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To: LKO who wrote (6772)	1/14/1998 7:28:00 PM
From: Thomas Haegin	Respond to of 64865

LKL, I do not the particularities of the new FASB 15, but maybe I can help on what is dilution. I think it is best explained with an example: Take a co. with 10 mio shares outstanding, no LT debt (bonds outstanding), reporting a profit of $10 mio, equals EPS of $1. Are you with me <g>? Take the same co., but this time they also have a convertible bond outstanding. The principal amount, as per the bond prospectus, is convertible into 1 mio. of common stock shares. The conversion period ends on 12/31/99. This means that all things being equal, at the end of '99 the co. has not 10 but 11 mio shares outstanding. The convertible bond has a so called "dilutive effect" on the amount of stock outstanding: If you as a current investor do nothing, your share of ownership in the co. will be diminished by '99. Therefore current shareholders may ask (well, accounts must ask): What's current EPS when calculated on all ever possibly outstanding future shares? In our example, the diluted earnings are now $10m on 11m shares or an EPS of 91›. Of course, the dilution can come from all sorts of instruments: options when exercised, bonds, preferred shares, warrants - you cite them. But essentially, no rocket science. If anybody can explain me what exactly the difference of the old way vs. the new FASB 15 is, I'd be glad. As far as I understand, "fully diluted" is still "fully diluted". I personally always look only to "fully diluted" EPS, anyway. Thomas