Earnings Per Share (Exelon)
Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding, including the effect of issuing common stock assuming (i) stock options are exercised, and (ii) performance share awards and restricted stock awards are fully vested under the treasury stock method.
The following table sets forth the components of basic and diluted earnings per share and shows the effect of these stock options, performance share awards and restricted stock awards on the weighted average number of shares outstanding used in calculating diluted earnings per share:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Net income attributable to common shareholders | $ | 2,010 |
|
| $ | 3,786 |
|
| $ | 1,121 |
|
Weighted average common shares outstanding — basic | 967 |
|
| 947 |
|
| 924 |
|
Assumed exercise and/or distributions of stock-based awards | 2 |
| | 2 |
| | 3 |
|
Weighted average common shares outstanding — diluted | 969 |
|
| 949 |
|
| 927 |
|
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 3 million in 2018, 8 million in 2017, and 12 million in 2016. There were no equity units related to the PHI merger not included in the calculation of diluted common shares outstanding due to their antidilutive effect for the years ended December 31, 2018, 2017, and 2016. See Note 18 — Shareholders' Equity for additional information regarding the equity units and equity forward units.
On June 1, 2017, Exelon settled the forward purchase contract, which was a component of the June 2014 equity units, through the issuance of approximately 33 million shares of Exelon common stock from treasury stock. The issuance of shares on June 1, 2017 triggered full dilution in the EPS calculation, which prior to settlement were included in the calculation of diluted EPS using the treasury stock method. See Note 18 — Shareholders' Equity for additional information regarding share repurchases.
About Earnings Per Share Disclosures
The earnings per share disclosure breaks down the calculation from net income to both basic and diluted EPS, revealing the full impact of a company's capital structure on per-share economics. The reconciliation between basic and diluted share counts exposes how many stock options, RSUs, convertible securities, and warrants are potentially dilutive to existing shareholders.
Key signals: a widening gap between basic and diluted shares indicates growing dilution from equity compensation or convertible instruments. Anti-dilutive securities excluded from the diluted calculation deserve attention — they represent latent dilution that will materialize if the stock price rises. Watch for the effect of share buybacks on per-share metrics: EPS growth driven primarily by repurchases rather than income growth signals weakening fundamentals. Compare year-over-year changes in the diluted share count against equity compensation expense to assess whether management is effectively managing dilution.