Assignment -
The following schedule sets forth the short-term debt, long-term debt, and shareholders' equity of the Chia-Lo Szu Company as of December 31, 2002. The president has requested that you assist the controller in preparing figures for earnings per share calculations.
Short-term debt:
Notes payable-Banks - $4,000,000
Current portion of long-term debt - 10,000,000
Total short-term debt - $14,000,000
Long-term debt:
4.0% convertible debentures due 15/04/2005 - $30,000,000
Other long-term debt less current portion - 20,000,000
Total long-term debt - $ 50,000,000
Shareholders' equity:
$4.00 cumulative convertible preferred shares,
no-par value: authorized, 2,000,000 shares;
issued an outstanding, 1,200,000 shares;
liquidation preference, $30.00 per share,
aggregating $36,000,000 ........... $ 24,000,000
Common shares. No-par value:
authorized, 20,000,000 shares; issued 7,000,000 shares,
including 500,000 shares held in treasury - 11,200,000
Retained earnings - 76,500,000
Total - $111,700,000
Less: Cost of 500,000 common shares held in treasury (acquired prior to 2002) - (900,000)
Total Shareholders' Equity - $110,800,000
Total Liabilities and Shareholders' Equity - $174.800,000
Other Information:
1. The other long-term debt and the related amounts due within one year are amounts due on unsecured promissory notes that require payments each year to maturity. The effective interest rates on these borrowing range from 6.0 percent to 7.0 percent.
2. The 4.0 percent convertible debentures were issued at their face value of $30 million in 2000. The debentures are due in 2020 and until then are convertible into the common shares of the Chia-Lo Szu at the rate of 25 for each $1,000 debentures.
3. The $4.00 cumulative convertible preferred shares were issued in 2001. The shares had a market value of $75.00 at the time of issuance. On July 1, 2002, and on October 2002, holders of the preferred shares converted 80,000 and 20000 preferred shares, respectively, into common shares. Each preferred share is convertible into 1.2 common shares.
4. On April 1,2002, The Chia-Lo Szu acquired the assets and business of Wei Brown Industries by the issuance of 600,000 of Chia-Lo Szu's shares.
5. On October 1, 1991, the company granted options to its officers and selected employees to purchase 120,000 of the Chia-Lo Szu's common shares at the price of $20.00 per share. The market price was $100.00 per share. The options are not exercisable until 2004.
6. Dividends on the preferred shares have been paid through December 31, 2002. Dividends paid on the common shares were $.50 per share of each quarter.
7. The net income of the Chia-Lo Szu Company for the year ended December 31,2002, was $27.8 million. There were no extraordinary items. The provision for income taxes was calculated at a rate of 34.0 percent, and the annual average (pre-tax) return on invested capital was 10.0 percent.
Required: Calculate Earnings per Share.