*Decisions Reached at the Last Meeting
At its March 5, 2008 meeting, the Board discussed significant issues raised by constituents on the proposed FSP. The Board reaffirmed that unvested share-based payment awards that are entitled to receive nonforfeitable dividends or dividend equivalents are participating securities and that both distributed and undistributed earnings should be allocated to participating securities. The Board also decided that:
- Only those unvested share-based payment awards that are expected to vest are participating securities.
- A change in an entity’s estimated forfeiture rate should not be captured as an adjustment to the computation of basic EPS pursuant to the two-class method.
- The FSP should require full retrospective application and become effective on the same date as the revised FASB Statement No. 128, Earnings Per Share, which will include the guidance in the proposed FSP FAS 128-a, Computational Guidance for Computing Diluted EPS under the Two-Class Method.
The Board directed the staff to proceed to a draft of a final FSP for vote by written ballot.
*Summary of Decisions Reached to Date
Presentation
Unvested share-based payment awards that are expected to vest and are entitled to receive nonforfeitable dividends or dividend equivalents are participating securities.
Both distributed and undistributed earnings should be allocated to participating securities.
A change in an entity’s estimated forfeiture rate should not be captured as an adjustment to the computation of basic EPS pursuant to the two-class method.
Transition and Effective Date
All prior-period EPS data (including interim financial statements, summaries of earnings, and selected financial data) should be adjusted retrospectively to conform to the provisions of the FSP.
The FSP guidance will become effective on the same date as the revised Statement 128.
*Board/Other Public Meeting Dates
The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final Statement, Interpretation, FSP, or Statement 133 Implementation Issue.
The following is a link to the minutes for the Board's meeting
Background Information
Statement 128, issued in 1997, defines EPS as "the amount of earnings attributable to each share of common stock" and indicates that the objective of EPS is to measure the performance of an entity over the reporting period. In its deliberations of Statement 128, the Board decided to require the use of the two-class method of computing EPS for those enterprises with participating securities or multiple classes of common stock (each with a different dividend rate from those of the other classes of common stock). Paragraph 60(a) of Statement 128 provides the following description of participating securities:
Securities that may participate in dividends with common stocks according to a predetermined formula (for example, two for one) with, at times, an upper limit on the extent of participation (for example, up to, but not beyond, a specified amount per share)
In 2004, the Emerging Issues Task Force addressed participating securities in EITF Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128." In Issue 2 of Issue 03-6, the Task Force reached a consensus that a participating security is a security that may participate in undistributed earnings with common stock in its current form, whether that participation is conditioned upon the occurrence of a specified event or not. However, in Issue 2(a), the Task Force stopped short of providing guidance on share-based payment awards until such time as those awards are fully vested.
At the September 29 and 30, 2004 EITF meetings, the Task Force confirmed that Issue 03-6 does not provide guidance about whether unvested instruments that are granted as share-based compensation are participating securities. As a result, EITF Issue No. 04-12, "Determining Whether Equity-Based Compensation Awards Are Participating Securities," was added to the EITF’s agenda. At the November 17 and 18, 2004 EITF meetings, the Task Force discussed Issue 04-12 but was unable to reach a consensus; accordingly, the Task Force agreed to discontinue discussion of Issue 04-12 and to remove it from the EITF's agenda.
At the October 11, 2006 FASB meeting, the Board decided to issue a proposed FSP to address whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in basic EPS using the two-class method described in paragraphs 60 and 61 of Statement 128.
