[msd87]

This is an excerpt from GLEIM study material related to EPS, well DEPS actually, and contingent convertible securities that could dilute EPS. I do not understand what this means.

“However, the conditions may not have been met at year end. In this case, the shares included in DEPS denominator equal those that would have been issued if the end of the year were the end of the contingency interval.”

This seems to be a recurring problem with my GLEIM material, I do not understand the wording. Anybody able to put this in layman terms?

[Whopper Warrior]

In FY1 DEPS company has $1,000 in income and 100 shares of common stock outstanding. Has part of its compensation package it offers it senior officials 900 shares of common stock but they must still be employed at the end of FY 2.

EPS 1000 income / 100 shares = 10$ EPS

DEPS 1000 income / (100 shares + 900 contingent shares) = 1$ DEPS

Although the senior officials have not met the contingent (think of it as an all or nothing, I will give you 900 shares but only, and only, if you are still employed at the end of FY 12) requirement we still include it in DEPS because when the 900 shares are issued, it would make the 100 other shares worth less (a dilution). Think of it like diamonds (expensive because of supply, now imagine Dabeers flooded the market with diamonds; all diamonds including ones bought just a year ago would be worth less then they were originally, a dilution of value)

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Whopper Warrior]

In FY1 DEPS company has $1,000 in income and 100 shares of common stock outstanding. Has part of its compensation package it offers it senior officials 900 shares of common stock but they must still be employed at the end of FY 2.

EPS 1000 income / 100 shares = 10$ EPS

DEPS 1000 income / (100 shares + 900 contingent shares) = 1$ DEPS

Although the senior officials have not met the contingent (think of it as an all or nothing, I will give you 900 shares but only, and only, if you are still employed at the end of FY 12) requirement we still include it in DEPS because when the 900 shares are issued, it would make the 100 other shares worth less (a dilution). Think of it like diamonds (expensive because of supply, now imagine Dabeers flooded the market with diamonds; all diamonds including ones bought just a year ago would be worth less then they were originally, a dilution of value)

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[msd87]

Ahhhhh.. Thanks sir. I see. The contingency still exists at the end of year FY1, even tho it has not yet been met, but may be met in the future, we are to assume the most dilution of EPS. Makes sense now, I believe the wording tripped me up on that. Thanks again.

[msd87]

Ahhhhh.. Thanks sir. I see. The contingency still exists at the end of year FY1, even tho it has not yet been met, but may be met in the future, we are to assume the most dilution of EPS. Makes sense now, I believe the wording tripped me up on that. Thanks again.

[Author]

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