34 $ 9
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income (2) (37) 0 0
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized (1) 4 0 18
Other discrete items (41) 14 (39) (23)
Provision (benefit) for income taxes $ (48) $ 105 $ (5) $ 4

I. Earnings Per Share

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

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

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Net income (loss) attributable to common shareholders:
Income (loss) from continuing operations attributable to common shareholders $ 36 $ 58 $ 105 $ 8
Income (loss) attributable from discontinued operations 0 37 50 153
Net income (loss) attributable to common shareholders 36 95 155 161
Less: preferred stock dividends declared (1) (1) (2) (2)
Net income available to the Company's common shareholders - basic 35 94 153 159
Add: Interest expense related to convertible notes 0 3 0 0
Net income available to the Company's common shareholders - diluted $ 35 $ 97 $ 153 $ 159
Average shares outstanding - basic 436 436 436 451
Effect of dilutive securities:
Stock options 0 1 0 1
Stock and performance awards 3 5 4 3
Convertible notes(1)
0 15 0 0
Average shares outstanding - diluted 439 457 440 455

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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Net income (loss) from continuing operations attributable to common shareholders	$	74	$	(84)	$	154	$	69
(Loss) income from discontinued operations	0		(12)		0		50
Net income (loss) attributable to common shareholders	74		(96)		154		119
Less: preferred stock dividends declared	1		0		1		1
Net income (loss) available to Howmet Aerospace common shareholders - basic and diluted	$	73	$	(96)	$	153	$	118



Average shares outstanding - basic	432		436		433		436
Effect of dilutive securities:
Stock options	1		0		1		0
Stock and performance awards	4		0		4		4

Average shares outstanding - diluted	437		436		438		440

Common stock outstanding at ~~September~~June 30, 2021 and 2020 was approximately 429 million and ~~2019 was 434 and 434,~~436 million, respectively.

The 15 decrease in the average shares outstanding for the nine months ended September 30, 2020 compared to same period in 2019 was primarily due to the 55 of shares repurchased during 2019. As average shares outstanding are used in the calculation for both basic and diluted EPS, the full impact of 2019 share repurchases was not realized in EPS in the nine months ended September 30, 2019, as the share repurchases occurred at varying points during 2019.

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

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Convertible notes 0 0 0 15
Stock options(1)
3 3 3 3

~~(1)The weighted average exercise price per share of options excluded from diluted EPS was $26.03 and $32.64 as of September 30, 2020 and September 30, 2019, respectively.~~

On May 20, 2019, the Company announced that its Board of Directors ~~(the "Board")~~ authorized the repurchase of $500 of the Company's outstanding common stock (the ~~"Share~~“Share Repurchase ~~Program"~~Program”) 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 was no stated expiration for the Share Repurchase Program under which the Company may repurchase shares from time to time and pursuant to such terms, as and if it deems appropriate. The Share Repurchase Program may be suspended, modified or terminated at any time without prior notice. ~~During August and September 2020, 2.9~~The decrease in common stock outstanding at June 30, 2021 was primarily due to the impact of share repurchases of approximately 6 million shares in the quarter ended June 30, 2021, which were ~~repurchased on the open market~~purchased at an average price of ~~$17.36~~$34.02 per share for approximately ~~$51~~$200 in ~~cash, including commission.~~cash. All of the shares repurchased have been retired. After giving effect to the share repurchases made through ~~September~~June 30, ~~2020,~~2021, approximately ~~$299~~$77 remains available under the prior authorizations by the Board of Directors for the Share Repurchase Program. ~~The amount~~As average shares outstanding are used in the calculation for both basic and diluted EPS, the full impact of share repurchases bywas not realized in EPS in the second quarter and six months ended June 30, 2021 as share repurchases occurred at varying points during the second quarter of 2021.

On July 19, 2021, the Company’s Board of Directors declared a dividend of $0.02 per share on the outstanding common stock of the Company, ~~may~~to be ~~limited under~~paid on August 25, 2021, to the ~~terms~~holders of record of the ~~Five-Year Revolving Credit Agreement. (See Note~~ common stock at the close of business on August 6, 2021.

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


	Second quarter ended		Six months ended
	June 30,		June 30,
	2021	2020	2021	2020

Stock options(1)	0	3	0	3
Stock and performance awards	0	3	0	0

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

2119

J. Accumulated Other Comprehensive Loss

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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Pension and other postretirement benefits (G)
Balance at beginning of period	$	(938)	$	(2,695)	$	(980)	$	(2,732)
Other comprehensive income:
Unrecognized net actuarial gain (loss) and prior service cost/benefit	30		(60)		67		(59)
Tax (expense) benefit	(7)		8		(15)		8
Total Other comprehensive income (loss) before reclassifications, net of tax	23		(52)		52		(51)
Amortization of net actuarial loss and prior service cost(1)	15		74		31		117
Tax expense(2)	(3)		(13)		(6)		(20)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)	12		61		25		97
Total Other comprehensive income	35		9		77		46
Transfer to Arconic Corporation	0		1,820		0		1,820
Balance at end of period	$	(903)	$	(866)	$	(903)	$	(866)
Foreign currency translation
Balance at beginning of period	$	(1,010)	$	(661)	$	(966)	$	(596)
Foreign currency translation	18		(8)		(26)		(87)
Net amount reclassified from Accumulated other comprehensive loss(4)	0		0		0		14
Other comprehensive income (loss)	18		(8)		(26)		(73)
Transfer to Arconic Corporation	0		(428)		0		(428)
Balance at end of period	$	(992)	$	(1,097)	$	(992)	$	(1,097)
Debt securities
Balance at beginning of period	$	0	$	1	$	0	$	0
Other comprehensive loss(5)	0		(1)		0		0
Balance at end of period	$	0	$	0	$	0	$	0
Cash flow hedges
Balance at beginning of period	$	7	$	(14)	$	3	$	(1)

Other comprehensive income (loss):
Net change from periodic revaluations	11		3		19		(8)
Tax (expense) income	(2)		1		(4)		0
Total Other comprehensive income (loss) before reclassifications, net of tax	9		4		15		(8)
Net amount reclassified to earnings	(5)		5		(8)		4
Tax expense(2)	0		0		1		0
Total amount reclassified from Accumulated other comprehensive (loss) income, net of tax(3)	(5)		5		(7)		4
Total Other comprehensive income (loss)	4		9		8		(4)
Balance at end of period	$	11	$	(5)	$	11	$	(5)

Accumulated other comprehensive loss	$	(1,884)	$	(1,968)	$	(1,884)	$	(1,968)

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Pension and other postretirement benefits (G)
Balance at beginning of period $ (866) $ (2,281) $ (2,732) $ (2,344)
Other comprehensive income:
Unrecognized net actuarial loss and prior service cost/benefit (7) (6) (66) 60
Tax expense 3 2 11 (13)
Total Other comprehensive income (loss) before reclassifications, net of tax (4) (4) (55) 47
Amortization of net actuarial loss and prior service cost(1)
16 39 133 54
Tax (expense) benefit (2)
(4) (9) (24) (12)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)
12 30 109 42
Total Other comprehensive income 8 26 54 89
Transfer to Arconic Corporation $ (22) 0 $ 1,798 0
Balance at end of period $ (880) $ (2,255) $ (880) $ (2,255)
Foreign currency translation
Balance at beginning of period $ (1,097) $ (587) $ (596) $ (583)
Foreign currency translation 48 (87) (39) (91)
Net amount reclassified from Accumulated other comprehensive loss(4)
0 0 14 0
Other comprehensive income (loss) 48 (87) (25) (91)
Transfer to Arconic Corporation 0 0 (428) 0
Balance at end of period $ (1,049) $ (674) $ (1,049) $ (674)
Available-for-sale securities
Balance at beginning of period $ 0 $ 0 $ 0 $ (3)
Other comprehensive income (loss)(5)
0 1 0 4
Balance at end of period $ 0 $ 1 $ 0 $ 1
Cash flow hedges
Balance at beginning of period $ (5) $ (1) $ (1) $ 4
Adoption of accounting standard 0 0 0 (2)
Other comprehensive income (loss):
Net change from periodic revaluations 2 0 (6) (5)
Tax expense 2 0 2 2
Total Other comprehensive income (loss) before reclassifications, net of tax 4 0 (4) (3)
Net amount reclassified to earnings 2 2 6 1
Tax expense(2)
(1) (1) (1) 0
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)
1 1 5 1
Total Other comprehensive income (loss) 5 1 1 (2)
Balance at end of period $ 0 $ 0 $ 0 $ 0
Accumulated other comprehensive loss $ (1,929) $ (2,928) $ (1,929) $ (2,928)

(1)These amounts were recorded in Other expense (income), net on the Statement of Consolidation Operations (see Note F).

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

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

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

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

K. Receivables

Sale of Receivables Programs

The Company has 2 accounts ~~receivable~~receivables securitization arrangements.

The first is an arrangement with ~~several~~ financial institutions to sell certain customer receivables without recourse on a revolving basis ~~("Receivables~~(the “Receivables Sale ~~Program"~~Program”). The sale of such receivables is completed using a bankruptcy remote special purpose entity, which is a consolidated subsidiary of the Company. This arrangement historically provided up to a maximum funding of $400 for receivables sold. The Company maintains a beneficial interest, or a right to collect cash, on the sold receivables that have not been funded (deferred purchase program receivable).

In the first quarter of 2020, the Company entered into an amendment to remove subsidiaries of ~~Arconic Corporation~~the GRP business from the sale of receivables program in preparation for the Arconic Inc. Separation Transaction and repurchased the remaining $282 unpaid receivables of ~~Arconic Corporation~~GRP customers in a non-cash transaction by reducing the amount of the deferred purchase program receivable. This amendment also reduced the maximum funding for receivables sold to $300. ~~Effective September 30, 2020, the~~ The concentration limit of one customer may be reduced at the discretion of the financial institutions or automatically upon the downgrade of its debt rating as defined in the Receivables Sale Program agreement. A reduction in the customer's concentration limit would reduce the eligible receivable funding base thereby reducing the amount of future draws available and may ~~also~~ require repayment of a portion of existing draws.

The Company had net cash repayments totaling ~~$153~~$22 ($~~189~~41 in draws and ~~$342~~$63 in repayments) and $136 ($138 in draws and $274 in repayments) for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021 and June 30, 2020, respectively.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the deferred purchase program receivable was ~~$53~~$49 and ~~$246,~~$12, respectively, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable is reduced as collections of the underlying receivables occur; however, as this is a revolving program, the sale of new receivables will result in an increase in the deferred purchase program receivable. The Company services the customer receivables for the financial institutions at market rates; therefore, no servicing asset or liability was recorded.

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

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

The second arrangement is one in which the Company, through a wholly-owned special purpose entity (“SPE”), ~~entered into~~has a receivables purchase agreement (the “Receivables Purchase Agreement”) ~~on June 30, 2020~~ such that the SPE may sell certain receivables to financial institutions until the earlier of ~~June~~ March 30, ~~2021~~2022 or a termination event. The Receivables Purchase Agreement also contains customary representations and warranties, as well as affirmative and negative covenants. Pursuant to the Receivables Purchase Agreement, the Company does not maintain effective control over the transferred receivables, and therefore accounts for these transfers as sales of receivables.

The SPE sold ~~$46~~$71 and ~~$123, respectively,~~$155 of its receivables without recourse and received cash funding under this program during the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, resulting in derecognition of the receivables from the Company’s ~~consolidated balance sheets.~~Consolidated Balance Sheets. As of June 30, 2021 and December 31, 2020, $68 and $46 remained outstanding from the customer, respectively. Cash received from collections of sold receivables is used by the SPE to fund additional purchases of receivables on a revolving basis, not to exceed $125, which is the aggregate maximum limit. As collateral against the sold receivables, the SPE maintains a certain level of unsold receivables, which was ~~$28~~$10 and $33 at ~~September~~June 30, ~~2020.~~2021 and December 31, 2020, respectively. Costs associated with the sales of receivables are reflected in the Company’s Consolidated ~~statements~~Statements of ~~operations~~Operations for the periods in which the sales occur. Cash receipts from sold receivables under the Receivables Purchase Agreement are presented within ~~Operating Activities~~operating activities in the Statement of Consolidated Cash Flows.

The Company had accounts receivable securitization arrangements totaling $425 at both June 30, 2021 and December 31, 2020, of which $250 was drawn at June 30, 2021 and at December 31, 2020. The net cash funding from the sale of accounts receivable was neither a use of cash nor a source of cash in 2021.

Other Customer Receivable Sales

In the ~~third~~second quarter and ~~nine~~six months ended ~~September~~June 30, 2021, the Company sold $98 and $164, respectively, of certain customers’ receivables in exchange for cash (of which $92 remained outstanding from the customers at June 30, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. In the second quarter and six months ended June 30, 2020, the Company sold $8$58 and ~~$32~~$89, respectively, of a certain ~~customer’s~~customers’ receivables in exchange for cash, the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. The sale of these customer receivables partially offset the maximum funding reduction resulting from the Arconic Inc. Separation Transaction as well as customer concentration limits within the first accounts receivable securitization arrangement. In the third quarter and nine months ended September 30, 2020, the Company sold another customer’s receivables of $34 and $99 in exchange for cash, the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. The sale of these customer receivables was undertaken to offset a change in the customer’s payment patterns (customer had been taking a discount for paying early).

L. Inventories

September 30, 2020 December 31, 2019
Finished goods $ 539 $ 524
Work-in-process 683 741
Purchased raw materials 326 299
Operating supplies 44 43
Total inventories $ 1,592 $ 1,607


	June 30, 2021		December 31, 2020
Finished goods	$	500	$	528
Work-in-process	656		629
Purchased raw materials	263		292
Operating supplies	37		39
Total inventories	$	1,456	$	1,488

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the portion of inventories valued on a last-in, first-out ~~(LIFO)~~(“LIFO”) basis was ~~$488~~$490 and ~~$503,~~$458, respectively. If valued on an average-cost basis, total inventories would have been ~~$127~~$152 and ~~$133~~$131 higher at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

M. Properties, Plants, and Equipment, net

September 30, 2020 December 31, 2019
Land and land rights $ 97 $ 99
Structures 1,016�� 938
Machinery and equipment 3,816 3,626
4,929 4,663
Less: accumulated depreciation and amortization 2,560 2,449
2,369 2,214
Construction work-in-progress 183 415
Properties, plants, and equipment, net $ 2,552 $ 2,629

During the third quarter of 2020, the Company identified a disclosure misclassification related to categories within properties, plants, and equipment at December 31, 2019, and corrected it in the current period by decreasing Land and land rights, Structures, Machinery and equipment, and Accumulated depreciation and amortization by $2, $120, $116, and $171, respectively, and increasing Construction work-in-progress by $67. Management evaluated the disclosure misclassification on previously issued financial statements and concluded that it was not material.


	June 30, 2021		December 31, 2020
Land and land rights	$	92	$	98
Structures	1,025		1,033
Machinery and equipment	3,910		3,879
	5,027		5,010
Less: accumulated depreciation and amortization	2,701		2,626
	2,326		2,384
Construction work-in-progress	189		208
Properties, plants, and equipment, net	$	2,515	$	2,592

The Company incurred capital expenditures which ~~remain~~remained unpaid at ~~September~~June 30, 2021 and June 30, 2020 of $39 and ~~2019 of~~ $29, ~~and $71,~~ respectively, which ~~will~~ result in cash outflows for investing activities in subsequent periods.

N. Leases

Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was ~~$17~~$16 and ~~$21~~$18 in the ~~third~~second quarter of ~~2020~~2021 and ~~2019,~~2020, respectively. Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was ~~$53~~$33 and ~~$64~~$36 in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

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

September 30, 2020 December 31, 2019
Right-of-use assets classified in Other noncurrent assets $ 119 $ 125
Current portion of lease liabilities classified in Other current liabilities
36 38
Long-term portion of lease liabilities classified in Other noncurrent liabilities 91 98
Total lease liabilities $ 127 $ 136


	June 30, 2021		December 31, 2020
Right-of-use assets classified in Other noncurrent assets	$	123	$	131

Current portion of lease liabilities classified in Other current liabilities	36		38
Long-term portion of lease liabilities classified in Other noncurrent liabilities	93		100
Total lease liabilities	$	129	$	138

2422

O. Debt

September 30, 2020 December 31, 2019
6.150% Notes, due 2020 0 1,000
5.400% Notes, due 2021 361 1,250
5.870% Notes, due 2022 476 627
5.125% Notes, due 2024 1,250 1,250
6.875% Notes, due 2025 1,200 0
5.900% Notes, due 2027 625 625
6.750% Bonds, due 2028 300 300
5.950% Notes due 2037 625 625
4.750% Iowa Finance Authority Loan, due 2042 250 250
Other (1)
(6) 13
5,081 5,940
Less: amount due within one year 384 1,034
Total long-term debt $ 4,697 $ 4,906


	June 30, 2021		December 31, 2020

5.400% Notes, due 2021(1)	$	0	$	361
5.870% Notes, due 2022(2)	0		476
5.125% Notes, due 2024	1,250		1,250
6.875% Notes, due 2025	1,200		1,200
5.900% Notes, due 2027	625		625
6.750% Bonds, due 2028	300		300
5.950% Notes due 2037	625		625
4.750% Iowa Finance Authority Loan, due 2042	250		250
Other(3)	(10)		(12)
	4,240		5,075
Less: amount due within one year	13		376
Total long-term debt	$	4,227	$	4,699

(1)Redeemed on January 15, 2021.

(2)Redeemed on May 3, 2021.

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

Public Debt.

On October 15, 2019, the 1.63% Convertible Notes matured in accordance with their terms and the Company repaid in cash the aggregate outstanding principal of $403 together with accrued and unpaid interest.

On April 6, 2020, the Company completed the early redemption of all $1,000 of its 6.150% Notes due 2020 (the ~~"6.150% Notes"~~“6.150% Notes”) and the early partial redemption of $300 of its 5.400% Notes due 2021 (the “5.400% Notes"). Holders of the 6.150% Notes were paid an aggregate of $1,020 and holders of the 5.400% Notes were paid an aggregate of $315, plus accrued and unpaid interest up to, but not including, the redemption date. The Company incurred early termination premium and accrued interest of $35 and $17, respectively, which has been recorded in Interest expense, net during the second quarter ended June 30, 2020 ~~and~~ ~~nine months ended September 30, 2020~~in the Statement of Consolidated Operations.

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

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

On May 21, 2020, the Company completed a cash tender offer and redeemed $589 and $151 of principal amount of the 5.400% Notes ~~due 2021~~ and its 5.870% Notes due 2022 (the “5.870% Notes”), respectively. The amount of early tender premium and accrued interest ~~and~~ associated with the notes accepted for early settlement were $24 and $4, respectively, which was recorded in Interest expense, net during the second quarter ended June 30, 2020 ~~and nine months ended September 30, 2020~~ in the Statement of Consolidated Operations.

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

On May 3, 2021, the Company completed the early redemption of all the remaining $476 aggregate principal amount of its 5.870% Notes and paid an aggregate of $503, including $5 of accrued interest. The Company also incurred an early termination premium and other costs of $23, which was recorded in Interest expense, net in the second quarter of 2021.

On an annual basis, the redemption of the 5.400% Notes and the 5.870% Notes will decrease Interest expense, net by approximately $47.

Credit Facilities.

~~In March~~During 2020, the Company entered into ~~an amendment~~several amendments to its Five-Year Revolving Credit Agreement (the “Credit Agreement”)~~. The amendment was entered into~~ to permit the Arconic Inc. Separation Transaction and to amend certain terms of the Credit Agreement, including a change to the existing financial covenant, ~~and~~a reduction of total commitments available from $3,000 to ~~$1,500, effective April 1, 2020~~$1,000 and ~~extended~~extension of the maturity date from June 29, 2023 to April 1, 2025. The Company was required to maintain a ratio of Consolidated Net Debt (as defined in the Credit Agreement) to Consolidated EBITDA (as defined in the Credit Agreement) to be no greater than 3.50 to 1.00.

On ~~June 26, 2020,~~March 29, 2021, the Company entered into another amendment to its Credit Agreement to provide extended relief from its existing financial covenant for the quarters ended March 31, 2021 through December 31, ~~2021 and reduce total commitment available from $1,500 to $1,000.~~ 2022.

The Company ~~will be~~is required to maintain a ratio of Consolidated Net Debt (as defined in the Credit Agreement) to Consolidated EBITDA (as defined in the Credit Agreement) as of ~~the end of~~ each fiscal quarter for the period of the four fiscal quarters of the Company most recently ended ~~to be no~~as follows:


			No greater than ~~(i)~~

(i) for the quarter ending June 30, 2021			5.50 to 1.00
(ii) for the quarter ending September 30, 2021			5.00 to 1.00
(iii) for the quarter ending December 31, 2021			4.75 to 1.00
(iv) for the quarter ending March 31, 2022			4.50 to 1.00
(v) for the quarter ending June 30, 2022			4.50 to 1.00
(vi) for the quarter ending September 30, 2022			4.25 to 1.00
(vii) for the quarter ending December 31, 2022			3.75 to 1.00
(viii) for the quarter ending March 31, 2023 and thereafter			3.50 to 1.00

~~5.00 to 1.00 for any quarter ending on or prior to December 31, 2020, (ii) 5.25 to 1.00 for~~Under the ~~quarter ending~~ March ~~31,~~ 2021 (iii) 5.00 to 1.00 for the quarter ending June 30, 2021, (iv) 4.50 to 1.00 for the quarter ending September 30, 2021, and (v) 4.00 to 1.00 for the quarter ending December 31, 2021. The ratio returns to 3.50 to 1.00 for all periods thereafter. Under the amendment to the Credit Agreement, during the covenant relief period ~~from June 30, 2020~~ through December 31, ~~2021~~2022 (unless the Company ends the covenant relief period earlier in accordance with the amendment), common stock dividends (see Note I) and share repurchases (see Note I) are permitted only if no ~~borrowings are outstanding~~loans under the Credit Agreement are outstanding at the time and are limited to an aggregate amount ~~of $100 through June 30,~~not to exceed $250 during the year ending December 31, 2021 with ~~such limit increasing by $150 to~~ an ~~aggregate~~incremental amount of ~~$250 after June 30,~~$400 available during the year ending December 21, 2022 provided that any amount that remains unused as of December 31, 2021 ifmay be carried forward and used during the ~~Consolidated Net Debt to Consolidated EBITDA ratio is no greater than 3.75 to 1.00.~~year ending December 31, 2022.

There were 0 amounts outstanding at ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019,~~2020, and 0 amounts were borrowed during ~~2020~~2021 or ~~2019~~2020 under the Credit Agreement. At ~~September~~June 30, ~~2020,~~2021, the Company was in compliance with all covenants under the Credit Agreement. Availability under the Credit Agreement could be reduced in future periods if the Company fails to maintain the required ratios referenced above.

In addition to the Credit Agreement, the Company has another credit agreement that provided a borrowing capacity of $100 at September 30, 2020 which expired on October 31, 2020. The purpose of any borrowings under this credit arrangement is to provide for working capital requirements and for other general corporate purposes. The covenants contained in this arrangement are the same as the Credit Agreement. During the nine months ended September 30, 2020, there were no borrowings or repayments under this other credit facility.

P. Fair Value of Financial Instruments

The carrying values of Cash and cash equivalents, Restricted cash, Derivatives, Noncurrent receivables, and Short-term debt included in the Consolidated Balance Sheet approximate their fair value. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities that are carried at fair value which is based on quoted market prices which are classified in Level 1 of the fair value hierarchy. The fair value of Long-term debt, less amount due within one year was based on quoted market prices for public debt and on interest rates that are currently available to ~~the Company~~Howmet for issuance of debt with similar terms and maturities for non-public debt. The fair value amounts for all Long-term debt were classified in Level 2 of the fair value hierarchy.

September 30, 2020 December 31, 2019
Carrying
value Fair
value Carrying
value Fair
value
Long-term debt, less amount due within one year $ 4,697 $ 5,079 $ 4,906 $ 5,337


	June 30, 2021				December 31, 2020
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	4,227	$	4,886	$	4,699	$	5,426

Restricted cash, which was included in Prepaid ~~assets~~expenses and other current ~~liabilities~~assets in the Consolidated Balance Sheet, was ~~$3 and $55~~$1 at ~~September~~both June 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

Q. ~~Acquisitions~~Divestitures

2021 Divestiture

On June 1, 2021, the Company completed the sale of a small manufacturing plant in France within the Fastening Systems segment for $10 (of which $8 of cash was received in the second quarter of 2021), subject to working capital and ~~Divestitures~~other adjustments. An agreement to sell was reached on March 15, 2021, which resulted in a charge of $4 related to the non-cash impairment of the net book value of the business, primarily goodwill, in the first quarter of 2021 which was recorded in Restructuring and other charges in the Statement of Consolidated Operations.

2020 ~~Divestitures~~Divestiture

On January 31, 2020, the Company reached an agreement to sell a small manufacturing plant in the U.K. within the Engineered Structures segment for $12 in cash, ~~subject to working capital~~ and ~~other adjustments. The operating results and assets and liabilities of this plant are included in the Engineered Structures segment.~~therefore was classified as held for sale. As a result of entering into the agreement, ~~to sell, the Company recognized~~ a charge of $12 was recognized related to a non-cash impairment of the net book value of the business, primarily properties, plants, and equipment in the first quarter ~~ended March 31, 2020.~~of 2020, which was recorded in Restructuring and other charges in the Statement of Consolidated Operations. As the sale isdid not ~~expected to occur,~~close, the Company changed the classification ~~of the assets~~ from held for sale to held for use in

the second quarter ~~ended June 30,~~of 2020 and recorded these assets at their lower of carrying value (assuming no initial reclassification for held for sale was made) or fair value. The result was a reversal of $7 related to a non-cash impairment in the second quarter of 2020. These charges were recorded in Restructuring and other charges in the Statement of Consolidated Operations.

~~2019 Divestitures~~

On December 1, 2019, the Company completed the sale of its forgings business in the U.K. for $64 in cash, which resulted in a loss on sale of $46 that was recognized in 2019 (of which $43 and $3 was recognized in the third quarter and fourth quarter of 2019, respectively) and an incremental charge of $6 related to certain post-closing adjustments in the first quarter ended March 31, 2020 and nine months ended September 30, 2020. These charges were recorded in Restructuring and other charges in the Statement of Consolidated Operations. Of the cash proceeds received, $53 was recorded as Restricted cash within Prepaid

expenses and other current assets on the Consolidated Balance Sheet at December 31, 2019 as its use is subject to restriction by the U.K. pension authority until certain U.K. pension plan changes were made and approved. In the second quarter of 2020, the restriction was removed, and the proceeds were reclassified to Cash and cash equivalents. The forgings business primarily produced steel, titanium, and nickel based forged components for aerospace, mining, and off-highway markets and its operating results and assets and liabilities were included in the Engine Products segment. The sale remains subject to certain remaining post-closing adjustments. This business generated third-party sales of $30 and $95 in the third quarter and nine months ended September 30, 2019, respectively, and had 540 employees at the time of divestiture.

On May 31, 2019, the Company sold a small additive manufacturing facility within the Engineered Structures segment for $1 in cash, which resulted in a loss of $13 in the second quarter ended June 30, 2019 and nine months ended September 30, 2019 related to the non-cash impairment of the net book value of the business recorded in Restructuring and other charges in the Statement of Consolidated Operations.

On August 15, 2019, the Company sold inventories and properties, plants and equipment related to a small energy business within the Engineered Structures segment for $13 in cash. As the sale was substantially complete as of June 30, 2019, and the sale price was estimated to be less than the carrying value, the Company recognized a charge of $9 in the second quarter ended June 30, 2019 and nine months ended September 30, 2019 related to inventory impairment and recorded the charge in Cost of goods sold in the Statement of Consolidated Operations.

R. Contingencies and Commitments

Contingencies

The following information supplements and, as applicable, updates the discussion of the contingencies and commitments in Note V to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”), and should be read in conjunction with the complete descriptions provided in the Form 10-K.

Environmental Matters

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

A liability is recorded for environmental remediation when a cleanup program becomes probable and the costs can be reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of remedial actions and related costs. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, and technological changes, among others.

The Company’s remediation reserve balance was $9$10 at ~~September~~both June 30, ~~2020~~2021 and ~~$8 at~~ December 31, ~~2019,~~2020, recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which $4$6 and ~~$3,~~$5, respectively, were classified as a current liability), and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. Payments related to remediation expenses applied against the reserve were less than $1 in the ~~third~~second quarter ended June 30, 2021 and ~~nine months ended September 30, 2020 which includes~~included expenditures currently mandated, as well as those not required by any regulatory authority or third party.

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

~~Tax~~

Pursuant to the October 31, 2016 Tax Matters Agreement between the Company and Alcoa Corporation, Alcoa Corporation shares responsibility with and has agreed to partially indemnify the Company for the following matter. Additionally, as part of the March 31, 2020 Tax Matters Agreement between the Company and Arconic Corporation, Arconic Corporation also shares partial responsibility with and has agreed to partially indemnify the Company for its own share of the same matter. In connection with these indemnities, Alcoa Corporation and Arconic Corporation retain 49% and 34% of the total liability, respectively, for the following matter, and the Company retains the remaining 17% of the total liability.

As previously reported, in July 2013, following a Spanish corporate income tax audit covering the 2006 through 2009 tax years, an assessment was received mainly disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by the Company. In August 2013, the Company filed an appeal of this assessment in Spain’s Central Tax Administrative Court, which was denied in January 2015. The Company filed another appeal in Spain’s National Court in March 2015 which was denied in July 2018. The National Court’s decision requires the assessment for the 2006 through 2009 tax years to be reissued to take into account the outcome of the 2003 to 2005 audit which was closed in 2017. The Company estimates the revised assessment to be $181 (€155), including interest.

In March 2019, the Supreme Court of Spain accepted the Company's petition to review the National Court’s decision, and the Company filed a formal appeal of the assessment. On October 13, 2020, the Supreme Court reviewed the assessment on its merits, and a final decision is expected to be rendered before the end of the year. In the event the Company receives an

unfavorable ruling from the Supreme Court of Spain, a portion of the assessment may be offset with existing net operating losses and tax credits available to the Spanish consolidated tax group in existence during the audit period.

In the third quarter of 2018, the Company established an income tax reserve and an indemnification receivable representing Alcoa Corporation’s 49% share of the liability. Pursuant to the Tax Matters Agreement with Arconic Corporation, as of the second quarter of 2020 the Company established an additional income tax receivable representing Arconic Corporation's 34% share of the total liability. As of September 30, 2020, the balances of the Company's reserve, including interest, and the receivables are $63 (€54) and $52 (€45), respectively.

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

Reynobond PE

~~Prior to the Arconic Inc. Separation Transaction on April 1, 2020, the Company was known as Arconic Inc.References to “Arconic Inc.” in this “Reynobond PE” section refer to Arconic Inc. only and do not include its subsidiaries, except as otherwise stated.~~

On June 13, 2017, the Grenfell Tower in London, U.K. caught fire resulting in fatalities, injuries and damage. A French subsidiary of Arconic Inc., Arconic Architectural Products SAS (AAP SAS) (now a subsidiary of Arconic Corporation), supplied a product, Reynobond PE, to its customer, a cladding system fabricator, which used the product as one component of the overall cladding system on Grenfell Tower. The fabricator supplied its portion of the cladding system to the façade installer, who then completed and installed the system under the direction of the general contractor. Neither Arconic Inc. nor AAP SAS was involved in the design or installation of the system used at the Grenfell Tower, nor did it have a role in any other aspect of the building’s refurbishment or original design. Regulatory investigations into the overall Grenfell Tower matter are being conducted, including a criminal investigation by the London Metropolitan Police Service (the “Police”), a Public Inquiry by the British government and a consumer protection inquiry by a French public authority. The Public Inquiry was announced by the U.K. Prime Minister on June 15, 2017 and subsequently was authorized to examine the circumstances leading up to and surrounding the Grenfell Tower fire in order to make findings of fact and recommendations to the U.K. Government on matters such as the design, construction and modification of the building, the role of relevant public authorities and contractors, the implications of the fire for the adequacy and enforcement of relevant regulations, arrangements in place for handling emergencies and the handling of concerns from residents, among other things. Hearings for Phase 1 of the Public Inquiry began on May 21, 2018 and concluded on December 12, 2018. Phase 2 hearings of the Public Inquiry began in early 2020, following which a final report will be written and subsequently published. AAP SAS is participating as a Core Participant in the Public Inquiry and is also cooperating with the ongoing parallel investigation by the Police. The Company ~~no longer sells the PE product~~is indemnified for architectural use on buildings. Given the preliminary nature of these investigations and the uncertainty of potential future litigation, the Company cannot reasonably estimate at this time the likelihood of an unfavorable outcome or the possible loss or range of losses in the event of an unfavorable outcome.

Pursuant to the Separation and Distribution Agreement, Arconic Corporation agreed to indemnify the Company for certain liabilities and the Company agreed to indemnify Arconic Corporation for certain liabilities. As a result of the Arconic Inc. Separation Transaction, Arconic Corporation holds the building and construction systems businesses previously held by the Company and AAP SAS is a subsidiary of Arconic Corporation; accordingly, Arconic Corporation has agreed to assume and indemnify the Company againstall potential liabilities associated with the ~~June 13, 2017~~ fire at the Grenfell Tower in London, U.K., which occurred on June 14, 2017, by Arconic Corporation pursuant to the Separation and Distribution Agreement dated March 31, 2020, including, with respect to the following legal proceedings, ~~in which~~as updated from the Form 10-K:

United Kingdom Litigation (various claims on behalf of survivors and estates of decedents). These suits have been further stayed until a hearing can be held by the relevant court on the first available date after April 4, 2022.

Howard v. Arconic Inc. ~~and/or its then directors~~et al. (securities law related claims). As described in the Form 10-K, lead plaintiffs in this case, which alleges violations of the federal securities law, filed an amended complaint (“Second Amended Complaint”) in July of 2019 after the Company and the other defendants were ~~named as parties:~~granted a motion to dismiss the case, without prejudice. In the Second Amended Complaint, plaintiffs provided additional facts for the Court’s consideration. On June 23, 2021, the Court ruled that certain claims related to a particular registration statement, other SEC filings, product brochures and websites can proceed. All other claims against the defendants were permanently dismissed, with prejudice. Defendants will file an answer to the Second Amended Complaint by August 12, 2021.

With respect to the Behrens et al. v. Arconic Inc. et al. ~~On June 6, 2019, 247 plaintiffs comprised~~(various claims on behalf of survivors and estates of ~~decedents~~decedents)and the Raul v. Albaugh, et al. (derivative related claim) proceedings, there are no updates.

Lehman Brothers International (Europe) (“LBIE”) Claim. On June 26, 2020, LBIE filed formal proceedings against 2 Firth Rixson entities (“Firth”) in the High Court of Justice, Business and Property Courts of England and Wales. The proceedings relate to interest rate swap transactions that Firth entered into with LBIE in 2007 to 2008. In 2008, LBIE commenced insolvency proceedings, an event of default under the agreements, rendering LBIE unable to meet its obligations under the swaps and suspending Firth’s payment obligations. In the Court proceedings, LBIE seeks a declaration that Firth has a contractual obligation to pay the amounts owing to LBIE under the agreements upon its emergence from insolvency proceedings which is expected to occur by 2022, which LBIE claims to be approximately $64, plus applicable interest. Firth will continue to maintain its position that multiple events of default under the agreements related to LBIE’s insolvency proceeding cannot be cured or continue indefinitely, which the Company believes are meritorious defenses. The parties filed position papers on July 24, 2020 and October 19, 2020 (LBIE) and September 21, 2020 (Firth). A virtual hearing in this matter occurred on January 13 and 14, 2021 in London, England, and a ruling has yet to be issued to date. Given the importance of the ~~Grenfell Tower fire filed a complaint against “Arconic Inc., Alcoa Inc.~~case for LBIE and ~~Arconic Architectural Products, LLC” (collectively, for purposes~~Firth, it is expected that irrespective of the ~~description of such proceeding,~~outcome from the “Arconic Defendants”), as well as Saint-Gobain Corporation, d/b/a Celotex and Whirlpool Corporation alleging claims under Pennsylvania state law for products liability and wrongful death related to the fire. In particular, the plaintiffs allege that the Arconic Defendants knowingly supplied a dangerous product ("Reynobond PE") for installation on the Grenfell Tower despite knowing that Reynobond PE was unfit for use above a certain height. The case was removed to the United States District Court for the Eastern District of Pennsylvania. Defendants moved to dismissmost recent hearing, the case on numerous grounds, including forum non conveniens. Defendant Saint-Gobain Corporation was subsequently voluntarily dismissed from the case. On September 16, 2020, the court issued an order granting the remaining Defendants’ motion to dismiss on forum non conveniens grounds. Plaintiffs subsequently filed a motion for reconsideration of the judgment and Defendants are preparing a response.

~~Howard v. Arconic Inc. et al.~~ A purported class action complaint related to the Grenfell Tower fire was filed on August 11, 2017 in the United States District Court for the Western District of Pennsylvania against Arconic Inc. and Klaus Kleinfeld. A related purported class action complaint was filed in the United States District Court for the Western District of Pennsylvaniawill be appealed

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~~on September 15, 2017,~~and any requirement for the parties to pay amounts under the ~~caption~~ ~~Sullivan v. Arconic Inc. et al., against Arconic Inc., three former Arconic Inc. executives, several current and former directors, and certain banks.~~ ~~Howard~~ ~~and~~ ~~Sullivan~~ ~~were subsequently consolidated and the lead plaintiffs in the consolidated purported class action filed a consolidated amended complaintalleging violations~~agreements will be stayed. An appeal of the ~~federal securities laws and seeking, among other things, unspecified compensatory damages and an award~~case could continue past the end of ~~attorney and expert fees and expenses. After the court granted the defendants’ motion~~2022 into 2023. The Company intends to ~~dismiss in full, the lead plaintiffs filed a second amended complaint, and all defendants have moved to dismiss the second amended complaint.~~

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

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

~~Stockholder Demands.~~ Prior to the Arconic Inc. Separation Transaction, the Board of Directors also received letters, purportedly sent on behalf of stockholders, reciting allegations similar to those made in the federal court lawsuits and demanding that the Board authorize the Company to initiate litigation against members of management, the Board and others. The Board of Directors appointed a Special Litigation Committee of the Board to review, investigate, and make recommendations to the Board regarding the appropriate course of action with respect to these stockholder demand letters. On May 22, 2019, the Special Litigation Committee, following completion of its investigation into the claims demanded in the demand letters, recommended to the Board that it reject the demands to authorize commencement of litigation. On May 28, 2019, the Board adopted the Special Litigation Committee’s findings and recommendations and rejected the demands that it authorize commencement of actions to assert the claims set forth in the demand letters.claims.

Other

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

Commitments

Guarantees

At ~~September~~June 30, ~~2020, the Company~~2021, Howmet had outstanding bank guarantees related to tax matters, outstanding debt, workers’ compensation, environmental obligations, energy contracts, and customs duties, among others. The total amount committed under these guarantees, which expire at various dates between ~~2020~~2021 and 2040, was ~~$26~~$18 at ~~September~~June 30, ~~2020.~~2021.

~~In addition, pursuant~~Pursuant to the Separation and Distribution Agreement between ~~the Company~~Howmet and Alcoa Corporation, ~~the Company~~Howmet was required to provide ~~a guarantee~~certain guarantees for ~~an energy supply agreement at an~~ Alcoa Corporation, ~~facility that expires in 2047. This guarantee~~which had a fair value of ~~$17~~$6 and $9$12 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and ~~was~~were included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet. The Company was required to provide a guarantee up to an estimated present value amount of approximately ~~$1,183~~$1,435 and ~~$1,353~~$1,398 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. For this guarantee, subject to its provisions, the Company is secondarily liable in the event of a payment default by Alcoa Corporation. The Company currently views the risk of an Alcoa Corporation payment default on its obligations under the contract to be remote.

Letters of Credit

The Company has outstanding letters of credit, primarily related to workers’ compensation, environmental obligations, accounts receivable securitization and leasing obligations. The total amount committed under these ~~annual~~ letters of credit, which ~~expire and~~ automatically renew or expire at various dates, mostly in ~~2020 and~~ 2021, was ~~$105~~$133 at ~~September~~June 30, ~~2020.~~2021.

workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 2016. Arconic Corporation and Alcoa Corporation workers’ compensation and ~~letter~~letters of credit fees paid by the Company are being proportionally billed to and are being reimbursed by Arconic Corporation and Alcoa ~~Corporation.~~Corporation, respectively. Also, the Company was required to provide letters of credit for certain Arconic Corporation environmental obligations and, as a result, the Company has ~~$29~~$23 of outstanding letters of credit relating to liabilities (which are included in the ~~$105~~$133 in the above paragraph). ~~$13~~$6 of these outstanding letters of credit are pending cancellation and will be deemed cancelled once returned by the beneficiary. Arconic Corporation has issued surety bonds to cover these environmental obligations. Arconic Corporation is being billed for these letter of credit fees paid by the Company and will reimburse the Company for any payments made under these letters of credit.

Surety Bonds

The Company has outstanding surety bonds, primarily related to tax matters, contract performance, workers’ compensation, environmental-related matters, and customs duties. The total amount committed under these annual surety bonds, which expire and automatically renew at various dates, primarily in ~~2020,~~2021 and 2022, was ~~$43~~$46 at ~~September~~June 30, ~~2020.~~2021.

Pursuant to the Separation and Distribution Agreements between the Company and Arconic Corporation and between the Company and Alcoa Corporation, the Company ~~was~~is required to provide surety bonds of ~~$26~~$25 (which are included in the ~~$43~~$46 in the above paragraph) that had previously been provided related to the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 2016. Arconic Corporation and Alcoa Corporation workers’ compensation claims paid and surety bond fees paid by the Company are being proportionately billed to and are being reimbursed by Arconic Corporation and Alcoa Corporation.

S. Subsequent Events

Management evaluated all activity of ~~the Company~~Howmet and concluded that no subsequent events have occurred that would require recognition in the Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial ~~Statements.~~Statements, except as noted below:

See Note I for the common stock dividend declaration.

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

(dollars in millions, except per share amounts)

Overview

On April 1, 2020, Howmet Aerospace Inc. (formerly known as Arconic Inc.) (“Howmet” or the “Company”) completed the ~~previously announced~~ separation of its business into two independent, publicly-traded companies (the “Arconic Inc. Separation Transaction”). Following the Arconic Inc. Separation Transaction, Arconic Corporation holds the Global Rolled Products businesses (global rolled products, aluminum extrusions, and building and construction systems) previously held by the Company. The Company retained the Engineered Products and Forgings businesses (Engine Products, Engineered Structures, Fastening Systems, and Forged Wheels).

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

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations excludes the historical results of Arconic Corporation, as the Arconic Inc. Separation Transaction ~~took place~~occurred on April 1, 2020. The financial results of Arconic Corporation for all periods prior to the Arconic Inc. Separation Transaction have been retrospectively reflected in the Statement of Consolidated Operations as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. ~~In addition, the related assets and liabilities associated with Arconic Corporation in the December 2019 Consolidated Balance Sheet are classified as assets and liabilities of discontinued operations.~~ The cash flows, comprehensive income, and equity related to Arconic Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows, Statement of Consolidated Comprehensive Income and Statement of Changes in Consolidated Equity, respectively, for all periods prior to the Arconic Inc. Separation Transaction.

COVID-19

~~Year to date,~~Year-to-date 2021, the Company derived approximately ~~70%~~60% of its revenue from products sold to the aerospace end-market. As a result of ~~COVID-19~~the global coronavirus (“COVID-19”) pandemic and its impact on the aerospace industry to-date, the possibility exists that there could be a sustained impact to our operations and ~~our~~ financial results. Since the start of the pandemic, certain original equipment manufacturer (“OEM”) customers have reduced production or suspended manufacturing operations in North America and Europe on a temporary basis. While the pandemic has resulted in the temporary closure of a small number of the Company's manufacturing facilities during 2020, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, ~~the Company is taking~~management has taken a series of actions to address the financial impact, including announcing certain headcount reductions and reducing ~~certain cash outflows, by suspending our dividends and reducing~~ the ~~levels~~level of ~~our~~ capital expenditures to preserve cash and maintain liquidity.

For additional information regarding the risks of COVID-19 on our business, see section Part I, Item 1A in the ~~section entitled “Item 1A. Risk~~Company’s Annual Report on Form 10-K for the year ended December 31, 2020, “Risk Factors — Our business, results of operations, financial condition and/or cash flows have been and could continue to be materially adversely affected by the effects of ~~widespread public health epidemics/pandemics, including~~the COVID-19 ~~that are beyond our control.~~pandemic.”

Results of Operations

Earnings Summary:

Sales. Sales were ~~$1,134~~$1,195 in the ~~third~~second quarter of ~~2020~~2021 compared to ~~$1,794~~$1,253 in the ~~third quarter of 2019 and $4,021 in the nine months ended September 30, 2020 compared to $5,364 in the nine months ended September 30, 2019. The decrease of $660, or 37%, in the third~~second quarter of 2020 and ~~$1,343,~~$2,404 in the six months ended June 30, 2021 compared to $2,887 in the six months ended June 30, 2020. The decrease of $58, or ~~25%~~5%, in the ~~nine months ended September 30, 2020,~~second quarter of 2021 was primarily due to lower sales volumes in the commercial aerospace ~~and commercial transportation markets~~market driven by the ~~impacts~~impact of COVID-19 and ~~737 MAX~~Boeing 787 production declines, along with a decrease in sales of $30 for the third quarter of 2020 and $95 for the nine months ending September 30, 2020 from the divestiture of the forgings business in the U.K. in December 2019, all partially offset by growth in the commercial transportation and industrial markets as well as favorable product pricing of $21. The decrease of $483, or 17%, in the six months ended June 30, 2021 was primarily due to lower sales volumes in the commercial aerospace market driven by the impact of COVID-19, and Boeing 737 MAX (“737 MAX”) and Boeing 787 production declines, partially offset by growth in the commercial transportation, defense aerospace, and industrial gas turbine markets as well as favorable product ~~pricing.~~pricing of $38.

Cost of goods sold (COGS). COGS as a percentage of Sales was ~~79.4%~~71.7% in the ~~third~~second quarter of 2021 compared to 73.7% in the second quarter of 2020 and 72.0% in the six months ended June 30, 2021 compared to ~~73.4%~~72.9% in the

~~third~~ six months ended June 30, 2020. The decrease in the second quarter of ~~2019~~2021 and ~~was 74.8%~~ in the ~~nine~~six months ended ~~September~~June 30, ~~2020 compared to 73.5% in the nine months ended September 30, 2019. The increase in the third quarter of 2020~~2021 was primarily due to ~~lower volumes~~net cost savings and ~~the impacts of COVID-19. In the third quarter of 2020,~~favorable product pricing. Additionally, the Company ~~incurred costs related to fires at two plants~~recorded total COGS reimbursements of ~~$7. The increase in the nine months ended September 30, 2020 was primarily due to the impacts of COVID-19~~$2 and ~~lower volumes in the second and third quarter, partially offset by the impairment of energy business assets~~net charges of $9 in the second quarter of ~~2019,~~2020 and ~~favorable pricing. In~~in the ~~second quarter~~six months ended June 30, 2020, respectively, related to fires that occurred at a Fastening Systems’ plant in France in 2019 and ~~nine~~at a Forged Wheels plant in Barberton, Ohio in mid-February 2020. The Company recorded total COGS reimbursements of $3 and net charges of $6 in the second quarter of 2021 and in the six months ended ~~September~~June 30, ~~2020, the Company submitted an insurance claim~~2021, respectively, related to ~~a plant fire~~the fires in France and ~~received a partial settlement of $10, which was~~Barberton in ~~excess of its $10 insurance deductible which has already been met.~~2021. The Company anticipates additional charges of approximately $5$3 to ~~$10~~$7 in the ~~fourth~~third quarter of ~~2020,~~2021, with ~~additional~~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 ~~$66~~$55 in the ~~third~~second quarter of 2021 compared to $74 in the second quarter of 2020 and $120 in the six months ended June 30, 2021 compared to ~~$89~~$153 in the ~~third quarter of 2019 and $219 in the nine~~six months ended ~~September~~June 30, ~~2020 compared to $307 in the nine months ended September 30, 2019.~~2020. The decrease of ~~$23,~~$19, or 26%, in the ~~third~~second quarter of ~~2020~~2021 and ~~$88,~~$33, or ~~29%~~22%, in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~

2021 was primarily due to ~~lower costs driven by~~ overhead cost reductions as well as costs incurred in the second quarter and ~~lower net legal and other advisory costs related to Grenfell Tower primarily due to insurance reimbursements, partially offset by higher costs~~six months ended June 30, 2020 associated with the Arconic Inc. Separation ~~Transaction through June 30, 2020.~~Transaction.

Research and development expenses (R&D). R&D expenses were $5$4 in both the second quarter of 2021 and the second quarter of 2020. R&D expenses were $9 in the ~~third quarter of 2020~~six months ended June 30, 2021 compared to $6$8 in the ~~third quarter of 2019 and $13 in the nine~~six months ended ~~September~~June 30, 2020, ~~compared to $22 in the nine months ended September 30, 2019. The decrease~~an increase of $1, or 17%, in the third quarter of 2020 and $9, or 41%, in the nine months ended September 30, 2020, was primarily due to the consolidation of the Company's primary R&D facility in conjunction with ongoing cost reduction efforts.13%.

Restructuring and other charges. Restructuring and other charges was $22 in the third quarter of 2020 compared to $56 in the third quarter of 2019 or a decrease of $34; and was $166 in the nine months ended September 30, 2020 compared to $572 in the nine months ended September 30, 2019 or a decrease of $406. The decrease for the nine months ended September 30, 2020 was primarily due to a charge for impairment of a long-lived asset group of $428 and a loss on sale of an additives business of $12 both of which occurredwere $5 in the second quarter of ~~2019, as well as~~2021 compared to $105 in the second quarter of 2020 or a decrease of $100 and $14 in ~~severance cost reversals~~the six months ended June 30, 2021 compared to $144 in the six months ended June 30, 2020 or a decrease of $8$130.

Restructuring and other charges for the second quarter and six months ended June 30, 2021 were primarily due to charges for pension plan settlements and exit related costs.

Restructuring and other charges for the second quarter of 2020 were primarily comprised of a $64 charge for pension plan settlements and a ~~decrease~~$54 charge for layoff costs. These charges were partially offset by an $8 benefit from the reversal of several existing layoff reserves and a $7 benefit from the reversal of an impairment due to change in ~~lease termination~~classification from held for sale to held for use related to a United Kingdom (U.K.) plant.

Restructuring and other charges in the six months ended June 30, 2020 were primarily comprised of a $76 charge for layoff costs, a $64 charge for pension plan settlements, a $6 post-closing adjustment related to the sale of ~~$12; which~~the Company’s U.K. forgings business (which was formerly part of the Engine Products segment), $5 for impairment of assets associated with an agreement to sell an aerospace components business in the U.K. (within the Engineered Structures segment), and a $5 charge for various other exit costs. These charges were partially offset by a ~~net increase~~benefit of $10 related to ~~pension and other postretirement benefit settlement accounting~~the reversal of ~~$74, an increase in layoff charges~~a number of ~~$25 and charges related to an impairment of assets associated with agreements to sell two businesses in the United Kingdom of $11 in the nine months ended September 30, 2020.~~ prior period programs.

See Note E to the Consolidated Financial Statements for additional detail.

Interest expense ~~net~~. Interest expense ~~net~~ was ~~$77~~$89 in the ~~third~~second quarter of 2021 compared to $144 in the second quarter of 2020 and $161 in the six months ended June 30, 2021 compared to ~~$85~~$228 in the ~~third quarter of 2019 and $305 in the nine~~six months ended ~~September~~June 30, ~~2020 compared to $256 in the nine months ended September 30, 2019.~~2020. The decrease of ~~$8,~~$55, or 9%38%, in the ~~third~~second quarter of ~~2020 was the result of a reduced level of debt during the quarter, while the increase of $49,~~2021 and $67, or ~~19%~~29%, in the ~~nine~~six months ended ~~September~~June 30, ~~2020, were~~2021, was primarily due to ~~a $59 premium paid on~~lower debt outstanding in the second quarter of 2021 and in the six months ended June 30, 2021 driven by the early redemption of ~~debt,~~$1,000, $889, and $151 of the principal amounts of the 6.150% Notes due 2020, 5.400% Notes due 2021 (the “5.400% Notes”) and 5.870% Notes due 2022 (the “5.870% Notes”), respectively, in the second quarter of 2020, the early redemption of $361 of the principal amount of the 5.400% Notes in the first quarter of 2021, and the early redemption of $476 of the 5.870% Notes in the second quarter of 2021, which was partially offset by ~~a reduced average level~~the issuance on April 24, 2020 of ~~debt for~~ the ~~nine months ended September 30, 2020.~~6.875% Notes due 2025 in the aggregate principal amount of $1,200.

Other expense (income), net. Other expense, net was $8 in the ~~third~~second quarter of 2021 compared to Other expense, net of $16 in the second quarter of 2020 and Other expense, net was $12 in the six months ended June 30, 2021 compared to Other income, net of $8 in the ~~third~~six months ended June 30, 2020. The decrease of $8, or 50%, in the second quarter of ~~2019. Changes in other expense, net in the third quarter of 2020 were~~2021 was primarily due to a ~~$13 favorable change~~decrease in certain guarantees for Alcoa Corporation of $9, the impacts of deferred compensation arrangements of $3, and lower non-service related net periodic benefit cost of $2, partially offset by foreign currency ~~completely offset by a reduction~~losses of $8. The increase of $20, or 250%, in the six months ended June 30, 2021, was primarily due to foreign currency losses of $10, the impacts of deferred compensation arrangements of $9, and lower interest income of ~~$5, higher deferred compensation of~~ $3, along with an increase of $5 related to various smaller items. Other expense, net was less than $1 for the nine months ended September 30, 2020 compared to $26 expense for the nine months ended September 30, 2019. The lower expense of $26, or 100% was due to lower deferred compensation of $15, favorable foreign currency movements of $21 and various small items of $6, partially offset by lower ~~interest income~~non-service related net periodic benefit cost of ~~$16.~~$5.

Provision for income taxes. The tax rate including discrete items was 400.0% (benefit on a small loss) in the third quarter of 2020 compared to 64.4% (provision on income) in the third quarter of 2019. A discrete tax benefit of $41 was recorded in the third quarter of 2020 compared to a discrete tax charge of $14 in the third quarter of 2019. The estimated annual effective tax rate, before discrete items, applied to ordinary income was ~~34.5%~~29.1% in both the second quarter and six months ended June 30, 2021 compared to 36.1% in both the second quarter and six months ended June 30, 2020. The tax rate including discrete items was 32.7% (provision on income) in the ~~third~~second quarter of ~~2020~~2021 compared to ~~75.8%~~2.3% (benefit on loss) in the ~~third~~second quarter of ~~2019.~~2020. A discrete tax charge of $4 was recorded in the second quarter of 2021 compared to a discrete tax charge of $10 in the second quarter of 2020. The tax rate including discrete items was 30.9% (provision on income) for the six months ended June 30, 2021 compared to 38.4% (provision on income) for the six months ended June 30, 2020. A discrete tax charge of $3 was recorded in the six months ended June 30, 2021 compared to a discrete tax charge of $2 for the six months ended June 30, 2020. See Note H to the Consolidated Financial Statements.

Net Income (Loss) from Continuing ~~and Discontinued Operations~~ Operations.Income ~~(loss)~~ from continuing operations was ~~$36,~~$74, or ~~$0.08~~$0.17 per diluted share, in the ~~third~~second quarter of ~~2020~~2021 compared to ~~$58,~~Loss from continuing operations of $(84), or ~~$0.13~~$(0.19) per diluted share, in the ~~third~~second quarter of ~~2019,~~2020 and ~~$105,~~Income from continuing operations was $154, or ~~$0.23~~$0.35 per diluted share, in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021 compared to ~~$8,~~Income from continuing operations of $69, or ~~$0.01~~$0.15 per diluted share, in the ~~nine~~six months ended ~~September~~June 30, 2019. The decrease of $22 in the third quarter of 2020 is primarily related to the reduction of operating income of $183 due to lower volumes and the impact of COVID-19 along with a decrease in interest of $8, partially offset by a decrease in the Provision for income taxes of $153 (decreased from a charge of $105 to a benefit of $48).2020. The increase of ~~$97~~$158 in the ~~nine months ended September 30, 2020~~second quarter of 2021 was primarily due to lower Restructuring and other charges, ~~of $406, reflecting the $428 impairment of~~lower COGS, and a ~~long-lived asset group taken~~reduction in Interest expense, partially offset by a decrease in operating income due to lower sales volumes in the ~~second quarter~~commercial aerospace market driven by the impact of ~~2019, along with~~COVID-19 and Boeing 787 production declines, and an increase in the Provision for income taxes. The increase of $85 in the six months ended June 30, 2021 was primarily due to lower ~~Selling, general,~~

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~~administrative~~Restructuring and other ~~expenses of $88 related to primarily overhead cost reductions,~~charges, lower COGS, and a reduction in Interest expense, partially offset by a decrease in operating income due to lower sales volumes in the commercial aerospace market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, and an increase in the ~~impacts of COVID-19.~~Provision for income taxes.

~~There~~Net Income (Loss). As the Arconic Inc. Separation Transaction occurred on April 1, 2020, there was no Income from discontinued operations for the ~~third~~second quarter of 2021 or for the six months ended June 30, 2021. Net income was $74 for the second quarter of 2021, all of which was composed of $74 of Income from continuing operations, or $0.17 per diluted share, and $154 in the six months ended June 30, 2021, all of which was composed of $154 of Income from continuing operations, or $0.35 per diluted share.

Net loss was $(96) for the second quarter of 2020 ~~compared to $37~~composed of $(84) of Loss from continuing operations and $(12) from discontinued operations, or ~~$0.08~~$(0.19) and $(0.03) per diluted share, respectively. Net income was $119 for the ~~third quarter~~six months ended June 30, 2020 composed of ~~2019.~~$69 of Income from continuing operations and $50 from discontinued operations, ~~was $50~~ or $0.15 and $0.11 per diluted share, ~~for the nine months ended September 30, 2020 compared to $153 or $0.34 per diluted share for the nine months ended September 30, 2019. See details of discontinued operations in Note~~ B ~~to the Consolidated Financial Statements.~~respectively.

Segment Information

The Company’s operations consist of four worldwide reportable segments: Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels. Segment performance under ~~the Company's~~Howmet’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Segment operating profit. ~~The Company's~~Howmet's definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and other ~~charges and Impairment of goodwill.~~charges. Segment operating profit may not be comparable to similarly titled measures of other companies. Differences between segment totals and consolidated ~~totals~~Howmet are in Corporate. ~~The Company has four segments - Engine Products, Fastening Systems, Engineered Structures and Forged Wheels.~~ (See Note D to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a description of each segment).

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

The Company produces aerospace engine parts and components and aerospace fastening systems for ~~Boeing~~ 737 MAX ~~("737 MAX")~~ airplanes. The temporary reduction in the production rate of the 737 MAX airplanes that was announced by Boeing in April 2019 did not have a significant impact on the Company's sales or segment operating profit in 2019. In late December 2019, Boeing announced a temporary suspension of production of the 737 MAX airplanes. This decline in production had a negative impact on sales and ~~segment~~Segment operating profit in the Engine Products, Fastening Systems and Engineered Structures ~~segments~~segments. While regulatory authorities in the ~~third quarter~~United States and ~~nine months ended September 30, 2020. The Company expects~~certain other jurisdictions lifted grounding orders beginning in late 2020, our sales have remained at lower levels due to the ~~reduction in~~residual impacts of the 737 MAX ~~production rates to continue to have a negative impact on its financial performance for the remainder of 2020.~~

~~Engine Products~~

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Third-party sales $ 485 $ 844 $ 1,851 $ 2,492
Intersegment sales 1 1 4 9
Total sales $ 486 $ 845 $ 1,855 $ 2,501
Segment operating profit 39 161 309 465
grounding.

Engine Products


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Third-party sales	$	544	$	585	$	1,078	$	1,366


Segment operating profit	100		105		201		270

Third-party sales for the Engine Products segment decreased ~~$359,~~$41, or ~~43%~~7%, in the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019,~~2020, primarily due to lower volumes in the commercial aerospace ~~end~~ market driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by higher volumes in the industrial gas turbine market.

Third-party sales for the Engine Products segment decreased $288, or 21%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines, ~~and a decrease in sales of $30 from the divestiture of the forgings business in the U.K. (December 2019) (see Note~~ Q ~~to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q),~~ partially offset by higher volumes in the defense aerospace and industrial gas ~~turbines end markets, as well as price increases.~~

Third-party sales for the Engine Products segment decreased $641, or 26% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to lower volumes in the commercial aerospace end market driven by COVID-19 and 737 MAX production declines and a decrease in sales of $95 from the divestiture of the forgings business in the U.K. (December 2019) (see Note Q to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q), partially offset by higher volumes in the industrial gas turbines and defense aerospace end markets as well as price increases.

Segment operating profit for the Engine Products segment decreased $122, or 76%, in the third quarter of 2020 compared to the third quarter of 2019, primarily due to lower commercial aerospace volumes and COVID-19 productivity impacts, partially offset by cost reductions, price increases, and favorable volumes in the industrial gas turbines and defense aerospace endturbine markets.

Segment operating profit for the Engine Products segment decreased ~~$156,~~$5, or ~~34%~~5%, ~~for~~in the ~~nine months ended September 30, 2020~~second quarter of 2021 compared to the ~~nine months ended September 30, 2019,~~second quarter of 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by cost reductions, favorable sales volumes in the industrial gas turbine market, and favorable product pricing. The segment added approximately 300 headcount in the quarter in anticipation of revenue increases in the second half of the year.

Segment operating profit for the Engine Products segment decreased $69, or 26%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace market driven

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by the impact of COVID-19, ~~productivity impacts,~~and 737 MAX and Boeing 787 production declines, partially offset by cost reductions, ~~price increases~~favorable sales volumes in the defense aerospace and industrial gas turbine markets, and favorable ~~volumes~~product pricing.

For the full year 2021 compared to 2020, demand in the industrial gas ~~turbines~~turbine market is expected to increase while demand in the commercial aerospace market is expected to be down, driven by the impact of COVID-19 and ~~defense aerospace end markets.~~Boeing 787 production declines. Favorable cost reductions are expected to continue.

Fastening Systems

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Third-party sales $ 271 $ 391 $ 982 $ 1,185
Segment operating profit 33 102 199 297


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Third-party sales	$	262	$	326	$	534	$	711


Segment operating profit	50		70		95		166

Third-party sales for the Fastening Systems segment decreased ~~$120,~~$64, or ~~31%~~20%, in the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019,~~2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by higher volumes in the commercial transportation and ~~commercial aerospace end markets driven by COVID-19 and 737 MAX production declines.~~industrial markets.

Third-party sales for the Fastening Systemssegment decreased ~~$203,~~$177, or ~~17%~~25%, ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, primarily due to lower volumes in the commercial ~~transportation and commercial~~ aerospace ~~end markets~~market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production ~~declines.~~declines, partially offset by higher volumes in the commercial transportation and industrial markets.

Segment operating profit for the Fastening Systems segment decreased ~~$69,~~$20, or ~~68%~~29%, in the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019,~~2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19 and ~~COVID-19 productivity impacts,~~Boeing 787 production declines, partially offset by cost reductions and favorable ~~product pricing.~~sales volumes in the commercial transportation and industrial markets.

Segment operating profit for the Fastening Systems segment decreased ~~$98~~$71, or ~~33%~~43%, ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19, and ~~COVID-19 productivity impacts,~~737 MAX and Boeing 787 production declines, partially offset by cost ~~reductions.~~reductions and favorable sales volumes in the commercial transportation and industrial markets.

For the full year 2021 compared to 2020, demand in the commercial transportation and industrial markets is expected to increase while demand in the commercial aerospace market is expected to be down, driven by the impact of COVID-19 and Boeing 787 production declines. Favorable cost reductions are expected to continue.

Engineered Structures

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Third-party sales $ 206 $ 318 $ 710 $ 943
Intersegment sales 1 4 6 10
Total sales $ 207 $ 322 $ 716 $ 953
Segment operating profit 10 40 57 81


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Third-party sales	$	160	$	229	$	336	$	504


Segment operating profit	11		19		21		47

Third-party sales for the Engineered Structures segment decreased ~~$112,~~$69, or ~~35%~~30%, in the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019,~~2020, primarily due to lower volumes in the commercial aerospace ~~end~~ market driven by the impact of COVID-19 and Boeing 787 ~~and 737 MAX~~ production ~~declines, partially offset by price increases.~~declines.

Third-party sales for the Engineered Structuressegment decreased ~~$233,~~$168, or ~~25%~~33%, ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, primarily due to lower volumes in the commercial aerospace ~~end~~ market driven by the impact of COVID-19, and 737 MAX and Boeing 787 production declines.

Segment operating profit for the Engineered Structuressegment decreased $8, or 42%, in the second quarter of 2021 compared to the second quarter of 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 ~~and 737 MAX~~ production declines, partially offset by ~~price increases.~~cost reductions.

Segment operating profit for the Engineered Structures segment decreased ~~$30,~~$26, or ~~75%~~55%, in the ~~third quarter of 2020~~six months ended June 30, 2021 compared to the ~~third quarter of 2019,~~six months ended June 30, 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19, and ~~COVID-19 productivity impacts,~~737 MAX and Boeing 787 production declines, partially offset by cost ~~reductions and price increases.~~reductions.

~~Segment operating profit for the Engineered Structures~~segment decreased $24 or 30%, for the nine months ended September 30, 2020 compared to nine months ended September 30, 2019, primarily due to lower volumes and COVID-19 productivity impacts, partially offset by cost reductions, price increases and intentional product exits.

~~Forged Wheels~~

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Third-party sales $ 172 $ 241 $ 476 $ 752
Segment operating profit 35 60 91 193

3431

For the full year 2021 compared to 2020, demand in the commercial aerospace market is expected to be down, driven by the impact of COVID-19 and Boeing 787 production declines. Favorable cost reductions are expected to continue.

Forged Wheels


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Third-party sales	$	229	$	113	$	456	$	304


Segment operating profit	61		6		131		56

Third-party sales for the Forged Wheels segment ~~decreased $69,~~increased $116, or ~~29%~~103%, in the ~~third~~second quarter of 2021 compared to the second quarter of 2020, ~~compared to the third quarter of 2019,~~ primarily due to ~~lower~~higher volumes in the commercial transportation ~~market driven by market softness and COVID-19.~~market.

Third-party sales for the Forged Wheels segment ~~decreased $276,~~increased $152, or ~~37%~~50%, ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, primarily due to ~~lower~~higher volumes in the commercial transportation ~~market driven by market softness and COVID-19 .~~market.

Segment operating profit for the Forged Wheels segment ~~decreased $25,~~increased $55, or ~~42%~~917%, in the ~~third~~second quarter of 2021 compared to the second quarter of 2020, ~~compared to the third quarter of 2019,~~ primarily due to ~~lower~~higher commercial transportation sales volumes and ~~COVID-19 productivity impacts, partially offset by cost reductions.~~maximizing production in low-cost countries.

Segment operating profit for the Forged Wheels segment ~~decreased $102,~~increased $75, or ~~53%~~134%, ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, primarily due to ~~lower~~higher commercial transportation sales volumes and maximizing production in low-cost countries.

For the full year 2021 compared to 2020, demand in the commercial transportation markets served by Forged Wheels is expected to increase in most regions. Commercial transportation OEMs are expected to increase output as global economies recover from 2020 COVID-19 ~~productivity impacts, partially offset~~lows. However, sales in the Forged Wheels segment could be negatively impacted by ~~cost reductions.~~customer supply chain constraints.

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


	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Income (loss) from continuing operations before income taxes	$	110	$	(86)	$	223	$	112
Interest expense	89		144		161		228
Other expense (income), net	8		16		12		(8)
Consolidated operating income	$	207	$	74	$	396	$	332
Unallocated amounts:
Restructuring and other charges	5		105		14		144
Corporate expense	10		21		38		63
Total segment operating profit	$	222	$	200	$	448	$	539

Third quarter ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Total segment operating profit $ 117 $ 363 $ 656 $ 1,036
Unallocated amounts:
Restructuring and other charges (22) (56) (166) (572)
Corporate expense (22) (51) (85) (170)
Consolidated operating income $ 73 $ 256 $ 405 $ 294
Interest expense, net (77) (85) (305) (256)
Other expense, net (8) (8) — (26)
Income (loss) from continuing operations before income taxes $ (12) $ 163 $ 100 $ 12
Total segment operating profit is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of the segments of the Company excluding Corporate results.

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

Corporate expense decreased $11, or 52%, in the second quarter of 2021 compared to the second quarter of 2020, primarily due to costs incurred in 2020 associated with the Arconic Inc. Separation Transaction of $3, lower costs related to fires at two plants of $7, and lower costs driven by overhead cost reductions.

Corporate expense decreased $25, or 40%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to costs incurred in 2020 associated with the Arconic Inc. Separation Transaction of $7, lower costs related to fires at two plants of $8, impairment costs related to facility closures of $3 incurred in 2020 that did not recur in 2021, and lower costs driven by overhead cost reductions.

Environmental Matters

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

Subsequent Events

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

Liquidity and Capital Resources

~~During~~As previously disclosed, during the third quarter ~~ended September 30,~~of 2020, the Company identified a misclassification in the presentation of changes in accounts payable and capital expenditures in its previously issued Statement of Consolidated Cash Flows ~~and~~for the six months ended June 30, 2020. Although management has determined that such misclassification was not material, the Company revised ~~its~~the accompanying Statement of Consolidated Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020, resulting in an $83 increase to previously reported capital expenditures and decrease to cash provided from investing activities with a corresponding reduction (decrease) in accounts payable, trade and increase in cash provided by operations.

The cash flows related to Arconic Corporation have not been segregated and are included in the Statement of Consolidated Cash Flows for all periods prior to the Arconic Inc. Separation Transaction. See Note A to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for ~~additional detail.~~reference.

Operating Activities

Cash ~~(used for)~~ provided byfrom operations was ~~($142)~~$79 in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021 compared to ~~$17 in the nine months ended September 30, 2019. The increase in~~ cash used for operations of ~~$159,~~$177 in the six months ended June 30, 2020. The change of $256, or ~~935%~~145%, was primarily due to lower operating results of ~~$569, partially~~$191, which were more than offset by lower working capital of ~~$299 and~~$391, including the impact of employee retention credit receivables, lower pension contributions of ~~$107.~~$41, and noncurrent liabilities of $13. The components of the change in working capital included ~~favorable changes in receivables of $840, and inventories of $50, offset by~~ accounts payable of ~~$437,~~$368, inventories of $155, accrued expenses of ~~$87, taxes, including income taxes of $51,~~$80, and prepaid expenses and other current assets of ~~$16.~~$21, offset by unfavorable changes in receivables of $161 and taxes, including income taxes of $72.

As a result of the American Rescue Plan Act of 2021, management expects Howmet’s estimated pension contributions and other postretirement benefit payments in 2021 to be approximately $120.

Financing Activities

Cash used for financing activities was ~~$339~~$1,068 in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~$1,144~~$277 in the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease in cash used for financing activities~~change of ~~$805,~~$791, or ~~70%~~286%, was primarily due to ~~a decrease~~debt issued of $2,400 in the first half of 2020 (of which $1,200 went with Arconic Corporation in the Arconic Inc. Separation Transaction) and the repurchase of common stock of ~~$1,049 and an increase~~$200 in ~~debt issued~~the second quarter of ~~$2,100, which were~~2021, partially offset by

~~an increase in~~ payments on the redemption of long-term debt ~~redemptions~~ of ~~$1,738,~~$1,203 ($838 in the first half of 2021 compared to $2,041 in the first half of 2020) (See Note O to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference), cash distributed to Arconic Corporation at the Arconic Inc. Separation Transaction of $500, a reduction in debt issuance costs of ~~$61 and~~$60, a reduction in premiums paid on the redemption of debt of ~~$59.~~$37 and a reduction in dividends paid to common stock shareholders of $9. On an annual basis, the redemption of the 5.400% Notes and the 5.870% Notes will decrease Interest expense, net by approximately $47.

On July 19, 2021, the Board of Directors of Howmet declared a dividend of $0.02 per share on the outstanding common stock of the Company, to be paid on August 25, 2021, to the holders of record of the common stock at the close of business on August 6, 2021.

The Company maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein. ~~In addition to the Credit Agreement, the Company has a number of other credit agreements.~~ On ~~June 26, 2020,~~March 29, 2021, the Company entered into ananother amendment to its Credit Agreement to ~~modify certain terms which provided~~provide extended relief from its existing financial covenant through December 31, ~~2021 and reduced total commitment available from $1,500 to $1,000.~~2022. See Note O to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference.

The Company may in the future repurchase additional portions of its debt or equity securities from time to time, in either the open market or through privately negotiated transactions, in accordance with applicable SEC and other legal requirements. The timing, prices, and sizes of purchases depend upon prevailing trading prices, general economic and market conditions, and other factors, including applicable securities laws. Such purchases may be completed by means of trading plans established from time to time in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, block trades, private transactions, open market repurchases, tender offers, and/or accelerated share repurchase agreements or other derivative transactions.

The Company’s costs of borrowing and ability to access the capital markets are affected not only by market conditions but also by the ~~short-~~short and long-term debt ratings assigned to the Company by the major credit rating agencies.

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

~~Long-Term Debt~~Issuer Rating

~~Short-Term Debt~~

Outlook

Date of Last Update

Standard and Poor’s Ratings Service (S&P)

BB+

Negative

September 9, 2020

Moody’s Investors Service (Moody’s)

~~Ba3~~Ba2

~~Speculative Grade Liquidity-2~~Stable

~~Negative~~

April ~~23, 2020~~20, 2021

Fitch Investors Service (Fitch)

BBB-

Stable

~~April 22, 2020~~March 26, 2021

Investing Activities

Cash provided from investing activities was ~~$152~~$94 in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~$171~~$44 in the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease of~~increase in cash provided from investing activities of ~~$19,~~$50, or ~~11%~~114%, was primarily due to ~~a decrease in Cash receipts~~proceeds from ~~sold receivables of $372, and lower sales of fixed-income securities of $47, partially offset by a decrease in capital expenditures of $312 and~~ the sale of assets and ~~business~~businesses of ~~$87 primarily~~$106 ($8 is related to the sale of a small manufacturing plant in France in the second quarter of 2021 and $114 is related to the sale of a hard extrusions plant in South Korea and an aluminum rolling mill in Brazil in the first quarter of 2020 (both of which related to Arconic Corporation) ~~compared to the~~), substantially offset by a decrease in capital expenditures of $93 and an increase in cash receipts from sold receivables of $58 and sale of ~~a small additives business and inventory and properties, plants and equipment~~fixed income securities of ~~a small energy business within the Engineered Structures segment in the second and third quarters of 2019, respectively.~~

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

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

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

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

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

During the first quarter of 2020, Howmet’s market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, sales globally to customers in the aerospace and commercial transportation industries that are impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test in the first quarter to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this assessment, the Company performed a quantitative impairment test in the first quarter for the Engineered Structures reporting unit and concluded that though the margin between the fair value of the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not impaired. Consistent with prior practice, a discounted cash flow model was used to estimate the current fair value of the reporting unit. The significant assumptions and estimates utilized to determine fair value were developed utilizing current market and forecast information reflecting the disruption in demand that has and is expected to negatively impact the Company’s sales globally in the aerospace industry.

In the second and third quarters of 2020, there were no indicators of impairment identified for the Engineered Structures reporting unit as the margin between fair value of the reporting unit and carrying value exceeded 20%. As such, the fair values of all of our reporting units substantially exceeded their carrying values at September 30, 2020. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and could be material.$5.

Recently Adopted and Recently Issued Accounting Guidance

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

Forward-Looking Statements

This report contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect Howmet’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements, forecasts and ~~expectations~~outlook relating to the ~~growth~~condition of ~~the aerospace, commercial transportation and other~~ end markets; ~~statements and guidance regarding~~ future financial results, operating performance, or ~~operating performance; statements regarding~~estimated or expected future capital expenditures; future strategic actions; ~~and statements about~~ Howmet’s strategies, outlook, and business and financial ~~prospects, including share~~prospects; and any future dividends and repurchases ~~which may be subject to market conditions, legal requirements and other considerations.~~of its debt or equity securities. These statements reflect beliefs and assumptions that are based on Howmet’s perception of historical trends, current conditions and expected future developments, as well as other factors Howmet believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict, which could cause actual results to differ materially from those indicated by these statements. Such risks and uncertainties include, but are not limited to: ~~(a)~~a) uncertainty of the duration, extent and impact of the ~~separation~~COVID-19 pandemic on Howmet’s business, results of ~~Arconic Corporation from Howmet on the businesses of Howmet;~~operations, and financial condition; (b) deterioration in global economic and financial market conditions generally, including as a result of pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the COVID-19 ~~outbreak~~pandemic continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations); (c) unfavorable changes in the markets served by Howmet; (d) the impact of potential cyber attacks and information technology or data security breaches; (e) the loss of significant customers or adverse changes in customers’ business or financial conditions; (f) manufacturing difficulties or other issues that impact product performance, quality or safety; (g) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (h) the inability to achieve ~~the level of~~ revenue growth, cash generation, cost savings, restructuring plans, cost reductions, improvement in profitability, ~~and margins, fiscal discipline,~~ or strengthening of competitiveness and operations anticipated or targeted; ~~(e)~~(i) competition from new product offerings, disruptive technologies or other developments; ~~(f) political,~~(j) geopolitical, economic, and regulatory risks relating to Howmet’s global operations, including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (g) manufacturing difficulties or other issues that impact product performance, quality or safety; (h) Howmet’s inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, expansions, or joint ventures; (i) the impact of potential cyber attacks and information technology or data security breaches; (j) the loss of significant customers or adverse changes in customers’ business or financial conditions; (k) adverse changes in discount rates or investment returns on pension assets; (l) the impact of changes in raw material prices (including but not limited to aluminum and nickel prices) and foreign currency exchange rates on costs and results; (m) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet to substantial costs and liabilities; ~~(n) the possible impacts~~(l) failure to comply with government contracting regulations; (m) adverse changes in discount rates or investment returns on pension assets; and ~~our preparedness to respond to implications of COVID-19; and (o)~~(n) the other risk factors summarized in Howmet’s Form 10-K for the year ended December 31, ~~2019, Form 10-Q for the quarter ended March 31, 2020, Form 10-Q for the quarter ended June 30,~~ 2020 and other reports filed with the U.S. Securities and Exchange Commission. Market projections are subject to the risks discussed above and other risks in the market. Howmet disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not material.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the ~~third~~second quarter of ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

~~Howmet’s business, financial condition and results of operations may be impacted by a number of factors. In addition to~~There have been no material changes from the risk factors ~~discussed elsewhere in this report,~~previously disclosed in Part I, Item 1A, ~~of Howmet’s~~“Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~ Part II, Item 1A. of Howmet’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 2020 and March 31, 2020, and in other reports filed by Howmet with the Securities and Exchange Commission, the following risks and uncertainties, updated from and in addition to those in the Form 10-K and Forms 10-Q, could materially harm its business, financial condition or results of operations, including causing Howmet’s actual results to differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to Howmet or that Howmet currently deems immaterial also may materially adversely affect the Company in future periods.2020.

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

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

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

3835

•Business and operations risks: We continue to monitor the evolving situation relating to COVID-19 to determine whether we will need to significantly modify our business practices or take actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, suppliers and shareholders. We have had a number of smaller manufacturing locations that have experienced periods of shutdowns. Future shutdowns will be dependent on facts and circumstances as they unfold, including based on the restrictions and limitations noted above. Additional shutdowns, while not required by governmental authorities, may be necessary to match our production of materials to the reduced demand of our customers. In addition, given these factors and potential further disruptions, we may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. We may also face challenges in restoring our production levels if and when COVID-19 abates, including as a result of government-imposed or other limitations that prevent the return of all or a portion of our workforce and/or continue to disrupt demand and limit the capabilities of our suppliers. We continue to monitor the situation, to assess further possible implications to our business, employees, customers and supply chain, and to take actions in an effort to mitigate adverse consequences. As a result of COVID-19 and its potential impact on the aerospace industry, the possibility exists that a sustained impact to our operations, financial results and market capitalization may require material impairments of our assets including, but not limited to, goodwill, intangible assets, long-lived assets, and right-of-use assets. While we have already commenced plans to reduce costs, including certain headcount reductions, reductions in certain cash outflows, suspension of our common stock dividend and reductions in the levels of our capital expenditures, we cannot at this time predict the longer term impact of the COVID-19 pandemic, but it could continue to have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

•Customer and supplier risks: We have limited visibility into future demand given the disruptions resulting from COVID-19. The sharp decrease in air travel resulting from the COVID-19 outbreak and the measures governments and private organizations worldwide have implemented in an attempt to contain its spread is adversely affecting, and will likely continue to adversely affect, airlines and airframers and their respective demand for our customers’ products and services. Aircraft manufacturers are reducing production rates due to fewer expected aircraft deliveries and, as a result, demand for products in the original equipment manufacturer market has significantly decreased. Several of our aerospace and commercial transportation customers have temporarily suspended operations at certain production sites, reduced operations and production rates and/or taken cost-cutting actions, the duration and extent of which we cannot predict, including, but not limited to, General Electric Company, Raytheon Technologies Corporation and The Boeing Company, which represented approximately 11%, 9% and 8%, respectively, of our third-party sales for the nine months ended September 30, 2020. Due to these cost-cutting measures and others, we are experiencing, and expect to continue experiencing, lower demand and volume for products and services, customer requests for potential payment deferrals, pricing concessions or other contract modifications, delays of deliveries and the achievement of other billing milestones. COVID-19 may also limit the ability of our counterparties generally to perform their obligations to us, including, but not limited to, our customers’ ability to make timely payments to us. These trends may lead to charges, impairments and other adverse financial impacts over time, as noted above, as we have historically depended upon the strength of these industries, particularly the aerospace industry. In addition, the ongoing COVID-19 pandemic may negatively impact customer contract negotiations, including the ability to negotiate acceptable terms in contract renewal negotiations and our ability to obtain new customers. Similarly, our suppliers may not have the materials, capacity, or capability to manufacture our products according to our schedule and specifications. To date, we have not experienced significant disruption to our supply chain. If our suppliers’ operations were to be impacted, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers, each of which would affect our business, results of operations, financial condition and/or cash flows. The duration of the current disruptions to our customers and to our supply chain, and related financial impact to us, cannot be estimated at this time. Should such disruption continue for an extended period of time, the impact will have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Ultimately, the demand for our products is, in turn, driven by demand for transportation and for people to travel within and between various countries around the world. Should the COVID-19 outbreak cause a long term deterioration in demand for transportation or travel due to fear or anxiety related to health concerns, governmental restriction, economic hardships, or increased use of electronic communication technologies embraced during the COVID-19 related shutdowns, the effects of the COVID-19 virus on our business may extend well beyond the COVID-19 current health crisis and immediate related governmental actions.

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

•Liquidity and credit risks: We currently have the ability to borrow up to $1.0 billion under our revolving credit agreement, which was amended in June 2020. A prolonged period of generating lower financial results and cash from operations could adversely affect our ability to draw under such amended revolving credit agreement, could also adversely affect our financial condition, including in respect of satisfying both required and voluntary pension funding requirements, and could otherwise negatively affect our ability to achieve our strategic objectives. These factors could also adversely affect our ability to maintain compliance with the debt covenants under our amended revolving credit agreement, including as a result of potential increases in net debt or future reductions in EBITDA. There can also be no assurance that we will not face credit rating downgrades as a result of weaker than anticipated performance of our businesses or other factors including overall market conditions. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets, and a significant downgrade could have an adverse commercial impact on our businesses. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding (including for receivables securitization or supply chain finance programs used to finance working capital) or our ability to refinance certain of our indebtedness, which could adversely affect our business, financial position, results of operations and/or cash flows. Although the U.S. federal and other governments have announced a number of funding programs to support businesses, our ability or willingness to access funding under such programs may be limited by regulations or other guidance, including eligibility criteria, or by further change or uncertainty related to the terms of these programs.

The COVID-19 pandemic may also exacerbate other risks disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. Risk Factors in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, including, but not limited to, risks related to global economic conditions, competition, loss of customers, costs of supplies, manufacturing difficulties and disruptions, investment returns, our credit profile, our credit ratings and interest rates. We expect that the longer the period of disruption from COVID-19 continues, the more material the adverse impacts will be on our business operations, financial performance, results of operations and/or cash flows. In addition, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our business, results of operations, financial conditions and/or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents information with respect to the Company’s ~~open-market~~ repurchases of its common stock during the quarter ended ~~September~~June 30, ~~2020:~~

(in millions except share and per share amounts)
Period Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)(2)
July 1 - July 31, 2020 — ---- — $350.0
August 1 - August 31, 2020 31,755 $18.59 31,755 $349.4
September 1 - September 30, 2020 2,875,339 $17.34 2,875,339 $299.5
Total for quarter ended September 30, 2020 2,907,094 $17.36 2,907,094
2021:


	(in millions except share and per share amounts)
Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 1 - April 30, 2021	—	—	—	$277.0
May 1 - May 31, 2021(2)	4,910,988	$34.02	4,910,988	$77.0
June 1 - June 30, 2021(2)	967,803	$34.02	967,803	$77.0
Total for quarter ended June 30, 2021	5,878,791	$34.02	5,878,791

(1) ~~Excludes commissions cost~~

~~(2)~~ On May 20, 2019, the Company announced that its Board of Directors authorized the repurchase of $500 million of the Company's outstanding common stock (the ~~"Share~~“Share Repurchase ~~Program"~~Program”) 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 was no stated expiration for the Share Repurchase Program under which the Company may repurchase shares from time to time and pursuant to such terms, as and if it deems appropriate. The Share Repurchase Program may be suspended, modified or terminated at any time without prior notice. After giving effect to the share repurchases made through ~~September~~June 30, ~~2020,~~2021, approximately ~~$299.5~~$77 million remains available under the prior authorization by the Board of Directors for the Share Repurchase Program. The amount of share repurchases by the Company may be limited under the terms of the Five-Year Revolving Credit Agreement (See Note O to the Consolidated Financial Statements for additional detail).

(2)On May 10, 2021, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC to repurchase $200 million of its common stock. The Company received an initial delivery of 4,910,988 shares in May 2021, and 967,803 additional shares in June 2021. A total of 5,878,791 shares, at an average price of $34.02 per share, were purchased under the agreement.

Item 6. Exhibits.


10.1			~~2013~~Letter Agreement, by and between Howmet Aerospace ~~Stock Incentive Plan,~~Inc. and Lola Lin, dated as ~~Amended and Restated, effective September 30, 2020.~~of May 5, 2021.
10.2			~~Howmet Aerospace Inc. Change in Control Severance Plan, as Amended and Restated,~~Restricted Share Unit Award Agreement - Annual Equity Award for Lola Lin, effective ~~September 30, 2020.~~July 15, 2021.
10.3			~~Howmet Aerospace Inc. Executive Severance Plan, as Amended and Restated, effective September 30, 2020.~~
~~10.4~~			~~Global~~ Restricted Share Unit Award Agreement - Sign-On Equity Award for Lola Lin, effective ~~September 30, 2020.~~July 15, 2021.
~~10.5~~10.4			~~Global Stock Option Award Agreement, effective September 30, 2020.~~
~~10.6~~			~~Global Special Retention Award Agreement, effective September 30, 2020.~~
~~10.7~~			~~Terms~~Form of Confidentiality, Non-Competition, and ~~Conditions for Restricted Share Units, effective September 30, 2020.~~Non-Solicitation Agreement.
31			Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document.
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.			Cover Page Interactive Data File - the cover page from this Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020,~~2021, formatted in Inline XBRL (included within the Exhibit 101 attachments).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			Howmet Aerospace Inc.

~~November 9, 2020~~August 4, 2021			/s/ Ken Giacobbe
Date			Ken Giacobbe
			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)

~~November 9, 2020~~August 4, 2021			/s/ ~~Paul Myron~~Barbara L. Shultz
Date			~~Paul Myron~~Barbara L. Shultz
			Vice President and Controller
			(Principal Accounting Officer)

4137


	September 30, 2020		December 31, 2019
6.150% Notes, due 2020	0		1,000
5.400% Notes, due 2021	361		1,250
5.870% Notes, due 2022	476		627
5.125% Notes, due 2024	1,250		1,250
6.875% Notes, due 2025	1,200		0
5.900% Notes, due 2027	625		625
6.750% Bonds, due 2028	300		300
5.950% Notes due 2037	625		625
4.750% Iowa Finance Authority Loan, due 2042	250		250
Other (1)	(6)		13
	5,081		5,940
Less: amount due within one year	384		1,034
Total long-term debt	$	4,697	$	4,906