Preferred and Common Stock

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Preferred and Common Stock

N. Preferred and Common Stock

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, 2021 and 2020, 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. As of December 31, 2021 and 2020, Alcoa Corporation had 184,099,748 and 185,978,069, respectively, issued and outstanding shares of common stock.

Under its employee stock-based compensation plan, the Company issued shares of 1,305,979 in 2021, 397,903 in 2020, and 809,917 in 2019. The Company issues new shares to satisfy the exercise of stock options and the conversion of stock units. As of December 31, 2021, 23,463,347 shares of common stock were available for issuance.

Share Repurchase

In October 2018, Alcoa Corporation’s Board of Directors approved 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.

In October 2021, Alcoa Corporation’s Board of Directors approved a new common stock repurchase program under which the Company may purchase shares of its outstanding common stock up to an aggregate transactional value of $500, depending on cash availability, market conditions, and other factors.

Repurchases under these programs 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. These programs do not have predetermined expiration dates. Alcoa Corporation intends to retire repurchased shares of common stock.

In the fourth quarter of 2021, the Company repurchased 3,184,300 shares of its common stock for $150; the shares were immediately retired. These purchases exhausted the remaining dollar value of shares that were available for repurchase under the Board of Directors’ October 2018 authorization. No shares were repurchased in 2020 or 2019.

The Company has remaining authorization to repurchase up to a total of $500, in the aggregate, of its outstanding shares of common stock, under the new share repurchase program approved in 2021.

Dividend

Dividends on common stock are subject to authorization by Alcoa Corporation’s Board of Directors.

On October 14, 2021, the Company announced the initiation of a quarterly cash dividend on its common stock. The Board of Directors declared the first quarterly cash dividend of $0.10 per share of the Company’s common stock, paid on November 19, 2021 to stockholders of record as of the close of business on October 29, 2021.

The Company did not declare any dividends in 2020 or 2019.

Stock-based Compensation

Stock options and restricted 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). Stock options were historically 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. As of January 1, 2021, the Company no longer grants new stock options. Time-based restricted stock units (RSUs) generally cliff vest on the third anniversary of the award grant date. The Company also grants performance restricted stock units (PRSUs), which are subject to performance conditions.

The final number of PRSUs earned is dependent on Alcoa Corporation’s achievement of certain targets over a three-year measurement period for grants. For PRSUs granted in 2019, the award was earned at the end of the measurement period of January 1, 2019 through December 31, 2021 based on performance against two measures: (1) the Company’s total shareholder return measured against the total shareholder return of the Standard & Poor’s 500® Index; and (2) a pre-established return-on-capital target. For PRSUs granted in 2020, the award will be earned at the end of the measurement period of January 1, 2020 through December 31, 2022 based on performance against four measures: (1) the Company’s total shareholder return measured against the ranked total shareholder return of the Standard & Poor’s Metals and Mining Select Industry Index components; (2) a pre-established return-on-equity target; (3) an improvement in proportional net debt; and (4) a reduction in carbon intensity in both refining (through reduced carbon dioxide emissions) and smelting (through increased production from renewable energy) operations. For PRSUs granted in 2021, the award will be earned at the end of the measurement period of January 1, 2021 through December 31, 2023 based on performance against four measures: (1) the Company’s total shareholder return measured against the ranked total shareholder return of the Standard & Poor’s Metals and Mining Select Industry Index components; (2) a pre-established return-on-equity target; (3) an improvement in proportional net debt; and (4) a reduction in carbon intensity in both refining (through reduced carbon dioxide emissions) and smelting (through increased production from renewable energy) operations.

In 2021, 2020, and 2019, Alcoa Corporation recognized stock-based compensation expense of $39, $25, and $30, respectively, of which approximately 85% to 95% was related to stock units in each period. There was no stock-based compensation expense capitalized in 2021, 2020, or 2019.  

Stock-based compensation expense is based on the grant date fair value of the applicable equity grant. For both RSUs and PRSUs, the fair value was equivalent to the closing market price of Alcoa Corporation’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 $39.88, $21.43, and $35.70 per unit in 2021, 2020, and 2019, respectively. The Monte Carlo simulation model uses certain assumptions to estimate the fair value of a market-based stock unit, including volatility (60.19%, 41.65%, and 42.04% in 2021, 2020, and 2019, respectively, for the Company) and a risk-free interest rate (0.22%, 1.38%, and 2.57%

in 2021, 2020, and 2019, respectively), to estimate the probability of satisfying market conditions. For stock options, the fair value was estimated on the date of grant using a lattice pricing model, which generated a result of $6.12, and $10.86 per option in 2020, and 2019, respectively. There were no stock options granted in 2021. 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 activity for stock options and stock units during 2021 was as follows:

	Stock options					Stock units
	Number of options			Weighted average exercise price		Number of units			Weighted average FMV per unit
Outstanding, January 1, 2021		2,036,625		$	26.85		3,290,679		$	24.19
Granted		—			—		1,736,527			23.34
Exercised		(1,032,864	)		23.69		—			—
Converted		—			—		(371,300	)		50.77
Expired or forfeited		(93,341	)		34.80		(109,703	)		18.92
Performance share adjustment		—			—		156,343			34.22
Outstanding, December 31, 2021		910,420			29.61		4,702,546			22.23

The number of Converted units includes 74,610 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, 2021, the 910,420 outstanding stock options had a weighted average remaining contractual life of 5.45 years and a total intrinsic value of $27. Additionally, 585,774 of the total outstanding stock options were fully vested and exercisable and had a weighted average remaining contractual life of 4.67 years, a weighted average exercise price of $34.20, and a total intrinsic value of $15 as of December 31, 2021. Cash received from stock option exercises was $25, $1, and $2 in 2021, 2020, and 2019, respectively, and the total intrinsic value of stock options exercised during 2021, 2020, and 2019 was $17, $0, and $1, respectively.

At December 31, 2021, there was $30 (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 1.72 years.