v3.22.4
Preferred and Common Stock
 12 Months Ended
Dec. 31, 2022
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, 2022 and 2021, 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 the Separation Date, the Company distributed 109,021,376 shares of its common stock to ParentCo’s stockholders (see Note A). As of December 31, 2022 and 2021, Arconic had 111,280,206 and 110,239,390, respectively, issued and 99,432,194 and 105,326,885, respectively, outstanding shares of common stock. In 2022, 2021, and from the Separation Date through December 31, 2020, the Company issued 1,040,816, 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. In 2022 and 2021, Arconic repurchased 4,863,672 and 4,912,505 shares, respectively, of the Company's common stock for $139 and $161, respectively, resulting in completion of the total authorization under this program in August 2022. In connection with the establishment of a new repurchase program (see below), this repurchase program was terminated. Repurchases under the program were made from time to time, as the Company deemed appropriate, based on a variety of factors such as price, capital position, liquidity, financial performance, alternative uses of capital, and overall market conditions. This program was intended to comply with Rule 10b5-1 and all purchases were made in compliance with Rule 10b-18, including without limitation the timing, price, and volume restrictions thereof.
On November 16, 2022, 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 $200 over a two-year period expiring November 17, 2024. 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 purchase. 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 2022, Arconic repurchased 2,071,835 shares of the Company's common stock for $46 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 2022, 2021, and from the Separation Date through December 31, 2020, there were 147,418, 251,919 and 84,959, respectively, stock options exercised and 1,314,188, 1,125,983 and 157,230, respectively, stock units converted (see table below). Additionally, as of December 31, 2022 and 2021, there were 413,592 and 590,906, respectively, stock options and 3,325,170 and 3,913,337, respectively, stock units outstanding (i.e., unexercised and/or unvested) under this plan (see table below). Accordingly, as of December 31, 2022 and 2021, there were 4,051,334 and 4,749,255, 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 2022, 2021, and from Separation Date through December 31, 2020.
Stock-based Compensation
In 2022, 2021, and from the Separation Date through December 31, 2020, eligible Arconic employees participated in the Company’s stock-based compensation plan. In all periods prior to the Separation Date, eligible employees attributable to the Arconic Corporation Businesses participated in ParentCo’s stock-based compensation plan.
Effective on the Separation Date, 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 Corporation
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 the Separation Date. 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. Beginning in 2022, stock units either cliff-vest or grade-vest based on the award type and employee’s job level. 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 2022, 2021, and 2020, certain of the stock unit grants also contain both performance and market conditions (for each year, the “performance stock units”) and were granted to a limited number of eligible employees, including the Company’s executive officers.
For 2022 and 2021, the final number of performance stock units earned is dependent on Arconic’s achievement of certain targets (performance condition) and 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 adjusted EBITDA (50%), return on invested capital (25%), and TSR (25%) targets. Beginning 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 2022 and 2021 performance stock units, cumulative three-year performance goals (including for the TSR) were established for the performance period.
In 2020, 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.
In 2022, 2021, and 2020, Arconic recognized stock-based compensation expense of $15 ($12 after-tax), $22 ($17 after-tax), and $23 ($18 after-tax), respectively, of which a minimum of approximately 85% was related to stock units in each period. The amount recognized in 2022 includes a reversal of $4 of expense previously recognized in 2021 related to the performance condition portion of the 2021 performance stock units (see footnote 2 to table below). No stock-based compensation expense was capitalized as an asset in 2022, 2021, or 2020. 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 Corporation Businesses, and (ii) an allocation of expense related to ParentCo corporate employees (see Cost Allocations in Note A). In the 2020 Pre-Separation Period, this allocation was $5 of Arconic’s recognized stock-based compensation expense.
Stock-based compensation expense is based on the grant date fair value of the applicable equity grant. For stock units granted 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 $37.40, $46.17, and $10.02 per unit in 2022, 2021, and 2020 respectively. There were no stock options granted in 2022, 2021, or 2020.
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 (1.4% in 2022, 0.3% in 2021, and 0.2% in 2020) 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 (60.4% in 2022, 50.1% in 2021, and 35.4% in 2020).
The activity in 2022 for stock options and stock units, including performance stock units granted to the Company's executive officers, was as follows:
Stock optionsStock units
Number of
options		Weighted
average
exercise price		Number of
units		Weighted
average FMV
per unit
Outstanding, January 1, 2022590,906 $25.56 3,913,337 $15.14 
Granted— — 1,227,768 25.73 
Exercised(147,418)20.61 — — 
Converted(1)
— — (1,314,188)9.67 
Expired or forfeited(29,896)32.25 (194,074)22.18 
Performance share adjustment(2)
— — (307,673)30.84 
Outstanding, December 31, 2022413,592 26.84 3,325,170 19.35 
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(1)The number of converted units includes 420,790 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 2022, the Company adjusted the target payout of the performance stock units granted in 2022, 2021, and 2020. Since the respective grant date, the fair value related to the performance condition of the 2022 and 2021 performance stock units has been expensed based on a payout at 100% of target. Additionally, the fair value related to the 2020 performance stock units has been expensed based on a payout at 8.3% of target (previously adjusted in the second half of 2021). However, at December 31, 2022, the estimated future payout for the 2022, 2021, and 2020 performance stock units was determined to be at 15.9%, 27.2%, and 7.9% of target, respectively. Accordingly, the number of non-vested performance stock units outstanding were adjusted to reflect the probable payout percentage.
As of December 31, 2022, the 413,592 outstanding stock options had a weighted average remaining contractual life of 2.3 years and a total intrinsic value of $1. Additionally, as of December 31, 2022 all of the total outstanding stock options were fully vested and exercisable. In 2022, 2021, and from the Separation Date through December 31, 2020, cash received from stock option exercises was $3, $6, $1, respectively, and the total intrinsic value of stock options exercised was $1, $2, and $1, respectively.    
At December 31, 2022, there was $18 (pretax) of unrecognized compensation expense related to non-vested grants of stock units. This expense is expected to be recognized over a weighted average period of 1.8 years.