Alcoa 2012 Annual Report Download - page 145

The information used to compute basic and diluted EPS attributable to Alcoa common shareholders was as follows
(shares in millions):
2012 2011 2010
Income from continuing operations attributable to Alcoa common shareholders $ 191 $ 614 $ 262
Less: preferred stock dividends declared 2 2 2
Income from continuing operations available to common equity 189 612 260
Less: dividends and undistributed earnings allocated to participating securities - 1 1
Income from continuing operations available to Alcoa common shareholders—basic 189 611 259
Add: interest expense related to convertible notes - 30 -
Income from continuing operations available to Alcoa common shareholders—diluted $ 189 $ 641 $ 259
Average shares outstanding—basic 1,067 1,061 1,018
Effect of dilutive securities:
Stock options 376
Stock and performance awards 6 4 1
Convertible notes - 89 -
Average shares outstanding—diluted 1,076 1,161 1,025
Participating securities are defined as unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) and are included in the computation of earnings per share
pursuant to the two-class method. 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 met 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. At December 31, 2012, there were no
outstanding participating securities, as all such securities have vested and were converted into shares of common stock.
At December 31, 2011 and 2010 there were 2 million and 4 million participating securities outstanding, respectively.
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 do not 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, 2012, 2011, and 2010, there were 12 million, 8 million, and 4 million such awards
outstanding, respectively.
In 2012 and 2010, 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 27 million, 27 million, and 23 million shares of common stock at a weighted average exercise
price of $15.41, $24.00, and $32.73 per share were outstanding as of December 31, 2012, 2011, and 2010, 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.
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