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Howmet Aerospace Reports Fourth Quarter and Full Year 2022 Results

Full Year 2022 Commercial Aerospace Revenue Up 28% year over year, Strong Profit and Cash Generation

Full Year 2022 $400 Million Share Repurchases, Doubled Common Stock Dividend in Fourth Quarter 2022

Full Year 2022 $69 Million Debt Repurchases, Additional $26 Million Repurchased in January 2023

Full Year 2023 Revenue Growth Guidance Approximately 8%

Howmet Aerospace (NYSE:HWM):

Fourth Quarter 2022 Highlights

  • Revenue of $1.5 billion, up 18% year over year, driven by Commercial Aerospace, up 29% year over year
  • Net income of $111 million, or $0.26 per share, versus $77 million, or $0.18 per share, in the fourth quarter 2021
  • Net income excluding special items of $160 million, or $0.38 per share, versus $130 million, or $0.30 per share, in the fourth quarter 2021
  • Adjusted EBITDA excluding special items of $336 million, up 14% year over year
  • Generated $455 million cash from operations; $410 million of free cash flow; $89 million of cash used for financing activities; and $29 million of cash used for investing activities
  • Cash balance at end of quarter of $792 million; $65 million of common stock repurchases; $0.04 per share dividend on common stock; $9 million of debt repurchases

Full Year 2022 Highlights

  • Revenue of $5.7 billion, up 14% year over year, driven by Commercial Aerospace, up 28% year over year
  • Net income of $469 million, or $1.11 per share, versus $258 million, or $0.59 per share, in the full year 2021
  • Net income excluding special items of $593 million, or $1.40 per share, versus $442 million, or $1.01 per share, in the full year 2021
  • Adjusted EBITDA excluding special items of $1.3 billion, up 12% year over year
  • Generated $733 million cash from operations; $193 million in capital expenditures, less than depreciation & amortization of $265 million; $540 million of free cash flow; $526 million of cash used for financing activities; and $135 million of cash used for investing activities
  • $400 million of common stock repurchases; $44 million in dividends; $69 million of debt repurchases

2023 Guidance1

Q1 2023 Guidance

FY 2023 Guidance

Low

Midpoint

High

Low

Midpoint

High

Revenue

$1.475B

$1.500B

$1.525B

 

$6.000B

$6.100B

$6.200B

Adj. EBITDA*

$325M

$335M

$345M

 

$1.335B

$1.375B

$1.415B

Adj. EBITDA Margin*

22.0%

22.3%

22.6%

 

22.3%

22.5%

22.8%

Adj. Earnings per Share*

$0.35

$0.37

$0.39

 

$1.53

$1.60

$1.67

Free Cash Flow

 

 

 

 

$580M

$615M

$650M

* Excluding Special Items

___________________________

1 Reconciliations of the forward-looking non-GAAP measures to the most directly comparable GAAP measures, as well as the directly comparable GAAP measures, are not available without unreasonable efforts due to the variability and complexity of the charges and other components excluded from the non-GAAP measures – for further detail, see “2023 Guidance” below.

Key Announcements

  • In the fourth quarter 2022, Howmet Aerospace repurchased approximately 1.7 million shares of its common stock for $65 million, bringing full year 2022 share repurchases to approximately 11.4 million shares for $400 million at an average price per share of $35.22; approximately $947 million remains authorized for share repurchase.
  • In the fourth quarter 2022, the Company repurchased approximately $9 million of the aggregate principal amount of its 5.125% Notes due 2024 (“2024 Notes”), bringing full year 2022 debt repurchases to approximately $69 million with cash on hand. Debt actions taken over the course of full year 2022 reduces annualized interest expense by approximately $4 million.
  • In January 2023, the Company repurchased an additional $26 million of the aggregate principal amount of its 2024 Notes with cash on hand.
  • The Company increased the quarterly dividend of its common stock from $0.02 per share to $0.04 per share in the fourth quarter 2022.

Howmet Aerospace (NYSE:HWM) today reported fourth quarter 2022 and full year 2022 results. The Company reported fourth quarter 2022 revenues of $1.5 billion, up 18% year over year, primarily driven by growth in the commercial aerospace market of 29%.

Howmet Aerospace reported net income of $111 million, or $0.26 per share, in the fourth quarter 2022 versus net income of $77 million, or $0.18 per share, in the fourth quarter 2021. Net income excluding special items was $160 million, or $0.38 per share, in the fourth quarter 2022, versus $130 million, or $0.30 per share, in the fourth quarter 2021. Net income included an approximately $50 million charge from special items, primarily non-cash and principally related to pension liabilities, in the fourth quarter 2022. Operating income margin was up approximately 310 basis points year over year at 14.5% in the fourth quarter 2022.

Fourth quarter 2022 Adjusted EBITDA excluding special items was $336 million, up 14% year over year. The year-over-year increase was driven by volume growth in the commercial aerospace market. Adjusted EBITDA margin, excluding special items, was down approximately 80 basis points year over year at 22.2% while passing through approximately $55 million of additional material costs year over year. Excluding material cost pass through, adjusted EBITDA margin excluding special items was 23.0%.

Full year 2022 revenues were $5.7 billion, up 14% year over year, primarily driven by growth in the commercial aerospace market of 28%. Net income of $469 million, or $1.11 per share, in the full year 2022 was up versus net income of $258 million, or $0.59 per share, in the full year 2021. Net income excluding special items was $593 million, or $1.40 per share, in the full year 2022, versus $442 million, or $1.01 per share, in the full year 2021. Operating income margin was up approximately 120 basis points year over year at 16.2% in the full year 2022.

Full year 2022 Adjusted EBITDA excluding special items was $1.3 billion, up 12% year over year. The year-over-year increase was driven by volume growth in the commercial aerospace market. Adjusted EBITDA margin, excluding special items, was down approximately 30 basis points year over year at 22.5% while passing through approximately $225 million of additional material costs year over year. Excluding material cost pass through, adjusted EBITDA margin excluding special items was 23.5% and year-over-year flow through of incremental revenue to Adjusted EBITDA excluding special items was strong at approximately 30%.

Howmet Aerospace Executive Chairman and Chief Executive Officer John Plant said, “Howmet Aerospace delivered a solid finish to 2022. The team drove strong revenue growth and improved profitability in 2022 against a choppy backcloth with uneven aircraft and engine build rate increases and inflationary pressures. The fourth quarter 2022 marks the sixth consecutive quarter of year-over-year revenue, Adjusted EBITDA2, and Adjusted Earnings Per Share2 growth. Fourth quarter 2022 Adjusted EBITDA margin2 was a healthy 22.2%, while Adjusted Earnings Per Share2 matched the midpoint of guidance and grew 27% year over year.”

Mr. Plant continued, “Turning to full year 2023, currently, air travel conditions are very favorable, and airlines are experiencing strong growth, demanding new, more fuel-efficient aircraft. While industry demand is expected to be robust, Howmet Aerospace relies on aircraft and engine builds by the major OEMs, and the Company is taking a conservative view of 2023 until we see consistent build rate increases. Underpinning full year 2023 guidance are assumed monthly build rates of approximately 30 for the Boeing 737-MAX and 53 to 54 for the Airbus A320 family, and approximately 30 Boeing 787 builds and 65 to 70 Airbus A350 builds for the year.”

“Cash generation in full year 2022 was strong, supporting $400 million in common stock repurchases, $44 million in dividends paid, and $69 million in debt repurchases. Howmet Aerospace ended the year with $792 million in cash, and total debt less cash in the fourth quarter was a record low since Separation. The Company’s balance sheet has never been stronger, and continued healthy free cash flow generation supports additional capital allocation actions.”

___________________________

2 Excluding Special Items

Fourth Quarter 2022 Segment Performance

Engine Products

Engine Products reported revenue of $732 million, an increase of 21% year over year, due to growth in the commercial aerospace, defense aerospace and oil and gas markets, and an increase in material cost pass through. Segment Adjusted EBITDA was $191 million, up 26% year over year, driven by commercial aerospace, defense aerospace, and oil and gas volumes, as well as strong productivity gains. The segment added approximately 950 net headcount since the fourth quarter 2021 in anticipation of future revenue increases. Segment Adjusted EBITDA margin increased approximately 110 basis points year over year to 26.1%.

Fastening Systems

Fastening Systems reported revenue of $285 million, an increase of 11% year over year due to growth in the commercial aerospace market with narrow body recovery as well as an increase in material cost pass through. Segment Adjusted EBITDA was $58 million, down 3% year over year, driven by lower labor productivity of new hires. The segment added approximately 400 net headcount since the fourth quarter 2021 in anticipation of future revenue increases. Segment Adjusted EBITDA margin decreased approximately 300 basis points year over year to 20.4%.

Engineered Structures

Engineered Structures reported revenue of $230 million, an increase of 21% year over year due to growth in the narrow body commercial aerospace market, commercial aerospace share gain, and an increase in material cost pass through, partially offset by Boeing 787 production declines. Segment Adjusted EBITDA was $34 million, up 10% year over year, driven by favorable volume in the narrow body commercial aerospace market more than offsetting Boeing 787 production declines. Segment Adjusted EBITDA margin decreased approximately 150 basis points year over year to 14.8%.

Forged Wheels

Forged Wheels reported revenue of $266 million, an increase of 14% year over year due to higher aluminum material and other inflationary cost pass through and a 3% increase in volume, offset by unfavorable foreign currency movements. Segment Adjusted EBITDA was $72 million, flat year over year, driven by unfavorable foreign currency movements partially offset by favorable volume. Segment Adjusted EBITDA margin decreased approximately 370 basis points year over year to 27.1% including the impact of higher aluminum material costs, which are passed through to customers. Higher aluminum prices unfavorably impacted year-over-year Adjusted EBITDA margin in the fourth quarter 2022 by approximately 300 basis points.

Full Year 2022 Segment Performance

Segment performance in 2022 included the following:

  • Engine Products revenue of $2.7 billion, up 18% year over year; segment Adjusted EBITDA was $729 million, up $165 million year over year; segment Adjusted EBITDA margin was 27.0%, up 230 basis points year over year.
  • Fastening Systems revenue of $1.1 billion, up 7% year over year; segment Adjusted EBITDA was $234 million, down $5 million year over year; segment Adjusted EBITDA margin was 20.9%, down 200 basis points year over year.
  • Engineered Structures revenue of $790 million, up 9% year over year; segment Adjusted EBITDA was $111 million, up $8 million year over year; segment Adjusted EBITDA margin was 14.1%, down 10 basis points year over year.
  • Forged Wheels revenue of $1.1 billion, up 15% year over year; segment Adjusted EBITDA was $278 million, down $16 million year over year; segment Adjusted EBITDA margin was 26.3%, down 560 basis points year over year. Higher aluminum prices unfavorably impacted year over year Adjusted EBITDA margin in the full year 2022 by approximately 350 basis points.

Repurchased Approximately 1.7 Million Shares in Fourth Quarter 2022, 11.4 Million Shares in Full Year 2022

In the fourth quarter 2022, Howmet Aerospace repurchased approximately 1.7 million shares of its common stock for $65 million, bringing full year 2022 share repurchases to approximately 11.4 million shares for $400 million at an average price per share of $35.22. As of February 1, 2023, total share repurchase authorization available was approximately $947 million.

Repurchased Approximately $9 Million of Debt in Fourth Quarter 2022, $69 Million of Debt in Full Year 2022

In the fourth quarter 2022, the Company repurchased approximately $9 million of the aggregate principal amount of its 5.125% Notes due 2024, bringing full year 2022 debt repurchases to approximately $69 million with cash on hand. Debt actions taken over the course of full year 2022 reduces annualized interest expense by approximately $4 million.

Repurchased Approximately $26 Million of Debt in January 2023

In January 2023, the Company repurchased an additional $26 million of the aggregate principal amount of its 2024 Notes with cash on hand.

Howmet Aerospace Increased Common Stock Dividend in the Fourth Quarter 2022

The Company increased the quarterly dividend of its common stock from $0.02 per share to $0.04 per share in the fourth quarter 2022.

2023 Guidance

Q1 2023 Guidance

FY 2023 Guidance

Low

Midpoint

High

Low

Midpoint

High

Revenue

$1.475B

$1.500B

$1.525B

 

$6.000B

$6.100B

$6.200B

Adj. EBITDA1, 2

$325M

$335M

$345M

 

$1.335B

$1.375B

$1.415B

Adj. EBITDA Margin1, 2

22.0%

22.3%

22.6%

 

22.3%

22.5%

22.8%

Adj. Earnings per Share1, 2

$0.35

$0.37

$0.39

 

$1.53

$1.60

$1.67

Free Cash Flow2

 

 

 

 

$580M

$615M

$650M

 

1) Excluding Special Items

 

2) Reconciliations of the forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as the directly comparable GAAP measures, are not available without unreasonable efforts due to the variability and complexity of the charges and other components excluded from the non-GAAP measures, such as the effects of foreign currency movements, gains or losses on sales of assets, taxes, and any future restructuring or impairment charges. In addition, there is inherent variability already included in the GAAP measures, including, but not limited to, price/mix and volume. Howmet Aerospace believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors.

Full Year 2023 Guidance assumes the following aircraft build rates:

  • Boeing 737-MAX: approximately 30 builds per month on average
  • Airbus A320 family: approximately 53-54 builds per month on average
  • Boeing 787: approximately 30 builds for the year
  • Airbus A350: approximately 65-70 builds for the year

Howmet Aerospace expects higher Adjusted EBITDA excluding special items to drive growth in Adjusted Earnings per Share excluding special items in full year 2023. The Company expects the impact of higher non-cash pension expense to be offset by capital allocation actions. Capital allocation to common stock and/or debt repurchases depends on market conditions, profitability, and cash generation, among other factors.

Howmet Aerospace will hold its quarterly conference call at 10:00 AM Eastern Time on Tuesday, February 14, 2023. The call will be webcast via www.howmet.com. The press release and presentation materials will be available at approximately 7:00 AM ET on February 14, via the “Investors” section of the Howmet Aerospace website. A link to the press release will also be available via Howmet Aerospace’s Twitter handle @HowmetAerospace at https://twitter.com/howmetaerospace.

About Howmet Aerospace

Howmet Aerospace Inc., headquartered in Pittsburgh, Pennsylvania, is a leading global provider of advanced engineered solutions for the aerospace and transportation industries. The Company’s primary businesses focus on jet engine components, aerospace fastening systems, and airframe structural components necessary for mission-critical performance and efficiency in aerospace and defense applications, as well as forged aluminum wheels for commercial transportation. With nearly 1,150 granted and pending patents, the Company’s differentiated technologies enable lighter, more fuel-efficient aircraft and commercial trucks to operate with a lower carbon footprint. For more information, visit www.howmet.com. Follow: LinkedIn, Twitter, Instagram, Facebook, and YouTube.

Dissemination of Company Information

Howmet Aerospace intends to make future announcements regarding Company developments and financial performance through its website at www.howmet.com.

Forward-Looking Statements

This release 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 Aerospace’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements, forecasts and outlook relating to the condition of end markets; future financial results or operating performance; future strategic actions; Howmet Aerospace's strategies, outlook, and business and financial prospects; and any future dividends and repurchases of its debt or equity securities. These statements reflect beliefs and assumptions that are based on Howmet Aerospace’s perception of historical trends, current conditions and expected future developments, as well as other factors Howmet Aerospace 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) deterioration in global economic and financial market conditions generally; (b) unfavorable changes in the markets served by Howmet Aerospace; (c) the impact of potential cyber attacks and information technology or data security breaches; (d) the loss of significant customers or adverse changes in customers’ business or financial conditions; (e) manufacturing difficulties or other issues that impact product performance, quality or safety; (f) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (g) failure to attract and retain a qualified workforce and key personnel; (h) uncertainty of the duration, extent and impact of the COVID-19 pandemic on Howmet Aerospace’s business, results of operations, and financial condition; (i) the inability to achieve revenue growth, cash generation, restructuring plans, cost reductions, improvement in profitability, or strengthening of competitiveness and operations anticipated or targeted; (j) inability to meet increased demand, production targets or commitments; (k) competition from new product offerings, disruptive technologies or other developments; (l) geopolitical, economic, and regulatory risks relating to Howmet Aerospace’s global operations, including geopolitical and diplomatic tensions, instabilities and conflicts, as well as compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations; (m) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation, which can expose Howmet Aerospace to substantial costs and liabilities; (n) failure to comply with government contracting regulations; (o) adverse changes in discount rates or investment returns on pension assets; and (p) the other risk factors summarized in Howmet Aerospace’s Form 10-K for the year ended December 31, 2021 and other reports filed with the U.S. Securities and Exchange Commission. Market projections are subject to the risks discussed above and other risks in the market. The statements in this release are made as of the date of this release, even if subsequently made available by Howmet Aerospace on its website or otherwise. Howmet Aerospace 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.

Non-GAAP Financial Measures

Some of the information included in this release is derived from Howmet Aerospace’s consolidated financial information but is not presented in Howmet Aerospace’s financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Certain of these data are considered “non-GAAP financial measures” under SEC rules. These non-GAAP financial measures supplement our GAAP disclosures and should not be considered an alternative to the GAAP measure. Reconciliations to the most directly comparable GAAP financial measures and management’s rationale for the use of the non-GAAP financial measures can be found in the schedules to this release.

___________________________________

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

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

 

 

Quarter ended

 

December 31, 2022

 

September 30, 2022

 

December 31, 2021

Sales

$

1,513

 

$

1,433

 

$

1,285

 

 

 

 

 

 

Cost of goods sold (exclusive of expenses below)

 

1,110

 

 

1,056

 

 

938

Selling, general administrative, and other expenses

 

63

 

 

73

 

 

61

Research and development expenses

 

9

 

 

7

 

 

4

Provision for depreciation and amortization

 

67

 

 

65

 

 

67

Restructuring and other charges(1)

 

44

 

 

4

 

 

68

Operating income

 

220

 

 

228

 

 

147

 

 

 

 

 

 

Loss on debt redemption

 

 

 

 

 

5

Interest expense, net

 

57

 

 

57

 

 

58

Other expense, net

 

15

 

 

67

 

 

6

 

 

 

 

 

 

Income before income taxes

 

148

 

 

104

 

 

78

Provision for income taxes

 

37

 

 

24

 

 

1

Net income

$

111

 

$

80

 

$

77

 

 

 

 

 

 

Amounts Attributable to Howmet Aerospace Common Shareholders:

 

 

 

 

 

Earnings per share - basic(2)(3):

 

 

 

 

 

Net income per share

$

0.27

 

$

0.19

 

$

0.18

Average number of shares(3)(4)

 

413,657,108

 

 

414,646,509

 

 

425,660,650

 

 

 

 

 

 

Earnings per share - diluted(2)(3):

 

 

 

 

 

Net income per share

$

0.26

 

$

0.19

 

$

0.18

Average number of shares(4)

 

419,082,115

 

 

419,748,839

 

 

431,460,887

 

 

 

 

 

 

Common stock outstanding at the end of the period

 

412,155,057

 

 

413,704,596

 

 

421,691,912

(1)

Restructuring and other charges for the quarter ended December 31, 2022 included pension settlement charges of $51, gain on sale of assets of ($8), and asset impairments and accelerated depreciation of $1. Restructuring and other charges for the quarter ended September 30, 2022 included pension settlement charges of $3 and other, net of $1. Restructuring and other charges for the quarter ended December 31, 2021 included pension settlement charges of $66, gain on sale of assets of ($12), asset impairments and accelerated depreciation of $7, layoff costs of $5, and other, net of $2.

(2)

In order to calculate both basic and diluted earnings per share, preferred stock dividends declared of $1 for the quarters presented need to be subtracted from Net income.

(3)

For the quarters presented, the difference between the diluted average number of shares and the basic average number of shares related to share equivalents associated with outstanding awards and employee stock options.

(4)

As average shares outstanding are used in the calculation of both basic and diluted earnings per share, the full impact of share repurchases is not realized in EPS in the year of repurchase for the periods presented.

Howmet Aerospace Inc. and subsidiaries

Statement of Consolidated Operations (unaudited)

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

 

For the year ended December 31,

2022

 

2021

Sales

$

5,663

 

$

4,972

Cost of goods sold (exclusive of expenses below)

 

4,103

 

 

3,596

Selling, general administrative, and other expenses

 

288

 

 

251

Research and development expenses

 

32

 

 

17

Provision for depreciation and amortization

 

265

 

 

270

Restructuring and other charges(1)

 

56

 

 

90

Operating income

 

919

 

 

748

Loss on debt redemption

 

2

 

 

146

Interest expense, net

 

229

 

 

259

Other expense, net

 

82

 

 

19

Income before income taxes

 

606

 

 

324

Provision for income taxes

 

137

 

 

66

Net income

$

469

 

$

258

 

 

 

 

Amounts Attributable to Howmet Aerospace Common Shareholders:

 

 

 

Net income

$

467

 

$

256

Earnings per share - basic(2)(3):

 

 

 

Net income per share

$

1.12

 

$

0.60

Average number of shares(4)

 

416,043,332

 

 

429,834,301

Earnings per share - diluted(2)(3):

 

 

 

Net income per share

$

1.11

 

$

0.59

Average number of shares(4)

 

421,438,922

 

 

435,471,834

(1)

Restructuring and other charges for the year ended December 31, 2022 included pension settlement charges of $58, gain on sale of assets of ($8), other, net of $5, and asset impairments and accelerated depreciation of $1. Restructuring and other charges for the year ended December 31, 2021 included pension settlement charges of $75, asset impairments and accelerated depreciation of $15, net gain on sale of assets of ($8), layoff costs of $7, and other, net of $1.

(2)

In order to calculate both basic and diluted earnings per share, preferred stock dividends declared of $2 for the years presented need to be subtracted from Net income.

(3)

For the years presented, the difference between the diluted average number of shares and the basic average number of shares related to share equivalents associated with outstanding awards and employee stock options.

(4)

As average shares outstanding are used in the calculation of both basic and diluted earnings per share, the full impact of share repurchases is not realized in EPS in the year of repurchase for the years presented.

Howmet Aerospace Inc. and subsidiaries

Consolidated Balance Sheet (unaudited)

(in U.S. dollar millions)

 

 

December 31, 2022

 

December 31, 2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

791

 

 

$

720

 

Receivables from customers, less allowances of $1 in 2022 and $— in 2021

 

506

 

 

 

367

 

Other receivables

 

31

 

 

 

53

 

Inventories

 

1,609

 

 

 

1,402

 

Prepaid expenses and other current assets

 

206

 

 

 

195

 

Total current assets

 

3,143

 

 

 

2,737

 

Properties, plants, and equipment, net

 

2,332

 

 

 

2,467

 

Goodwill

 

4,013

 

 

 

4,067

 

Deferred income taxes

 

54

 

 

 

184

 

Intangibles, net

 

521

 

 

 

549

 

Other noncurrent assets

 

192

 

 

 

215

 

Total assets

$

10,255

 

 

$

10,219

 

 

 

 

 

Liabilities

 

 

 

Current liabilities:

 

 

 

Accounts payable, trade

$

962

 

 

$

732

 

Accrued compensation and retirement costs

 

195

 

 

 

198

 

Taxes, including income taxes

 

48

 

 

 

61

 

Accrued interest payable

 

75

 

 

 

74

 

Other current liabilities

 

202

 

 

 

183

 

Short-term debt

 

 

 

 

5

 

Total current liabilities

 

1,482

 

 

 

1,253

 

Long-term debt, less amount due within one year

 

4,162

 

 

 

4,227

 

Accrued pension benefits

 

633

 

 

 

771

 

Accrued other postretirement benefits

 

109

 

 

 

153

 

Other noncurrent liabilities and deferred credits

 

268

 

 

 

307

 

Total liabilities

 

6,654

 

 

 

6,711

 

 

 

 

 

Equity

 

 

 

Howmet Aerospace shareholders’ equity:

 

 

 

Preferred stock

 

55

 

 

 

55

 

Common stock

 

412

 

 

 

422

 

Additional capital

 

3,947

 

 

 

4,291

 

Retained earnings

 

1,028

 

 

 

603

 

Accumulated other comprehensive loss

 

(1,841

)

 

 

(1,863

)

Total equity

 

3,601

 

 

 

3,508

 

Total liabilities and equity

$

10,255

 

 

$

10,219

 

Howmet Aerospace and subsidiaries

Statement of Consolidated Cash Flows (unaudited)

(in U.S. dollar millions)

 

 

Year ended December 31,

 

2022

 

2021

Operating activities

 

 

 

Net income

$

469

 

 

$

258

 

Adjustments to reconcile net income to cash provided from operations:

 

 

 

Depreciation and amortization

 

265

 

 

 

270

 

Deferred income taxes

 

79

 

 

 

38

 

Restructuring and other charges

 

56

 

 

 

90

 

Net realized and unrealized losses

 

18

 

 

 

9

 

Net periodic pension cost

 

24

 

 

 

18

 

Stock-based compensation

 

54

 

 

 

41

 

Loss on debt redemption

 

2

 

 

 

146

 

Other

 

12

 

 

 

20

 

Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:

 

 

 

Increase in receivables

 

(161

)

 

 

(337

)

(Increase) decrease in inventories

 

(234

)

 

 

60

 

(Increase) decrease in prepaid expenses and other current assets

 

(6

)

 

 

11

 

Increase in accounts payable, trade

 

246

 

 

 

144

 

Increase (decrease) in accrued expenses

 

23

 

 

 

(146

)

Decrease in taxes, including income taxes

 

(12

)

 

 

(41

)

Pension contributions

 

(43

)

 

 

(96

)

Decrease (increase) in noncurrent assets

 

1

 

 

 

(13

)

Decrease in noncurrent liabilities

 

(60

)

 

 

(23

)

Cash provided from operations

 

733

 

 

 

449

 

Financing Activities

 

 

 

Net change in short-term borrowings

 

(5

)

 

 

(9

)

Additions to debt

 

 

 

 

700

 

Repurchases and payments on debt

 

(69

)

 

 

(1,538

)

Debt issuance costs

 

 

 

 

(11

)

Premiums paid on early redemption of debt

 

(2

)

 

 

(138

)

Repurchase of common stock

 

(400

)

 

 

(430

)

Proceeds from exercise of employee stock options

 

16

 

 

 

22

 

Dividends paid to shareholders

 

(44

)

 

 

(19

)

Other

 

(22

)

 

 

(21

)

Cash used for financing activities

 

(526

)

 

 

(1,444

)

Investing Activities

 

 

 

Capital expenditures

 

(193

)

 

 

(199

)

Proceeds from the sale of assets and businesses

 

58

 

 

 

32

 

Sales of debt securities

 

 

 

 

6

 

Cash receipts from sold receivables

 

 

 

 

267

 

Other

 

 

 

 

1

 

Cash (used for) provided from investing activities

 

(135

)

 

 

107

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(2

)

 

 

(1

)

Net change in cash, cash equivalents and restricted cash

 

70

 

 

 

(889

)

Cash, cash equivalents and restricted cash at beginning of year

 

722

 

 

 

1,611

 

Cash, cash equivalents and restricted cash at end of period

$

792

 

 

$

722

 

Howmet Aerospace Inc. and subsidiaries

Segment Information (unaudited)

(in U.S. dollar millions)

 

 

 

1Q21

 

 

2Q21

 

 

3Q21

 

 

4Q21

 

2021

 

1Q22

 

 

2Q22

 

 

3Q22

 

 

4Q22

 

2022

Engine Products

 

 

 

 

 

 

 

 

 

 

Third-party sales

$

534

 

$

544

 

$

599

 

$

605

 

$2,282

$

631

 

$

652

 

$

683

 

$

732

 

$2,698

Inter-segment sales

$

1

 

$

1

 

$

1

 

$

1

 

$4

$

1

 

$

1

 

$

1

 

$

1

 

$4

Provision for depreciation and amortization

$

31

 

$

30

 

$

31

 

$

32

 

$124

$

31

 

$

31

 

$

31

 

$

32

 

$125

Segment Adjusted EBITDA

$

132

 

$

130

 

$

151

 

$

151

 

$564

$

173

 

$

179

 

$

186

 

$

191

 

$729

Segment Adjusted EBITDA Margin

 

24.7

%

 

23.9

%

 

25.2

%

 

25.0

%

24.7%

 

27.4

%

 

27.5

%

 

27.2

%

 

26.1

%

27.0%

Restructuring and other charges

$

5

 

$

5

 

$

5

 

$

59

 

$74

$

3

 

$

4

 

$

2

 

$

20

 

$29

Capital expenditures

$

11

 

$

16

 

$

21

 

$

26

 

$74

$

27

 

$

24

 

$

23

 

$

20

 

$94

 

 

 

 

 

 

 

 

 

 

 

Fastening Systems

 

 

 

 

 

 

 

 

 

 

Third-party sales

$

272

 

$

262

 

$

254

 

$

256

 

$1,044

$

264

 

$

277

 

$

291

 

$

285

 

$1,117

Inter-segment sales

$

 

$

 

$

 

$

 

$—

$

 

$

 

$

 

$

 

$—

Provision for depreciation and amortization

$

12

 

$

13

 

$

12

 

$

12

 

$49

$

12

 

$

11

 

$

11

 

$

11

 

$45

Segment Adjusted EBITDA

$

57

 

$

63

 

$

59

 

$

60

 

$239

$

56

 

$

56

 

$

64

 

$

58

 

$234

Segment Adjusted EBITDA Margin

 

21.0

%

 

24.0

%

 

23.2

%

 

23.4

%

22.9%

 

21.2

%

 

20.2

%

 

22.0

%

 

20.4

%

20.9%

Restructuring and other charges (credits)

$

2

 

$

3

 

$

3

 

$

(8

)

$—

$

(3

)

$

 

$

 

$

11

 

$8

Capital expenditures

$

5

 

$

9

 

$

8

 

$

20

 

$42

$

15

 

$

8

 

$

7

 

$

9

 

$39

 

 

 

 

 

 

 

 

 

 

 

Engineered Structures

 

 

 

 

 

 

 

 

 

 

Third-party sales

$

176

 

$

160

 

$

199

 

$

190

 

$725

$

182

 

$

185

 

$

193

 

$

230

 

$790

Inter-segment sales

$

1

 

$

2

 

$

1

 

$

2

 

$6

$

1

 

$

1

 

$

3

 

$

1

 

$6

Provision for depreciation and amortization

$

12

 

$

13

 

$

12

 

$

12

 

$49

$

12

 

$

12

 

$

12

 

$

12

 

$48

Segment Adjusted EBITDA

$

22

 

$

24

 

$

26

 

$

31

 

$103

$

23

 

$

26

 

$

28

 

$

34

 

$111

Segment Adjusted EBITDA Margin

 

12.5

%

 

15.0

%

 

13.1

%

 

16.3

%

14.2%

 

12.6

%

 

14.1

%

 

14.5

%

 

14.8

%

14.1%

Restructuring and other charges

$

1

 

$

 

$

 

$

15

 

$16

$

2

 

$

1

 

$

1

 

$

3

 

$7

Capital expenditures

$

5

 

$

5

 

$

3

 

$

8

 

$21

$

7

 

$

2

 

$

3

 

$

5

 

$17

 

 

 

 

 

 

 

 

 

 

 

Forged Wheels

 

 

 

 

 

 

 

 

 

 

Third-party sales

$

227

 

$

229

 

$

231

 

$

234

 

$921

$

247

 

$

279

 

$

266

 

$

266

 

$1,058

Inter-segment sales

$

 

$

 

$

 

$

 

$—

$

 

$

 

$

 

$

 

$—

Provision for depreciation and amortization

$

10

 

$

9

 

$

10

 

$

10

 

$39

$

10

 

$

10

 

$

10

 

$

10

 

$40

Segment Adjusted EBITDA

$

80

 

$

70

 

$

72

 

$

72

 

$294

$

67

 

$

75

 

$

64

 

$

72

 

$278

Segment Adjusted EBITDA Margin

 

35.2

%

 

30.6

%

 

31.2

%

 

30.8

%

31.9%

 

27.1

%

 

26.9

%

 

24.1

%

 

27.1

%

26.3%

Restructuring and other charges

$

 

$

 

$

 

$

 

$—

$

 

$

 

$

 

$

2

 

$2

Capital expenditures

$

9

 

$

13

 

$

15

 

$

8

 

$45

$

9

 

$

5

 

$

6

 

$

8

 

$28

 

Differences between the total segment and consolidated totals are in Corporate.

Howmet Aerospace Inc. and subsidiaries

Calculation of Financial Measures (unaudited)

(in U.S. dollar millions) 

 

Reconciliation of Total Segment Adjusted EBITDA to Consolidated Income Before Income Taxes

 

 

1Q21

 

2Q21

 

3Q21

 

4Q21

2021

 

1Q22

 

2Q22

 

3Q22

 

4Q22

2022

Income before income taxes

$

113

$

110

$

23

$

78

$

324

$

171

$

183

 

$

104

$

148

$

606

Loss on debt redemption

 

 

23

 

118

 

5

 

146

 

 

2

 

 

 

 

2

Interest expense, net

 

72

 

66

 

63

 

58

 

259

 

58

 

57

 

 

57

 

57

 

229

Other expense (income), net

 

4

 

8

 

1

 

6

 

19

 

1

 

(1

)

 

67

 

15

 

82

Operating income

$

189

$

207

$

205

$

147

$

748

$

230

$

241

 

$

228

$

220

$

919

Segment provision for depreciation and amortization

 

65

 

65

 

65

 

66

 

261

 

65

 

64

 

 

64

 

65

 

258

Unallocated amounts:

 

 

 

 

 

 

 

 

 

 

Restructuring and other charges

 

9

 

5

 

8

 

68

 

90

 

2

 

6

 

 

4

 

44

 

56

Corporate expense(1)

 

28

 

10

 

30

 

33

 

101

 

22

 

25

 

 

46

 

26

 

119

Total Segment Adjusted EBITDA

$

291

$

287

$

308

$

314

$

1,200

$

319

$

336

 

$

342

$

355

$

1,352

Total Segment Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Total Segment Adjusted EBITDA provides additional information with respect to the Company's operating performance and the Company’s ability to meet its financial obligations. The Total Segment Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. Howmet’s definition of Total 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. Differences between the total segment and consolidated totals are in Corporate.

 

(1)

For the quarter ended March 31, 2021, Corporate expense included $10 of costs related to fires at two plants, net of reimbursement. For the quarter ended June 30, 2021, Corporate expense included ($4) of reimbursement related to legal and advisory charges and ($3) of net reimbursement related to fires at two plants. For the quarter ended September 30, 2021, Corporate expense included $10 of costs associated with closures, shutdowns, and other items and $1 of costs related to fires at two plants, net of reimbursement. For the quarter ended December 31, 2021, Corporate expense included $25 of costs associated with closures, shutdowns, and other items and ($11) of net reimbursement related to fires at two plants. For the quarter ended March 31, 2022, Corporate expense included $5 of costs related to fires at two plants and ($3) of reimbursement related to legal and advisory charges. For the quarter ended June 30, 2022, Corporate expense included $2 of costs related to fires at two plants and $1 of costs associated with closures, shutdowns, and other items. For the quarter ended September 30, 2022, Corporate expense included $25 of costs related to fires at three plants and $1 of costs associated with closures, shutdowns, and other items. In the third quarter of 2022, the Company’s cast house in Barberton, Ohio, which produces aluminum ingot used in the production of wheels for the North American commercial transportation market, experienced a mechanical failure resulting in substantial heat and fire-related damage to equipment. For the quarter ended December 31, 2022, Corporate expense included $4 of costs related to fires at three plants, net of reimbursement, and $1 of costs associated with closures, shutdowns, and other items.

Howmet Aerospace Inc. and subsidiaries

Calculation of Financial Measures (unaudited), continued

(in U.S. dollars millions)

 

Reconciliation of Free cash flow

Quarter ended

 

Year ended

March 31,

2022

 

June 30,

2022

 

September 30,

2022

 

December 31,

2022

 

December 31,

2022

Cash provided from operations

$

55

 

 

$

158

 

 

$

65

 

 

$

455

 

 

$

733

 

Capital expenditures

 

(62

)

 

 

(44

)

 

 

(42

)

 

 

(45

)

 

 

(193

)

Free cash flow

$

(7

)

 

$

114

 

 

$

23

 

 

$

410

 

 

$

540

 

 

The Accounts Receivable Securitization program remains unchanged at $250 outstanding.

 

The proceeds from the sale of the corporate center in the second quarter are part of cash provided from investing activities which are not included in Free cash flow.

 

Free cash flow is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures (due to the fact that these expenditures are considered necessary to maintain and expand the Company's asset base and are expected to generate future cash flows from operations). It is important to note that Free cash flow does not represent the residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements, are not deducted from the measure.

Howmet Aerospace Inc. and subsidiaries

Calculation of Financial Measures (unaudited), continued

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

 

Reconciliation of Net income excluding Special items

Quarter ended

 

Year ended

December 31,

2021

 

September 30,

2022

 

December 31,

2022

 

December 31,

2021

 

December 31,

2022

Net income

$

77

 

 

$

80

 

 

$

111

 

 

$

258

 

 

$

469

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share (EPS)

$

0.18

 

 

$

0.19

 

 

$

0.26

 

 

$

0.59

 

 

$

1.11

 

 

 

 

 

 

 

 

 

 

 

Special items:

 

 

 

 

 

 

 

 

 

Restructuring and other charges

 

68

 

 

 

4

 

 

 

44

 

 

 

90

 

 

 

56

 

Discrete tax items(1)

 

18

 

 

 

(2

)

 

 

3

 

 

 

9

 

 

 

(8

)

Other special items

 

 

 

 

 

 

 

 

 

Debt tender fees and related costs

 

4

 

 

 

 

 

 

 

 

 

147

 

 

 

2

 

Plant fire (reimbursements) costs, net

 

(11

)

 

 

25

 

 

 

4

 

 

 

(3

)

 

 

36

 

Judgment from legal proceeding

 

 

 

 

65

 

 

 

 

 

 

 

 

 

65

 

Legal and other advisory reimbursements

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(3

)

Costs associated with closures, shutdowns, and other items

 

25

 

 

 

1

 

 

 

1

 

 

 

35

 

 

 

3

 

Other tax items

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other special items

 

21

 

 

 

91

 

 

 

5

 

 

 

175

 

 

 

103

 

Tax impact(2)

 

(54

)

 

 

(21

)

 

 

(3

)

 

 

(90

)

 

 

(27

)

 

 

 

 

 

 

 

 

 

 

Net income excluding Special items

$

130

 

 

$

152

 

 

$

160

 

 

$

442

 

 

$

593

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS excluding Special items

$

0.30

 

 

$

0.36

 

 

$

0.38

 

 

$

1.01

 

 

$

1.40

 

 

 

 

 

 

 

 

 

 

 

Average number of shares - diluted EPS excluding Special items

 

431,460,887

 

 

 

419,748,839

 

 

 

419,082,115

 

 

 

435,471,834

 

 

 

421,438,922

 

Net income excluding Special items and Diluted EPS excluding Special items are non-GAAP financial measures. Management believes that these measures are meaningful to investors because management reviews the operating results of the Company excluding the impacts of Restructuring and other charges, Discrete tax items, and Other special items (collectively, “Special items”). There can be no assurances that additional Special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Net income determined under GAAP as well as Net income excluding Special items and Diluted EPS excluding Special items.

 
(1)

Discrete tax items for each period included the following:

  • for the quarter ended December 31, 2021, a charge related to valuation allowance adjustments $12, a charge related to prior year earnings distributed or no longer considered permanently reinvested $9, and a net benefit for other small items ($3);
  • for the quarter ended September 30, 2022, a benefit for other small items ($2);
  • for the quarter ended December 31, 2022, a charge to record a valuation allowance related to U.S. foreign tax credits $12, a benefit related to a tax depreciation accounting method change in the U.S. ($5), and a net benefit for other small items ($4);
  • for the year ended December 31, 2021, a net benefit related to prior year amended returns and audit settlements ($14), a charge related to prior year foreign earnings distributed or no longer considered permanently reinvested $13, a net charge related to valuation allowance adjustments $9, and a net charge for other small items $1; and
  • for the year ended December 31, 2022, a charge to record a valuation allowance related to U.S. foreign tax credits $12, a benefit to release a valuation allowance related to an interest carryforward tax attribute in the U.K. ($6), an excess benefit for stock compensation ($6), a benefit related to a tax depreciation accounting method change ($5), and a benefit related to prior year foreign earnings distributed ($3).
(2)

The Tax impact on Special items is based on the applicable statutory rates whereby the difference between such rates and the Company’s consolidated estimated annual effective tax rate is itself a Special item.

Howmet Aerospace Inc. and subsidiaries

Calculation of Financial Measures (unaudited), continued

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

 

Reconciliation of Net income excluding Special items

 

3Q20

 

 

 

4Q20

 

 

 

1Q21

 

 

 

2Q21

 

 

 

3Q21

 

 

 

4Q21

 

 

 

1Q22

 

 

 

2Q22

 

 

 

3Q22

 

 

 

4Q22

 

Net income

$

36

 

 

$

106

 

 

$

80

 

 

$

74

 

 

$

27

 

 

$

77

 

 

$

131

 

 

$

147

 

 

$

80

 

 

$

111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share (EPS)

$

0.08

 

 

$

0.24

 

 

$

0.18

 

 

$

0.17

 

 

$

0.06

 

 

$

0.18

 

 

$

0.31

 

 

$

0.35

 

 

$

0.19

 

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and other charges

 

22

 

 

 

16

 

 

 

9

 

 

 

5

 

 

 

8

 

 

 

68

 

 

 

2

 

 

 

6

 

 

 

4

 

 

 

44

 

Discrete tax items

 

(41

)

 

 

(76

)

 

 

(1

)

 

 

4

 

 

 

(12

)

 

 

18

 

 

 

(2

)

 

 

(7

)

 

 

(2

)

 

 

3

 

Other special items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt tender fees and related costs

 

 

 

 

 

 

 

 

 

 

23

 

 

 

120

 

 

 

4

 

 

 

 

 

 

2

 

 

 

 

 

 

 

Plant fire costs (reimbursements), net

 

7

 

 

 

(19

)

 

 

10

 

 

 

(3

)

 

 

1

 

 

 

(11

)

 

 

5

 

 

 

2

 

 

 

25

 

 

 

4

 

Release of tax indemnification receivable

 

 

 

 

53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Judgment from legal proceeding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65

 

 

 

 

Legal and other advisory reimbursements

 

(2

)

 

 

(3

)

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Costs associated with closures, shutdowns, and other items

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

25

 

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

Reversal of state investment tax credits

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other tax items

 

(2

)

 

 

4

 

 

 

(3

)

 

 

2

 

 

 

(2

)

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other special items

 

3

 

 

 

44

 

 

 

7

 

 

 

18

 

 

 

129

 

 

 

21

 

 

 

2

 

 

 

5

 

 

 

91

 

 

 

5

 

Tax impact

 

(7

)

 

 

2

 

 

 

1

 

 

 

(5

)

 

 

(32

)

 

 

(54

)

 

 

(1

)

 

 

(2

)

 

 

(21

)

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income excluding Special items

$

13

 

 

$

92

 

 

$

96

 

 

$

96

 

 

$

120

 

 

$

130

 

 

$

132

 

 

$

149

 

 

$

152

 

 

$

160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS excluding Special items

$

0.03

 

 

$

0.21

 

 

$

0.22

 

 

$

0.22

 

 

$

0.27

 

 

$

0.30

 

 

$

0.31

 

 

$

0.35

 

 

$

0.36

 

 

$

0.38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares - diluted EPS excluding Special items

 

439

 

 

 

438

 

 

 

439

 

 

 

437

 

 

 

434

 

 

 

431

 

 

 

425

 

 

 

422

 

 

 

420

 

 

 

419

 

 

Net income excluding Special items and Diluted EPS excluding Special items are non-GAAP financial measures. Management believes that these measures are meaningful to investors because management reviews the operating results of the Company excluding the impacts of Restructuring and other charges, Discrete tax items, and Other special items (collectively, “Special items”). There can be no assurances that additional Special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both Net income determined under GAAP as well as Net income excluding Special items and Diluted EPS excluding Special items.

Howmet Aerospace Inc. and subsidiaries

Calculation of Financial Measures (unaudited), continued

(in U.S. dollar millions)

 

Reconciliation of Operational Tax Rate

Quarter ended December 31, 2022

 

Year ended December 31, 2022

Effective tax

rate, as

reported

 

Special

items(1)(2)

 

Operational

tax rate, as

adjusted

 

Effective tax

rate, as

reported

 

Special

items(1)(2)

 

Operational

tax rate, as

adjusted

Income before income taxes

$

148

 

 

$

49

 

$

197

 

 

$

606

 

 

$

159

 

$

765

 

Provision for income taxes

$

37

 

 

$

 

$

37

 

 

$

137

 

 

$

35

 

$

172

 

Tax rate

 

25.0

%

 

 

 

 

18.8

%

 

 

22.6

%

 

 

 

 

22.5

%

Operational tax rate is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews the operating results of the Company excluding the impacts of Special items. There can be no assurances that additional Special items will not occur in future periods. To compensate for this limitation, management believes that it is appropriate to consider both the Effective tax rate determined under GAAP as well as the Operational tax rate.

 

(1)

Special items for the quarter ended December 31, 2022 include Restructuring and other charges $44, costs related to fires at three plants, net of reimbursement $4, and costs associated with closures, shutdowns, and other items $1. Special items for the year ended December 31, 2022 include judgment from legal proceeding $65, Restructuring and other charges $56, costs related to fires at three plants, net of reimbursement $36, costs associated with closures, shutdowns, and other items $3, and debt tender fees and related costs $2, partially offset by reimbursement related to legal and advisory charges ($3).

(2)

Tax Special items includes discrete tax items, the tax impact on Special items based on the applicable statutory rates, the difference between such rates and the Company’s consolidated estimated annual effective tax rate and other tax related items. Discrete tax items for each period included the following:

  • for the quarter ended December 31, 2022, a charge to record a valuation allowance related to U.S. foreign tax credits $12, a benefit related to a tax depreciation accounting method change in the U.S. ($5), and a net benefit for other small items ($4); and
  • for the year ended December 31, 2022, a charge to record a valuation allowance related to U.S. foreign tax credits $12, a benefit to release a valuation allowance related to an interest carryforward tax attribute in the U.K. ($6), an excess benefit for stock compensation ($6), a benefit related to a tax depreciation accounting method change ($5), and a benefit related to prior year foreign earnings distributed ($3).

Howmet Aerospace Inc. and subsidiaries

Calculation of Financial Measures (unaudited), continued

(in U.S. dollars millions)

 

Reconciliation of Adjusted EBITDA and Adjusted EBITDA margin excluding Special items

Quarter ended

 

Year ended

December 31,

2021

 

September 30,

2022

 

December 31,

2022

 

December 31,

2021

 

December 31,

2022

Sales

$

1,285

 

 

$

1,433

 

 

$

1,513

 

 

$

4,972

 

 

$

5,663

 

Operating income

$

147

 

 

$

228

 

 

$

220

 

 

$

748

 

 

$

919

 

Operating income margin

 

11.4

%

 

 

15.9

%

 

 

14.5

%

 

 

15.0

%

 

 

16.2

%

 

 

 

 

 

 

 

 

 

 

Net income

$

77

 

 

$

80

 

 

$

111

 

 

$

258

 

 

$

469

 

Add:

 

 

 

 

 

 

 

 

 

Provision for income taxes

$

1

 

 

$

24

 

 

$

37

 

 

$

66

 

 

$

137

 

Other expense, net

 

6

 

 

 

67

 

 

 

15

 

 

 

19

 

 

 

82

 

Loss on debt redemption

 

5

 

 

 

 

 

 

 

 

 

146

 

 

 

2

 

Interest expense, net

 

58

 

 

 

57

 

 

 

57

 

 

 

259

 

 

 

229

 

Restructuring and other charges

 

68

 

 

 

4

 

 

 

44

 

 

 

90

 

 

 

56

 

Provision for depreciation and amortization

 

67

 

 

 

65

 

 

 

67

 

 

 

270

 

 

 

265

 

Adjusted EBITDA

$

282

 

 

$

297

 

 

$

331

 

 

$

1,108

 

 

$

1,240

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

Plant fire (reimbursements) costs, net

$

(11

)

 

$

25

 

 

$

4

 

 

$

(4

)

 

$

36

 

Legal and other advisory reimbursements

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(3

)

Costs associated with closures, shutdowns, and other items

 

25

 

 

 

1

 

 

 

1

 

 

 

35

 

 

 

3

 

Adjusted EBITDA excluding Special items

$

296

 

 

$

323

 

 

$

336

 

 

$

1,135

 

 

$

1,276

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin excluding Special items

 

23.0

%

 

 

22.5

%

 

 

22.2

%

 

 

22.8

%

 

 

22.5

%

Incremental margin

Quarter ended

 

 

 

Year Ended

 

 

December 31,

2021

 

December 31,

2022

 

Q4 2022 YoY

 

December 31,

2021

 

December 31,

2022

 

FY 2022 YoY

Third-party sales

$

1,285

 

$

1,513

 

 

 

 

$

4,972

 

$

5,663

 

 

 

Year-over-Year Material cost pass through

 

 

 

(55

)

 

 

 

 

 

 

(225

)

 

 

Third-party sales excluding Material cost pass through (b)

$

1,285

 

$

1,458

 

 

$

173

 

 

$

4,972

 

$

5,438

 

 

$

466

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA excluding Special items (a)

$

296

 

$

336

 

 

$

40

 

 

$

1,135

 

$

1,276

 

 

$

141

 

 

 

 

 

 

 

 

 

 

 

 

 

Incremental margin (a)/(b)

 

 

 

 

 

23

%

 

 

 

 

 

 

30

%

 

Adjusted EBITDA, Adjusted EBITDA excluding Special items, Adjusted EBITDA margin excluding Special items, and Incremental margin are non-GAAP financial measures. Management believes that these measures are meaningful to investors because they provide additional information with respect to the Company's operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. The Company's definition of 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.

Howmet Aerospace Inc. and subsidiaries

Calculation of Financial Measures (unaudited), continued

(in U.S. dollars millions)

 

 

Reconciliation of Adjusted EBITDA excluding Special items

3Q20

 

4Q20

 

1Q21

 

2Q21

 

3Q21

 

4Q21

 

1Q22

 

2Q22

 

3Q22

 

4Q22

Net income

$

36

 

 

$

106

 

 

$

80

 

$

74

 

 

$

27

 

 

$

77

 

 

$

131

 

 

$

147

 

 

$

80

 

$

111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Benefit) provision for income taxes

$

(48

)

 

$

(35

)

 

$

33

 

$

36

 

 

$

(4

)

 

$

1

 

 

$

40

 

 

$

36

 

 

$

24

 

$

37

Other expense (income), net

 

8

 

 

 

74

 

 

 

4

 

 

8

 

 

 

1

 

 

 

6

 

 

 

1

 

 

 

(1

)

 

 

67

 

 

15

Loss on debt redemption

 

 

 

 

 

 

 

 

 

23

 

 

 

118

 

 

 

5

 

 

 

 

 

 

2

 

 

 

 

 

Interest expense, net

 

77

 

 

 

76

 

 

 

72

 

 

66

 

 

 

63

 

 

 

58

 

 

 

58

 

 

 

57

 

 

 

57

 

 

57

Restructuring and other charges

 

22

 

 

 

16

 

 

 

9

 

 

5

 

 

 

8

 

 

 

68

 

 

 

2

 

 

 

6

 

 

 

4

 

 

44

Provision for depreciation and amortization

 

68

 

 

 

67

 

 

 

68

 

 

67

 

 

 

68

 

 

 

67

 

 

 

66

 

 

 

67

 

 

 

65

 

 

67

Adjusted EBITDA

$

163

 

 

$

304

 

 

$

266

 

$

279

 

 

$

281

 

 

$

282

 

 

$

298

 

 

$

314

 

 

$

297

 

$

331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plant fire costs (reimbursements), net

$

7

 

 

$

(19

)

 

$

9

 

$

(3

)

 

$

1

 

 

$

(11

)

 

$

5

 

 

$

2

 

 

$

25

 

$

4

Costs associated with closures, shutdowns, and other items

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

25

 

 

 

 

 

 

1

 

 

 

1

 

 

1

Legal and other advisory reimbursements

 

(2

)

 

 

(3

)

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

Adjusted EBITDA excluding Special items

$

168

 

 

$

282

 

 

$

275

 

$

272

 

 

$

292

 

 

$

296

 

 

$

300

 

 

$

317

 

 

$

323

 

$

336

 

Adjusted EBITDA and Adjusted EBITDA excluding Special items are non-GAAP financial measures. Management believes that these measures are meaningful to investors because they provide additional information with respect to the Company's operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. The Company's definition of 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.

Howmet Aerospace Inc. and subsidiaries

Calculation of Financial Measures (unaudited), continued

(in U.S. dollars millions)

 

Reconciliation of Adjusted EBITDA and Adjusted EBITDA margin excluding Special items and Material cost pass through

Quarter ended

 

Year ended

March 31,

2022

 

June 30,

2022

 

September 30,

2022

 

December 31,

2022

 

December 31,

2022

Net income

$

131

 

 

$

147

 

 

$

80

 

 

$

111

 

 

$

469

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

Provision for income taxes

$

40

 

 

$

36

 

 

$

24

 

 

$

37

 

 

$

137

 

Other expense (income), net

 

1

 

 

 

(1

)

 

 

67

 

 

 

15

 

 

 

82

 

Loss on debt redemption

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Interest expense, net

 

58

 

 

 

57

 

 

 

57

 

 

 

57

 

 

 

229

 

Restructuring and other charges

 

2

 

 

 

6

 

 

 

4

 

 

 

44

 

 

 

56

 

Provision for depreciation and amortization

 

66

 

 

 

67

 

 

 

65

 

 

 

67

 

 

 

265

 

Adjusted EBITDA

$

298

 

 

$

314

 

 

$

297

 

 

$

331

 

 

$

1,240

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

Plant fire costs, net

$

5

 

 

$

2

 

 

$

25

 

 

$

4

 

 

$

36

 

Legal and other advisory reimbursements

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(3

)

Costs associated with closures, shutdowns, and other items

 

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

3

 

Adjusted EBITDA excluding Special items (a)

$

300

 

 

$

317

 

 

$

323

 

 

$

336

 

 

$

1,276

 

 

 

 

 

 

 

 

 

 

 

Third-party sales (b)

$

1,324

 

 

$

1,393

 

 

$

1,433

 

 

$

1,513

 

 

$

5,663

 

Year-over-Year Material cost pass through

 

(40

)

 

 

(60

)

 

 

(70

)

 

 

(55

)

 

 

(225

)

Third-party sales excluding Year-over-Year Material cost pass through (c)

$

1,284

 

 

$

1,333

 

 

$

1,363

 

 

$

1,458

 

 

$

5,438

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin excluding Special items (a)/(b)

 

22.7

%

 

 

22.8

%

 

 

22.5

%

 

 

22.2

%

 

 

22.5

%

Adjusted EBITDA margin excluding Special items and Year-over-Year Material cost pass through (a)/(c)

 

23.4

%

 

 

23.8

%

 

 

23.7

%

 

 

23.0

%

 

 

23.5

%

 

Adjusted EBITDA, Adjusted EBITDA excluding Special items, Third-party sales excluding Year-over-Year Material cost pass through, Adjusted EBITDA margin excluding Special items, and Adjusted EBITDA margin excluding Special items and Year-over-Year Material cost pass through are non-GAAP financial measures. Management believes that these measures are meaningful to investors because they provide additional information with respect to the Company's operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. The Company's definition of 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.

 

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