v3.22.0.1
Preferred and Common Stock
 12 Months Ended
Dec. 31, 2021
Equity [Abstract]  
Preferred and Common Stock Preferred and Common Stock
Preferred Stock.   Arconic is authorized to issue 10,000,000 shares of preferred stock at a par value of $0.01 per share. At December 31, 2021 and 2020, the Company had no issued preferred stock.
Common Stock.   Arconic is authorized to issue 150,000,000 shares of common stock at a par value of $0.01 per share. On April 1, 2020, in connection with the Separation, the Company distributed 109,021,376 shares of its common stock to ParentCo’s stockholders (see Note A). As of December 31, 2021 and 2020, Arconic had 110,239,390 and 109,205,226, respectively, issued and 105,326,885 and 109,205,226, respectively, outstanding shares of common stock. In 2021 and from April 1, 2020 through December 31, 2020, the Company issued 1,034,164 and 183,850, respectively, shares of common stock under its employee stock-based compensation plan (see below).
On May 4, 2021, Arconic announced that its Board of Directors approved a share repurchase program authorizing the Company to repurchase shares of its outstanding common stock up to an aggregate transactional value of $300 over a two-year period expiring April 28, 2023. Repurchases under the program may be made from time to time, as the Company deems appropriate, solely through open market repurchases effected through a broker dealer, based on a variety of factors such as price, capital position, liquidity, financial performance, alternative uses of capital, and overall market conditions. There can be no assurance as to the number of shares the Company will repurchase. The share repurchase program may be increased or otherwise modified, renewed, suspended or terminated by the Company at any time, without prior notice. This program is intended to comply with Rule 10b5-1 and all purchases shall be made in compliance with Rule 10b-18, including without limitation the timing, price, and volume restrictions thereof. In 2021, Arconic repurchased 4,912,505 shares, of the Company's common stock for $161 under this program.
The Company issues new shares of common stock to satisfy the exercise of stock options and the conversion of stock units granted under its employee stock-based compensation plan. On May 20, 2021, the Company’s shareholders approved an amendment to the plan to increase the shares of common stock authorized for issuance by 3,000,000 to 11,500,000 shares and to eliminate the plan’s fungible share accounting, with the result that shares issued pursuant to full value stock awards, on or after the date of amendment, will be counted against the share reserve as one share issued under each such award, rather than as one and one-half shares. Shares returned to the plan, on or after the date of amendment, will be counted as one share, regardless of whether such shares were counted as one and one-half shares upon grant based on the prior fungible share accounting convention. In 2021 and from April 1, 2020 through December 31, 2020, there were 251,919 and 84,959, respectively, stock options exercised and 1,125,983 and 157,230, respectively, stock units converted (see table below). Additionally, as of December 31, 2021 and 2020, there were 590,906 and 1,026,808, respectively, stock options and 3,913,337 and 4,544,063, respectively, stock units outstanding (i.e., unexercised and/or unvested) under this plan (see table below). Accordingly, as of December 31, 2021 and 2020, there were 4,749,255 and 336,293, respectively, shares of common stock available for issuance under the plan.
Dividends on common stock are subject to authorization by the Company’s Board of Directors. Arconic did not declare any dividends in 2021 and from April 1, 2020 through December 31, 2020.
Stock-based Compensation
For all periods prior to the Separation Date, eligible employees attributable to the Arconic Businesses participated in ParentCo’s stock-based compensation plan. In 2021 and from the Separation Date through December 31, 2020, eligible Arconic employees participated in the Company’s stock-based compensation plan.
Effective April 1, 2020, all outstanding stock options (vested and non-vested) and non-vested stock units originally granted under ParentCo’s stock-based compensation plan related to employees of the Arconic Businesses, as well as the ParentCo corporate employees that became Arconic employees at Separation, were replaced with similar stock options and stock units under Arconic’s stock-based compensation plan. In order to preserve the intrinsic value of these awards, the referenced employees received replacement stock options and stock units under Arconic’s stock-based compensation plan at a ratio of 1.07 and 2.18, respectively, compared to the number of stock options and stock units originally granted under ParentCo’s stock-based compensation plan. The ratio for stock options was developed by dividing the March 31, 2020 closing market price ($16.06) of ParentCo’s common stock by the April 1, 2020 opening market price ($15.00) of Arconic’s common stock (the Company’s common stock did not trade on a “when issued” basis prior to April 1, 2020). Additionally, the exercise price of stock options was decreased by a ratio of 0.93 developed by dividing $15.00 by $16.06. The ratio for stock units was developed by dividing the March 31, 2020 closing market price of ParentCo’s common stock by the volume weighted average trading price ($7.37) of Arconic’s common stock during the first five trading days subsequent to March 31, 2020. This resulted in a beginning balance of outstanding stock options and stock units under Arconic’s stock-based compensation plan of 1,173,492 and 3,062,013, respectively, as of April 1, 2020. The respective fair values of these stock options and units were adjusted accordingly. Arconic did not recognize any immediate incremental stock-based compensation expense as a result of this adjustment.
The following description of Arconic’s stock-based compensation plan is not materially different from the description of ParentCo’s stock-based compensation plan prior to the Separation.
Stock awards are generally granted in the first quarter of each calendar year to eligible employees at the closing market price of Arconic’s common stock on the date of grant. Stock options typically grade-vest over a three-year service period (1/3 each year) with a ten-year contractual term; stock units typically cliff-vest on the third anniversary of the award grant date. As a condition of Arconic’s stock-based compensation plan design, individuals who are retirement-eligible have a six-month requisite service period in the year of grant.
In 2021, certain of the stock unit grants also contain both performance and market conditions (the “performance stock units”) and were granted to a limited number of eligible employees, including the Company’s executive officers. The final number of performance stock units earned is dependent on Arconic’s achievement of certain targets (performance condition) and by a total stockholder return (“TSR”) (market condition) over a three-year measurement period. Specifically, determination of the initial number of stock units earned is based on the Company’s achievement of an adjusted EBITDA target (50%), a return on invested capital (25%) and TSR (25%). In 2021, TSR was added as a stand-alone metric rather than a post-performance period multiplier (see below) to further align executive compensation with the creation of shareholder value as compared to Arconic’s peers. For the 2021 performance stock units, cumulative three-year performance goals (including for the TSR) were established for the performance period.
In 2020, certain of the stock unit grants also contain both performance and market conditions (the “performance stock units”) and were granted to a limited number of eligible employees, including the Company’s executive officers. The final number of performance stock units earned is dependent on Arconic’s achievement of certain targets (performance condition) modified by a TSR multiplier (market condition) over a three-year measurement period. Specifically, determination of the initial number of stock units earned is based on the Company’s achievement of an adjusted EBITDA target (25%), a controllable free cash flow target (25%), and a pretax return on net assets target (50%). For the 2020 performance stock units, the Compensation Committee of the Company's Board of Directors established three one-year financial targets to address the lack of visibility and challenge in setting long-term financial goals at the outset of the COVID-19 pandemic, while aligning executive compensation to long-term results. This result is then scaled by the TSR multiplier, which is based on the Company’s relative three-year (January 1 of the grant year through December 31 of the third year in the service period) performance against the TSRs of a group of peer companies. Similar grants were made by ParentCo in 2019 and 2018 but these awards were subsequently converted by ParentCo management prior to 2020 at 100% and 97.5%, respectively, of target to stock units with no such conditions for the remainder of the service period in consideration of the Separation.
In 2021, 2020, and 2019, Arconic recognized stock-based compensation expense of $22 ($17 after-tax), $23 ($18 after-tax), and $38 ($30 after-tax), respectively, of which a minimum of approximately 85% was related to stock units in each period. No stock-based compensation expense was capitalized in 2021, 2020, or 2019. For periods prior to the Separation, the stock-based compensation expense recorded by Arconic was comprised of two components: (i) the expense associated with employees attributable to the Arconic Businesses, and (ii) an allocation of expense related to ParentCo corporate employees (see Cost Allocations in Note A). In 2020 (January through March) and 2019, this allocation was $5 and $30, respectively, of Arconic’s recognized stock-based compensation expense. Also, in 2019, Arconic’s recognized stock-based compensation expense includes a benefit of $2 (through allocation) for certain executive pre-vest stock award cancellations. This benefit was recorded in Restructuring and other charges (see Note E) on the accompanying Statement of Consolidated Operations.
Stock-based compensation expense is based on the grant date fair value of the applicable equity grant. For stock units with no market condition, the fair value is equivalent to the closing market price of Arconic’s or ParentCo’s common stock on the date of grant in the respective periods. For stock units granted with a market condition, the fair value is estimated on the date of grant using a Monte Carlo simulation model, which generated a result of $46.17, $10.02, and $11.93 per unit in 2021, 2020, and 2019 respectively. There were no stock options granted in 2021, 2020, or 2019. As previously mentioned, the estimated fair values for stock units (granted in 2019 and 2018) and stock options (granted in 2018) outstanding at March 31, 2020 were adjusted in order to maintain the intrinsic value of these awards in connection with the Separation.
To estimate the fair value of a stock unit with a market condition, the Monte Carlo simulation model uses certain assumptions, including a risk-free interest rate and volatility, to estimate the probability of satisfying market conditions. The risk-free interest rate (0.3% in 2021, 0.2% in 2020, and 1.6% in 2019) was based on a yield curve of interest rates at the time of the grant based on the remaining performance period. Volatility was estimated using implied and historical volatility (50.1% in 2021, 35.4% in 2020, and 33.4% in 2019).
The activity for stock options and stock units, including performance stock units granted to the Company's executive officers, from January 1, 2021 through December 31, 2021 was as follows:
Stock optionsStock units
Number of
options		Weighted
average
exercise price		Number of
units		Weighted
average FMV
per unit
Outstanding, January 1, 20211,026,808 $26.64 4,544,063 $10.36 
Granted— — 919,170 35.21 
Exercised(251,919)23.69 — — 
Converted(1)
— — (1,125,983)12.84 
Expired or forfeited(183,983)34.11 (197,177)17.56 
Performance share adjustment(2)
— — (226,736)10.02 
Outstanding, December 31, 2021590,906 25.56 3,913,337 15.14 
(1)The number of converted units includes 343,738 shares “withheld” to meet the Company’s statutory tax withholding requirements related to the income earned by the employees as a result of vesting in the units.
(2)In 2021, the Company adjusted the target payout of those performance stock awards granted in 2020. Since the grant date, these awards have been accounted for based on a payout at 100% of target. However, in 2021 the payout for these awards was estimated to be at 8.3% of target. Accordingly, the shares outstanding for these awards from grant date through the date of adjustment were adjusted to reflect the probable payout percentage.
As of December 31, 2021, the 590,906 outstanding stock options had a weighted average remaining contractual life of 2.6 years and a total intrinsic value of $4. Additionally, as of December 31, 2021 all of the total outstanding stock options were fully vested and exercisable. In 2021 and from April 1, 2020 through December 31, 2020, cash received from stock option exercises was $6 and the total intrinsic value of stock options exercised was $2.    
At December 31, 2021, there was $15 (pre-tax) of combined unrecognized compensation expense related to non-vested grants of both stock options and stock units. This expense is expected to be recognized over a weighted average period of 2 years.