Question

Sun Microsystems, Inc., headquartered in Santa Clara, California, is a prominent provider of products and services for network computing. Sun's 2009 annual report included the following disclosure note:

Computation of Net Income (Loss) per Common Share (in part)
Basic net income (loss) per common share is computed using the weighted-average number of common shares outstanding (adjusted for treasury stock and common stock subject to repurchase activity) during the period. Diluted net income (loss) per common share is computed using the weighted-average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares are anti-dilutive when their conversion would increase earnings per share. Dilutive common equivalent shares consist primarily of stock options and restricted stock awards (restricted stock and restricted stock units that are settled in stock).

The following table sets forth the computation of basic and diluted income (loss) per share for each of the past three fiscal years (in millions, except per share amounts):

As a result of our net loss for the fiscal year ended June 30, 2009, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share.

For the fiscal years ended June 30, 2008 and 2007, we added 13 million and 19 million common equivalent shares, respectively, to our basic weighted-average shares outstanding to compute the diluted weighted-average shares outstanding. We are required to include these dilutive shares in our calculations of net income per share for fiscal 2008 because we earned a profit.

Required:
1. The note indicates that “diluted net income (loss) per common share is computed using the weighted-average number of common and dilutive common equivalent shares outstanding during the period.” What are dilutive common equivalent shares?
2. The note indicates that “For the fiscal years ended June 30, 2008 and 2007, we added 13 million and 19 million common equivalent shares, respectively, to our basic weighted-average shares outstanding to compute the diluted weighted-average shares outstanding.” Does that mean Sun had outstanding a total of 13 million and 19 million stock options and restricted shares in 2008 and 2007? Explain.
3. Sun does not include potentially dilutive shares when calculating EPS for fiscal 2009. Why not? Assume Sun had 20 million common equivalent shares in fiscal 2009 and included them in the calculation, what would have been the amount of diluted loss per share for fiscal 2009?



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  • CreatedJuly 11, 2013
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