L. 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):


	Third quarter ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Net income attributable to Alcoa common shareholders	$	149	$	24	$	109	$	54
Less: preferred stock dividends declared		—		1		1		2

Net income available to Alcoa common shareholders – basic		149		23		108		52
Add: preferred dividends related to mandatory convertible preferred stock		—		—		—		—
Add: interest expense related to convertible notes		—		—		—		—

Net income available to Alcoa common shareholders – diluted	$	149	$	23	$	108	$	52

Average shares outstanding – basic		1,177		1,070		1,150		1,069
Effect of dilutive securities:
Stock options		8		—		6		1
Stock and performance awards		12		9		11		9
Mandatory convertible preferred stock		8		—		3		—
Convertible notes		—		—		—		—

Average shares outstanding – diluted		1,205		1,079		1,170		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 third 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 nine-month period, these 89 million shares were outstanding for a portion of the period equivalent to a weighted average of 67 million shares. The 67 million shares were included in both basic and diluted average shares outstanding for the 2014 nine-month period. For the portion of the 2014 nine-month period that the convertible notes were still outstanding debt, a weighted average of the 89 million share equivalents (22 million) would have been included only in the diluted average shares outstanding if their effect was dilutive.

In the 2014 nine-month period, 22 million share equivalents related to convertible notes (see above) were not included in the computation of diluted EPS because their effect was anti-dilutive.

In the 2013 third quarter and nine-month period, 89 million share equivalents related to convertible notes were not included in the respective 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 $10.78 per share were outstanding as of September 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).