Alcoa 2010 Annual Report Download - page 134

At December 31, 2010, there was $34 (pretax) of unrecognized compensation expense related to non-vested stock
option grants and $27 (pretax) of unrecognized compensation expense related to non-vested stock award grants. These
expenses are expected to be recognized over a weighted average period of 1.5 years. As of December 31, 2010, the
following table summarizes the unrecognized compensation expense expected to be recognized in future periods:
Stock-based compensation
expense (pretax)
2011 $40
2012 19
2013 2
Totals $61
S. Earnings Per Share
Basic earnings per share (EPS) amounts are computed by dividing earnings, after the deduction of preferred stock
dividends declared and dividends and undistributed earnings allocated to participating securities, by the average
number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially
dilutive share equivalents outstanding not classified as participating securities.
As disclosed in Note A, on January 1, 2009, Alcoa adopted changes issued by the FASB to the calculation of earnings
per share. These changes state that unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the
computation of earnings per share pursuant to the two-class method for all periods presented. Prior to January 1, 2010,
under Alcoa’s stock-based compensation programs, certain employees were granted stock and performance awards,
which entitle those employees to receive nonforfeitable dividends during the vesting period on a basis equivalent to the
dividends paid to holders of Alcoa’s common stock. As such, these unvested stock and performance awards meet the
definition of a participating security. Under the two-class method, all earnings, whether distributed or undistributed, are
allocated to each class of common stock and participating securities based on their respective rights to receive
dividends. Prior to the adoption of these changes, stock and performance awards were considered potential shares of
common stock and were included only in the diluted EPS calculation under the treasury stock method as long as their
effect was not anti-dilutive. EPS data for prior periods presented were revised to reflect these changes. At
December 31, 2010, 2009, and 2008 there were 4 million, 7 million, and 8 million such participating securities
outstanding. None of the loss from continuing operations in 2009 was allocated to these participating securities because
these awards do not share in any loss generated by Alcoa.
Effective January 1, 2010, new grants of stock and performance awards do not contain a nonforfeitable right to
dividends during the vesting period. As a result, an employee will forfeit the right to dividends accrued on unvested
awards if that person does not fulfill their service requirement during the vesting period. As such, these awards are not
treated as participating securities in the EPS calculation as the employees no longer have equivalent dividend rights as
common shareholders. These awards are included in the EPS calculation utilizing the treasury stock method similar to
stock options. At December 31, 2010, there were 4 million such awards outstanding.
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