Howmet Aerospace 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended September 30, 2021

OR

Commission File Number 1-3610

HOWMET AEROSPACE INC.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices) (Zip code)

Investor Relations 412-553-1950

Office of the Secretary 412-553-1940

(Registrant’s telephone number including area code)

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

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.

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 1, 2021, there were 427,217,982 shares of common stock, par value $1.00 per share, of the registrant outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

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

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

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Comprehensive Income (unaudited)

(U.S. dollars in millions)

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)

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(U.S. 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 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 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 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. 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. See Note B to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information related to the Arconic Inc. Separation Transaction and discontinued operations.

COVID-19

Year-to-date 2021, the Company derived approximately 60% of its revenue from products sold to the aerospace end-market. As a result of the global 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 resulted in the temporary closure of a small number of the Company's manufacturing facilities during 2020, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, management has taken a series of actions to address the financial impact, including fixed and variable cost reductions, such as headcount reductions in certain segments, and reducing the level of capital expenditures to preserve cash and maintain liquidity.

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

Results of Operations

Earnings Summary:

Sales. Sales were $1,283 in the third quarter of 2021 compared to $1,134 in the third quarter of 2020 and $3,687 in the nine months ended September 30, 2021 compared to $4,021 in the nine months ended September 30, 2020. The increase of $149, or 13%, in the third quarter of 2021 was primarily due to higher sales volumes in the commercial transportation, commercial aerospace, and industrial gas turbine markets as well as favorable product pricing of $28, partially offset by declines in the defense aerospace market. Sequential improvement was driven by higher sales volumes in the commercial aerospace market. The decrease of $334, or 8%, in the nine months ended September 30, 2021 was primarily due to lower sales volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by growth in the commercial transportation and industrial gas turbine markets as well as favorable product pricing of $66.

Cost of goods sold (COGS). COGS as a percentage of Sales was 72.3% in the third quarter of 2021 compared to 79.4% in the third quarter of 2020 and 72.1% in the nine months ended September 30, 2021 compared to 74.8% in the nine months ended September 30, 2020. The decrease in the third quarter of 2021 and in the nine months ended September 30, 2021 was primarily due to net cost reductions and favorable product pricing. Additionally, the Company recorded total COGS charges of $7 and net charges of $16 in the third quarter of 2020 and in the nine months ended September 30, 2020, respectively, related to fires that occurred at a Fastening Systems plant in France in 2019 and at a Forged Wheels plant in Barberton, Ohio in mid-February 2020. The Company recorded total COGS charges of $1 and net charges of $7 in the third quarter of 2021 and in the nine months ended September 30, 2021, respectively, related to the fires in France and Barberton in 2021. The Company anticipates additional charges of approximately $3 to $7 in the fourth quarter of 2021, with further impacts in subsequent quarters as the businesses continue to recover from the fires.

Selling, general administrative, and other expenses (SG&A). SG&A expenses were $70 in the third quarter of 2021 compared to $66 in the third quarter of 2020 and $190 in the nine months ended September 30, 2021 compared to $219 in the nine months ended September 30, 2020. The increase of $4, or 6%, in the third quarter of 2021 was primarily due to lower insurance reimbursements. The decrease of $29, or 13%, in the nine months ended September 30, 2021 was primarily due to overhead cost reductions as well as costs incurred in the nine months ended September 30, 2020 associated with the Arconic Inc. Separation Transaction.

Research and development expenses (R&D). R&D expenses were $4 in the third quarter of 2021 and $5 in the third quarter of 2020, a decrease of $1, or 20%. R&D expenses were $13 in both the nine months ended September 30, 2021 and the nine months ended September 30, 2020.

Restructuring and other charges. Restructuring and other charges were $8 in the third quarter of 2021 compared to $22 in the third quarter of 2020 or a decrease of $14, and $22 in the nine months ended September 30, 2021 compared to $166 in the nine months ended September 30, 2020 or a decrease of $144.

Restructuring and other charges for the third quarter and nine months ended September 30, 2021 were primarily due to charges for pension plan settlements and exit related costs.

Restructuring and other charges for the third quarter of 2020 were primarily comprised of a $17 charge for layoff costs and an $8 charge for pension plan settlements. These charges were partially offset by a $3 benefit from the termination of a deferred compensation plan.

Restructuring and other charges in the nine months ended September 30, 2020 were primarily comprised of a $93 charge for layoff costs, a $72 charge for pension plan settlements, a $6 post-closing adjustment related to the sale of the Company’s U.K. forgings business (which was formerly part of the Engine Products segment), a $5 charge 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 benefit of $10 related to the reversal of a number of prior period programs and a $3 benefit from the termination of a deferred compensation plan.

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

Loss on debt redemption. Loss on debt redemption was $118 in the third quarter of 2021 compared to none in the third quarter of 2020, and $141 in the nine months ended September 30, 2021 compared to $64 in the nine months ended September 30, 2020. The increase of $118 in the third quarter of 2021 and $77, or 120%, in the nine months ended September 30, 2021 was primarily due to higher debt tender premiums paid on the 6.875% Notes due 2025 (the “6.875% Notes”).

Interest expense, net. Interest expense, net was $63 in the third quarter of 2021 compared to $77 in the third quarter of 2020, and $201 in the nine months ended September 30, 2021 compared to $241 in the nine months ended September 30, 2020. The decrease of $14, or 18%, in the third quarter of 2021 and $40, or 17%, in the nine months ended September 30, 2021 was primarily due to a reduced average level of debt for the third quarter and nine months ended September 30, 2021, respectively.

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

Other expense, net. Other expense, net was $1 in the third quarter of 2021 compared to Other expense, net of $8 in the third quarter of 2020, and Other expense, net was $13 in the nine months ended September 30, 2021 compared to Other expense, net of less than $1 in the nine months ended September 30, 2020. The decrease of $7, or 88%, in the third quarter of 2021 was primarily due to lower non-service related net periodic benefit cost of $6 and the impacts of deferred compensation arrangements of $5, partially offset by a decrease in foreign currency gains of $3. The increase of $13 in the nine months ended September 30, 2021, was primarily due to an increase in foreign currency losses of $13, the impacts of deferred compensation arrangements of $4, lower interest income of $3, and mark-to-market adjustments of $3, partially offset by lower non-service related net periodic benefit cost of $11.

(Benefit) provision for income taxes. The estimated annual effective tax rate, before discrete items, applied to ordinary income was 29.7% in both the third quarter and nine months ended September 30, 2021 compared to 34.5% in both the third quarter and nine months ended September 30, 2020. The tax rate including discrete items was 17.4% (benefit on income) in the third quarter of 2021 compared to 400.0% (benefit on a relatively small loss) in the third quarter of 2020. A discrete tax benefit of $12 was recorded in the third quarter of 2021 compared to a discrete tax benefit of $41 in the third quarter of 2020. The tax rate including discrete items was 26.4% (provision on income) for the nine months ended September 30, 2021 compared to 5.0% (benefit on income) for the nine months ended September 30, 2020. A discrete tax benefit of $9 was recorded in the nine months ended September 30, 2021 compared to a discrete tax benefit of $39 for the nine months ended September 30, 2020.

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

Net income from continuing operations. Income from continuing operations was $27, or $0.06 per diluted share, in the third quarter of 2021 compared to $36, or $0.08 per diluted share, in the third quarter of 2020, and Income from continuing operations was $181, or $0.41 per diluted share, in the nine months ended September 30, 2021 compared to $105, or $0.23 per diluted share, in the nine months ended September 30, 2020. The decrease of $9 in the third quarter of 2021 was primarily due to an increase in Loss on debt redemption primarily on the 6.875% Notes and a decrease in the Benefit for income taxes, partially offset by an increase in Operating income primarily due to higher sales volumes in the commercial transportation, commercial aerospace, and industrial gas turbine markets and a decrease in Interest expense, net and Restructuring and other charges. The increase of $76 in the nine months ended September 30, 2021 was primarily due to an increase in operating income due to lower COGS and a decrease in Restructuring and other charges and Interest expense, net, partially offset by lower sales volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines, an increase in Loss on debt redemption primarily on the 6.875% Notes, and an increase in the Provision for income taxes.

Net income. As the Arconic Inc. Separation Transaction occurred on April 1, 2020, there was no Income from discontinued operations for the third quarter or nine months ended September 30, 2021. Net income was $27 for the third quarter of 2021, all of which was composed of $27 of Income from continuing operations, or $0.06 per diluted share, and $181 in the nine months ended September 30, 2021, all of which was composed of $181 of Income from continuing operations, or $0.41 per diluted share.

Net income was $36 for the third quarter of 2020, all of which was composed of $36 of Income from continuing operations, or $0.08 per diluted share. Net income was $155 for the nine months ended September 30, 2020 composed of $105 of Income from continuing operations and $50 of Income from discontinued operations, or $0.23 and $0.11 per diluted share, 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 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 the total segment and consolidated totals are in Corporate (See Note D to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a description of each segment).

Effective October 14, 2021, John C. Plant assumed the position of sole Chief Executive Officer and continued in his role as Executive Chairman of the Board of Directors. Tolga Oal, the Company’s prior Co-Chief Executive Officer, departed the Company and also stepped down from the Board, each effective as of October 14, 2021. The Company has aligned its operations consistent with how the Chief Executive Officer assesses operating performance and allocates capital, which remain unchanged since the Arconic Inc. Separation Transaction.

The Company produces aerospace engine parts and components and aerospace fastening systems for Boeing 737 MAX (“737 MAX”) airplanes. In late December 2019, Boeing announced a temporary suspension of production of the 737 MAX airplanes. This decline in production had a negative impact on sales and Segment operating profit in the Engine Products, Fastening Systems, and Engineered Structures segments in 2020 and the first half of 2021. While regulatory authorities in the United States and certain other jurisdictions lifted grounding orders beginning in late 2020, our sales remained at lower levels in the first half of 2021 due to the residual impacts of the 737 MAX grounding.

Engine Products

Third-party sales for the Engine Products segment increased $114, or 24%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to higher volumes in the commercial aerospace and industrial gas turbine markets, partially offset by declines in the defense aerospace market.

Third-party sales for the Engine Products segment decreased $174, or 9%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 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 industrial gas turbine market.

Segment operating profit for the Engine Products segment increased $81, or 208%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to higher volumes in the commercial aerospace and industrial gas turbine markets, cost reductions, and favorable product pricing. The segment added approximately 500 headcount in the third quarter of 2021 in anticipation of revenue increases into 2022.

Segment operating profit for the Engine Products segment increased $12, or 4%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to favorable sales volumes in the industrial gas turbine market, cost reductions, and favorable product pricing, partially offset by lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines. The segment added approximately 800 headcount in the nine months ended September 30, 2021 in anticipation of revenue increases into 2022.

For the full year 2021 compared to 2020, demand in the industrial gas 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 Boeing 787 production declines. Favorable cost reductions are expected to continue.

Fastening Systems

Third-party sales for the Fastening Systems segment decreased $17, or 6%, in the third quarter of 2021 compared to the third 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 higher volumes in the commercial transportation and industrial markets.

Third-party sales for the Fastening Systems segment decreased $194, or 20%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 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 industrial markets.

Segment operating profit for the Fastening Systems segment increased $14, or 42%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to cost reductions and favorable sales volumes in the commercial transportation and industrial markets, partially offset by lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines.

Segment operating profit for the Fastening Systems segment decreased $57, or 29%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 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 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-party sales for the Engineered Structures segment decreased $7, or 3%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to lower volumes in the defense aerospace market, including lower F-35 program volumes, partially offset by higher volumes in the commercial aerospace market.

Third-party sales for the Engineered Structures segment decreased $175, or 25%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines.

Segment operating profit for the Engineered Structures segment increased $4, or 40%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to higher volumes in the commercial aerospace market and cost reductions, partially offset by lower volumes in the defense aerospace market, including lower F-35 program volumes.

Segment operating profit for the Engineered Structures segment decreased $22, or 39%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 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.

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

Third-party sales for the Forged Wheels segment increased $59, or 34%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to higher volumes in the commercial transportation market.

Third-party sales for the Forged Wheels segment increased $211, or 44%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to higher volumes in the commercial transportation market.

Segment operating profit for the Forged Wheels segment increased $27, or 77%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to higher commercial transportation sales volumes, fixed cost reductions, and maximizing production in low-cost countries.

Segment operating profit for the Forged Wheels segment increased $102, or 112%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to higher commercial transportation sales volumes, fixed cost reductions, 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 lows. However, sales in the Forged Wheels segment could be negatively impacted by customer supply chain constraints.

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

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, Loss on debt redemption, Interest expense, net, and Other expense, net discussions above under Results of Operations for reference.

Corporate expense increased $8, or 36%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to costs associated with closures, shutdowns, and other items of $10 and other miscellaneous items aggregating to $2, partially offset by lower net costs related to fires at two plants of $6.

Corporate expense decreased $17, or 20%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to lower net costs related to fires at two plants of $14, costs incurred in 2020 associated with the Arconic Inc. Separation Transaction of $7, and lower costs driven by overhead cost reductions, partially offset by costs associated with closures, shutdowns, and other items of $7 and other miscellaneous items aggregating to $5.

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

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 reference.

Operating Activities

Cash provided from operations was $146 in the nine months ended September 30, 2021 compared to cash used for operations of $142 in the nine months ended September 30, 2020. The change of $288, or 203%, was primarily due to lower operating results of $98, which were more than offset by lower working capital of $333, lower pension contributions of $42, and noncurrent liabilities of $7. The components of the change in working capital primarily included accounts payable of $502, inventories of $91, and accrued expenses of $56 due to an increase in purchasing activity associated with market recovery, offset by unfavorable changes in receivables of $265 including employee retention credit receivables and taxes, and including income taxes of $56.

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 $1,174 in the nine months ended September 30, 2021 compared to $339 in the nine months ended September 30, 2020. The change of $835, or 246%, was primarily due to less debt issued of $1,700 and incremental common stock repurchases of $174, partially offset by less payments made in connection with the redemption of long-term debt of $476 (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, and a reduction in debt issuance costs of $50. On an annual basis, the current year debt activity will decrease Interest expense, net by approximately $70.

The Company maintains a Five-Year Revolving Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and issuers named therein (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 and long-term debt ratings assigned to the Company by the major credit rating agencies.

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

On September 1, 2021, S&P affirmed the following ratings for Howmet: long-term debt at BB+ and the current outlook as negative.

On August 18, 2021, Moody’s affirmed the following ratings for Howmet: long-term debt at Ba2 and the current outlook as stable.

On August 18, 2021, Fitch also affirmed the following ratings for Howmet: long-term debt at BBB- and the current outlook as stable.

Investing Activities

Cash provided from investing activities was $144 in the nine months ended September 30, 2021 compared to $152 in the nine months ended September 30, 2020. The decrease in cash provided from investing activities of $8, or 5%, was primarily due to lower proceeds from the sale of assets and businesses of $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), offset by a decrease in capital expenditures of $82, an increase in cash receipts from sold receivables of $9 and the sale of fixed income securities of $5. Additionally, in the third quarter of 2021, the Company restructured its accounts receivable securitization. As a result, going forward, Cash receipts from sold receivables will be $0 within investing activities in the Statement of Consolidated Cash Flows in the fourth quarter of 2021 (See Note K to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference).

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 outlook relating to the condition of end markets; future financial results, operating performance, or estimated or expected future capital expenditures; future strategic actions; Howmet’s strategies, outlook, and business and financial prospects; any future dividends and repurchases of its debt or equity securities; and expected employment plans. 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) uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet’s business, results of operations, and financial condition; (b) deterioration in global economic and financial market conditions generally, including as a result of pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the COVID-19 pandemic continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations); (c) unfavorable changes in the markets served by 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 revenue growth, cash generation, cost savings, restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (i) competition from new product offerings, disruptive technologies or other developments; (j) geopolitical, economic, and regulatory risks relating to Howmet’s global operations, including compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (k) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet to substantial costs and liabilities; (l) failure to comply with government contracting regulations; (m) adverse changes in discount rates or investment returns on pension assets; and (n) the other risk factors summarized in Howmet’s Form 10-K for the year ended December 31, 2020 and other reports filed with the U.S. Securities and

Exchange Commission. Market projections are subject to the risks discussed above and other risks in the 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.

Not material.

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the third quarter of 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.

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

The following table presents information with respect to the Company’s repurchases of its common stock during the quarter ended September 30, 2021:

(1)Excludes commissions cost.

(2)On August 18, 2021, the Company announced that its Board of Directors authorized a share repurchase program of up to $1,500 million of the Company's outstanding common stock. The Board had previously authorized, in May 2019, a share repurchase program of up to $500 million, of which approximately $77 million Board authorization remained available as of July 31, 2021. After giving effect to the share repurchases made through September 30, 2021, approximately $1,552 million Board authorization remains available. Under the Company’s share repurchase programs (the “Share Repurchase Programs”), the Company may repurchase shares by means of trading plans established from time to time in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, block trades, private transactions, open market repurchases and/or accelerated share repurchase agreements or other derivative transactions. There is no stated expiration for the Share Repurchase Programs. Under its Share Repurchase Programs, the Company may repurchase shares from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations, including limits under the Company’s Five-Year Revolving Credit Agreement (See Note O to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for reference). The Company is not obligated to repurchase any specific number of shares or to do so at any particular time, and the Share Repurchase Programs may be suspended, modified or terminated at any time without prior notice.

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.