Preferred and Common Stock

12 Months Ended

Dec. 31, 2022

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, 2022 and 2021, 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, 2022 and 2021, Alcoa Corporation had 176,969,091 and 184,099,748, respectively, issued and outstanding shares of common stock.

Under its employee stock-based compensation plan, the Company issued shares of 1,434,543 in 2022, 1,305,979 in 2021, and 397,903 in 2020. The Company issues new shares to satisfy the exercise of stock options and the conversion of stock units. As of December 31, 2022, 22,028,804 shares of common stock were available for issuance.

Share Repurchase

In October 2021, 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 $500, depending on cash availability, market conditions, and other factors.

In July 2022, Alcoa Corporation announced that its Board of Directors approved an additional 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 the Company’s continuing analysis of market, financial, and other factors (the New Repurchase Program).

In 2022, the Company repurchased 8,565,200 shares of its common stock for $500, which fully exhausted the October 2021 authorization; the shares were immediately retired. As of the date of this report, the Company is currently authorized to repurchase up to a total of $500, in the aggregate, of its outstanding shares of common stock under the New Repurchase Program. Repurchases under this 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 may be suspended or discontinued at any time and does not have a predetermined expiration date. Alcoa Corporation intends to retire repurchased shares of common stock.

In 2021, the Company repurchased 3,184,300 shares of its common stock for $150; the shares were immediately retired.

No shares were repurchased in 2020.

Dividend

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

In October 2021, the Company announced the initiation of a quarterly cash dividend on its common stock and the Board of Directors declared the first quarterly cash dividend of $0.10 per share of the Company’s common stock. Dividends paid totaled $19 in 2021.

Quarterly dividends paid were $0.10 per share in 2022, totaling $72.

The Company did not declare any dividends in 2020.

The details of any future cash dividend declaration, including the amount of such dividend and the timing and establishment of the record and payment dates, will be determined by the Board of Directors. The decision of whether to pay future cash dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, business conditions, the requirements of applicable law, and any other factors the Board of Directors may deem relevant.

Stock-based Compensation

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). 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. Prior to 2021, stock options were historically granted at the closing market price of Alcoa Corporation’s common stock on the date of grant and grade vested 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 stock options.

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 2020, the award was earned after 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 after 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. For PRSUs granted in 2022, the award will be earned after the end of the measurement period of January 1, 2022 through December 31, 2024 based on performance against three 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; and (3) a reduction in carbon intensity in both refining (through reduced carbon dioxide emissions) and smelting (through increased production from renewable energy) operations.

In 2022, 2021, and 2020, Alcoa Corporation recognized stock-based compensation expense of $40, $39, and $25, respectively, of which approximately 85% to 100% was related to stock units in each period. There was no stock-based compensation expense capitalized in 2022, 2021, or 2020.  

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 per share 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 $126.86, $39.88, and $21.43 per unit in 2022, 2021, and 2020, respectively. The Monte Carlo simulation model uses certain assumptions to estimate the fair value of a market-based stock unit, including volatility (65.25%, 60.19%, and 41.65% in 2022, 2021, and 2020, respectively, for the Company) and a risk-free interest rate (1.71%, 0.22%, and 1.38% in 2022, 2021, and 2020, 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 per option in 2020. There were no stock options granted in 2022 and 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 units and stock options during 2022 was as follows:

	Stock units					Stock options
	Number of units			Weighted average FMV per unit		Number of options			Weighted average exercise price
Outstanding, January 1, 2022		4,702,546		$	22.23		910,420		$	29.61
Granted		624,441			67.50		—			—
Exercised		—			—		(686,097	)		31.50
Converted		(1,056,571	)		30.07		—			—
Expired or forfeited		(100,726	)		26.63		(3,727	)		21.13
Performance share adjustment		436,525			18.00		—			—
Outstanding, December 31, 2022		4,606,215			26.08		220,596			23.88

The number of Converted units includes 308,125 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, 2022, the 220,596 outstanding stock options had a weighted average remaining contractual life of 5.23 years and a total intrinsic value of $5. Additionally, 131,546 of the total outstanding stock options were fully vested and exercisable and had a weighted average remaining contractual life of 4.75 years, a weighted average exercise price of $29.02, and a total intrinsic value of $2 as of December 31, 2022. Cash received from stock option exercises was $22, $25, and $1 in 2022, 2021, and 2020, respectively. The total intrinsic value of stock options exercised during 2022, 2021, and 2020 was $22, $17, and $0, respectively. The total fair value of stock units converted during 2022, 2021 and 2020 was $32, $19 and $17, respectively.

At December 31, 2022, there was $34 (pretax) of combined unrecognized compensation expense related to non-vested grants of both stock units and stock options. This expense is expected to be recognized over a weighted average period of 1.77 years.