Howmet Aerospace Inc. [HWM-P] Filings

10-Q 1 hwm-20230930.htm 10-Q hwm-20230930

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, 2023


☐			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 31, 2023, there were 411,744,354 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, 2023 and 2022	3
	Statement of Consolidated Comprehensive Income for the Th ird Quarter and Nine Months Ended September 30, 2023 and 2022	4
	Consolidated Balance Sheet as of September 30, 2023 and December 31, 2022	5
	Statement of Consolidated Cash Flows for the Nine Months Ended September 30, 2023 and 2022	6
	Statement of Changes in Consolidated Equity for the Third Quarter Ended September 30, 2023 and 2022	7
	Statement of Changes in Consolidated Equity for the Nine Months Ended September 30, 2023 and 2022	8
	Notes to the Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
Part II
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	35
	Signatures	35

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data.

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

(in millions, except per-share amounts)


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Sales (C)	$	1,658	$	1,433	$	4,909	$	4,150
Cost of goods sold (exclusive of expenses below)	1,183		1,056		3,543		2,993
Selling, general administrative, and other expenses	87		73		250		225
Research and development expenses	9		7		27		23
Provision for depreciation and amortization	68		65		204		198
Restructuring and other charges (D)	4		4		8		12
Operating income	307		228		877		699
Loss on debt redemption (N)	—		—		1		2
Interest expense, net	54		57		166		172
Other expense, net (F)	11		67		5		67
Income before income taxes	242		104		705		458
Provision for income taxes (G)	54		24		176		100


Net income	$	188	$	80	$	529	$	358

Amounts Attributable to Howmet Aerospace Common Shareholders (H):
Net income	$	187	$	79	$	527	$	356
Earnings per share:
Basic	$	0.45	$	0.19	$	1.28	$	0.86


Diluted	$	0.45	$	0.19	$	1.27	$	0.84

Average Shares Outstanding (H):
Basic	412		415		412		417
Diluted	415		420		417		422

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

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Comprehensive Income (unaudited)

(in millions)


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income	$	188	$	80	$	529	$	358
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	10		7		19		39
Foreign currency translation adjustments	(56)		(128)		(18)		(273)

Net change in unrecognized gains (losses) on cash flow hedges	4		2		(10)		(14)
Total Other comprehensive loss, net of tax	(42)		(119)		(9)		(248)
Comprehensive income (loss)	$	146	$	(39)	$	520	$	110

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

Howmet Aerospace Inc. and subsidiaries

Consolidated Balance Sheet (unaudited)

(in millions)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	424	$	791
Receivables from customers, less allowances of $1 in both 2023 and 2022 (J)	714		506
Other receivables	13		31
Inventories (K)	1,748		1,609
Prepaid expenses and other current assets	212		206

Total current assets	3,111		3,143
Properties, plants, and equipment, net (L)	2,296		2,332
Goodwill	4,007		4,013
Deferred income taxes	45		54
Intangibles, net	507		521
Other noncurrent assets (M)	200		192

Total assets	$	10,166	$	10,255
Liabilities
Current liabilities:
Accounts payable, trade (B)	$	894	$	962
Accrued compensation and retirement costs	240		195
Taxes, including income taxes (G)	73		48
Accrued interest payable	58		75
Other current liabilities (M)(P)	189		202


Total current liabilities	1,454		1,482
Long-term debt (N)(O)	3,794		4,162
Accrued pension benefits (E)	618		633
Accrued other postretirement benefits (E)	98		109
Other noncurrent liabilities and deferred credits (M)	330		268

Total liabilities	6,294		6,654
Contingencies and commitments (P)
Equity
Howmet Aerospace shareholders’ equity:
Preferred stock	55		55
Common stock	412		412
Additional capital	3,770		3,947
Retained earnings	1,485		1,028
Accumulated other comprehensive loss (I)	(1,850)		(1,841)


Total equity	3,872		3,601
Total liabilities and equity	$	10,166	$	10,255

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

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(in millions)


	Nine months ended
	September 30,
	2023		2022
Operating activities
Net income	$	529	$	358
Adjustments to reconcile net income to cash provided from operations:
Depreciation and amortization	204		198
Deferred income taxes	92		58
Restructuring and other charges	8		12
Net realized and unrealized losses	17		12
Net periodic pension cost (E)	28		17
Stock-based compensation	39		43
Loss on debt redemption (N)	1		2
Other	2		26
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:
Increase in receivables (J)	(211)		(246)
Increase in inventories	(148)		(271)
(Increase) decrease in prepaid expenses and other current assets	(12)		5
(Decrease) increase in accounts payable, trade	(57)		130
(Decrease) increase in accrued expenses	(18)		18
Increase (decrease) in taxes, including income taxes	17		(1)
Pension contributions	(19)		(34)
Increase in noncurrent assets	(2)		(5)
Decrease in noncurrent liabilities	(27)		(44)
Cash provided from operations	443		278
Financing Activities
Net change in short-term borrowings	—		(4)

Repurchases and payments on debt (N)	(376)		(60)

Premiums paid on early redemption of debt (N)	(1)		(2)
Repurchases of common stock	(150)		(335)
Proceeds from exercise of employee stock options	10		14
Dividends paid to shareholders	(52)		(27)

Taxes paid for net share settlement of equity awards	(77)		(23)
Cash used for financing activities	(646)		(437)
Investing Activities
Capital expenditures (C)	(164)		(148)
Proceeds from the sale of assets and businesses (L)	1		42



Cash used for investing activities	(163)		(106)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		(3)
Net change in cash, cash equivalents and restricted cash	(367)		(268)
Cash, cash equivalents and restricted cash at beginning of period	792		722
Cash, cash equivalents and restricted cash at end of period	$	425	$	454

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

Howmet Aerospace Inc. and subsidiaries

Statement of Changes in Consolidated Equity (unaudited)

(in millions, except per-share amounts)



	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 (H)	—		(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



	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at June 30, 2023	$	55	$	412	$	3,782	$	1,334	$	(1,808)	$	3,775

Net income	—		—		—		188		—		188
Other comprehensive loss (I)	—		—		—		—		(42)		(42)
Cash dividends declared:
Preferred-Class A @ $0.9375 per share	—		—		—		(1)		—		(1)
Common @ $0.09 per share	—		—		—		(36)		—		(36)
Repurchase and retirement of common stock (H)	—		—		(25)		—		—		(25)
Stock-based compensation	—		—		13		—		—		13



Balance at September 30, 2023	$	55	$	412	$	3,770	$	1,485	$	(1,850)	$	3,872

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)



	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 (H)	—		(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



	Preferred stock		Common stock		Additional capital		Retained earnings		Accumulated other comprehensive loss		Total Equity
Balance at December 31, 2022	$	55	$	412	$	3,947	$	1,028	$	(1,841)	$	3,601
Net income	—		—		—		529		—		529
Other comprehensive loss (I)	—		—		—		—		(9)		(9)
Cash dividends declared:
Preferred-Class A @ $2.8125 per share	—		—		—		(2)		—		(2)
Common @ $0.17 per share	—		—		—		(70)		—		(70)
Repurchase and retirement of common stock (H)	—		(3)		(147)		—		—		(150)
Stock-based compensation	—		—		39		—		—		39
Common stock issued: compensation plans	—		3		(69)		—		—		(66)


Balance at September 30, 2023	$	55	$	412	$	3,770	$	1,485	$	(1,850)	$	3,872

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 share and per-share amounts)

A. Basis of Presentation

The interim Consolidated Financial Statements of Howmet Aerospace Inc. and its 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 2022 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, 2022 (the “Form 10-K”), 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 2023, the Company derived approximately 49% of its revenue from products sold to the commercial aerospace market which is substantially less than the 2019 annual rate of approximately 60%. During the global COVID-19 pandemic and its impact on the commercial aerospace industry to date, there was a decrease in domestic and international air travel, which in turn adversely affected demand for narrow body and wide body aircraft. Domestic air travel has rebounded and exceeds 2019 levels. International air travel continues to recover and is approximately 90% of 2019 levels. We expect commercial aerospace growth to continue. The commercial wide body aircraft market is emerging but the mix of wide body to narrow body aircraft remains below 2019 levels, which is creating a shift in our product mix compared to 2019 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, 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 related to COVID-19 and changes in the aerospace industry. The impact of these changes, including the macroeconomic considerations, remains 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.

B. Recently Adopted and Recently Issued Accounting Guidance

Adopted

In September 2022, the Financial Accounting Standards Board (“FASB”) issued guidance to enhance the transparency of disclosures regarding supplier finance programs. These changes became 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.

On January 1, 2023, the Company adopted the changes issued by the FASB related to disclosure requirements of supplier finance program obligations. We offer voluntary supplier finance programs to suppliers who may elect to sell their receivables to third parties at the sole discretion of both the suppliers and the third parties. The program is at no cost to the Company and provides additional liquidity to our suppliers, if they desire, at their cost. Under these programs, the Company pays the third party bank rather than the supplier, the stated amount of the confirmed invoices on the original maturity date of the invoices. The Company or the third party bank may terminate a program upon at least 30 days’ notice. Supplier invoices under the program require payment in full no more than 120 days of the invoice date. As of September 30, 2023 and December 31, 2022, supplier invoices that are subject to future payment under these programs were $254 and $240, respectively, and are included in Accounts payable, trade in the Consolidated Balance Sheet.

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. In December 2022, the FASB deferred the sunset date to December 31, 2024. The Company has amended its agreements in accordance with the new guidance (See Note J and Note N). Management has concluded that the impact of these changes is not expected to have a material impact on the Consolidated Financial Statements.

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. 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.

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, 2023
Sales:
Third-party sales	$	798	$	348	$	227	$	285	$	1,658
Inter-segment sales	5		—		—		—		5
Total sales	$	803	$	348	$	227	$	285	$	1,663
Profit and loss:

Provision for depreciation and amortization	$	33	$	12	$	12	$	10	$	67
Segment Adjusted EBITDA	219		76		30		77		402
Restructuring and other charges	—		1		1		—		2
Capital expenditures	30		9		6		9		54

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

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Nine months ended September 30, 2023
Sales:
Third-party sales	$	2,414	$	989	$	634	$	872	$	4,909
Inter-segment sales	12		—		1		—		13
Total sales	$	2,426	$	989	$	635	$	872	$	4,922
Profit and loss:

Provision for depreciation and amortization	$	97	$	35	$	36	$	29	$	197
Segment Adjusted EBITDA	654		198		80		237		1,169
Restructuring and other (credits) charges	(1)		1		7		—		7
Capital expenditures	84		23		21		25		153

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

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,
	2023		2022		2023		2022
Total Segment Adjusted EBITDA	$	402	$	342	$	1,169	$	997
Segment provision for depreciation and amortization	(67)		(64)		(197)		(193)
Unallocated amounts:
Restructuring and other charges	(4)		(4)		(8)		(12)
Corporate expense	(24)		(46)		(87)		(93)
Operating income	$	307	$	228	$	877	$	699
Loss on debt redemption	—		—		(1)		(2)
Interest expense, net	(54)		(57)		(166)		(172)
Other expense, net	(11)		(67)		(5)		(67)
Income before income taxes	$	242	$	104	$	705	$	458

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,
	2023		2022		2023		2022
Total segment capital expenditures	$	54	$	39	$	153	$	136
Corporate	5		3		11		12
Capital expenditures	$	59	$	42	$	164	$	148

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, 2023
Aerospace - Commercial	$	446	$	209	$	165	$	—	$	820
Aerospace - Defense	165		41		45		—		251
Commercial Transportation	—		67		—		285		352
Industrial and Other	187		31		17		—		235
Total end-market revenue	$	798	$	348	$	227	$	285	$	1,658

Third quarter ended September 30, 2022
Aerospace - Commercial	$	388	$	156	$	124	$	—	$	668
Aerospace - Defense	124		43		56		—		223
Commercial Transportation	—		63		—		266		329
Industrial and Other	171		29		13		—		213
Total end-market revenue	$	683	$	291	$	193	$	266	$	1,433

Nine months ended September 30, 2023
Aerospace - Commercial	$	1,324	$	563	$	458	$	—	$	2,345
Aerospace - Defense	502		131		131		—		764
Commercial Transportation	—		192		—		872		1,064
Industrial and Other	588		103		45		—		736
Total end-market revenue	$	2,414	$	989	$	634	$	872	$	4,909

Nine months ended September 30, 2022
Aerospace - Commercial	$	1,079	$	459	$	341	$	—	$	1,879
Aerospace - Defense	384		112		176		—		672
Commercial Transportation	—		169		—		792		961
Industrial and Other	503		92		43		—		638
Total end-market revenue	$	1,966	$	832	$	560	$	792	$	4,150

The Company derived 63% and 61% of its revenue from the aerospace (commercial and defense) markets for the nine months ended September 30, 2023 and 2022, respectively.

General Electric Company and RTX Corporation represented approximately 13% and 10%, respectively, of the Company’s third-party sales for the nine months ended September 30, 2023. General Electric Company and RTX Corporation represented approximately 13% and 9%, respectively, of the Company’s third-party sales for the nine months ended September 30, 2022. These sales were primarily from the Engine Products segment.

D. Restructuring and Other Charges


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Layoff costs	$	1	$	—	$	1	$	—
Reversals of previously recorded layoff reserves	—		—		(1)		(1)
Pension and Other post-retirement benefits - net settlements (E)	2		3		5		7


Other	1		1		3		6
Total restructuring and other charges	$	4	$	4	$	8	$	12

In the third quarter of 2023, the Company recorded Restructuring and other charges of $4, which were primarily due to charges for a Canadian pension plan settlement of $2, layoff charges of $1, and exit related costs, including accelerated depreciation, of $1.

In the nine months ended September 30, 2023, the Company recorded Restructuring and other charges of $8, which were primarily due to charges for U.S. and Canadian pension plan settlements of $5, exit related costs, including accelerated depreciation, of $3, and layoff charges of $1, partially offset by a reversal of $1 for a layoff reserve related to a prior period.

In the third quarter of 2022, the Company recorded Restructuring and other charges of $4, which were primarily due to charges for U.S. and Canadian pension plan settlements of $3 and exit related costs, including accelerated depreciation, of $1.

In the nine months ended September 30, 2022, the Company recorded Restructuring and other charges of $12, which were primarily due to charges for U.S. pension plan settlements of $7 and exit related costs, including accelerated depreciation, of $6, partially offset by a reversal of $1 for a layoff reserve related to a prior period.


	Layoff costs		Other exit costs		Total
Reserve balances at December 31, 2022	$	6	$	2	$	8
Cash payments	(2)		(2)		(4)
Restructuring charges	5		3		8
Other(1)	(5)		(1)		(6)
Reserve balances at September 30, 2023	$	4	$	2	$	6

(1)In the nine months ended September 30, 2023, other for layoff costs included $5 of charges for U.S. and Canadian pension plan settlements and for other exit costs included a $1 charge for accelerated depreciation.

The remaining reserves as of September 30, 2023 are expected to be paid in cash during the remainder of 2023 and 2024.

E. 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,
	2023		2022		2023		2022
Pension benefits
Service cost	$	—	$	1	$	2	$	3
Interest cost	20		13		60		38
Expected return on plan assets	(18)		(20)		(55)		(61)
Recognized net actuarial loss	7		12		21		37

Settlements	2		3		5		7


Net periodic cost(1)	$	11	$	9	$	33	$	24



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


Net periodic benefit(1)	$	(1)	$	(1)	$	(3)	$	(2)

(1)Service cost was included within Cost of goods sold and Selling, general administrative, and other expenses; settlements were included in Restructuring and other charges; and all other cost components were recorded in Other expense, net in the Statement of Consolidated Operations.

Pension benefits

In the third quarter and nine months ended September 30, 2023, the Company applied settlement accounting to its Canadian pension plan due to lump sum payments made to participants, reducing gross pension obligations by $12. In June 2023, the Company also undertook additional actions to reduce gross pension obligations by $19 by purchasing group annuity contracts from a third-party carrier to pay and administer future annuity payments of a U.S. pension plan. Settlement charges of $2 and

$5 were recognized in the third quarter and nine months ended September 30, 2023, respectively. In the third quarter and nine months ended September 30, 2022, the Company applied settlement accounting to certain small U.S. and Canadian pension plans due to lump sum payments made to participants, which resulted in settlement charges of $3 and $7, respectively. All settlement charges were recorded in Restructuring and other charges in the Statement of Consolidated Operations.

For the third quarter and nine months ended September 30, 2023, Howmet’s combined pension contributions and other postretirement benefit payments were approximately $9 and $28, respectively. For the third quarter and nine months ended September 30, 2022, Howmet’s combined pension contributions and other postretirement benefit payments were approximately $18 and $43, respectively.

F. Other Expense, Net


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Non-service costs - pension and other postretirement benefits (E)	$	7	$	4	$	22	$	11
Interest income	(5)		(2)		(15)		(3)
Foreign currency losses (gains), net	5		(3)		3		(7)
Net realized and unrealized losses	6		5		17		12

Deferred compensation	(1)		(2)		5		(11)
Other, net	(1)		65		(27)		65
Total other expense, net	$	11	$	67	$	5	$	67

In the nine months ended September 30, 2023, Other, net primarily includes the reversal of $25, net of legal fees of $1, of the $65 pre-tax charge taken in the third quarter of 2022 related to the Lehman Brothers International (Europe) legal proceeding (See Note P) due to the final settlement of such proceeding in June 2023.

G. 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 23.0% in both the third quarter and nine months ended September 30, 2023 and 24.3% in both the third quarter and nine months ended September 30, 2022. The 2023 and 2022 rates were 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. Foreign earnings subject to tax in higher rate jurisdictions also contributed to the 2023 rate being higher than the U.S. federal statutory rate of 21%.

For the third quarter of 2023 and 2022, the tax rate including discrete items was 22.3% and 23.1%, respectively. In the third quarter of 2023, the Company recorded a discrete net tax benefit of $1 for other small items. In the third quarter of 2022, the Company recorded a discrete tax benefit of $2 for other small items.

For the nine months ended September 30, 2023 and 2022, the tax rate including discrete items was 25.0% and 21.8%, respectively. In the nine months ended September 30, 2023, the Company recorded a discrete net tax charge of $13 attributable to a $20 charge for a tax reserve established in France (See Note P) and a net tax charge of $1 for other small items, reduced by an $8 excess tax benefit for stock compensation. In the nine months ended September 30, 2022, the Company recorded a discrete tax benefit of $11 attributable to a $6 benefit to release a valuation allowance related to an interest carryforward tax attribute in the U.K. and a $5 excess benefit for stock compensation.

The tax provision was comprised of the following:


	Third quarter ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Pre-tax income at estimated annual effective income tax rate before discrete items	$	55	$	24	$	162	$	111
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	—		2		—		—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	—		—		1		—
Tax reserve (P)	—		—		20		—
Other discrete items	(1)		(2)		(7)		(11)
Provision for income taxes	$	54

Howmet Aerospace Inc. [HWM-P] Filings

Howmet Aerospace Inc. [HWM] Filings