Alcoa 2015 Annual Report Download - page 168

The range of average risk-free interest rates (0.07-1.83%) was based on a yield curve of interest rates at the time of the
grant based on the contractual life of the option. The dividend yield (0.8%) was based on a one-year average. Volatility
(32-41%) was based on historical and implied volatilities over the term of the option. Alcoa utilized historical option
forfeiture data to estimate annual pre- and post-vesting forfeitures (7%). Exercise behavior (50%) 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 (5.9 years) was an output of the lattice-pricing
model. The activity for stock options and stock awards during 2015 was as follows (options and awards in millions):
Stock options Stock awards
Number of
options
Weighted
average
exercise price
Number of
awards
Weighted
average FMV
per award
Outstanding, January 1, 2015 32 11.26 19 9.98
Granted 3 15.55 7 14.85
Assumed at Acquisition 2 11.24 1 9.96
Exercised (3) 8.95 - -
Converted - - (5) 10.08
Expired or forfeited (1) 13.39 (1) 11.64
Performance share adjustment - - (1) 10.96
Outstanding, December 31, 2015 33 11.91 20 11.38
As of December 31, 2015, the number of stock options outstanding had a weighted average remaining contractual life
of 6.08 years and a total intrinsic value of $8. Additionally, 23.3 million of the stock options outstanding were fully
vested and exercisable and had a weighted average remaining contractual life of 5.25 years, a weighted average
exercise price of $11.82, and a total intrinsic value of $5 as of December 31, 2015. In 2015, 2014, and 2013, the cash
received from stock option exercises was $25, $150, and $13 and the total tax benefit realized from these exercises was
$6, $28, and $1, respectively. The total intrinsic value of stock options exercised during 2015, 2014, and 2013 was $19,
$84, and $2, respectively.
S. Earnings Per Share
Basic earnings per share (EPS) amounts are computed by dividing earnings, after the deduction of preferred stock
dividends declared by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of
common stock for all potentially dilutive share equivalents outstanding.
The information used to compute basic and diluted EPS attributable to Alcoa common shareholders was as follows
(shares in millions):
2015 2014 2013
Net (loss) income attributable to Alcoa $ (322) $ 268 $(2,285)
Less: preferred stock dividends declared 69 21 2
Net (loss) income available to Alcoa common shareholders—basic (391) 247 (2,287)
Add: dividends related to mandatory convertible preferred stock - - -
Add: interest expense related to convertible notes - - -
Net (loss) income available to Alcoa common shareholders—diluted $ (391) $ 247 $(2,287)
Average shares outstanding—basic 1,259 1,162 1,070
Effect of dilutive securities:
Stock options -7 -
Stock and performance awards - 11 -
Mandatory convertible preferred stock - - -
Convertible notes - - -
Average shares outstanding—diluted 1,259 1,180 1,070
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