On December 31, 2016, Milburn Inc., which uses IFRS as its reporting platform, h

Question

On December 31, 2016, Milburn Inc., which uses IFRS as its reporting platform, had 200 million common shares and 3 million, S9, cumulative convertible preferred shares issued and outstanding. The preferred shares are convertible into 42 million common shares. Milburn issued a 5% common stock dividend on July 1, 2014, On March 1, 2017, Milburn purchased and retired 24 million common shares. On October 1, 2017, 4 million common shares were issued. Net income for the year ended December 31, 2017 was $140 million. The income tax rate is 40%. Also outstanding at December 31, 2017, were stock options granted to key executives on September 13, 2016. These call options are exercisable for 30 million common shares at an exercise price of $56 per share. During 2017, the market price of the common shares averaged $70 per share, peaking at $80 on December 31 Put options were granted as compensation to two senior management executives who retired in 2016. These put options are exercisable for 4.2 million shares at an exercise price of $80 and were outstanding at December 31, 2017. 8% bonds, convertible into 6 million common shares, were issued at face value in 2013: the 2017 interest expense related to these bonds was S5 million All option and conversion ratios were updated for the stock dividend on July l Required: Compute Milburn's basic and diluted EPS for the year ended December 31, 2017. Show in detail all computations and present your results in a well formatted schedule.

Explanation / Answer

a) Basic Earning Per Share = [Net Income - Preferred Dividend]/Weighted average # shares of common stock outstanding Net Income 140 million Preferred dividends = $9 x 3 million shares 27 million Weighted Average shares Outstanding in millions Weighted Average shares Outstanding Date Number of Shares Stock Dividend Total Shares Weights Number of shares x Weights Jan,1,2017 200 10 210 12/12 210 Mar 1,2017 -24 -1.2 -25.2 10/12 -21 Oct 1,2017 4 4 3/12 1 Weighted average # shares 190 Numerator (Basic EPS): = $140 -$27 million 113.00 Denominator (Basic EPS): Weighted average # shares of common stock outstanding 190 Basic Earning Per Share = $113 million /190 million shares 0.59 Per share b) Dilutive Earning Per Share = Net Income 140 million Preferred dividends = $9 x 3 million shares 27 million After tax Interest Savings = $5million x (1- 40%) 3 million Diluted EPS = Net Income - Preferred Dividend + after-tax interest savings / Weighted Average Shares Outstanding Weighted Average shares Outstanding in thousands Weighted Average shares Outstanding Date Number of Shares Stock Dividend Total Shares Weights Number of shares x Weights Jan,1,2016 260 13 273 12/12 273 Mar 1,2016 -24 -1.2 -25.2 10/12 -21 Oct 1,2016 4 4 3/12 1 Convertible preferred shares 45 45 Conversion of Bonds = 6 6 Exercise of options (calculated below) 6 6 Exercise of Put options 4.2 4.2 Total number of shares 314.2 shares Treasury Stock= 30 million shares - [(30 milion x $56)/$70(average market price)] 6 Numerator (Dilutive EPS): = $140 -$27 + 3 million 116 million Denominator (Basic EPS): Weighted average # shares of common stock outstanding 314.2 Dilutive Earning Per Share = $116 million /314.2 million shares $0.37 Per share

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.