Stockholders’ Equity

Preferred Stock

Authorized preferred stock may be issued in one or more series, with designations, powers and preferences as shall be designated by the Board of Directors. At December 31, 2016, there were no shares of preferred stock issued.

Share-based Compensation

During 2007, the Company adopted the Allegheny Technologies Incorporated 2007 Incentive Plan (the “2007 Incentive Plan”), which was amended and restated in 2010 and further amended in 2012. During 2015, the Company adopted the Allegheny Technologies Incorporated 2015 Incentive Plan (the “2015 Incentive Plan”). Upon adoption of the 2015 Incentive Plan, the 2007 Incentive Plan was terminated, although outstanding awards under the 2007 Incentive Plan remain in effect in accordance with their respective terms. Awards earned under the Company’s share-based incentive compensation programs are generally paid with shares held in treasury, if sufficient treasury shares are held, and any additional required share payments are made with newly issued shares. At December 31, 2016, 1.4 million shares of common stock were available for future awards under the 2015 Incentive Plan. The general terms of each arrangement granted under the 2007 Incentive Plan or the 2015 Incentive Plan, and predecessor plans, the method of estimating fair value for each arrangement, and award activity is reported below.

In 2016, the Company implemented a new share-based incentive compensation program, the Long-Term Incentive Plan (LTIP). The LTIP consists of both Restricted Share Units (RSU) and Performance Share Units (PSU).

For years prior to 2016, the Company’s two principal share-based incentive compensation programs were the Performance/Restricted Stock Program (PRSP) of nonvested stock awards and the Long-Term Performance Plan (LTPP). The LTPP was adopted in 2014 and included performance shares under the Total Shareholder Return (TSR) portion and nonvested stock awards under the Long-Term Shareholder Value (LTSV) portion.

Nonvested stock awards/units:

Restricted Share Units: In 2016, awards of RSUs were granted to employees, with service conditions. RSUs are rights to receive shares of Company stock when the award vests. The RSUs vest over three years based on employment service, with one-third of the award vesting on each of the first, second and third anniversaries of the grant date. No dividends are accumulated or paid on the RSUs. The fair value of the RSU award is measured based on the stock price at the grant date. In 2016, 587,661 RSUs were awarded to employees under the LTIP.

Nonvested stock awards: Prior to 2016, awards of nonvested stock were granted to employees under the PRSP, with either performance and/or service conditions. Awards of nonvested stock are also granted to non-employee directors, with service conditions. For nonvested stock awards, dividend equivalents, whether in stock or cash form, accumulate but are not paid until the underlying award vests.

LTSV awards vest at the end of a three-year measurement period subject to the achievement, in whole or in part, of specified operational goals. As of December 31, 2016, 85% of the operational goals for the 2015 LTSV award were expected to be attained. All of the operational goals for the 2014 LTSV award were attained at December 31, 2016 and 116,989 shares vested.

The fair value of nonvested stock awards is measured based on the stock price at the grant date, adjusted for non-participating dividends, as applicable, based on the current dividend rate. For nonvested stock awards to employees in 2012, 2013, 2014 and 2015 under the Company’s PRSP, one-half of the nonvested stock (“performance shares”) vests only on the attainment of an income target, measured cumulatively over a three-year period. The remaining nonvested stock awarded to most employees under the 2015 PRSP vests over a service period of three years; for certain senior executives this service period is five years for the 2015 award. The remaining PRSP nonvested stock awarded to employees under the 2012, 2013 and 2014 vests over a service period of five years, with accelerated vesting to three years if the performance shares’ vesting criterion is attained. Expense for each of these awards is recognized based on estimates of attaining the performance criterion, including estimated forfeitures. The three-year cumulative income statement metrics for the 2012, 2013 and 2014 PRSP awards were not met, and performance share forfeitures were 171,083 shares, 244,899 shares and 214,571 shares, respectively. Vesting of the remaining portions of the 2012, 2013 and 2014 PRSP awards continues over the five-year service periods through February 2017, 2018 and 2019, respectively. The income target for 2015 PRSP award is not expected to be attained for the performance shares, therefore, no expense was recognized on the performance shares. Expense for the remaining nonvested stock under the 2015 PRSP award is recognized on a straight line basis over the applicable three or five-year service periods.

Compensation expense in continuing operations related to all nonvested stock awards and units was $11.2 million in 2016, $5.5 million in 2015, and $2.4 million in 2014. Reduced compensation expense in 2015 and 2014 is primarily the result of changes in estimates that PRSP award performance shares would vest. Approximately $12.9 million of unrecognized fair value compensation expense relating to nonvested stock awards and restricted stock units is expected to be recognized through 2020, including $9.5 million expected to be recognized in 2017, based on estimates of attaining nonvested stock award performance vesting criteria and estimated service period forfeitures. Activity under the Company’s nonvested stock awards and restricted share units for the years ended December 31, 2016, 2015, and 2014 was as follows:



(Shares in thousands, $ in millions)	2016					2015					2014
	Number of shares/units		Weighted Average Grant Date Fair Value			Number of shares		Weighted Average Grant Date Fair Value			Number of shares		Weighted Average Grant Date Fair Value
Nonvested, beginning of year	1,652		$	57.0		1,376		$	47.8		927		$	36.9
Granted	682		8.4			669		20.8			675		20.3
Vested	(154	)	(4.3		)	(23	)	(0.8		)	(18	)	(1.0		)
Forfeited	(328	)	(9.6		)	(370	)	(10.8		)	(208	)	(8.4		)
Nonvested, end of year	1,852		$	51.5		1,652		$	57.0		1,376		$	47.8

Performance awards:

Performance Share Units: PSU award opportunities are determined at a target number of shares, and the number of shares awarded is based on attainment of two ATI financial performance metrics measuring (1) net income to ATI and (2) return on invested capital, over a three-year performance period. For certain senior executives, the number of PSUs to be awarded based on the performance criteria is modified up or down by 20% based on the Company’s relative total shareholder return over the performance measurement period (“TSR Modifier”), but not above the maximum number of PSUs to be vested. The TSR Modifier is measured as the return of the Company’s stock price (including assumed dividend reinvestment, if any) at the end of the performance period as compared to the stock prices (including assumed dividend reinvestment, if any) of a group of industry peers. The fair value of the PSU award is measured based on the stock price at the grant date, including the effect of the TSR Modifier. The fair value of the TSR Modifier is estimated using Monte Carlo simulations of stock price correlation, projected dividend yields and other variables over a three-year time horizon matching the TSR performance measurement period.

In 2016, the Company established the 2016 PSU award, with 936,558 share units at the target level, equal to a grant date fair value of $10.6 million, including estimated forfeitures. The 2016 PSU performance and share units have a threshold attainment of 25% and a maximum attainment of 150% of the target financial performance metrics and target share units, measured over fiscal years 2016-2018. A maximum of 1.4 million shares have been reserved for issuance for the 2016 PSU award, to the 150% attainment level, and aggregate compensation expense recognized over the three year performance period could range from zero to $15.9 million, including estimated forfeitures, based on the actual financial performance attained. Compensation expense for the PSUs during the performance period is recognized based on estimates of attaining the performance criteria, including estimated forfeitures, which is evaluated on a quarterly basis. The Company recognized $1.9 million of compensation expense in 2016 for this PSU award, and currently estimates achieving performance attainment for the 2016 PSU award between the threshold and target levels, with $3.9 million of unrecognized compensation expense remaining for the 2016 PSU award, including estimated forfeitures, which is expected to be recognized over the remaining performance period through fiscal year 2018.

Total Shareholder Return: Award opportunities under the TSR portion of the formerly-used LTPP incentive compensation program are determined at a target number of shares, and performance equity awards pay out based on the measured return of the Company’s stock price and dividend performance at the end of three-year periods as compared to the stock price and dividend performance of a group of industry peers. A maximum of 1.28 million shares have been reserved for issuance for award periods under the TSR. The actual number of shares awarded at the end of the performance measurement period may range from a minimum of zero to a maximum of two times target. Fair values for these performance awards were estimated using Monte Carlo simulations of stock price correlation, projected dividend yields and other variables over three-year time horizons matching the total shareholder return performance measurement periods. Compensation expense from continuing operations was $6.6 million in 2016, $10.6 million in 2015, and $9.8 million in 2014 for the TSR awards.

The estimated fair value of each TSR award, the projected shares to be awarded and future compensation expense to be recognized for these awards, including actual and estimated forfeitures, was as follows:

(Shares in thousands, $ in millions)



TSR Award Performance Period	Award Fair Value		December 31, 2016 Unrecognized Compensation Expense		Minimum Shares	Target Shares	Maximum Shares
2014 - 2016	$	8.9	$	—	—	262	524
2015 - 2017	$	12.5	4.2		—	276	552
Total			$	4.2	—	538	1,076

An award was earned for the 2014-2016 TSR performance period based on the Company’s stock price and dividend performance for the three-year period ended December 31, 2016 relative to the peer group, which results in the issuance of 164,988 shares of stock to participants in the 2017 first quarter.

Undistributed Earnings of Investees

Stockholders’ equity includes undistributed earnings of investees accounted for under the equity method of accounting of approximately $9 million at December 31, 2016.