Question

GRUBHUB INC. Notes to Consolidated Financial Statements (Continued) 14. Earnings per Share Attributable to Common Stockholders 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 without consideration for common stock equivalents. Diluted net income per share attributable to common stockholders is computed by dividing net income by the weighted average number of common shares outstanding during the period and potentially dilutive common stock equivalents, including stock options, restricted stock units and restricted stock awards, except in cases where the effect of the common stock equivalent would be antidilutive. Potential common stock equivalents consist of common stock issuable upon exercise of stock options and vesting of restricted stock units and restricted stock awards using the treasury stock method. The sale of 2.820,464 shares of the Company's common stock to the Investor on April 25, 2018 resulted in an immediate increase in the outstanding shares used to calculate the weighted average common shares outstanding for the year ended December 31, 2018 (see Note 12, Stockholders' Equity). The following table presents the calculation of basic and diluted net income per share attributable to common stockholders for the years ended December 31, 2018, 2017 and 2016: Year Ended December 31, 2018 2017 2016 (in thousands, except per share data) $78,481 $98,983 $49,557 Basic earnings per share: Net income attributable to common stockholders (numerator) Shares used in computation (denominator) Weighted average common shares outstanding Basic earnings per share 89,447 $ 0.88 86,297 $ 1.15 85,069 $ 0.58

Answer 1

I. A - No, this is not the actual number of shares that could be exercised. This is the equivalent number of shares derived from number of options outstanding using the treasury method.

I. B - The number is determined using the treasury method. Under this method, if there are N number of in the money options outstanding with strike price of K, while the stock price is S, then the number of resultant shares that will be considered in denominator = N x (1 - K / S)

Hence, 1,601,000 must have been derived using all such series of options outstanding in the firm i.e.

1, 601,000 = Ni (1 - 1) + N2(1 - ) + No(1 – Ls +....

II. A - Anti dilutive means: Securities / financial instruments that are currently not in the form of common stock, but can be converted into common stock, and when converted into common stock, they will increase earnings per share. So, these securities when exercised will increase the EPS and not reduce it. They are therefore called anti dilutive.

II. B - These instruments are anti dilutive. When converted into common stock, they will increase earnings per share. So, these securities when exercised will increase the EPS and not reduce it. They are therefore called anti dilutive. And hence they are not included in the denominator when calculating the diluted EPS.