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Segment Information | 3 Months Ended
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Mar. 31, 2020
Segment Reporting [Abstract] |
Segment Information | Segment Information In the third quarter of 2019, the Company realigned its operations by eliminating its Transportation and Construction Solutions (TCS) segment and transferring the Forged Wheels business to its Engineered Products and Forgings ("EP&F") segment and the Building and Construction Systems ("BCS") business to its Global Rolled Products ("GRP") segment, consistent with how the Chief Executive Officer was assessing operating performance and allocating capital in conjunction with the Arconic Inc. Separation Transaction (see Note R). Prior period financial information has been recast to conform to current year presentation. Engineered Products and Forgings. This segment produces products that are used primarily in the aerospace (commercial and defense), industrial, commercial transportation, and power generation end markets. Such products include fastening systems (titanium, steel, and nickel superalloys) and seamless rolled rings (mostly nickel superalloys); investment castings (nickel superalloys, titanium, and aluminum), including airfoils; forged jet engine components (e.g., jet engine disks); extruded, machined and forged aircraft parts (titanium and aluminum); and forged aluminum commercial vehicle wheels, all of which are sold directly to customers and through distributors. Global Rolled Products. This segment produces aluminum sheet and plate, aluminum extruded and machined parts, integrated aluminum structural systems, and architectural extrusions used in the automotive, aerospace, building and construction, industrial, packaging, and commercial transportation end markets. Products are sold directly to customers and through distributors. While the customer base for flat-rolled products is large, a significant amount of sales of sheet and plate are to a relatively small number of customers. This segment became part of Arconic Corporation as part of the Arconic Inc. Separation Transaction on April 1, 2020. The Company will continue to evaluate its organizational structure and portfolio in conjunction with the Arconic Inc. Separation Transaction (see Note R), which may result in further changes to its reportable segments and the need to evaluate goodwill and long-lived assets for impairment in future periods. Goodwill. The Company had $4,457 of Goodwill at March 31, 2020 and we review it for impairment annually in the fourth quarter or more frequently if indicators exist or if a decision is made to sell or realign a business. On January 1, 2020, management transferred the Savannah business from Engine Products to Engineered Structures within the Engineered Products and Forgings segment, based on synergies with forgings technologies and manufacturing capabilities. As a result of the reorganization, goodwill of $17 was reallocated from Engine Products to Engineered Structures, and these reporting units were evaluated for impairment during the first quarter of 2020. The estimated fair value of each of these reporting units substantially exceeded their carrying value; thus, there was no goodwill impairment at the date the business was transferred. During the first quarter of 2020, Howmet’s market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of our peer group companies, and the overall U.S. stock market also declined significantly amid market volatility. In addition, as a result of the COVID-19 pandemic and measures designed to contain the spread, sales globally to customers in the aerospace and commercial transportation industries that are impacted by COVID-19 have been and are expected to be negatively impacted as a result of disruption in demand. As a result of these macroeconomic factors, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value. As a result of this assessment, the Company performed a quantitative impairment test for the Engineered Structures reporting unit and concluded that though the margin between the fair value of the reporting unit and carrying value had declined from approximately 60% to approximately 15%, it was not impaired. Consistent with prior practice, a discounted cash flow model was used to estimate the current fair value of the reporting unit. The significant assumptions and estimates utilized to determine fair value were developed utilizing current market and forecast information reflecting the disruption in demand that has and is expected to negatively impact the Company’s sales globally in the aerospace industry. If our actual results or external market factors decline significantly from management’s estimates, future goodwill impairment charges may be necessary and could be material. The operating results of the Company’s reportable segments were as follows:
| Engineered Products and Forgings |  | Global Rolled Products |  | Total Segment
First quarter ended March 31, 2020 |  |  |  |  |
Sales: |  |  |  |  |
Third-party sales | $ | 1,631 |  |  | $ | 1,578 |  |  | $ | 3,209 |
Intersegment sales | — |  |  | 35 |  |  | 35 |
Total sales | $ | 1,631 |  |  | $ | 1,613 |  |  | $ | 3,244 |
Profit and loss: |  |  |  |  |
Segment operating profit | $ | 339 |  |  | $ | 169 |  |  | $ | 508 |
Restructuring and other charges (credits) | 34 |  |  | (18) |  |  | 16 |
Provision for depreciation and amortization | 65 |  |  | 57 |  |  | 122 |
Capital expenditures | 36 |  |  | 22 |  |  | 58 |
First quarter ended March 31, 2019 |  |  |  |  |
Sales: |  |  |  |  |
Third-party sales | $ | 1,756 |  |  | $ | 1,784 |  |  | $ | 3,540 |
Intersegment sales | — |  |  | 52 |  |  | 52 |
Total sales | $ | 1,756 |  |  | $ | 1,836 |  |  | $ | 3,592 |
Profit and loss: |  |  |  |  |
Segment operating profit | $ | 313 |  |  | $ | 135 |  |  | $ | 448 |
Restructuring and other charges | 18 |  |  | 11 |  |  | 29 |
Provision for depreciation and amortization | 71 |  |  | 59 |  |  | 130 |
Capital expenditures | 117 |  |  | 39 |  |  | 156 |
The following table reconciles Total segment operating profit to Consolidated income before income taxes:
| First quarter ended |  |  |  |  |  |
| March 31, |  |  |  |  |  |
| 2020 |  | 2019 |  |  |  |
Total segment operating profit | $ | 508 |  |  | $ | 448 |  |  |  |  |
Unallocated amounts: |  |  |  |  |  |  |
Restructuring and other charges | (21) |  |  | (12) |  |  |  |  |
Corporate expense | (88) |  |  | (62) |  |  |  |  |
Consolidated operating income | $ | 399 |  |  | $ | 374 |  |  |  |  |
Interest expense | (91) |  |  | (85) |  |  |  |  |
Other expense, net | (17) |  |  | (32) |  |  |  |  |
Consolidated income before income taxes | $ | 291 |  |  | $ | 257 |  |  |  |  |
The following table disaggregates revenue by major end market served. Differences between segment and consolidated totals are in Corporate.
| Engineered Products and Forgings |  | Global Rolled Products |  | Total Segment
First quarter ended March 31, 2020 |  |  |  |  |
Aerospace | $ | 1,189 |  |  | $ | 285 |  |  | $ | 1,474 |
Transportation | 256 |  |  | 509 |  |  | 765 |
Building and construction | — |  |  | 291 |  |  | 291 |
Industrial and Other | 186 |  |  | 493 |  |  | 679 |
Total end-market revenue | $ | 1,631 |  |  | $ | 1,578 |  |  | $ | 3,209 |
First quarter ended March 31, 2019 |  |  |  |  |
Aerospace | $ | 1,250 |  |  | $ | 302 |  |  | $ | 1,552 |
Transportation | 343 |  |  | 649 |  |  | 992 |
Building and construction | — |  |  | 330 |  |  | 330 |
Industrial and Other | 163 |  |  | 503 |  |  | 666 |
Total end-market revenue | $ | 1,756 |  |  | $ | 1,784 |  |  | $ | 3,540 |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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