Segment Information

6 Months Ended

Jun. 30, 2021

Segment Reporting [Abstract]

Segment Information

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 end 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 operating profit. Howmet’s definition of Segment operating profit is Operating income excluding Special items. Special items include Restructuring and other charges. Segment operating profit may not be comparable to similarly titled measures of other companies. Differences between segment totals and consolidated Howmet 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. The business’s products are also critical components of commercial transportation vehicles, automobiles, construction and industrial equipment and renewable energy sector.

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 markets.

Goodwill     

The Company had $4,090 of Goodwill at June 30, 2021 and reviews it annually for impairment 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 the Engine Products segment to the Engineered Structures segment, based on synergies with forgings technologies and manufacturing capabilities. As a result of the reorganization, goodwill of $17 was reallocated from Engine Products to Engineered Structures, and these reporting units were evaluated for impairment during the first quarter of 2020. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was no goodwill impairment at the date the business was transferred.

During the first quarter of 2020, Howmet's market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, global sales to customers in the aerospace and commercial transportation industries impacted by COVID-19 have been and are expected to be negatively impacted compared to 2019 as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this assessment, the Company performed a quantitative impairment test in the first quarter of 2020 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. Since the first quarter of 2020, there have been no indicators of impairment identified for the Engineered Structures reporting unit or any other reporting units or indefinite-lived intangible assets.

The operating results of the Company’s reportable segments were as follows. Differences between total segment and consolidated totals are in Corporate.

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Second quarter ended June 30, 2021
Sales:
Third-party sales	$	544	$	262	$	160	$	229	$	1,195
Inter-segment sales	1		—		2		—		3
Total sales	$	545	$	262	$	162	$	229	$	1,198
Profit and loss:
Segment operating profit	$	100	$	50	$	11	$	61	$	222
Restructuring and other charges	5		3		—		—		8
Provision for depreciation and amortization	30		13		13		9		65
Capital expenditures	16		9		5		13		43
Second quarter ended June 30, 2020
Sales:
Third-party sales	$	585	$	326	$	229	$	113	$	1,253
Inter-segment sales	1		—		2		—		3
Total sales	$	586	$	326	$	231	$	113	$	1,256
Profit and loss:
Segment operating profit	$	105	$	70	$	19	$	6	$	200
Restructuring and other charges (credits)	22		24		(5)		1		42
Provision for depreciation and amortization	31		12		14		9		66
Capital expenditures	14		7		5		4		30
	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Six months ended June 30, 2021
Sales:
Third-party sales	$	1,078	$	534	$	336	$	456	$	2,404
Inter-segment sales	2		—		3		—		5
Total sales	$	1,080	$	534	$	339	$	456	$	2,409
Profit and loss:
Segment operating profit	$	201	$	95	$	21	$	131	$	448
Restructuring and other charges	10		5		1		—		16
Provision for depreciation and amortization	61		25		25		19		130
Capital expenditures	27		14		10		22		73
Six months ended June 30, 2020
Sales:
Third-party sales	$	1,366	$	711	$	504	$	304	$	2,885
Inter-segment sales	3		—		5		—		8
Total sales	$	1,369	$	711	$	509	$	304	$	2,893
Profit and loss:
Segment operating profit	$	270	$	166	$	47	$	56	$	539
Restructuring and other charges	35		26		12		3		76
Provision for depreciation and amortization	61		24		27		19		131
Capital expenditures	33		15		8		11		67

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

	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Total segment operating profit	$	222	$	200	$	448	$	539
Unallocated amounts:
Restructuring and other charges	(5)		(105)		(14)		(144)
Corporate expense	(10)		(21)		(38)		(63)
Consolidated operating income	$	207	$	74	$	396	$	332
Interest expense	(89)		(144)		(161)		(228)
Other (expense) income, net	(8)		(16)		(12)		8
Income (loss) from continuing operations before income taxes	$	110	$	(86)	$	223	$	112

The following table reconciles Total segment capital expenditures, which are presented on an accrual basis, with Capital expenditures as presented on the Statement of Consolidated Cash Flows. Differences between segment and consolidated totals are in Corporate and discontinued operations, including the impact of changes in accrued capital expenditures during the period.

	Second quarter ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Total segment capital expenditures	$	43	$	30	$	73	$	67
Corporate and discontinued operations	(7)		2		18		117
Capital expenditures	$	36	$	32	$	91	$	184

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

	Engine Products		Fastening Systems		Engineered Structures		Forged Wheels		Total Segment
Second quarter ended June 30, 2021
Aerospace - Commercial	$	260	$	129	$	79	$	—	$	468
Aerospace - Defense	121		41		64		—		226
Commercial Transportation	—		49		—		229		278
Industrial and Other	163		43		17		—		223
Total end-market revenue	$	544	$	262	$	160	$	229	$	1,195
Second quarter ended June 30, 2020
Aerospace - Commercial	$	312	$	224	$	144	$	—	$	680
Aerospace - Defense	125		39		64		—		228
Commercial Transportation	—		34		—		113		147
Industrial and Other	148		29		21		—		198
Total end-market revenue	$	585	$	326	$	229	$	113	$	1,253
Six months ended June 30, 2021
Aerospace - Commercial	$	487	$	277	$	159	$	—	$	923
Aerospace - Defense	272		83		141		—		496
Commercial Transportation	—		95		—		456		551
Industrial and Other	319		79		36		—		434
Total end-market revenue	$	1,078	$	534	$	336	$	456	$	2,404
Six months ended June 30, 2020
Aerospace - Commercial	$	819	$	481	$	328	$	—	$	1,628
Aerospace - Defense	252		83		134		—		469
Commercial Transportation	—		80		—		304		384
Industrial and Other	295		67		42		—		404
Total end-market revenue	$	1,366	$	711	$	504	$	304	$	2,885

The Company derived 59% and 73% of its revenue from aerospace end markets for the six months ended June 30, 2021 and 2020, respectively.

General Electric Company represented approximately 12% of the Company’s third-party sales for both the six months ended June 30, 2021 and 2020, primarily from Engine Products.