Real World Case 19-13: Reporting EPS; discontinued operations;


Question Description:

30

Real World Case 19-13: Reporting EPS; discontinued operations; Clorox Company The Clorox Company is a leading manufacturer and marketer of consumer and institutional products with approximately 8,100 employees worldwide and fiscal year 2011 net sales of $5.2 billion. The following is an excerpt from the comparative income statements (beginning with earnings from continuing operations) from Clorox’s 2011 annual report ($ in thousands): Earnings from continuing operations $287 $526 $472 Discontinued operations: Earnings from Auto businesses, net of tax 23 77 65 Gain on sale of Auto businesses, net of tax 247 — — Earnings from discontinued operations 270 77 65 Net earnings $557 $603 $537 An income statement sometimes includes items that require separate presentation (net of income taxes) within the statement. The two possible “separately reported items” are discontinued operations and extraordinary items. Clorox reports one of these items. A disclosure note from Clorox’s 2011 annual report is shown below: Note 15: Earnings Per Share The following is the reconciliation of net earnings to net earnings applicable to common stock: 2011 2010 2009 Earnings from continuing operations $287 $526 $472 Earnings from discontinued operations 270 77 65 Net Earnings 557 603 537 Less: Earnings allocated to participating securities 2 3 5 Net earnings applicable to common stock $555 $600 $532 The following is the reconciliation of the weighted average number of shares outstanding (in thousands) used to calculate basic EPS to those used to calculate diluted EPS: 2011 2010 2009 Basic 136,699 140,272 139,015 Dilutive effect of stock options and other 1,402 1,262 1,154 Diluted 138,101 141,534 140,169 During fiscal years 2011, 2010 and 2009, the Company did not include stock options to purchase approximately 2.0 million, 4.0 million and 5.1 million shares, respectively, of the Company’s common stock in the calculations of diluted EPS because their exercise price was greater than the average market price, making them anti-dilutive. Required: 1. The disclosure note shows adjustments for “the dilutive effect of stock options and other.” What other adjustments might be needed? Explain why and how these adjustments are made to the weighted –average shares outstanding. 2. The disclosure note indicates that the effect of some of the stock options were not included because they would be antidilutive. What does that mean? Why not include antidilutive securities? 3. Based on the information provided, prepare the presentation of basic and diluted earnings per share for 2011, 2010, and 2009 that Clorox reports in its 2011 annual report. ATTACHMENT PREVIEW Download attachment 19-13.docx Real World Case 19-13: Reporting EPS; discontinued operations; Clorox Company The Clorox Company is a leading manufacturer and marketer of consumer and institutional products with approximately 8,100 employees worldwide and fiscal year 2011 net sales of $5.2 billion. The following is an excerpt from the comparative income statements (beginning with earnings from continuing operations) from Clorox’s 2011 annual report ($ in thousands): Earnings from $287 $526 $472 continuing operations Discontinued operations: Earnings from Auto 23 77 65 businesses, net of tax Gain on sale of Auto 247 —-businesses, net of tax Earnings from 270 77 65 discontinued operations Net earnings $557 $603 $537 An income statement sometimes includes items that require separate presentation (net of income taxes) within the statement. The two possible “separately reported items” are discontinued operations and extraordinary items. Clorox reports one of these items. A disclosure note from Clorox’s 2011 annual report is shown below: Note 15: Earnings Per Share The following is the reconciliation of net earnings to net earnings applicable to common stock: 2011 2010 2009 Earnings from $287 $526 $472 continuing operations Earnings from 270 77 65 discontinued operations Net Earnings 557 603 5…

Answer

30