Preferred and Common Stock

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Preferred and Common Stock

Preferred and Common Stock

Preferred Stock. Howmet has two classes of preferred stock: $3.75 Cumulative Preferred Stock (“Class A Preferred Stock”) and Class B Serial Preferred Stock. Class A Preferred Stock has 660,000 shares authorized at a par value of $100 per share with an annual $3.75 cumulative dividend preference per share. There were 546,024 shares of Class A Preferred Stock outstanding at December 31, 2021 and 2020. Class B Serial Preferred Stock has 10,000,000 shares authorized as a par value of $1 per share. There were no shares of Class B Serial Preferred Stock outstanding at December 31, 2021 and 2020.

Common Stock. At December 31, 2021, there were 600,000,000 shares authorized and 421,691,912 shares issued and outstanding. Dividends paid were $0.04 per share in 2021 ($0.02 per share in each of the third and fourth quarters of 2021), $0.02 per share in 2020 (all in the first quarter of 2020), and $0.12 per share in 2019 ($0.06 per share in the first quarter of 2019 and $0.02 per share in each of the second, third, and fourth quarters of 2019).

As of December 31, 2021, 47 million shares of common stock were reserved for issuance under Howmet’s stock-based compensation plans. As of December 31, 2021, 31 million shares remain available for issuance. Howmet issues new shares to satisfy the exercise of stock options and the conversion of stock awards.

In July 2015, through the acquisition of RTI International Metals Inc. (“RTI”), the Company assumed the obligation to repay two tranches of convertible debt; one tranche was due and settled in cash on December 1, 2015 (principal amount of $115) and the other tranche was due and settled in cash on October 15, 2019 (principal amount of $403). No shares of the Company’s common stock were issued in connection with the maturity or final conversion of this convertible debt.

Common Stock Outstanding and Share Activity (number of shares)

Balance at December 31, 2018	483,270,717
Issued for stock-based compensation plans	4,436,830
Repurchase and retirement of common stock	(54,852,364)
Balance at December 31, 2019	432,855,183
Issued for stock-based compensation plans	3,896,119
Repurchase and retirement of common stock	(3,844,925)
Balance at December 31, 2020	432,906,377
Issued for stock-based compensation plans	2,195,681
Repurchase and retirement of common stock	(13,410,146)
Balance at December 31, 2021	421,691,912

The following table provides details for share repurchases during 2021, 2020, and 2019:

	Number of shares	Average price per share(1)	Total
May 2021/June 2021 accelerated share repurchase (“ASR”) total	5,878,791	$34.02	$200
August 2021 open market repurchase	769,274	$32.50	$25
October 2021 open market repurchase	879,307	$30.71	$27
November 2021 open market repurchase	2,336,733	$30.79	$72
December 2021 open market repurchase	3,546,041	$29.91	$106
2021 Share repurchase total	13,410,146	$32.07	$430
August/September 2020 open market repurchase	2,907,094	$17.36	$51
November 2020 open market repurchase	937,831	$23.99	$22
2020 Share repurchase total	3,844,925	$18.98	$73
February 2019 ASR total	36,434,423	$19.21	$700
May 2019 ASR total	9,016,981	$22.18	$200
August 2019 ASR total	7,774,279	$25.73	$200
November 2019 open market repurchase	1,626,681	$30.74	$50
2019 Share repurchase total	54,852,364	$20.97	$1,150

(1)Excludes commissions cost.

The total value of shares repurchased during 2021, 2020, and 2019 were $430, $73, and $1,150, respectively. All of the shares repurchased during 2021, 2020, and 2019 were immediately retired. After giving effect to the share repurchases made through December 31, 2021, approximately $1,347 remained available for share repurchases as of January 1, 2022 under the prior authorizations by the Board. Under the Company’s share repurchase programs (the “Share Repurchase Programs”), the Company may repurchase shares by means of trading plans established from time to time in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, block trades, private transactions, open market repurchases and/or accelerated share repurchase agreements or other derivative transactions. There is no stated expiration for the Share Repurchase Programs. Under its Share Repurchase Programs, the Company may repurchase shares from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations, including limits under the Company’s Five-Year Revolving Credit Agreement (see Note R). The Company is not obligated to repurchase any specific number of shares or to do so at any particular time, and the Share Repurchase Programs may be suspended, modified or terminated at any time without prior notice.

In January 2022, the Company repurchased approximately 3 million shares of its common stock under the Share Repurchase Programs at an average price of $33.81 per share (excluding commissions cost) for approximately $100 in cash. After the share repurchases made through January 31, 2022, approximately $1,247 remains authorized for common stock share repurchases. Fully diluted shares outstanding as of January 31, 2022 were approximately 425 million.

Stock-Based Compensation

Howmet has a stock-based compensation plan under which stock options and/or restricted stock unit awards are granted, generally, in the first half of each year to eligible employees. Stock options are granted at the closing market price of Howmet’s common stock on the date of grant and typically vest over a three-year service period (1/3 each year) with a ten-year contractual term. Restricted stock unit awards typically vest over a three-year service period from the date of grant. As part of Howmet’s stock-based compensation plan design, individuals who are retirement-eligible have a six-month requisite service period in the year of grant. Certain of the restricted stock unit awards include performance and market conditions and are granted to certain eligible employees. In 2020 and 2019, performance stock awards were granted to a senior executive that vest either based on achievement of the Arconic Inc. Separation Transaction (see Note C for further details) or the achievement of certain stock price thresholds. For performance stock awards granted in 2021 and for annual performance awards granted in 2020, the final number of shares earned will be based on Howmet’s achievement of profitability targets over the respective performance periods and will be earned at the end of the third year. Performance stock awards granted in the first quarter of 2019 were converted to restricted stock unit awards (at target), in order to address the pending Arconic Inc. Separation Transaction. For performance stock awards granted in 2018, in order to address the pending Arconic Inc. Separation Transaction, the final number of shares earned was based on Howmet’s achievement of sales and profitability targets over performance periods in 2018 and 2019. Additionally, the annual 2021 and 2020 performance stock awards will be scaled by a total shareholder return (“TSR”) multiplier, which depends upon relative performance against the TSRs of a group of peer companies.

In conjunction with their employment agreements, certain current and former executives were granted cash bonus awards based on the achievement of certain stock price thresholds. These awards are liability classified and were marked-to-market each quarter using a Monte Carlo simulation. The stock price thresholds were fully reached. The cash payment of $23 occurred in 2021 in accordance with the terms of the agreements.

In 2021, 2020, and 2019, Howmet recognized stock-based compensation expense of $40 ($36 after-tax), $46 ($42 after-tax), and $69 ($63 after-tax), respectively. Senior executive performance awards granted in April 2020 were modified in June 2020, resulting in incremental compensation expense of $12, which is amortized over the remaining service period ending April 1, 2023. Additionally, the effect of the Arconic Inc. Separation Transaction was a modification of the original stock options and restricted stock award units. The modifications were designed with the intention that the intrinsic value of the stock option or stock award were the same both previous to and after the adjustments. An immaterial charge was recorded to Restructuring and other charges related to the modification.

Substantially all compensation expense recorded in 2021 relates to restricted stock unit awards. Cash bonus awards of $2 and $21 were recorded in 2020, and 2019, respectively. Of the remaining stock-based compensation expense in 2020 and 2019, more than 95% relates to restricted stock unit awards. No stock-based compensation expense was capitalized in any of those years. Stock-based compensation expense was reduced by $2 in 2021 and $3 in 2019 for certain executive pre-vest cancellations, which were recorded in Restructuring and other charges within the Statement of Consolidated Operations. At December 31, 2021, there was $68 (pre-tax) of unrecognized compensation expense related to non-vested restricted stock unit award grants. This expense is expected to be recognized over a weighted average period of 1.8 years.

Stock-based compensation expense is based on the grant date fair value of the applicable equity grant. For restricted stock unit awards, the fair value is equivalent to the closing market price of Howmet’s common stock on the date of grant. The weighted average grant date fair value per share of the 2021 and 2020 performance stock awards with a market condition scaled by a TSR multiplier is $43.41 and $21.33, respectively. The weighted average grant date fair value per share of the April 2020 senior executive performance stock awards with a market condition (achievement of certain stock price thresholds) is $2.57. The weighted average grant date fair value per share of the 2019 performance stock awards with a market condition (achievement of certain stock price thresholds) is $11.93. The 2021, 2020, and 2019 performance awards were valued using a Monte Carlo model. A Monte Carlo simulation uses assumptions of stock price behavior to estimate the probability of satisfying market conditions and the resulting fair value of the award. The risk-free interest rate (0.2% in 2021, 0.3% in 2020, and in 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. In 2021 and 2020, volatility of 56.0% and 48.3%, respectively, was estimated using a blended rate of Howmet's historical volatility and a peer-based volatility due to the Arconic Inc. Separation Transaction and the related changes in the nature of the business. In 2019, volatility of 33.4% was estimated using implied and historical volatility. There were no stock options issued in 2021, 2020, and 2019.

The activity for stock options and stock awards during 2021 was as follows (options and awards in millions):

	Stock options			Stock awards
	Number of options	Weighted average exercise price per option		Number of awards	Weighted average FMV per award
Outstanding, December 31, 2020	3	$	24.47	9	$	13.68
Granted	—	—		2	32.15
Exercised	(1)	21.70		—	—
Converted	—	—		(2)	19.52
Expired or forfeited	—	34.68		(1)	20.94
Outstanding, December 31, 2021	2	$	23.64	8	$	16.19

As of December 31, 2021, the stock options outstanding had a weighted average remaining contractual life of 2.6 years and a total intrinsic value of $15. All of the stock options outstanding were fully vested and exercisable. In 2021, 2020, and 2019, the cash received from stock option exercises was $22, $33, and $56 and the total tax benefit realized from these exercises was $2, $3, and $4, respectively. The total intrinsic value of stock options exercised during 2021, 2020, and 2019 was $10, $14, and $17, respectively. The total intrinsic value of stock awards converted during 2021, 2020, and 2019 was $55, $104, and $48, respectively.