4.3 Earnings per Share
The presentation of earnings per share (EPS) generally depends on whether the
carve-out financial statements are consolidated or combined. In audited financial
statements, combined carve-out financial statements typically do not include
historical basic or diluted EPS because carve-out entities constitute a number of
different businesses or operations (i.e., rather than a single consolidated legal
entity) and, accordingly, do not have a separate and independent common equity
capital structure until the transaction is consummated (see Section
2.1 for discussion of the presentation of net parent investment
equity for carve-out entities). For this reason, typically only unaudited pro forma
EPS is presented for carve-out entities (and such information is presented outside
the financial statements).
However, the audited consolidated financial statements of existing subsidiaries that
prepare stand-alone consolidated financial statements generally include basic and
diluted EPS. In these situations, the denominator of the EPS calculation reflects
the actual common shares and potential common shares of the existing subsidiary that
were historically outstanding. In addition, unaudited pro forma EPS is typically
presented outside the financial statements when changes in the capital structure of
the existing subsidiary are expected to occur in conjunction with the transaction
(e.g., stock splits, reverse stock splits, or conversions or redemptions of
outstanding convertible securities).
For additional discussion of considerations related to a carve-out entity’s reporting
of EPS, see Section 8.6 of Deloitte’s Roadmap Earnings per
Share.