Question

“I guess I'll win that bet!” you announced to no one in particular.

“What bet?” Renee asked. Renee Patey was close enough to overhear you.

“When I bought my AIG stock last year Randy insisted it was a mistake, that they were going to collapse. I bet him a Coke he was wrong. This press release says they have positive earnings,” you bragged. Renee was looking over your shoulder now at the article you were pointing at:

August 7, 2009 (Business Wire) American International Group, Inc. (AIG) today reported its first quarterly profit since the third quarter of 2007, as certain of its businesses stabilized and the company’s results reflected positive valuation changes. . . . For the second quarter ended June 30, 2009, AIG reported net income attributable to AIG of $1.8 billion, including net income attributable to AIG common shareholders of $311 million or $2.30 per dilutedcommon share, compared with a net loss of $5.4 billion or $41.13 per diluted share in the second quarter of 2008.

(a) Share and per share amounts prior to the second quarter of 2009 have been restated to refl ect the 1-for-20 reverse stock split effective June 30, 2009.

Excerpt from: “AIG Reports Second Quarter 2009 Results,” August 7, 2009.

“Two dollars and thirty cents a share, huh?” Renee asked. “How many shares do you have? When do you get the check?”

Required:
1. Renee's questions imply that she thinks you will get cash dividends of $2.30 a share. What does earnings per share really tell you?
2. The press release says that “Share and per share amounts prior to the second quarter of 2009 have been restated to reflect the 1-for-20 reverse stock split effective June 30, 2009.” What does that mean?
3. At February 18, 2009, AIG had board of director authorization for repurchasing up to $9 billion of its own stock, but pursuant to the Fed Credit Agreement, AIG is restricted from repurchasing shares of its common stock. Would the reduction in shares from a stock repurchase be taken into account when EPS is calculated? How?
4. You know from statements AIG mailed you that AIG grants stock options to company executives. If those options are exercised, you know the resulting increase in shares might reduce earnings per share. Is that possibility taken into account when EPS is calculated? Explain.



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  • CreatedJuly 11, 2013
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