HOWMET AEROSPACE INC. (dollars in millions, except per share amounts) Overview OnApril 1, 2020 ,Howmet Aerospace Inc. (formerly known asArconic Inc. ) ("Howmet" or the "Company") completed the previously announced separation of its business into two independent, publicly-traded companies (the "Arconic Inc. Separation Transaction"). Following theArconic Inc. Separation Transaction, Arconic Corporation holds 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, Engineered Structures, Fastening Systems, and Forged Wheels). The Company's Board of Directors approved the completion of theArconic Inc. Separation Transaction onFebruary 5, 2020 , which was effected by the distribution (the "Distribution") by the Company of all of the outstanding common stock of Arconic Corporation onApril 1, 2020 to the Company's stockholders who held shares as of the close of business onMarch 19, 2020 (the "Record Date"). In the Distribution, each Company stockholder of record as of the Record Date received one share of Arconic Corporation common stock for every four shares of the Company's common stock held as of the Record Date. The Company did not issue fractional shares of Arconic Corporation common stock in the Distribution. Instead, each stockholder otherwise entitled to a fractional share of Arconic Corporation common stock received cash in lieu of fractional shares. OnMarch 31, 2020 , in connection with theArconic Inc. Separation Transaction, the Company entered into several agreements with Arconic Corporation that govern the relationship between the Company and Arconic Corporation following the Distribution, including the following: a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, Transition Services Agreement and certain Patent, Know-How, Trade Secret License and Trademark License Agreements. The following Management's Discussion and Analysis of Financial Condition and Results of Operations excludes the historical results of Arconic Corporation, as theArconic Inc. Separation Transaction took place onApril 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. In addition, the related assets and liabilities associated with Arconic Corporation in theDecember 2019 Consolidated Balance Sheet are classified as assets and liabilities of discontinued operations. 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 (Loss), and Statement of Changes in Consolidated Equity, respectively, for all periods prior to theArconic Inc. Separation Transaction. COVID-19 The Company derives approximately 70% of its revenue from products sold to the aerospace end-market. As a result of 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 our financial results. Since the start of the pandemic, certain original equipment manufacturer ("OEM") customers have suspended manufacturing operations inNorth America andEurope on a temporary basis. While the pandemic has resulted in temporary closure of a small number of the Company's manufacturing facilities, all of our manufacturing facilities are currently operating. Since the duration of the pandemic is uncertain, 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 our dividends and reducing the levels of our capital expenditures to preserve cash and maintain liquidity. For additional information regarding the risks of COVID-19 on our business, see the section entitled "Item 1A. Risk Factors - Our business, results of operations, financial condition and/or cash flows could be materially adversely affected by the effects of widespread public health epidemics/pandemics, including COVID-19, that are beyond our control." Results of Operations Earnings Summary: Sales. Sales were$1,253 in the second quarter of 2020 compared to$1,818 in the second quarter of 2019 and$2,887 in the six months endedJune 30, 2020 compared to$3,570 in the six months endedJune 30, 2019 . The decrease of$565 , or 31%, in the second quarter of 2020 and$683 , or 19%, in the six months endedJune 30, 2020 , was primarily due to lower volumes in the commercial aerospace and commercial transportation markets driven by the impacts of COVID-19 and 737 MAX production declines and a decrease in sales of$65 from the divestiture of the forgings business in theU.K. inDecember 2019 , partially offset by growth in the defense aerospace and industrial gas turbine markets as well as favorable product pricing. Cost of goods sold (COGS). COGS as a percentage of Sales was 73.7% in the second quarter of 2020 compared to 73.4% in the second quarter of 2019 and was 72.9% in the six months endedJune 30, 2020 compared to 73.6% in the six months endedJune 30, 2019 . The increase in the second quarter of 2020 was primarily due to lower volumes and the impacts of COVID-19 28 -------------------------------------------------------------------------------- partially offset by intentional product exits, the impairment of energy business assets of$9 in the second quarter of 2019 and favorable pricing. In the second quarter of 2020, the Company incurred costs related to fires at two plants of$14 . The Company submitted an insurance claim and received a partial settlement of$10 , which was in excess of its$10 insurance deductible which has already been met. The decrease in the six months endedJune 30, 2020 was primarily due to intentional product exits, the impairment of energy business assets of$9 in the second quarter of 2019, and favorable pricing partially offset by the impacts of COVID-19 and lower volumes in the second quarter. The Company anticipates charges of approximately$5 to$15 in the third quarter of 2020, with additional impacts in subsequent quarters as the businesses continue to recover from the fires. Selling, general administrative, and other expenses (SG&A). SG&A expenses were$74 in the second quarter of 2020 compared to$102 in the second quarter of 2019 and$153 in the six months endedJune 30, 2020 compared to$218 in the six months endedJune 30, 2019 . The decrease of$28 , or 27%, in the second quarter of 2020 and$65 , or 30%, in the six months endedJune 30, 2020 , was primarily due to lower costs driven by overhead cost reductions and lower net legal and other advisory costs related toGrenfell Tower primarily due to insurance reimbursements, partially offset by higher costs associated with theArconic Inc. Separation Transaction. Research and development expenses (R&D). R&D expenses were$4 in the second quarter of 2020 compared to$7 in the second quarter of 2019 and$8 in the six months endedJune 30, 2020 compared to$16 in the six months endedJune 30, 2019 . The decrease of$3 , or 43%, in the second quarter of 2020 and$8 , or 50%, in the six months endedJune 30, 2020 , was primarily due to the consolidation of the Company's primary R&D facility in conjunction with ongoing cost reduction efforts. Restructuring and other charges. Restructuring and other charges was$105 in the second quarter of 2020 compared to$472 in the second quarter of 2019 or a decrease of$367 ; and was$144 in the six months endedJune 30, 2020 compared to$516 in the six months endedJune 30, 2019 or a decrease of$372 . The decrease for the six months endedJune 30, 2020 was primarily due to a charge for impairment of a long-lived asset group of$428 and a loss on sale of an additives business of$12 both of which occurred in the second quarter of 2019 as well as a decrease in severance cost reversals of$6 , a decrease in lease termination costs of$12 and a decrease in exit costs and other items of$8 ; which were partially offset by a net increase related to pension and other postretirement benefit settlement accounting of$75 , an increase in layoff charges of$8 and charges related to an impairment of assets associated with agreements to sell two businesses in theUnited Kingdom of$11 in the six months ended June 30, 2020. See Note E to the Consolidated Financial Statements for additional detail. Interest expense. Interest expense was$144 in the second quarter of 2020 compared to$86 in the second quarter of 2019 and$228 in the six months endedJune 30, 2020 compared to$171 in the six months endedJune 30, 2019 . The increase of$58 , or 67%, in the second quarter of 2020 and an increase of$57 , or 33%, in the six months endedJune 30, 2020 , were primarily due to a$59 premium paid on the early redemption of debt. Other expense (income), net. Other expense (income), net was$16 in the second quarter of 2020 compared to$6 in the second quarter of 2019. The increase of$10 , or 167%, in the second quarter of 2020 was primarily due to$3 favorable change in foreign currency and$9 of various small items, partially offset by$2 higher deferred compensation. Other expense (income), net was$(8) income for the six months endedJune 30, 2020 compared to$18 expense for the six months endedJune 20, 2019 The lower expense of$(26) , or (144)% was primarily due to the lower deferred compensation of$18 , favorable foreign currency movements of$8 and various small items of$11 , partially offset by lower interest income of$11 . Provision for income taxes. The tax rate including discrete items was 2.3% (benefit on a loss) in the second quarter of 2020 compared to 49.3% (benefit on a loss) in the second quarter of 2019. A discrete tax charge of$10 was recorded in the second quarter of 2020 compared to a discrete tax benefit of$37 in the second quarter of 2019. The estimated annual effective tax rate, before discrete items, applied to ordinary income was 36.1% in the second quarter of 2020 compared to 51.8% in the second quarter of 2019. See Note H to the Consolidated Financial Statements. Income (loss) from Continuing and Discontinued Operations Income (loss) from continuing operations was$(84) , or$(0.19) per diluted share, in the second quarter of 2020 compared to$(136) , or$(0.31) per diluted share, in the second quarter of 2019, and$69 , or$0.15 per diluted share, in the six months endedJune 30, 2020 , compared to$(50) , or$(0.11) per diluted share, in the six months endedJune 30, 2019 . The improvement of$52 in the second quarter of 2020 and$119 in the six months endedJune 30, 2020 , was primarily due to lower Restructuring and other charges, higher Income taxes, higher SG&A expenses primarily related to costs related to theArconic Inc. Separation Transaction, and higher Other expense, net, partially offset by volume growth, favorable product pricing, net cost savings, lower Interest expense, and lower R&D expenses. Income (loss) from discontinued operations was$(12) or$(0.03) per diluted share for the second quarter of 2020 compared to$15 or$0.03 per diluted share for the second quarter of 2019. Income from discontinued operations was$50 or$0.11 per diluted share for the second quarter of 2020 compared to$116 or$0.25 per diluted share for the second quarter of 2019. See details of discontinued operations in Note B to the Consolidated Financial Statements. 29 -------------------------------------------------------------------------------- Since the announcement of theArconic Inc. Separation Transaction in the first quarter of 2019, separation costs recorded in Income from discontinued operations and in Selling, general administrative, and other expenses totaled$124 as well as debt issuance costs and capital expenditures of$45 and$10 , respectively. Segment Information Segment performance under the Company's management reporting system is evaluated based on a number of factors; however, the primary measure of performance is Segment operating profit. The Company's definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and other charges and Impairment of goodwill. Segment operating profit may not be comparable to similarly titled measures of other companies. Differences between segment and consolidated totals are in Corporate. The Company has four segments - Engine Products, Fastening Systems, Engineered Structures and Forged Wheels. (See Note D to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q for a description of each segment). In the second quarter of 2020, the Company realigned its operations consistent with how the Co-Chief Executive Officers are assessing operating performance and allocating capital in conjunction with theArconic Inc. Separation Transaction (see Note B to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q). Prior period financial information has been recast to conform to current year presentation. The Company produces aerospace engine parts and components and aerospace fastening systems for Boeing 737 MAX airplanes. The temporary reduction in the production rate of the 737 MAX airplanes that was announced by Boeing inApril 2019 did not have a significant impact on the Company's sales or segment operating profit in 2019. In lateDecember 2019 , Boeing announced a temporary suspension of production of the 737 MAX airplanes. This decline in production had a negative impact on sales and segment operating profit in the Engine Products, Fastening Systems and Engineered Structures segments in the second quarter and six months endedJune 30, 2020 . The Company expects the reduction in 737 MAX production rates to continue to have a negative impact on its financial performance for the remainder of 2020. Engine Products Second quarter ended Six months ended June 30, June 30, 2020 2019 2020 2019 Third-party sales$ 585 $ 835 $ 1,366 $ 1,648 Inter-segment sales 1 3 3 8 Total sales$ 586 $ 838 $ 1,369 $ 1,656 Segment operating profit 105 163 270 304 Third-party sales for the Engine Products segment decreased$250 , or 30%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower volumes in the commercial aerospace end market driven by COVID-19 and 737 MAX production declines and a decrease in sales of$33 from the divestiture of the forgings business in the U.K. (December 2019) (see Note Q to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q), partially offset by higher volumes in the industrial gas turbines and defense aerospace end markets as well as price increases. Third-party sales for the Engine Products segment decreased$282 , or 17% for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , primarily due to lower volumes in the commercial aerospace end market driven by COVID-19 and 737 MAX production declines and a decrease in sales of$65 from the divestiture of the forgings business in theU.K. (December 2019 ) (see Note
Q
to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q), partially offset by higher volumes in the industrial gas turbines and defense aerospace end markets as well as price increases. Segment operating profit for the Engine Products segment decreased$58 , or 36%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower commercial aerospace volumes, partially offset by cost reductions, price increases, and favorable volumes and mix in the industrial gas turbines and defense aerospace end markets. Segment operating profit for the Engine Products segment decreased$34 , or 11%, for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , primarily due to lower commercial aerospace volumes, partially offset by cost reductions, price increases and favorable volumes and mix in the industrial gas turbines and defense aerospace end markets. 30 --------------------------------------------------------------------------------
Fastening Systems
Second quarter ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Third-party sales $ 326 $ 399 $ 711 $ 794
Segment operating profit 70 99 166 195
Third-party sales for the Fastening Systems segment decreased $73 , or 18%, in
the second quarter of 2020 compared to the second quarter of 2019, primarily due
to lower volumes in the commercial transportation and aerospace end markets
driven by COVID-19 and 737 MAX production declines.
Third-party sales for the Fastening Systems segment decreased $83 , or 10%, for
the six months ended June 30, 2020 compared to the six months ended June 30,
2019 , primarily due to lower volumes in the commercial transportation and
aerospace end markets driven by COVID-19 and 737 MAX production declines.
Segment operating profit for the Fastening Systems segment decreased $29 , or
29%, in the second quarter of 2020 compared to the second quarter of 2019,
primarily due to lower volumes and COVID-19, partially offset by cost
reductions.
Segment operating profit for the Fastening Systems segment decreased $29 , or
15%, for the six months ended June 30, 2020 compared to the six months ended
June 30, 2019 , primarily due to lower volumes and COVID-19, partially offset by
cost reductions.
Engineered Structures
Second quarter ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Third-party sales $ 229 $ 331 $ 504 $ 625
Inter-segment sales 2 3 5 6
Total sales $ 231 $ 334 $ 509 $ 631
Segment operating profit 19 25 47 41
Third-party sales for the Engineered Structures segment decreased $102 , or 31%,
in the second quarter of 2020 compared to the second quarter of 2019, primarily
due to lower volumes in the commercial aerospace end market driven by COVID-19
and 737 MAX production declines, partially offset by price increases.
Third-party sales for the Engineered Structures segment decreased $121 , or 19% ,
for the six months ended June 30, 2020 compared to the six months ended June 30,
2019 , primarily due to lower volumes in the commercial aerospace end market
driven by COVID-19 and 737 MAX production declines, partially offset by price
increases.
Segment operating profit for the Engineered Structures segment decreased $6 , or
24%, in the second quarter of 2020 compared to the second quarter of 2019,
primarily due to lower sales volumes and COVID-19, partially offset by cost
reductions, intentional product exits and price increases.
Segment operating profit for the Engineered Structures segment increased $6 , or
15%, for the six months ended June 30, 2020 compared to six months ended June
30, 2019 , primarily due to cost reductions, price increases and intentional
product exits, partially offset by lower sales volumes.
Forged Wheels
Second quarter ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Third-party sales $ 113 $ 257 $ 304 $ 511
Segment operating profit 6 73 56 133
31-------------------------------------------------------------------------------- Third-party sales for the Forged Wheels segment decreased$144 , or 56%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower volumes in the commercial transportation market driven by market softness and COVID-19, unfavorable foreign currency movements and aluminum prices. Third-party sales for the Forged Wheels segment decreased$207 , or 41%, for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , primarily due to lower volumes in the commercial transportation market driven by market softness and COVID-19, unfavorable foreign currency movements and aluminum prices. Segment operating profit for the Forged Wheels segment decreased$67 , or 92%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower volumes, COVID-19 disruptions and unfavorable aluminum prices, partially offset by cost reductions. Segment operating profit for the Forged Wheels segment deceased$77 , or 58%, for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , primarily due to lower volumes and COVID-19 disruptions, partially offset by cost reductions. Reconciliation of Total segment operating profit to Income (loss) from continuing operations before income taxes Second quarter ended Six months ended June 30, June 30, 2020 2019 2020 2019 Total segment operating profit$ 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) income, net (16) (6) 8 (18) Income (loss) from continuing operations before income taxes$ (86) $ (268)
See Restructuring and other charges, Interest expense, and Other (expense) income, net discussions above under Results of Operations for reference. Environmental Matters See the Environmental Matters section of Note R to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q. Subsequent Events See Note S to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q for subsequent events. Liquidity and Capital Resources Operating Activities Cash used for operations was$260 in the six months endedJune 30, 2020 , compared to$152 in the six months endedJune 30, 2019 . The increase of$108 , or 71%, was primarily due to lower operating results of$296 , partially offset by lower working capital of$179 . The components of the change in working capital included favorable changes in receivables of$673 and in taxes, including income taxes of$55 , partially offset by unfavorable changes in accounts payable of$374 , accrued expenses of$127 , prepaid expenses and other current assets of$29 and inventories of$19 . Financing Activities Cash used for financing activities was$277 in the six months endedJune 30, 2020 compared to$942 in the six months endedJune 30, 2019 . The increase of$665 , or 71%, was primarily due to a decrease in repurchases of common stock of$900 and an increase in debt issued of$2,174 , which were partially offset by an increase in long-term debt redemptions of$1,815 , cash distributed to Arconic Corporation at theArconic Inc. Separation Transaction of$500 , debt issuance costs of$61 and premiums paid on the redemption of debt of$59 . 32 -------------------------------------------------------------------------------- The Company maintains a Five-Year Revolving Credit Agreement (the "Credit Agreement") with a syndicate of lenders and issuers named therein. In addition to the Credit Agreement, the Company has a number of other credit agreements. OnJune 26, 2020 , the Company entered into an amendment to its Credit Agreement to modify certain terms which provided relief from its existing financial covenant throughDecember 31, 2021 and reduced total commitment available from$1,500 to$1,000 . See Note O to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q for reference. The Company's costs of borrowing and ability to access the capital markets are affected not only by market conditions but also by the short- and long-term debt ratings assigned to the Company by the major credit rating agencies. The Company's credit ratings from the three major credit rating agencies are as follows: Long-Term Debt Short-Term Debt Outlook Date of Last Update Standard and Poor's BBB- A-3 Negative April 22, 2020 Moody's Ba3 Speculative Grade Liquidity-2 Negative April 23, 2020 Fitch BBB- B Stable April 22, 2020 Investing Activities Cash provided from investing activities was$127 in the six months endedJune 30, 2020 compared to$171 in the six months endedJune 30, 2019 . The decrease of$44 , or 26%, was primarily due to decreases in Cash receipts from sold receivables of$303 and lower sales of fixed-income securities of$47 , which were partially offset by a decrease in capital expenditures of$203 and an increase in proceeds from the sale of assets and businesses of$102 primarily related to the sale of a hard extrusions plant inSouth Korea and an aluminum rolling mill inBrazil in the first quarter of 2020 (both of which related to Arconic Corporation) compared to the sale of a small additives business within the Engineered Structures segment in the first half of 2019. Critical Accounting Policies and EstimatesGoodwill .Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more frequently if indicators of impairment exist or if a decision is made to sell or realign a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. For the second quarter of 2020, Howmet had four reporting units (Engine Products, Fastening Systems, Engineered Structures and Forged Wheels). In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the quantitative impairment test (described below); otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the quantitative impairment test. Howmet determines annually, based on facts and circumstances, which of its reporting units will be subject to the qualitative assessment. For those reporting units where a qualitative assessment is either not performed or for which the conclusion is that an impairment is more likely than not, a quantitative impairment test will be performed. Howmet's policy is that a quantitative impairment test be performed for each reporting unit at least once during every three-year period. Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact they would have on the estimated fair value using positive, neutral, and adverse categories based on current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using high, medium, and low weighting. Furthermore, management considers the results of the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital (WACC) between the current and prior years for each reporting unit. 33 -------------------------------------------------------------------------------- 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 overallU.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 in the first quarter 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%. As such, the fair values of all of our reporting units substantially exceeded their carrying values atJune 30, 2020 . 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. Recently Adopted and Recently Issued Accounting Guidance See Note C to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q. Forward-Looking Statements This report contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goal," "guidance," "intends," "may," "outlook," "plans," "projects," "seeks," "sees," "should," "targets," "will," "would," or other words of similar meaning. All statements that reflect Howmet's expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts and expectations relating to the growth of the aerospace, automotive, commercial transportation and other end markets; statements and guidance regarding future financial results or operating performance; statements regarding future strategic actions; and statements about Howmet's strategies, outlook, business and financial prospects. These statements reflect beliefs and assumptions that are based on Howmet's perception of historical trends, current conditions and expected future developments, as well as other factors Howmet believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict, which could cause actual results to differ materially from those indicated by these statements. Such risks and uncertainties include, but are not limited to: (a) the impact of the separation of Arconic Corporation from Howmet on the businesses of Howmet; (b) deterioration in global economic and financial market conditions generally including as a result of pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the COVID-19 outbreak continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations); (c) unfavorable changes in the markets served by Howmet; (d) the inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations anticipated or targeted; (e) competition from new product offerings, disruptive technologies or other developments; (f) political, economic, and regulatory risks relating to Howmet's global operations, including compliance withU.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (g) manufacturing difficulties or other issues that impact product performance, quality or safety; (h) Howmet's inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, expansions, or joint ventures; (i) the impact of potential cyber attacks and information technology or data security breaches; (j) the loss of significant customers or adverse changes in customers' business or financial conditions; (k) adverse changes in discount rates or investment returns on pension assets; (l) the impact of changes in aluminum prices and foreign currency exchange rates on costs and results; (m) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet to substantial costs and liabilities; and (n) the possible impacts and our preparedness to respond to implications of COVID-19; and (o) the other risk factors summarized in Howmet's Form 10-K for the year endedDecember 31, 2019 , Form 10-Q for the quarter endedMarch 31, 2020 , and other reports filed with theU.S. Securities and Exchange Commission . Market projections are subject to the risks discussed above and other risks in the market. Howmet disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not material. 34
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