ADVANCED DRAINAGE SYSTEMS, INC. Earnings Per Share Disclosure
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20. |
NET INCOME (LOSS) PER SHARE |
Basic net income (loss) per share is calculated by dividing the Net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (loss) per share is computed by dividing the Net income (loss) available to common stockholders by the weighted-average number of common stock equivalents outstanding for the period.
Holders of unvested restricted stock have non-forfeitable rights to dividends when declared on common stock, and holders of redeemable convertible preferred stock participate in dividends on an as-converted basis when declared on common stock. As a result, unvested restricted stock and redeemable convertible preferred stock meet the definition of participating securities, which requires us to apply the two-class method to compute both basic and diluted net income (loss) per share. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common stockholders.
The dilutive effect of stock options and unvested restricted stock is based on the more dilutive of the treasury stock method or the diluted two-class method. In computing diluted net income per share, income available to common stockholders used in the basic net income per share calculation (numerator) is adjusted, subject to sequencing rules, for certain adjustments that would result from the assumed issuance of potential common shares. Diluted net income per share assumes the redeemable convertible preferred stock would be cash settled through the effective date of the IPO on July 25, 2014, as the Company has the choice of settling in cash or shares and it has demonstrated past practice and intent of cash settlement. Therefore these shares are excluded from the calculation through the effective date of the IPO. After the effective date of the IPO, management’s intent is to share settle; therefore, these shares are included in the calculation from July 26, 2014 through March 31, 2017, if dilutive. For purposes of the calculation of diluted net income per share, stock options and unvested restricted stock are considered to be potential common stock and are only included in the calculations when their effect is dilutive.
The Company’s redeemable common stock is included in the weighted-average number of common shares outstanding for calculating basic and diluted net income per share.
The following table presents information necessary to calculate net income (loss) per share for the fiscal years ended March 31, 2017, 2016, and 2015, as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive:
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(Amounts in thousands, except per share data) |
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2017 |
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2016 |
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2015 |
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NET INCOME (LOSS) PER SHARE — BASIC: |
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Net income (loss) attributable to ADS |
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$ |
32,950 |
|
|
$ |
25,052 |
|
|
$ |
(7,827 |
) |
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Adjustment for: |
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Change in fair value of redeemable convertible preferred stock |
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— |
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|
|
— |
|
|
|
(11,054 |
) |
|
Accretion of redeemable noncontrolling interest in subsidiaries |
|
|
(1,560 |
) |
|
|
(932 |
) |
|
|
— |
|
|
Dividends paid to redeemable convertible preferred stockholders |
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|
(1,646 |
) |
|
|
(1,425 |
) |
|
|
(661 |
) |
|
Dividends paid to unvested restricted stockholders |
|
|
(73 |
) |
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(24 |
) |
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|
(11 |
) |
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Net income (loss) available to common stockholders and participating securities |
|
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29,671 |
|
|
|
22,671 |
|
|
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(19,553 |
) |
|
Undistributed income allocated to participating securities |
|
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(1,700 |
) |
|
|
(1,270 |
) |
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|
— |
|
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Net income (loss) available to common stockholders — Basic |
|
|
27,971 |
|
|
|
21,401 |
|
|
|
(19,553 |
) |
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Weighted average number of common shares outstanding — Basic |
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|
54,919 |
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|
53,978 |
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51,344 |
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Net income (loss) per common share — Basic |
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$ |
0.51 |
|
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$ |
0.40 |
|
|
$ |
(0.38 |
) |
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NET INCOME (LOSS) PER SHARE — DILUTED: |
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Net income (loss) available to common stockholders — Diluted |
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27,971 |
|
|
|
21,401 |
|
|
|
(19,553 |
) |
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Weighted average number of common shares outstanding — Basic |
|
|
54,919 |
|
|
|
53,978 |
|
|
|
51,344 |
|
|
Assumed exercise of stock options |
|
|
705 |
|
|
|
1,198 |
|
|
|
— |
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Weighted average number of common shares outstanding — Diluted |
|
|
55,624 |
|
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|
55,176 |
|
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|
51,344 |
|
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Net income (loss) per common share — Diluted |
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$ |
0.50 |
|
|
$ |
0.39 |
|
|
$ |
(0.38 |
) |
|
Potentially dilutive securities excluded as anti- dilutive |
|
|
6,228 |
|
|
|
6,383 |
|
|
|
5,395 |
|
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.