Company Quick10K Filing
Arconic
Price28.85 EPS1
Shares436 P/E27
MCap12,576 P/FCF31
Net Debt4,292 EBIT831
TEV16,868 TEV/EBIT20
TTM 2019-12-31, in MM, except price, ratios
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8-K 2018-01-03
8-K 2017-12-31

ARNC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1. Risk Factors.
Item 6. Exhibits.
EX-10.3 ex1031q20.htm
EX-10.4 ex1041q20.htm
EX-31.1 ex311q201.htm
EX-32.1 ex321q201.htm

Arconic Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
45362718902011201420172021
Assets, Equity
10.07.55.02.60.1-2.42011201420172021
Rev, G Profit, Net Income
2.21.20.2-0.7-1.7-2.72011201420172021
Ops, Inv, Fin

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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 March 31, 2020
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)

Arconic Inc.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareHWMNew York Stock Exchange
$3.75 Cumulative Preferred Stock, par value $100 per shareHWM PRNYSE 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 May 1, 2020, there were 436,103,413 shares of common stock, par value $1.00 per share, of the registrant outstanding.


EXPLANATORY NOTE
On April 1, 2020, Arconic Inc. completed the separation of its business into two independent, publicly-traded companies: Howmet Aerospace Inc. (the new name for Arconic Inc.) and Arconic Corporation. The financial results of Howmet Aerospace Inc. prior to April 1, 2020 include the Global Rolled Products business (which became Arconic Corporation as of April 1, 2020).



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Howmet Aerospace and subsidiaries (formerly known as Arconic Inc.)
Statement of Consolidated Operations (unaudited)
(in millions, except per-share amounts)
First quarter ended
 March 31,
 20202019
Sales (C)
$3,209  $3,541  
Cost of goods sold (exclusive of expenses below)2,476  2,818  
Selling, general administrative, and other expenses169  178  
Research and development expenses15  22  
Provision for depreciation and amortization129  137  
Restructuring and other charges (D)
21  12  
Operating income399  374  
Interest expense91  85  
Other expense, net (E)
17  32  
Income before income taxes291  257  
Provision for income taxes (G)
76  70  
Net income$215  $187  
Amounts Attributable to Howmet Aerospace Common Shareholders (H):
Net income$214  $186  
Earnings per share - basic$0.49  $0.40  
Earnings per share - diluted$0.49  $0.39  
Average Shares Outstanding (H):
Average shares outstanding - basic435  471  
Average shares outstanding - diluted440  489  
The accompanying notes are an integral part of the consolidated financial statements.

3


Howmet Aerospace and subsidiaries (formerly known as Arconic Inc.)
Statement of Consolidated Comprehensive Income (unaudited)
(in millions)
First quarter ended
 March 31,
20202019
Net income$215  $187  
Other comprehensive (loss) income, net of tax (I):
Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits37  40  
Foreign currency translation adjustments (65) 26  
Net change in unrealized gains on available-for-sale securities1  3  
Net change in unrecognized gains/losses on cash flow hedges(13) 7  
Total Other comprehensive (loss) income, net of tax (40) 76  
Comprehensive income$175  $263  
The accompanying notes are an integral part of the consolidated financial statements.
4


Howmet Aerospace and subsidiaries (formerly known as Arconic Inc.)
Consolidated Balance Sheet (unaudited)
(in millions)
March 31, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$2,591  $1,648  
Receivables from customers, less allowances of $2 in 2020 and $3 in 2019 (J)
1,290  967  
Other receivables (J)
244  484  
Inventories (K)
2,512  2,429  
Prepaid expenses and other current assets311  314  
Total current assets6,948  5,842  
Properties, plants, and equipment, net (L)
5,358  5,463  
Goodwill (C)
4,457  4,493  
Deferred income taxes553  608  
Intangibles, net647  658  
Other noncurrent assets (M)
502  514  
Total assets$18,465  $17,578  
Liabilities
Current liabilities:
Accounts payable, trade$1,799  $2,043  
Accrued compensation and retirement costs323  432  
Taxes, including income taxes88  87  
Accrued interest payable102  112  
Other current liabilities (M)
453  418  
Short-term debt (N)
1,342  1,034  
Total current liabilities4,107  4,126  
Long-term debt, less amount due within one year (N and O)
5,777  4,906  
Accrued pension benefits (F)
2,389  2,460  
Accrued other postretirement benefits (F)
700  714  
Other noncurrent liabilities and deferred credits (M)695  751  
Total liabilities13,668  12,957  
Contingencies and commitments (Q)
Equity
Howmet Aerospace shareholders’ equity:
Preferred stock55  55  
Common stock436  433  
Additional capital7,326  7,319  
Retained earnings335  129  
Accumulated other comprehensive loss (I)
(3,369) (3,329) 
Total Howmet Aerospace shareholders’ equity4,783  4,607  
Noncontrolling interests14  14  
Total equity4,797  4,621  
Total liabilities and equity$18,465  $17,578  
The accompanying notes are an integral part of the consolidated financial statements.
5


Howmet Aerospace and subsidiaries (formerly known as Arconic Inc.)
Statement of Consolidated Cash Flows (unaudited)
(in millions)
Three months ended
 March 31,
 20202019
Operating activities
Net income$215  $187  
Adjustments to reconcile net income to cash used for operations:
Depreciation and amortization129  137  
Deferred income taxes19  8  
Restructuring and other charges21  12  
Net loss from investing activities—asset sales2  2  
Net periodic pension benefit cost (F)
26  29  
Stock-based compensation13  10  
Other25  11  
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
(Increase) in receivables (210) (489) 
(Increase) in inventories(136) (118) 
(Increase) in prepaid expenses and other current assets(2) (14) 
(Decrease) increase in accounts payable, trade(215) 65  
(Decrease) in accrued expenses (173) (69) 
Increase in taxes, including income taxes90  47  
Pension contributions (56) (55) 
(Increase) in noncurrent assets  (1) 
(Decrease) in noncurrent liabilities(39) (20) 
Cash used for operations(291) (258) 
Financing Activities
Net change in short-term borrowings (original maturities of three months or less)2  1  
Additions to debt (original maturities greater than three months) (N)
1,200  150  
Payments on debt (original maturities greater than three months)  (151) 
Debt issuance costs(45)   
Proceeds from exercise of employee stock options30  1  
Dividends paid to shareholders(9) (29) 
Repurchase of common stock  (700) 
Other(33) (13) 
Cash provided from (used for) financing activities1,145  (741) 
Investing Activities
Capital expenditures (69) (168) 
Proceeds from the sale of assets and businesses (P)
114  4  
Sales of investments  47  
Cash receipts from sold receivables (J)
48  160  
Other1  (1) 
Cash provided from investing activities94  42  
Effect of exchange rate changes on cash, cash equivalents and restricted cash(8) 1  
Net change in cash, cash equivalents and restricted cash940  (956) 
Cash, cash equivalents and restricted cash at beginning of year1,703  2,282  
Cash, cash equivalents and restricted cash at end of period$2,643  $1,326  
The accompanying notes are an integral part of the consolidated financial statements.
6


Howmet Aerospace and subsidiaries (formerly known as Arconic Inc.)
Statement of Changes in Consolidated Equity (unaudited)
(in millions, except per-share amounts)
 
Howmet Aerospace Shareholders
  
 Preferred
stock
Common
stock
Additional
capital
Accumulated deficitAccumulated
other
comprehensive
loss
Noncontrolling
interests
Total
Equity
Balance at December 31, 2018$55  $483  $8,319  $(358) $(2,926) $12  $5,585  
Adoption of accounting standards (I and M)
—  —  —  75  (2) —  73  
Net income—  —  —  187  —  —  187  
Other comprehensive income (I)
—  —  —  —  76  —  76  
Cash dividends declared:
Preferred-Class A @ $0.9375 per share
—  —  —  (1) —  —  (1) 
Common @ $0.08 per share
—  —  —  (38) —  —  (38) 
Stock-based compensation —  —  8  —  —  —  8  
Common stock issued: compensation plans —  2  (15) —  —  —  (13) 
Repurchase and retirement of common stock—  (32) (668) —  —  —  (700) 
Other—  —  —  1  —  —  1  
Balance at March 31, 2019$55  $453  $7,644  $(134) $(2,852) $12  $5,178  

 
Howmet Aerospace Shareholders
  
 Preferred
stock
Common
stock
Additional
capital
Retained earningsAccumulated
other
comprehensive
loss
Noncontrolling
interests
Total
Equity
Balance at December 31, 2019$55  $433  $7,319  $129  $(3,329) $14  $4,621  
Net income—  —  —  215  —  —  215  
Other comprehensive loss (I)
—  —  —  —  (40) —  (40) 
Cash dividends declared:
Preferred-Class A @ $0.9375 per share
—  —  —  (1) —  —  (1) 
Common @ $0.02 per share
—  —  —  (8) —  —  (8) 
Stock-based compensation —  —  13  —  —  —  13  
Common stock issued: compensation plans —  3  (6) —  —  —  (3) 
Balance at March 31, 2020$55  $436  $7,326  $335  $(3,369) $14  $4,797  
The accompanying notes are an integral part of the consolidated financial statements.


7


Howmet Aerospace and subsidiaries (formerly known as Arconic Inc.)
Notes to the Consolidated Financial Statements (unaudited)
(dollars in millions, except per-share amounts)
A. Basis of Presentation
The interim Consolidated Financial Statements of Howmet Aerospace Inc. (formerly known as Arconic Inc.) and its subsidiaries (“Howmet” or the “Company”) are unaudited. These Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The 2019 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). This Form 10-Q report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2019, which includes all disclosures required by GAAP. Certain amounts in previously issued financial statements were reclassified to conform to the current period presentation (see Note C).
The separation of Arconic Inc. into two standalone, publicly-traded companies, Howmet Aerospace Inc. and Arconic Corporation, (the “Arconic Inc. Separation Transaction”) became effective on April 1, 2020 (see Note R).
The accompanying unaudited, interim Consolidated Financial Statements include the historical results of Arconic Corporation, as the Arconic Inc. Separation Transaction did not take place until April 1, 2020, after the most recent period reported in this Form 10-Q. In future filings, the historical results of the businesses that comprise Arconic Corporation will be presented as discontinued operations in Howmet’s Consolidated Financial Statements. As a result of the Arconic Inc. Separation Transaction, the accompanying unaudited, interim Consolidated Financial Statements are not indicative of the Company’s future financial position, results of operations or cash flows.
The Company derives a significant portion of its revenue from products sold to the aerospace end-market, including 71% of the Engineered Products and Forgings reportable segment. As a result of the global pandemic coronavirus (“COVID-19”) 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. Certain original equipment manufacturer (“OEM”) customers have reduced production or suspended manufacturing operations in North America and Europe on a temporary basis. These suspensions, the duration of which is uncertain, are impacting operations at certain of our facilities resulting in the temporary closure of a small number of manufacturing facilities. As a result, the Company is taking a series of actions to address the financial impact, including announcing certain headcount reductions and reducing certain cash outflows by suspending dividends on common stock and reducing the levels of its capital expenditures to preserve cash and maintain liquidity.
The preparation of the Consolidated Financial Statements of the Company in conformity with GAAP requires management to make certain judgments, estimates, and assumptions. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience, including considerations relating to the impact of COVID-19. The impact of COVID-19 is rapidly changing and of unknown duration and macroeconomic impact and as a result, these considerations remain highly uncertain. We have made our 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 to goodwill, intangible and long-lived assets, the realizability of deferred tax assets and other judgements and estimations and assumptions that may be impacted by COVID-19.
B. Recently Adopted and Recently Issued Accounting Guidance
Adopted
On January 1, 2020, the Company adopted changes issued by the Financial Accounting Standards Board ("FASB") related to the impairment model for expected credit losses. The new impairment model (known as the current expected credit loss ("CECL") model) is based on expected losses rather than incurred losses. The Company recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments and requires the measurement of expected credit losses on assets including those that have a low risk of loss. The adoption of this new guidance did not have a material impact on the Consolidated Financial Statements.
Issued
In August 2018, the FASB issued guidance that impacts disclosures for defined benefit pension plans and other postretirement benefit plans. These changes become effective for the Company's 2020 annual report. Management has determined that the adoption of this guidance will not have a material impact on the Consolidated Financial Statements and plans to adopt for the 2020 annual report.
8


In December 2019, the FASB issued guidance that is intended to simplify various aspects related to the accounting for income taxes. These changes become effective on January 1, 2021, with early adoption permitted. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements and plans to adopt on January 1, 2021.
In March 2020, the FASB issued amendments that provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR 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.
C. Segment Information
In the third quarter of 2019, the Company realigned its operations by eliminating its Transportation and Construction Solutions (TCS) segment and transferring the Forged Wheels business to its Engineered Products and Forgings ("EP&F") segment and the Building and Construction Systems ("BCS") business to its Global Rolled Products ("GRP") segment, consistent with how the Chief Executive Officer was assessing operating performance and allocating capital in conjunction with the Arconic Inc. Separation Transaction (see Note R). Prior period financial information has been recast to conform to current year presentation.
Engineered Products and Forgings. This segment produces products that are used primarily in the aerospace (commercial and defense), industrial, commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys) and seamless rolled rings (mostly nickel superalloys); investment castings (nickel superalloys, titanium, and aluminum), including airfoils; forged jet engine components (e.g., jet engine disks); extruded, machined and forged aircraft parts (titanium and aluminum); and forged aluminum commercial vehicle wheels, all of which are sold directly to customers and through distributors.
Global Rolled Products. This segment produces aluminum sheet and plate, aluminum extruded and machined parts, integrated aluminum structural systems, and architectural extrusions used in the automotive, aerospace, building and construction, industrial, packaging, and commercial transportation end markets. Products are sold directly to customers and through distributors. While the customer base for flat-rolled products is large, a significant amount of sales of sheet and plate are to a relatively small number of customers. This segment became part of Arconic Corporation as part of the Arconic Inc. Separation Transaction on April 1, 2020.
The Company will continue to evaluate its organizational structure and portfolio in conjunction with the Arconic Inc. Separation Transaction (see Note R), which may result in further changes to its reportable segments and the need to evaluate goodwill and long-lived assets for impairment in future periods.
Goodwill. The Company had $4,457 of Goodwill at March 31, 2020 and we review 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 within the Engineered Products and Forgings 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 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.
9


The operating results of the Company’s reportable segments were as follows:
Engineered Products and ForgingsGlobal Rolled ProductsTotal
Segment
First quarter ended March 31, 2020
Sales:
Third-party sales$1,631  $1,578  $3,209  
Intersegment sales  35  35  
Total sales$1,631  $1,613  $3,244  
Profit and loss:
Segment operating profit$339  $169  $508  
Restructuring and other charges (credits)34  (18) 16  
Provision for depreciation and amortization65  57  122  
Capital expenditures36  22  58  
First quarter ended March 31, 2019
Sales:
Third-party sales$1,756  $1,784  $3,540  
Intersegment sales  52  52  
Total sales$1,756  $1,836  $3,592  
Profit and loss:
Segment operating profit$313  $135  $448  
Restructuring and other charges18  11  29  
Provision for depreciation and amortization71  59  130  
Capital expenditures117  39  156  

10


The following table reconciles Total segment operating profit to Consolidated income before income taxes:
First quarter ended
March 31,
20202019
Total segment operating profit$508  $448  
Unallocated amounts:
Restructuring and other charges(21) (12) 
Corporate expense(88) (62) 
Consolidated operating income$399  $374  
Interest expense(91) (85) 
Other expense, net(17) (32) 
Consolidated income before income taxes$291  $257  
The following table disaggregates revenue by major end market served. Differences between segment and consolidated totals are in Corporate.
Engineered
Products and
Forgings
Global Rolled
Products
Total
Segment
First quarter ended March 31, 2020
Aerospace$1,189  $285  $1,474  
Transportation256  509  765  
Building and construction  291  291  
Industrial and Other186  493  679  
Total end-market revenue$1,631  $1,578  $3,209  
First quarter ended March 31, 2019
Aerospace$1,250  $302  $1,552  
Transportation343