Segment Information

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Segment Information

Segment Information

Following the Arconic Inc. Separation Transaction, Howmet’s operations consist of four worldwide reportable segments as follows:

Engine Products

Engine Products produces investment castings 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 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 industrial gas turbines, automobiles, commercial transportation vehicles, and construction and industrial equipment.

Engineered Structures

Engineered Structures produces titanium and aluminum ingots and mill products for aerospace and defense applications and is vertically integrated to produce titanium forgings, extrusions formings 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 $4,051 of Goodwill at June 30, 2020, and the Company reviews it for impairment annually in the fourth quarter or more frequently if indicators exist or if a decision is made to sell or realign a business.

On January 1, 2020, management transferred the Savannah business from Engine Products to 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, sales globally to customers in the aerospace and commercial transportation industries that are impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value.

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

The operating results of the Company’s reportable segments were as follows:

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Second quarter ended June 30, 2020
Sales:
Third-party sales	$	585	$	326	$	229	$	113	$	1,253
Inter-segment sales	1		—		2		—		3
Total sales	$	586	$	326	$	231	$	113	$	1,256
Profit and loss:
Segment operating profit	$	105	$	70	$	19	$	6	$	200
Restructuring and other charges (credits)	22		24		(5)		1		42
Provision for depreciation and amortization	31		12		14		9		66
Capital expenditures	14		7		5		4		30
Second quarter ended June 30, 2019
Sales:
Third-party sales	$	835	$	399	$	331	$	257	$	1,822
Inter-segment sales	3		—		3		—		6
Total sales	$	838	$	399	$	334	$	257	$	1,828
Profit and loss:
Segment operating profit	$	163	$	99	$	25	$	73	$	360
Restructuring and other charges	250		1		193		1		445
Provision for depreciation and amortization	35		12		14		8		69
Capital expenditures	55		8		7		20		90
	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Six months ended June 30, 2020
Sales:
Third-party sales	$	1,366	$	711	$	504	$	304	$	2,885
Inter-segment sales	3		—		5		—		8
Total sales	$	1,369	$	711	$	509	$	304	$	2,893
Profit and loss:
Segment operating profit	$	270	$	166	$	47	$	56	$	539
Restructuring and other charges (credits)	35		26		12		3		76
Provision for depreciation and amortization	61		24		27		19		131
Capital expenditures	33		15		8		11		67
Six months ended June 30, 2019
Sales:
Third-party sales	$	1,648	$	794	$	625	$	511	$	3,578
Inter-segment sales	8		—		6		—		14
Total sales	$	1,656	$	794	$	631	$	511	$	3,592
Profit and loss:
Segment operating profit	$	304	$	195	$	41	$	133	$	673
Restructuring and other charges	253		6		197		5		461
Provision for depreciation and amortization	69		24		31		16		140
Capital expenditures	126		17		18		45		206

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

	Second quarter ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Total segment operating profit	$	200	$	360	$	539	$	673
Unallocated amounts:
Restructuring and other charges	(105)		(472)		(144)		(516)
Corporate expense	(21)		(64)		(63)		(119)
Consolidated operating income (loss)	$	74	$	(176)	$	332	$	38
Interest expense	(144)		(86)		(228)		(171)
Other expense, net	(16)		(6)		8		(18)
Income (loss) from continuing operations before income taxes	$	(86)	$	(268)	$	112	$	(151)

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

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Second quarter ended June 30, 2020
Aerospace	$	437	$	263	$	208	$	—	$	908
Commercial Transportation	—		35		—		113		148
Industrial and Other	148		28		21		—		197
Total end-market revenue	$	585	$	326	$	229	$	113	$	1,253
Second quarter ended June 30, 2019
Aerospace	$	676	$	304	$	303	$	—	$	1,283
Commercial Transportation	5		62		—		257		324
Industrial and Other	154		33		28		—		215
Total end-market revenue	$	835	$	399	$	331	$	257	$	1,822
Six months ended June 30, 2020
Aerospace	$	1,071	$	564	$	462	$	—	$	2,097
Commercial Transportation	—		80		—		304		384
Industrial and Other	295		67		42		—		404
Total end-market revenue	$	1,366	$	711	$	504	$	304	$	2,885
Six months ended June 30, 2019
Aerospace	$	1,348	$	610	$	575	$	—	$	2,533
Commercial Transportation	12		120		—		513		645
Industrial and Other	288		64		50		(2)		400
Total end-market revenue	$	1,648	$	794	$	625	$	511	$	3,578

In the six months ended June 30, 2020, the Company derived 73% of its revenue from aerospace end markets of which 12% related to General Electric Company.