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
	September 30,				September 30,
	2021		2020		2021		2020
Sales (D)	$	1,283	$	1,134	$	3,687	$	4,021
Cost of goods sold (exclusive of expenses below)	928		900		2,658		3,006
Selling, general administrative, and other expenses	70		66		190		219
Research and development expenses	4		5		13		13
Provision for depreciation and amortization	68		68		203		212
Restructuring and other charges (E)	8		22		22		166
Operating income	205		73		601		405
Loss on debt redemption (O)	118		—		141		64
Interest expense, net	63		77		201		241
Other expense, net (F)	1		8		13		—
Income (loss) before income taxes	23		(12)		246		100
(Benefit) provision for income taxes (H)	(4)		(48)		65		(5)
Income from continuing operations after income taxes	$	27	$	36	$	181	$	105
Income from discontinued operations after income taxes (B)	—		—		—		50
Net income	$	27	$	36	$	181	$	155

Amounts Attributable to Howmet Aerospace Common Shareholders (I):
Net income	$	26	$	35	$	179	$	153
Earnings per share - basic
Continuing operations	$	0.06	$	0.08	$	0.42	$	0.24
Discontinued operations	$	—	$	—	$	—	$	0.11
Earnings per share - diluted
Continuing operations	$	0.06	$	0.08	$	0.41	$	0.23
Discontinued operations	$	—	$	—	$	—	$	0.11
Average Shares Outstanding (I):
Average shares outstanding - basic	429		436		431		436
Average shares outstanding - diluted	434		439		437		440

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)


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income	$	27	$	36	$	181	$	155
Other comprehensive income (loss), net of tax (J):
Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits	13		8		90		54
Foreign currency translation adjustments	(36)		48		(62)		(25)

Net change in unrecognized (losses) gains on cash flow hedges	(4)		5		4		1
Total other comprehensive (loss) income, net of tax	(27)		61		32		30
Comprehensive income	$	—	$	97	$	213	$	185

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, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	724	$	1,610
Receivables from customers, less allowances of $— in 2021 and $1 in 2020 (K)	408		328
Other receivables (K)	57		29
Inventories (L)	1,420		1,488
Prepaid expenses and other current assets	211		217

Total current assets	2,820		3,672
Properties, plants, and equipment, net (M)	2,483		2,592
Goodwill (D)	4,077		4,102
Deferred income taxes	202		272
Intangibles, net	554		571
Other noncurrent assets (N)	221		234

Total assets	$	10,357	$	11,443
Liabilities
Current liabilities:
Accounts payable, trade	$	646	$	599
Accrued compensation and retirement costs	202		205
Taxes, including income taxes	77		102
Accrued interest payable	68		89
Other current liabilities (N)	201		289
Short-term debt (O)	14		376

Total current liabilities	1,208		1,660
Long-term debt, less amount due within one year (O and P)	4,272		4,699
Accrued pension benefits (G)	847		985
Accrued other postretirement benefits (G)	154		198
Other noncurrent liabilities and deferred credits (N)	297		324

Total liabilities	6,778		7,866
Contingencies and commitments (R)
Equity
Howmet Aerospace shareholders’ equity:
Preferred stock	55		55
Common stock	428		433
Additional capital	4,473		4,668
Retained earnings	534		364
Accumulated other comprehensive loss (J)	(1,911)		(1,943)


Total equity	3,579		3,577
Total liabilities and equity	$	10,357	$	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
	September 30,
	2021		2020
Operating activities
Net income	$	181	$	155
Adjustments to reconcile net income to cash provided from (used for) operations:
Depreciation and amortization	203		271
Deferred income taxes	24		25
Restructuring and other charges	22		148
Net loss from investing activities—asset sales	7		6
Net periodic pension cost (G)	13		42
Stock-based compensation	28		35
Loss on debt redemption (O)	141		64
Other	28		(1)
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
Increase in receivables (K)	(382)		(117)
Decrease (increase) in inventories	49		(42)
Decrease in prepaid expenses and other current assets	6		1
Increase (decrease) in accounts payable, trade (A)	63		(439)
Decrease in accrued expenses	(121)		(177)
(Decrease) increase in taxes, including income taxes	(15)		41
Pension contributions	(68)		(110)
Increase in noncurrent assets	(1)		(5)
Decrease in noncurrent liabilities	(32)		(39)
Cash provided from (used for) operations	146		(142)
Financing Activities
Net change in short-term borrowings (original maturities of three months or less)	—		(8)
Additions to debt (original maturities greater than three months) (B)(O)	700		2,400
Payments on debt (original maturities greater than three months) (O)	(1,491)		(2,041)
Debt issuance costs (B)(O)	(11)		(61)
Premiums paid on early redemption of debt (O)	(133)		(59)
Proceeds from exercise of employee stock options	17		30
Dividends paid to shareholders	(11)		(10)
Repurchase of common stock	(225)		(51)
Net cash transferred to Arconic Corporation at separation (B)	—		(500)
Other	(20)		(39)
Cash used for financing activities	(1,174)		(339)
Investing Activities
Capital expenditures (A)(D)	(138)		(220)
Proceeds from the sale of assets and businesses (B)(Q)	8		114
Sale of debt securities	5		—
Cash receipts from sold receivables (K)	267		258
Other	2		—
Cash provided from investing activities	144		152
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		(6)
Net change in cash, cash equivalents and restricted cash	(885)		(335)
Cash, cash equivalents and restricted cash at beginning of period	1,611		1,703
Cash, cash equivalents and restricted cash at end of period	$	726	$	1,368

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		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at June 30, 2020	$	55	$	436	$	4,703	$	223	$	(1,968)	$	—	$	3,449

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

Repurchase and retirement of common stock	—		(2)		(49)		—		—		—		(51)
Stock-based compensation	—		—		12		—		—		—		12
Common stock issued: compensation plans	—		—		(5)		—		—		—		(5)

Distributions to Arconic Corporation (B)	—		—		22		—		(22)		—		—

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


	Howmet Aerospace Shareholders
	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at June 30, 2021	$	55	$	429	$	4,481	$	517	$	(1,884)	$	3,598

Net income	—		—		—		27		—		27
Other comprehensive income (J)	—		—		—		—		(27)		(27)
Cash dividends declared:
Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—		(1)
Common @ $0.02 per share	—		—		—		(9)		—		(9)
Repurchase and retirement of common stock	—		(1)		(24)		—		—		(25)
Stock-based compensation	—		—		14		—		—		14
Common stock issued: compensation plans	—		—		2		—		—		2


Balance at September 30, 2021	$	55	$	428	$	4,473	$	534	$	(1,911)	$	3,579

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		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests		Total Equity
Balance at December 31, 2019	$	55	$	433	$	7,319	$	113	$	(3,329)	$	14	$	4,605

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

Common @ $0.02 per share	—		—		—		(8)		—		—		(8)
Repurchase and retirement of common stock	—		(2)		(49)		—		—		—		(51)
Stock-based compensation	—		—		35		—		—		—		35
Common stock issued: compensation plans	—		3		(11)		—		—		—		(8)
Distributions to Arconic Corporation (B)	—		—		(2,611)		—		1,370		(14)		(1,255)




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


	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	—		—		—		181		—		181
Other comprehensive income (J)	—		—		—		—		32		32
Cash dividends declared:
Preferred-Class A @ $2.8125 per share	—		—		—		(2)		—		(2)
Common @ $0.02 per share	—		—		—		(9)		—		(9)
Repurchase and retirement of common stock	—		(7)		(218)		—		—		(225)
Stock-based compensation	—		—		28		—		—		28
Common stock issued: compensation plans	—		2		(5)		—		—		(3)


Balance at September 30, 2021	$	55	$	428	$	4,473	$	534	$	(1,911)	$	3,579

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 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 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, 2020, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period presentation.

The separation of Arconic Inc. into two standalone, publicly-traded companies, Howmet Aerospace Inc. and Arconic Corporation, (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 for additional information related to the Arconic Inc. Separation Transaction and discontinued operations.

For the nine months ended September 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 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.

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

B. Arconic Inc. Separation Transaction and Discontinued Operations

On April 1, 2020, the Company completed the separation of its business into two independent, publicly-traded companies, which was effected by the distribution (the “Distribution”) by the Company of all of the outstanding common stock of Arconic Corporation to the Company’s stockholders. Following the Arconic Inc. Separation Transaction, Arconic Corporation held the Global Rolled Products businesses (global rolled products, aluminum extrusions, and building and construction systems) previously held by the Company. The Company retained the Engineered Products and Forgings businesses (Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels).

In connection with the Arconic Inc. Separation Transaction, the Company entered into several agreements with Arconic Corporation, including the following: a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, certain Patent, Know-How, Trade Secret License and Trademark License Agreements, and Raw Material Supply Agreements.

On February 7, 2020, Arconic Corporation completed an offering of $600 aggregate principal amount of 6.125% senior secured second-lien notes due 2028. On March 25, 2020, Arconic Corporation entered into a credit agreement which provided for a $600 aggregate principal amount seven-year senior secured first-lien loan B facility and a revolving credit facility which is

guaranteed by certain of Arconic Corporation's wholly-owned domestic subsidiaries and secured on a 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.

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

Discontinued Operations

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


	Nine months ended
	September 30,
	2020
Sales	$	1,575
Cost of goods sold	1,293
Selling, general administrative, research and development and other expenses	106

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

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


	Nine months ended
	September 30,
	2020
Capital expenditures	$	72
Proceeds from the sales of businesses	$	112
Provision for depreciation and amortization	$	58

There was no discontinued operations activity related to Arconic Corporation for the third quarter ended September 30, 2020.

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

C. Recently Adopted and Recently Issued Accounting Guidance

Adopted

On January 1, 2021, the Company adopted changes issued by the Financial Accounting Standards Board (“FASB”) that were intended to simplify various aspects of accounting for income taxes by eliminating certain exceptions contained in existing guidance and amending other guidance to simplify several other income tax accounting matters. The adoption of this new guidance did not have a material impact on the Consolidated Financial Statements.

Issued

In March 2020, the FASB issued amendments that provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

D. Segment Information

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 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 the total segment and consolidated totals are in Corporate.

Howmet’s operations consist of four 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 commercial transportation vehicles, automobiles, construction and industrial equipment and renewable energy sector.

Engineered Structures

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

Forged Wheels

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

Goodwill

The Company had $4,077 of Goodwill at September 30, 2021 and reviews it annually for impairment in the fourth quarter, or more frequently, if indicators exist or if a decision is made to sell or realign a business.

On January 1, 2020, management transferred the 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 no goodwill impairment at the date the business was transferred.

During the first quarter of 2020, Howmet's market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, global sales to customers in the aerospace and commercial transportation industries 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. 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.

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


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Third quarter ended September 30, 2021
Sales:
Third-party sales	$	599	$	254	$	199	$	231	$	1,283
Inter-segment sales	1		—		1		—		2
Total sales	$	600	$	254	$	200	$	231	$	1,285
Profit and loss:
Segment operating profit	$	120	$	47	$	14	$	62	$	243
Restructuring and other charges	5		3		—		—		8
Provision for depreciation and amortization	31		12		12		10		65
Capital expenditures	21		8		3		15		47

Third quarter ended September 30, 2020
Sales:
Third-party sales	$	485	$	271	$	206	$	172	$	1,134
Inter-segment sales	1		—		1		—		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		—		9		—		18
Provision for depreciation and amortization	31		12		13		10		66
Capital expenditures	15		9		3		6		33

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Nine months ended September 30, 2021
Sales:
Third-party sales	$	1,677	$	788	$	535	$	687	$	3,687
Inter-segment sales	3		—		4		—		7
Total sales	$	1,680	$	788	$	539	$	687	$	3,694
Profit and loss:
Segment operating profit	$	321	$	142	$	35	$	193	$	691
Restructuring and other charges	15		8		1		—		24
Provision for depreciation and amortization	92		37		37		29		195
Capital expenditures	48		22		13		37		120

Nine months ended September 30, 2020
Sales:
Third-party sales	$	1,851	$	982	$	710	$	476	$	4,019
Inter-segment sales	4		—		6		—		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

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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Total segment operating profit	$	243	$	117	$	691	$	656
Unallocated amounts:
Restructuring and other charges	(8)		(22)		(22)		(166)
Corporate expense	(30)		(22)		(68)		(85)
Operating income	$	205	$	73	$	601	$	405
Loss on debt redemption	(118)		—		(141)		(64)
Interest expense, net	(63)		(77)		(201)		(241)
Other expense, net	(1)		(8)		(13)		—
Income (loss) from continuing operations before income taxes	$	23	$	(12)	$	246	$	100

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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Total segment capital expenditures	$	47	$	33	$	120	$	100
Corporate and discontinued operations	—		3		18		120
Capital expenditures	$	47	$	36	$	138	$	220

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


	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Third quarter ended September 30, 2021
Aerospace - Commercial	$	299	$	126	$	118	$	—	$	543
Aerospace - Defense	130		37		65		—		232
Commercial Transportation	—		59		—		231		290
Industrial and Other	170		32		16		—		218
Total end-market revenue	$	599	$	254	$	199	$	231	$	1,283

Third quarter ended September 30, 2020
Aerospace - Commercial	$	199	$	169	$	104	$	—	$	472
Aerospace - Defense	142		37		82		—		261
Commercial Transportation	—		38		—		172		210
Industrial and Other	144		27		20		—		191
Total end-market revenue	$	485	$	271	$	206	$	172	$	1,134

Nine months ended September 30, 2021
Aerospace - Commercial	$	786	$	403	$	277	$	—	$	1,466
Aerospace - Defense	402		120		206		—		728
Commercial Transportation	—		154		—		687		841
Industrial and Other	489		111		52		—		652
Total end-market revenue	$	1,677	$	788	$	535	$	687	$	3,687

Nine months ended September 30, 2020
Aerospace - Commercial	$	1,018	$	650	$	432	$	—	$	2,100
Aerospace - Defense	394		120		216		—		730
Commercial Transportation	—		118		—		476		594
Industrial and Other	439		94		62		—		595
Total end-market revenue	$	1,851	$	982	$	710	$	476	$	4,019

The Company derived 60% and 70% of its revenue from the aerospace end-market for the nine months ended September 30, 2021 and 2020, respectively.

General Electric Company represented approximately 13% and 11% of the Company’s third-party sales for the nine months ended September 30, 2021 and 2020, respectively, primarily from Engine Products.

E. Restructuring and Other Charges


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Layoff costs	$	—	$	17	$	2	$	93
Net reversals of previously recorded layoff reserves	—		—		(1)		(10)
Pension, Other post-retirement benefits and Deferred Compensation - net settlements (G)	3		3		9		67
Non-cash asset impairments	4		—		8		—
Net loss related to divestitures of assets and businesses (Q)	—		—		4		9
Other	1		2		—		7
Restructuring and other charges	$	8	$	22	$	22	$	166

In the third quarter and nine months ended September 30, 2021, the Company recorded Restructuring and other charges of $8 and $22, respectively, which were primarily due to charges for pension plan settlements and exit related costs.

In the third quarter of 2020, the Company recorded Restructuring and other charges of $22, which included a $17 charge for layoff costs, an $8 charge for pension plan settlements, and a $2 charge for accelerated depreciation. These charges were partially offset by a $3 benefit from the termination of a deferred compensation plan and a $2 curtailment benefit related to a post-retirement plan.

In the nine months ended September 30, 2020, the Company recorded Restructuring and other charges of $166, which included 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), a $2 charge for accelerated depreciation, 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, and a gain of $2 on the sale of assets.


	Layoff costs		Other exit costs		Total
Reserve balances at December 31, 2020	$	54	$	—	$	54
Cash payments	(37)		—		(37)
Restructuring charges	10		12		22
Other(1)	(11)		(12)		(23)
Reserve balances at September 30, 2021	$	16	$	—	$	16

(1)In the nine months ended September 30, 2021, layoff costs included a $9 charge for pension plan settlements and a $2 charge for other layoffs costs; while other exit costs were primarily related to an $11 charge for other exit costs including accelerated depreciation.

The remaining layoff cost reserves are expected to be paid in cash by mid-year 2022.

F. Other Expense, Net


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Non-service related net periodic benefit cost	$	2	$	8	$	8	$	19
Interest income	(1)		(1)		(2)		(5)
Foreign currency (gains) losses, net	(2)		(5)		1		(12)
Net loss from asset sales	3		2		7		6

Deferred compensation	(1)		4		5		1
Other, net	—		—		(6)		(9)
Other expense, net	$	1	$	8	$	13	$	—

G. Pension and Other Postretirement Benefits

The components of net periodic cost (benefit) were as follows:


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Pension benefits
Service cost	$	1	$	1	$	3	$	10
Interest cost	12		17		36		81
Expected return on plan assets	(23)		(21)		(69)		(115)
Recognized net actuarial loss	14		12		43		66

Settlements	3		8		9		72


Net periodic cost(1)	7		17		22		114
Discontinued operations	—		—		—		20
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	7	$	17	$	22	$	94

Other postretirement benefits
Service cost	$	—	$	1	$	1	$	3
Interest cost	1		2		4		9
Recognized net actuarial loss	1		—		1		2
Amortization of prior service benefit	(3)		(2)		(7)		(5)
Curtailments	—		(2)		—		(2)

Net periodic (benefit) cost(1)	(1)		(1)		(1)		7
Discontinued operations	—		—		—		6
Net amount recognized in continuing operations in Statement of Consolidated Operations	$	(1)	$	(1)	$	(1)	$	1

(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, net in the Statement of Consolidated Operations. The amounts included in net periodic cost (benefit) include costs related to both continuing and discontinued operations for the nine months ended September 30, 2020.

Pension benefits

In the third quarter of 2021, the Company applied settlement accounting to certain U.S. and Canadian pension plans due to lump sum payments made to participants, which resulted in settlement charges of $3 and $9 in the third quarter and nine months ended September 30, 2021, respectively, that were recorded in Restructuring and other charges.

In October 2021, the Company undertook additional actions to reduce gross pension obligations by approximately $125 by purchasing group annuity contracts with a third-party carrier to pay and administer future annuity payments. These actions are expected to result in a settlement charge of approximately $30 and will be recorded in Restructuring and other charges in the fourth quarter ending December 31, 2021 in the Statement of Consolidated Operations. The funded status of the plans have not been significantly impacted.

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. Considering the impact of ARPA 2021, management expects Howmet’s estimated pension contributions and other postretirement benefit payments in 2021 to be approximately $120.

In the second quarter ended June 30, 2020 and nine months ended September 30, 2020, the Company undertook a number of actions to reduce pension obligations in the U.K. by offering lump sum payments to certain plan participants and entering into group annuity contracts with a third-party carrier to pay and administer future annuity payments. The Company applied settlement accounting to these U.K. pension plans which resulted in settlement charges of $62 that were recorded in Restructuring and other charges in the Statement of Consolidated Operations 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 Company also applied settlement accounting to certain Canadian, U.K., and U.S. pension plans due to lump sum payments to participants which resulted in settlement charges of $8 and $10, respectively, that were recorded in Restructuring and other charges.

Other postretirement benefits

In the first quarter of 2021, the Company announced a plan administration change of certain of its Medicare-eligible prescription drug benefits to an Employer Group Waiver Plan with a wrap-around secondary plan effective July 1, 2021. The administration change is expected to reduce costs to the Company through the usage of Medicare Part D and drug manufacturer subsidies. Due to this amendment, along with the associated plan remeasurements, the Company recorded a decrease to its Accrued other postretirement benefits liability of $39, which was offset in Accumulated other comprehensive loss in the Consolidated Balance Sheet.

In the third quarter of 2020, the Company applied curtailment accounting due to a workforce reduction resulting in a decrease in expense of $2 which is recorded in Restructuring and other charges in the Statement of Consolidated Operations.

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 of 2020, the Company recorded a decrease to the Accrued other postretirement benefits liability of $6, which was offset in Accumulated other comprehensive loss.

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 29.7% in both the third quarter and nine months ended September 30, 2021, and 34.5% in both the third quarter and nine months ended September 30, 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 (“GILTI”) 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 nondeductible expenses.

For the third quarter of 2021 and 2020, the tax rate including discrete items was 17.4% (benefit on income) and 400.0% (benefit on a relatively small loss), respectively. For the third quarter of 2021, the Company recorded a discrete tax benefit of $12 related to a net $13 benefit from prior year amended returns and audit settlements, and a net $1 charge for other items. For the third quarter of 2020, the Company recorded a discrete tax benefit of $41 related to a $36 benefit for a U.S. tax law change associated with the issuance of final regulations that provide for an exclusion of certain high-taxed foreign earnings from the calculation of GILTI, a net $6 benefit for prior year items, and a net $1 charge for other items.

For the nine months ended September 30, 2021 and 2020, the tax rate including discrete items was 26.4% (provision on income) and 5.0% (benefit on income), respectively. For the nine months ended September 30, 2021, the Company recorded a discrete tax benefit of $9 related to a net $13 benefit related to prior year amended returns and audit settlements, a $2 charge for a U.K. tax rate change, and a net $2 charge for other items. For the nine months ended September 30, 2020, the Company recorded a discrete tax benefit of $39 related to a $36 benefit for a U.S. tax law change associated with the issuance of final regulations that provide for an exclusion of certain high-taxed foreign earnings from the calculation of GILTI, 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 for prior year items, and a net $2 benefit for other items.

The tax (benefit) provision for the third quarter and nine months ended September 30, 2021 and 2020 were comprised of the following:


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Pre-tax income (loss) at estimated annual effective income tax rate before discrete items	$	7	$	(4)	$	73	$	34
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	1		(2)		—		—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	—		(1)		1		—
Other discrete items	(12)		(41)		(9)		(39)
(Benefit) provision for income taxes	$	(4)	$	(48)	$	65	$	(5)

I. Earnings Per Share

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

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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income from continuing operations attributable to common shareholders	$	27	$	36	$	181	$	105
Income from discontinued operations	—		—		—		50
Net income attributable to common shareholders	27		36		181		155
Less: preferred stock dividends declared	1		1		2		2
Net income available to Howmet Aerospace common shareholders - basic and diluted	$	26	$	35	$	179	$	153



Average shares outstanding - basic	429		436		431		436
Effect of dilutive securities:
Stock options	1		—		1		—
Stock and performance awards	4		3		5		4

Average shares outstanding - diluted	434		439		437		440

Common stock outstanding at September 30, 2021 and 2020 was approximately 428 million and 434 million, respectively.

On August 18, 2021, the Company announced that its Board of Directors authorized a share repurchase program of up to $1,500 of the Company's outstanding common stock. The Board had previously authorized, in May 2019, a share repurchase program of up to $500, of which approximately $77 Board authorization remained available as of July 31, 2021. In the quarter ended September 30, 2021, the Company repurchased approximately 770 thousand shares of its common stock at an average price of $32.50 per share (excluding commissions cost) for approximately $25 in cash. All of the shares repurchased have been retired. After giving effect to the share repurchases made through September 30, 2021, approximately $1,552 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). 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.

The 5 million decrease in average shares outstanding (basic) for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily due to the 7 million shares repurchased during 2021. As average shares outstanding are used in the calculation for both basic and diluted EPS, the full impact of share repurchases was not realized in EPS in the third quarter and nine months ended September 30, 2021 as share repurchases occurred at varying points during the second and third quarter of 2021.

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,
	2021	2020	2021	2020

Stock options(1)	—	3	—	3

(1)The weighted average exercise price per share of options excluded from diluted EPS was $33.61 and $26.03 as of September 30, 2021 and 2020, respectively.

J. Accumulated Other Comprehensive Loss

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


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Pension and other postretirement benefits (G)
Balance at beginning of period	$	(903)	$	(866)	$	(980)	$	(2,732)
Other comprehensive income:
Unrecognized net actuarial gain (loss) and prior service cost/benefit	1		(7)		68		(66)
Tax benefit (expense)	—		3		(15)		11
Total Other comprehensive income (loss) before reclassifications, net of tax	1		(4)		53		(55)
Amortization of net actuarial loss and prior service cost(1)	15		16		46		133
Tax expense(2)	(3)		(4)		(9)		(24)
Total amount reclassified from Accumulated other comprehensive loss, net of tax(3)	12		12		37		109
Total Other comprehensive income	13		8		90		54
Transfer to Arconic Corporation	—		(22)		—		1,798
Balance at end of period	$	(890)	$	(880)	$	(890)	$	(880)
Foreign currency translation
Balance at beginning of period	$	(992)	$	(1,097)	$	(966)	$	(596)
Foreign currency translation	(36)		48		(62)		(39)
Net amount reclassified from Accumulated other comprehensive loss(4)	—		—		—		14
Other comprehensive (loss) income	(36)		48		(62)		(25)
Transfer to Arconic Corporation	—		—		—		(428)
Balance at end of period	$	(1,028)	$	(1,049)	$	(1,028)	$	(1,049)




Cash flow hedges
Balance at beginning of period	$	11	$	(5)	$	3	$	(1)

Other comprehensive income (loss):
Net change from periodic revaluations	1		2		20		(6)
Tax benefit (expense)	—		2		(4)		2
Total Other comprehensive income (loss) before reclassifications, net of tax	1		4		16		(4)
Net amount reclassified to earnings	(7)		2		(15)		6
Tax benefit (expense)(2)	2		(1)		3		(1)
Total amount reclassified from Accumulated other comprehensive (loss) income, net of tax(3)	(5)		1		(12)		5
Total Other comprehensive (loss) income	(4)		5		4		1
Balance at end of period	$	7	$	—	$	7	$	—

Accumulated other comprehensive loss	$	(1,911)	$	(1,929)	$	(1,911)	$	(1,929)

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

(2)These amounts were included in (Benefit) provision 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.

K. Receivables

Sale of Receivables Programs

The Company has historically maintained two accounts receivables securitization arrangements. The first was an arrangement with financial institutions to sell certain customer receivables without recourse on a revolving basis (the “Receivables Sale Program”) and was terminated on August 30, 2021. This arrangement historically provided up to a maximum funding of $300 for receivables sold. The Company maintained a beneficial interest, or a right to collect cash, on the sold receivables that have not been funded (deferred purchase program receivable). In connection with the termination, the Company repurchased the remaining $211 unpaid receivables, paying $160 in cash and reducing the $51 deferred purchase program receivable to zero (in a non-cash transaction).

The Company had net cash repayments totaling $44 ($41 in draws and $85 in repayments) and $153 ($189 in draws and $342 in repayments) for the nine months ended September 30, 2021 and September 30, 2020, respectively.

As of September 30, 2021, there was no deferred purchase program receivable included in Other receivables on the accompanying Consolidated Balance Sheet. As of December 31, 2020, the deferred purchase program receivable was $12, which was included in Other receivables on the accompanying Consolidated Balance Sheet. The deferred purchase program receivable was reduced as collections of the underlying receivables occurred.

Cash receipts from customer payments on sold receivables (which were cash receipts on the underlying trade receivables that had been previously sold) as well as cash receipts and cash disbursements from draws and repayments under the program were presented as cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash Flows through the termination of the arrangement in 2021. As a result of the termination of the Receivables Sale Program on August 30, 2021, there will be no additional changes related to cash receipts from sold receivables within investing activities in the Statement of Consolidated Cash Flows in the fourth quarter of 2021.

The second arrangement is one in which the Company, through a wholly-owned special purpose entity (“SPE”), has a receivables purchase agreement (the “Receivables Purchase Agreement”) such that the SPE may sell certain receivables to financial institutions until the earlier of August 30, 2024 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.

Cash received from collections of sold receivables is used by the SPE to fund additional purchases of receivables on a revolving basis. This arrangement historically provided up to a maximum funding of $125 for receivables sold. On August 30, 2021, the Company entered into an amendment to add the subsidiaries that were previously part of the terminated Receivables Sale Program, and, as a result, the maximum funding limit was increased by $200 to $325. The SPE sold the $211 of receivables, which were repurchased as a result of the termination of the Receivables Sale Program, in exchange for cash.

The SPE sold $398 and $553 of its receivables without recourse and received cash funding under this program during the third quarter and nine months ended September 30, 2021, respectively, resulting in derecognition of the receivables from the Company’s Consolidated Balance Sheet. As of September 30, 2021 and December 31, 2020, $250 and $46 remained outstanding from the customer, respectively. As collateral against the sold receivables, the SPE maintains a certain level of unsold receivables, which was $90 and $33 at September 30, 2021 and December 31, 2020, respectively. Costs associated with the sales of receivables are reflected in the Company’s Consolidated Statements of Operations for the periods in which the sales occur. Cash receipts from sold receivables under the Receivables Purchase Agreement, excluding the receipts associated with the August 30, 2021 termination of the Receivables Sale Program, are presented within operating activities in the Statement of Consolidated Cash Flows.

The Company had accounts receivable securitization arrangements totaling $325 and $425 at September 30, 2021 and December 31, 2020, respectively, of which $250 was drawn as of September 30, 2021 and December 31, 2020. The net cash funding from the sale of accounts receivable was neither a use of cash nor a source of cash for any quarter of 2021.

Other Customer Receivable Sales

In the third quarter and nine months ended September 30, 2021, the Company sold $103 and $267, respectively, of certain customers’ receivables in exchange for cash (of which $102 remained outstanding from the customers at September 30, 2021), the proceeds from which are presented in changes in receivables within operating activities in the Statement of Consolidated Cash Flows. In the third quarter and nine months ended September 30, 2020, the Company sold $42 and $131, respectively, of

certain 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.

L. Inventories


	September 30, 2021		December 31, 2020
Finished goods	$	479	$	528
Work-in-process	640		629
Purchased raw materials	264		292
Operating supplies	37		39
Total inventories	$	1,420	$	1,488

At September 30, 2021 and December 31, 2020, the portion of inventories valued on a last-in, first-out (“LIFO”) basis was $500 and $458, respectively. These amounts exclude the effects of LIFO valuation reductions, which were $173 and $131 at September 30, 2021 and December 31, 2020, respectively.

M. Properties, Plants, and Equipment, net


	September 30, 2021		December 31, 2020
Land and land rights	$	92	$	98
Structures	1,024		1,033
Machinery and equipment	3,940		3,879
	5,056		5,010
Less: accumulated depreciation and amortization	2,736		2,626
	2,320		2,384
Construction work-in-progress	163		208
Properties, plants, and equipment, net	$	2,483	$	2,592

The Company incurred capital expenditures which remained unpaid at September 30, 2021 and September 30, 2020 of $42 and $29, respectively, and 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 $15 and $17 in the third quarter of 2021 and 2020, respectively. Operating lease cost, which includes short-term leases and variable lease payments and approximates cash paid, was $48 and $53 in the nine months ended September 30, 2021 and 2020, respectively.

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


	September 30, 2021		December 31, 2020
Right-of-use assets classified in Other noncurrent assets	$	116	$	131

Current portion of lease liabilities classified in Other current liabilities	$	34	$	38
Long-term portion of lease liabilities classified in Other noncurrent liabilities	88		100
Total lease liabilities	$	122	$	138

O. Debt


	September 30, 2021		December 31, 2020

5.400% Notes, due 2021(1)	$	—	$	361
5.870% Notes, due 2022(2)	—		476
5.125% Notes, due 2024	1,197		1,250
6.875% Notes, due 2025	600		1,200
5.900% Notes, due 2027	625		625
6.750% Bonds, due 2028	300		300
3.000% Notes, due 2029	700		—
5.950% Notes, due 2037	625		625
4.750% Iowa Finance Authority Loan, due 2042	250		250
Other(3)	(11)		(12)
	4,286		5,075
Less: amount due within one year	14		376
Total long-term debt	$	4,272	$	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 April 6, 2020, the Company completed the early redemption of all $1,000 of its 6.150% Notes due 2020 (the “6.150% Notes”) and the early partial redemption of $300 of its 5.400% Notes due 2021 (the “5.400% Notes"). Holders of the 6.150% Notes were paid an aggregate of $1,020 and holders of the 5.400% Notes were paid an aggregate of $315, plus accrued and unpaid interest up to, but not including, the redemption date. The Company incurred early termination premium and accrued interest of $35 and $17, respectively, which were recorded in Loss on debt redemption and Interest expense, net, respectively, during the second quarter ended June 30, 2020 in the Statement of Consolidated Operations.

On April 24, 2020, the Company completed an offering of $1,200 aggregate principal amount of 6.875% Notes due 2025 (the “6.875% Notes”), the proceeds of which have been used to fund the cash tender offers noted 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 repurchased $589 and $151 of principal amount of the 5.400% Notes and its 5.870% Notes due 2022 (the “5.870% Notes”), respectively. The amount of early tender premium and accrued interest associated with the notes accepted for early settlement were $24 and $4, respectively, which were recorded in Loss on debt redemption and Interest expense, net, respectively, during the second quarter ended June 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 Loss on debt redemption in the second quarter of 2021.

On September 1, 2021, the Company completed an offering of $700 aggregate principal amount of 3.000% Notes due 2029, the proceeds of which have been used to fund the cash tender offer noted below and to pay related transaction fees, including applicable premiums and expenses.

On September 2, 2021, the Company completed a cash tender offer and repurchased approximately $600 aggregate principal amount of its 6.875% Notes. The amount of tender premium and accrued interest associated with the notes accepted for settlement were $105 and $14, respectively, which were recorded in Loss on debt redemption and Interest expense, net, respectively, during the third quarter ended September 30, 2021 in the Statement of Consolidated Operations.

In the third quarter of 2021, the Company repurchased in the open market approximately $53 aggregate principal amount of its 5.125% Notes due 2024 (the “5.125% Notes”) and paid approximately $59, including an early termination premium and accrued interest of approximately $5 and $1, respectively, which were recorded in Loss on debt redemption and Interest expense, net, respectively. In October 2021, the Company repurchased an additional $47 aggregate principal amount of its 5.125% Notes in the open market and paid approximately $52, including an early termination premium of approximately $5, which will be recorded in Loss on debt redemption in the fourth quarter ending December 31, 2021 in the Statement of Consolidated Operations.

On an annual basis, the current year debt activity will decrease Interest expense, net by approximately $70.

Credit Facility

On September 28, 2021, the Company amended and restated its Five-Year Revolving Credit Agreement (the “Credit Agreement”). The Credit Agreement provides a $1,000 senior unsecured revolving credit facility that matures on September 28, 2026, unless extended or earlier terminated in accordance with the provisions of the Credit Agreement. Capitalized terms used in this “Credit Facility” section but not otherwise defined shall have the meanings given to such terms in the Credit Agreement.

Under the Credit Agreement, the Company’s ratio of Consolidated Net Debt to Consolidated EBITDA as of the end of each fiscal quarter for the period of the four fiscal quarters of the Company most recently ended, is required to be no greater than 3.50 to 1.00; provided, however, that during the Covenant Relief Period through December 31, 2022 (unless the Company elects to terminate the Covenant Relief Period earlier in accordance with the Credit Agreement), the Company’s Consolidated Net Debt to Consolidated EBITDA ratio cannot exceed the levels set forth below:


			No greater than


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

During the Covenant Relief Period, common stock dividends and share repurchases (see Note I) are permitted only if no loans under the Credit Agreement are outstanding at the time and are limited to an aggregate amount not to exceed $450 during the year ending December 31, 2021, with an incremental amount of $500 available during the year ending December 31, 2022 provided that any amount that remains unused as of December 31, 2021 may be carried forward and used during the year ending December 31, 2022.

There were no amounts outstanding at September 30, 2021 or December 31, 2020, and no amounts were borrowed during 2021 or 2020 under the Credit Agreement. At September 30, 2021, the Company was in compliance with all covenants under the Credit Agreement. Availability under the Credit Agreement could be reduced in future periods if the Company fails to maintain the required ratios referenced above.

P. Fair Value of Financial Instruments

The carrying values of Cash and cash equivalents, restricted cash, derivatives, noncurrent receivables, and Short-term debt included in the Consolidated Balance Sheet approximate their fair value. The Company holds exchange-traded fixed income securities which are considered available-for-sale securities that are carried at fair value which is based on quoted market prices which are classified in Level 1 of the fair value hierarchy and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheet. 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 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, 2021				December 31, 2020
	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, less amount due within one year	$	4,272	$	4,872	$	4,699	$	5,426

Restricted cash, which is included in Prepaid expenses and other current assets in the Consolidated Balance Sheet, was $2 and $1 at September 30, 2021 and December 31, 2020, respectively.

Q. 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). 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 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, and therefore was classified as held for sale. As a result of entering into the agreement, a charge of $12 was recognized related to a non-cash impairment of the net book value of the business, primarily properties, plants, and equipment in the first quarter of 2020, which was recorded in Restructuring and other charges in the Statement of Consolidated Operations. As the sale did not close, the Company changed the classification from held for sale to held for use in the second quarter 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.

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

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”)) 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 $12 and $10 at September 30, 2021 and December 31, 2020, respectively, recorded in Other noncurrent liabilities and deferred credits in the Consolidated Balance Sheet (of which $6 and $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. The increase in September 2021 is associated with site monitoring costs for previously owned property in Vernon, California, which will determine if any additional remediation is required. Payments related to remediation expenses applied against the reserve were less than $1 in the third quarter ended September 30, 2021 and 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 less than 1% of Cost of goods sold.

Reynobond PE

The Company is indemnified for all potential liabilities associated with the 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, updated as applicable from the Form 10-K:

Howard v. Arconic Inc. 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 in July 2019 (the “Second Amended Complaint”). 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. On August 12, 2021, defendants filed an answer to the Second Amended Complaint. In addition, on August 11, 2021, the Company filed a motion for certification of an interlocutory appeal and associated stay, to which Plaintiffs filed an opposition on August 17, 2021 and the Company filed a reply brief on August 24, 2021. This motion remains pending before the court.

With respect to the United Kingdom litigation (various claims on behalf of survivors and estates of decedents) and the Behrens

et al. v. Arconic Inc. et al. (various claims on behalf of survivors and estates of decedents) and Raul v. Albaugh, et al. (derivative related claim) proceedings, there are no updates.

Lehman Brothers International (Europe) (“LBIE”) Proceeding. On June 26, 2020, LBIE filed formal proceedings against two Firth Rixson entities (“Firth”) in the High Court of Justice, Business and Property Courts of England and Wales. The proceedings relate to interest rate swap transactions that Firth entered into with LBIE in 2007 to 2008. In 2008, LBIE commenced insolvency proceedings, an event of 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 2023, 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. 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 case for LBIE and Firth, it is expected that irrespective of the outcome of the most recent hearing, the case will be appealed and any requirement for the parties to pay amounts under the agreements will be stayed. An appeal of the case could continue past the end of 2022 into 2023. The Company intends to vigorously defend against these 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 30, 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 2021 and 2040, was $16 at September 30, 2021.

Pursuant to the Separation and Distribution Agreement, dated as of October 31, 2016, between Howmet and Alcoa Corporation, Howmet was required to provide certain guarantees for Alcoa Corporation, which had a fair value of $6 and $12 at September 30, 2021 and December 31, 2020, respectively, and 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 $1,406 and $1,398 at September 30, 2021 and December 31, 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 letters of credit, which automatically renew or expire at various dates in 2021 and 2022, was $116 at September 30, 2021.

Pursuant to the Separation and Distribution Agreements between the Company and Arconic Corporation and between the Company and Alcoa Corporation, the Company is required to retain letters of credit of $53 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 and letters of credit fees paid by the Company are being proportionally billed to and are being reimbursed by Arconic Corporation and Alcoa 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 $17 of outstanding letters of credit relating to liabilities (which are included in the $116 in the above paragraph). Less than $1 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 2021 and 2022, was $46 at September 30, 2021.

Pursuant to the Separation and Distribution Agreements between the Company and Arconic Corporation and between the Company and Alcoa Corporation, the Company is required to provide surety bonds of $25 (which are included in the $46 in the above paragraph) that had previously been provided related to the Company, Arconic Corporation, and Alcoa Corporation workers’ compensation claims which occurred prior to the respective separation transactions of April 1, 2020 and November 1, 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 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, except as noted below:

See Note G for details related to actions taken by the Company to reduce pension obligations.

See Note O for the open market debt repurchases made subsequent to the third quarter of 2021.

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.

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