UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022

OR

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

Commission File Number 1-3610

HOWMET AEROSPACE INC.

(Exact name of registrant as specified in its charter)

Delaware	25-0317820
(State of incorporation)	(I.R.S. Employer Identification No.)

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

(Address of principal executive offices)      (Zip code)

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:

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

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

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

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

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

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

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

As of October 27, 2022, there were 413,712,037 shares of common stock, par value $1.00 per share, of the registrant outstanding.

TABLE OF CONTENTS 

		Page
Part I
Item 1.	Financial Statements and Supplementary Data	3
	Statement of Consolidated Operations for the Third Quarter and Nine Months Ended September 30, 2022 and 2021	3
	Statement of Consolidated Comprehensive Income for the Third Quarter and Nine Months Ended September 30, 2022 and 2021	4
	Consolidated Balance Sheet as of September 30, 2022 and December 31, 2021	5
	Statement of Consolidated Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6
	Statement of Changes in Consolidated Equity for the Third Quarter Ended September 30, 2022 and 2021	7
	Statement of Changes in Consolidated Equity for the Nine Months Ended September 30, 2022 and 2021	8
	Notes to the Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Part II
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	34
	Signatures	34

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data.

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,
	2022		2021		2022		2021
Sales (C)	$	1,433	$	1,283	$	4,150	$	3,687
Cost of goods sold (exclusive of expenses below)	1,056		928		2,993		2,658
Selling, general administrative, and other expenses	73		70		225		190
Research and development expenses	7		4		23		13
Provision for depreciation and amortization	65		68		198		203
Restructuring and other charges (D)	4		8		12		22
Operating income	228		205		699		601
Loss on debt redemption (N)	—		118		2		141
Interest expense, net	57		63		172		201
Other expense, net (F)(Q)	67		1		67		13
Income before income taxes	104		23		458		246
Provision (benefit) for income taxes (G)	24		(4)		100		65
Net income	$	80	$	27	$	358	$	181
Amounts Attributable to Howmet Aerospace Common Shareholders (H):
Net income	$	79	$	26	$	356	$	179
Earnings per share:
Basic	$	0.19	$	0.06	$	0.86	$	0.42
Diluted	$	0.19	$	0.06	$	0.84	$	0.41
Average Shares Outstanding (in millions) (H):
Basic	415		429		417		431
Diluted	420		434		422		437

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

3

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,
	2022		2021		2022		2021
Net income	$	80	$	27	$	358	$	181
Other comprehensive income (loss), net of tax (I):
Change in unrecognized net actuarial loss and prior service cost related to pension and other postretirement benefits	7		13		39		90
Foreign currency translation adjustments	(128)		(36)		(273)		(62)
Net change in unrecognized gains (losses) on cash flow hedges	2		(4)		(14)		4
Total Other comprehensive (loss) income, net of tax	(119)		(27)		(248)		32
Comprehensive (loss) income	$	(39)	$	—	$	110	$	213

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

4

Howmet Aerospace Inc. and subsidiaries

Consolidated Balance Sheet (unaudited)

(U.S. dollars in millions)

	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	453	$	720
Receivables from customers, less allowances of $— in both 2022 and 2021 (J)	550		367
Other receivables (J)	50		53
Inventories (K)	1,612		1,402
Prepaid expenses and other current assets	181		195
Total current assets	2,846		2,737
Properties, plants, and equipment, net (L)	2,288		2,467
Goodwill	3,965		4,067
Deferred income taxes	106		184
Intangibles, net	523		549
Other noncurrent assets (M)	201		215
Total assets	$	9,929	$	10,219
Liabilities
Current liabilities:
Accounts payable, trade	$	812	$	732
Accrued compensation and retirement costs	204		198
Taxes, including income taxes	56		61
Accrued interest payable	68		74
Other current liabilities (M)(Q)	240		183
Short-term debt (N)	1		5
Total current liabilities	1,381		1,253
Long-term debt, less amount due within one year (N)(O)	4,170		4,227
Accrued pension benefits (E)	689		771
Accrued other postretirement benefits (E)	147		153
Other noncurrent liabilities and deferred credits (M)	269		307
Total liabilities	6,656		6,711
Contingencies and commitments (Q)
Equity
Howmet Aerospace shareholders’ equity:
Preferred stock	55		55
Common stock	414		422
Additional capital	3,998		4,291
Retained earnings	917		603
Accumulated other comprehensive loss (I)	(2,111)		(1,863)
Total equity	3,273		3,508
Total liabilities and equity	$	9,929	$	10,219

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

5

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(U.S. dollars in millions)

	Nine months ended
	September 30,
	2022		2021
Operating activities
Net income	$	358	$	181
Adjustments to reconcile net income to cash provided from operations:
Depreciation and amortization	198		203
Deferred income taxes	58		24
Restructuring and other charges	12		22
Net realized and unrealized losses	12		7
Net periodic pension cost (E)	17		13
Stock-based compensation	43		28
Loss on debt redemption (N)	2		141
Other	26		28
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
Increase in receivables (J)	(246)		(382)
(Increase) decrease in inventories	(271)		49
Decrease in prepaid expenses and other current assets	5		6
Increase in accounts payable, trade	130		63
Increase (decrease) in accrued expenses	18		(121)
Decrease in taxes, including income taxes	(1)		(15)
Pension contributions	(34)		(68)
Increase in noncurrent assets	(5)		(1)
Decrease in noncurrent liabilities	(44)		(32)
Cash provided from operations	278		146
Financing Activities
Net change in short-term borrowings (original maturities of three months or less)	(4)		—
Additions to debt (original maturities greater than three months) (N)	—		700
Payments on debt (original maturities greater than three months) (N)	(60)		(1,491)
Debt issuance costs (N)	—		(11)
Premiums paid on early redemption of debt (N)	(2)		(133)
Repurchase of common stock	(335)		(225)
Proceeds from exercise of employee stock options	14		17
Dividends paid to shareholders	(27)		(11)
Other	(23)		(20)
Cash used for financing activities	(437)		(1,174)
Investing Activities
Capital expenditures (C)	(148)		(138)
Proceeds from the sale of assets and businesses	42		8
Sale of debt securities	—		5
Cash receipts from sold receivables (J)	—		267
Other	—		2
Cash (used for) provided from investing activities	(106)		144
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3)		(1)
Net change in cash, cash equivalents and restricted cash	(268)		(885)
Cash, cash equivalents and restricted cash at beginning of period	722		1,611
Cash, cash equivalents and restricted cash at end of period	$	454	$	726

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

6

Howmet Aerospace Inc. and subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

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

	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 loss (I)	—		—		—		—		(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

	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at June 30, 2022	$	55	$	416	$	4,079	$	863	$	(1,992)	$	3,421
Net income	—		—		—		80		—		80
Other comprehensive loss (I)	—		—		—		—		(119)		(119)
Cash dividends declared:
Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—		(1)
Common @ $0.06 per share	—		—		—		(25)		—		(25)
Repurchase and retirement of common stock	—		(3)		(97)		—		—		(100)
Stock-based compensation	—		—		14		—		—		14
Common stock issued: compensation plans	—		1		2		—		—		3
Balance at September 30, 2022	$	55	$	414	$	3,998	$	917	$	(2,111)	$	3,273

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

7

Howmet Aerospace Inc. and subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

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

	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 (I)	—		—		—		—		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

 

	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at December 31, 2021	$	55	$	422	$	4,291	$	603	$	(1,863)	$	3,508
Net income	—		—		—		358		—		358
Other comprehensive loss (I)	—		—		—		—		(248)		(248)
Cash dividends declared:
Preferred-Class A @ $2.8125 per share	—		—		—		(2)		—		(2)
Common @ $0.10 per share	—		—		—		(42)		—		(42)
Repurchase and retirement of common stock	—		(10)		(325)		—		—		(335)
Stock-based compensation	—		—		43		—		—		43
Common stock issued: compensation plans	—		2		(11)		—		—		(9)
Balance at September 30, 2022	$	55	$	414	$	3,998	$	917	$	(2,111)	$	3,273

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

8

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. and subsidiaries (“Howmet” or the “Company” or “we” or “our”) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The 2021 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, 2021, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period presentation.

In the third quarter of 2022, the Company derived approximately 47% of its revenue from products sold to the commercial aerospace market which is substantially less than the pre-pandemic 2019 annual rate of approximately 60%. Due to the global COVID-19 pandemic and its impact on the commercial aerospace industry to date, there has been a decrease in domestic and international air travel, which in turn has adversely affected demand for narrow-body and wide-body aircraft. Although domestic air travel is increasing, it is still below pre-pandemic 2019 levels on an average monthly basis. Year-to-date international travel also continues to be lower than pre-pandemic 2019 levels. Narrow-body demand is returning faster than wide-body demand and the commercial wide-body aircraft market is taking longer to recover, which is creating a shift in our product mix compared to pre-pandemic conditions. In addition to the impact from the pandemic, the timing and level of future aircraft builds by original equipment manufacturers are subject to changes and uncertainties, such as declines in Boeing 787 production rates due to delays in its recertification, which may cause our future results to differ from prior periods due to changes in product mix in certain segments.

The preparation of the Consolidated Financial Statements of the Company in conformity with GAAP requires management to make certain judgments, estimates, and assumptions. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience, including considerations relating to the impact of COVID-19 and changes in the aerospace industry as a result of the pandemic. The impact of these changes 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 and changes in the aerospace industry.

B. 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. The FASB is currently working on a project to extend the date to December 31, 2024. Management does not believe that the impact of these changes will have a material impact on the Consolidated Financial Statements.

In September 2022, the FASB issued guidance to enhance the transparency of disclosures regarding supplier finance programs. These changes become effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

9

C. 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 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 Adjusted EBITDA. Prior to the first quarter of 2022, the Company used Segment operating profit as its primary measure of performance. However, the Company’s Chief Executive Officer believes that Segment Adjusted EBITDA is now a better representation of its business because it provides additional information with respect to the Company’s operating performance and the Company’s ability to meet its financial obligations. Howmet’s definition of Segment Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation and amortization. Special items, including Restructuring and other charges, are excluded from Net margin and Segment Adjusted EBITDA. Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Differences between the 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. Fastening Systems’ products are also critical components of commercial transportation vehicles, automobiles, construction and industrial equipment, and renewable energy sectors.

Engineered Structures

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

Forged Wheels

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

10

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

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Third quarter ended September 30, 2022
Sales:
Third-party sales	$	683	$	291	$	193	$	266	$	1,433
Inter-segment sales	1		—		3		—		4
Total sales	$	684	$	291	$	196	$	266	$	1,437
Profit and loss:
Provision for depreciation and amortization	$	31	$	11	$	12	$	10	$	64
Segment Adjusted EBITDA	186		64		28		64		342
Restructuring and other charges	2		—		1		—		3
Capital expenditures	23		7		3		6		39
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:
Provision for depreciation and amortization	$	31	$	12	$	12	$	10	$	65
Segment Adjusted EBITDA	151		59		26		72		308
Restructuring and other charges	5		3		—		—		8
Capital expenditures	21		8		3		15		47
	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Nine months ended September 30, 2022
Sales:
Third-party sales	$	1,966	$	832	$	560	$	792	$	4,150
Inter-segment sales	3		—		5		—		8
Total sales	$	1,969	$	832	$	565	$	792	$	4,158
Profit and loss:
Provision for depreciation and amortization	$	93	$	34	$	36	$	30	$	193
Segment Adjusted EBITDA	538		176		77		206		997
Restructuring and other charges (credits)	9		(3)		4		—		10
Capital expenditures	74		30		12		20		136
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:
Provision for depreciation and amortization	$	92	$	37	$	37	$	29	$	195
Segment Adjusted EBITDA	413		179		72		222		886
Restructuring and other charges	15		8		1		—		24
Capital expenditures	48		22		13		37		120

11

The following table reconciles Total Segment Adjusted EBITDA to Income before income taxes. Differences between the total segment and consolidated totals are in Corporate.

	Third quarter ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Total Segment Adjusted EBITDA	$	342	$	308	$	997	$	886
Segment provision for depreciation and amortization	(64)		(65)		(193)		(195)
Unallocated amounts:
Restructuring and other charges	(4)		(8)		(12)		(22)
Corporate expense	(46)		(30)		(93)		(68)
Operating income	$	228	$	205	$	699	$	601
Loss on debt redemption	—		(118)		(2)		(141)
Interest expense, net	(57)		(63)		(172)		(201)
Other expense, net (Q)	(67)		(1)		(67)		(13)
Income before income taxes	$	104	$	23	$	458	$	246

The following table reconciles total segment capital expenditures with Capital expenditures as presented in the Statement of Consolidated Cash Flows.

	Third quarter ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Total segment capital expenditures	$	39	$	47	$	136	$	120
Corporate	3		—		12		18
Capital expenditures	$	42	$	47	$	148	$	138

12

The following table disaggregates segment revenue by major 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, 2022
Aerospace - Commercial	$	388	$	156	$	124	$