Preferred Stock. Alcoa Corporation is authorized to issue 100,000,000 shares of preferred stock at a par value of $0.01 per share. At December 31, 2018 and 2017, the Company had no issued preferred stock.

Common Stock. Alcoa Corporation is authorized to issue 750,000,000 shares of common stock at a par value of $0.01 per share. On November 1, 2016, in conjunction with the Separation Transaction, the Company distributed 182,471,195 shares of its common stock. Of this amount, 146,159,428 shares were distributed to ParentCo’s shareholders and 36,311,767 shares were retained by ParentCo (Arconic sold all of these shares in 2017). As of December 31, 2018 and 2017, Alcoa Corporation had 184,770,249 and 185,200,713, respectively, issued and outstanding shares of common stock.

Under its employee stock-based compensation plan, the Company issued shares of 1,293,336 in 2018, 2,269,718 in 2017, and 459,800 from November 1, 2016 through December 31, 2016. Also, as of December 31, 2018, 25,977,146 shares of common stock were available for issuance under Alcoa Corporation’s employee stock-based compensation plan. The Company issues new shares to satisfy the exercise of stock options and the conversion of stock units.

In October 2018, Alcoa Corporation’s Board of Directors authorized a common stock repurchase program under which the Company may purchase shares of its outstanding common stock up to an aggregate transactional value of $200, depending on cash availability, market conditions, and other factors. Repurchases under the program may be made using a variety of methods, which may include open market purchases, privately negotiated transactions, or pursuant to a Rule 10b5-1 plan. This program does not have a predetermined expiration date. Alcoa Corporation intends to retire the repurchased shares of common stock. In December 2018, the Company repurchased 1,723,800 shares of its common stock for $50; these shares were immediately retired.

Dividends on common stock are subject to authorization by Alcoa Corporation’s Board of Directors. The Company did not declare any dividends in 2018, 2017, and from November 1, 2016 through December 31, 2016.

In 2018, 2017, and the last two months of 2016, eligible Alcoa Corporation employees participated in the Company’s stock-based compensation plan. In all periods prior to the Separation Date, eligible Alcoa Corporation employees participated in ParentCo’s stock-based compensation plan. The stock-based compensation expense recorded by the Company in the referenced periods includes expense associated with employees historically attributable to Alcoa Corporation’s operations and an allocation of expense (see Note A) related to ParentCo’s corporate employees.

Effective November 1, 2016, all outstanding stock options (vested and non-vested) and non-vested stock units originally granted under ParentCo’s stock-based compensation plan related to the Company’s employees were replaced with similar stock options and stock units under Alcoa Corporation’s stock-based compensation plan. In order to preserve the intrinsic value of the stock options and stock units originally granted under ParentCo’s stock-based compensation plan, the number of stock options and stock units issued under the Company’s stock-based compensation plan were increased by a ratio of 1.34 developed by dividing the October 31, 2016 closing market price of ParentCo’s common stock ($28.72) by the October 31, 2016 closing market price of Alcoa Corporation’s “when issued” common stock ($21.44). This resulted in a beginning balance of outstanding stock options and stock units under the Company’s stock-based compensation plan of 4,673,829 and 2,605,423, respectively, as of November 1, 2016.

The following description of Alcoa Corporation’s stock-based compensation plan is not materially different from the description of ParentCo’s stock-based compensation plan prior to the Separation Transaction.

Stock options and stock units are generally granted in either January or February each calendar year to eligible employees (the Company’s Board of Directors also receive certain stock units; however, these amounts are not material). Most plan participants can choose whether to receive their award in the form of stock options, stock units, or a combination of both. This choice is made before the grant is issued and is irrevocable. Stock options are granted at the closing market price of Alcoa Corporation’s common stock on the date of grant and grade vest over a three-year service period (1/3 each year) with a ten-year contractual term. Stock units cliff vest on the third anniversary of the award grant date and certain of these units also include either a market (2018, 2017, and 2016 (third tranche only-see below)) or performance (2018, 2017, and 2016) condition.

The final number of market-based and performance-based stock units earned is dependent on Alcoa Corporation’s achievement of certain targets over a three-year measurement period for the 2018 and 2017 grants and a one-year measurement period for each of the three tranches of the 2016 grants. For market-based stock units granted in 2018 and 2017, the award will be earned at the end of the measurement period based on the Company’s total shareholder return measured against the total shareholder return of the Standard & Poor’s 500® Index from January 1 of the grant year through December 31 of the third year in the service period. For performance-based stock units granted in 2018 and 2017, the award will be earned at the end of the measurement period based on the Company’s performance against a pre-established return-on-capital target measured from January 1 of the grant year through December 31 of the third year in the service period. For performance-based stock units granted in 2016, one-third of the award was to be earned each year during the respective measurement period based on the Company’s performance against a pre-established return-on-capital target for that year measured from January 1 through December 31 (the majority of the third tranche and the entire second tranche of the 2016 performance units were not earned in 2018 and 2017, respectively). In January 2018, a portion of the third tranche of the 2016 performance-based stock units were changed to market-based stock units, which would be earned at the end of the measurement period based on the Company’s total shareholder return measured against the total shareholder return of the Standard & Poor’s 500® Index from January 1, 2018 through December 31, 2018 (none of the 2016 market-based stock units were earned in 2018).

In 2018, 2017, and 2016, Alcoa Corporation recognized stock-based compensation expense of $35, $24, and $28, respectively, of which approximately 80% to 90% related to stock units in each period (there was no stock-based compensation expense capitalized in 2018, 2017, or 2016). Of the total pretax stock-based compensation expense recognized in 2016, $16 relates to the allocation of expense for ParentCo’s corporate employees. As part of both Alcoa Corporation’s and ParentCo’s stock-based compensation plan design in the respective periods, individuals who are retirement-eligible have a six-month requisite service period in the year of grant. As a result, a larger portion of expense was recognized in the first half of each year for these retirement-eligible employees. Of the total pretax stock-based compensation expense recognized in 2018, 2017, and 2016, $5, $4, and $7, respectively, pertains to the acceleration of expense related to retirement-eligible employees.

Stock-based compensation expense is based on the grant date fair value of the applicable equity grant. For both stock units with no performance or market condition and stock units with a performance condition, the fair value was equivalent to the closing market price of either Alcoa Corporation’s or ParentCo’s common stock on the date of grant in the respective periods. For stock units with a market condition, the fair value was estimated on the date of grant using a Monte Carlo simulation model, which generated a result of $73.13 and $52.01 per unit in 2018 and 2017, respectively. The Monte Carlo simulation model uses certain assumptions to estimate the fair value of a market-based stock unit, including volatility (38.47% for the Company and 12.12% for the Standard & Poor’s 500® Index) and a risk-free interest rate (2.17%) (the assumptions used to estimate the fair value of stock units granted in 2017 were not materially different). For stock options, the fair value was estimated on the date of grant using a lattice-pricing model, which generated a result of $21.32, $12.45, and $2.12 per option in 2018, 2017, and 2016, respectively (see below for updated fair value amount for 2016 grants). The lattice-pricing model uses several assumptions to estimate the fair value of a stock option, including an average risk-free interest rate, dividend yield, volatility, annual forfeiture rate, exercise behavior, and contractual life.

The following describes in detail the assumptions used by the Company to estimate the fair value of stock options granted in 2018 (the assumptions used to estimate the fair value of stock options granted in 2017 (by Alcoa Corporation) and 2016 (by ParentCo) were not materially different). The risk-free interest rate (2.63%) was based on a yield curve of interest rates at the time of the grant over the contractual life of the option. The dividend yield (0.0%) was based on the fact that the Company did not pay any dividends from the Separation Date through 2017 and did not have any immediate plans to pay dividends in 2018. Volatility (43.32%) was based on historical and implied volatilities over the term of the option. Alcoa Corporation utilized historical option forfeiture data to estimate annual pre- and post-vesting forfeitures (4%). Exercise behavior (63%) was based on a weighted average exercise ratio (exercise patterns for grants issued over the number of years in the contractual option term) of an option’s intrinsic value resulting from historical employee exercise behavior. Based upon the other assumptions used in the determination of the fair value, the life of an option (6.0 years) was an output of the lattice-pricing model. As Alcoa Corporation was a standalone publicly-traded company only for a two-month period in 2016, the assumptions used to estimate the fair value of stock options granted in February 2017 were largely based on historical ParentCo information, where applicable (Alcoa Corporation did not grant any stock options from November 1, 2016 through December 31, 2016).

The respective fair value of stock options outstanding as of October 31, 2016 (originally granted under ParentCo’s stock-based compensation plan to Alcoa Corporation employees) were adjusted to reflect both the impact of ParentCo’s 1-for-3 reverse stock split that occurred on October 5, 2016 and to maintain the intrinsic value of the stock options as a result of the Separation Transaction. Accordingly, the fair value of the stock options originally granted in 2016 was adjusted to $4.75. Alcoa Corporation did not recognize any incremental stock-based compensation expense as a result of this adjustment.

	Stock options					Stock units
	Number of options			Weighted average exercise price		Number of units			Weighted average FMV per unit
Outstanding, January 1, 2018		2,687,107		$	25.48		2,301,332		$	26.93
Granted		189,455			53.30		635,477			52.81
Exercised		(896,645	)		25.06		—			—
Converted*		—			—		(505,930	)		34.55
Expired or forfeited		(19,990	)		20.51		(40,941	)		31.73
Performance share adjustment		—			—		(84,793	)		15.09
Outstanding, December 31, 2018		1,959,927			28.41		2,305,145			32.75

*	The number of converted units includes 109,239 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.

As of December 31, 2018, the 1,959,927 outstanding stock options had a weighted average remaining contractual life of 5.50 years and a total intrinsic value of $8. Additionally, 1,298,021 of the total outstanding stock options were fully vested and exercisable and had a weighted average remaining contractual life of 4.35 years, a weighted average exercise price of $26.18, and a total intrinsic value of $5 as of December 31, 2018. Cash received from stock option exercises was $23, $43, and $10 in 2018, 2017, and 2016, respectively, and the total intrinsic value of stock options exercised during 2018, 2017, and 2016 was $26, $24, and $4, respectively.

At December 31, 2018, there was $32 (pretax) 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 1.65 years.