K. 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):


	Second quarter ended June 30,					Six months ended June 30,
	2014		2013			2014			2013
Net income (loss) attributable to Alcoa common shareholders	$	138	$	(119	)	$	(40	)	$	30
Less: preferred stock dividends declared		—		—			1			1

Net income (loss) available to Alcoa common shareholders – basic		138		(119	)		(41	)		29
Add: interest expense related to convertible notes		—		—			—			—

Net income (loss) available to Alcoa common shareholders – diluted	$	138	$	(119	)	$	(41	)	$	29

Average shares outstanding – basic		1,173		1,069			1,137			1,069
Effect of dilutive securities:
Stock options		6		—			—			2
Stock and performance awards		10		—			—			8
Convertible notes		—		—			—			—

Average shares outstanding – diluted		1,189		1,069			1,137			1,079

In the first quarter of 2014, holders of the convertible notes exercised their option to convert the notes into 89 million shares of Alcoa common stock (see Note G). As a result, for the 2014 second quarter, these 89 million shares were outstanding for the entire period and were included in both basic and diluted average shares outstanding. For the 2014 six-month period, these 89 million shares were outstanding for a portion of the period equivalent to a weighted average of 56 million shares. The 56 million shares were included in both basic and diluted average shares outstanding for the 2014 six-month period. For the portion of the 2014 six-month period that the convertible notes were still outstanding debt, a weighted average of the 89 million share equivalents (33 million) would have been included only in the diluted average shares outstanding if their effect was dilutive.

In the 2014 six-month period, basic average shares outstanding and diluted average shares outstanding were the same because the effect of potential shares of common stock was anti-dilutive since Alcoa generated a net loss. As a result, 33 million share equivalents related to convertible notes (see above), 19 million stock awards, and 31 million stock options were not included in the computation of diluted EPS. Had Alcoa generated sufficient net income in the 2014 six-month period, 33 million, 10 million, and 6 million potential shares of common stock related to the convertible notes, stock awards, and stock options, respectively, would have been included in diluted average shares outstanding.

In the 2013 second quarter, basic average shares outstanding and diluted average shares outstanding were the same because the effect of potential shares of common stock was anti-dilutive since Alcoa generated a net loss. As a result, 89 million share equivalents related to convertible notes, 17 million stock awards, and 9 million stock options were not included in the computation of diluted EPS. Had Alcoa generated sufficient net income in the second quarter of 2013, 89 million, 8 million, and 1 million potential shares of common stock related to the convertible notes, stock awards, and stock options, respectively, would have been included in diluted average shares outstanding.

In the 2013 six-month period, 89 million share equivalents related to convertible notes were not included in the computation of diluted EPS because their effect was anti-dilutive.

Options to purchase 3 million and 48 million shares of common stock at a weighted average exercise price of $16.24 and $10.77 per share were outstanding as of June 30, 2014 and 2013, respectively, but were not included in the computation of diluted EPS because they were anti-dilutive, as the exercise prices of the options were greater than the average market price of Alcoa’s common stock.

In June 2014, Alcoa entered into an agreement to purchase an aerospace jet engine components company. A portion of the purchase price will be paid in Alcoa common stock equivalent to 36,523,010 shares at a per share price of $13.69 (see Note E).