Capstead Mortgage Corporation Announces Third Quarter Net Income.Business Editors/Real Estate Writers DALLAS--(BUSINESS WIRE)--Oct. 22, 2003 Capstead Mortgage Corporation (NYSE NYSE See: New York Stock Exchange :CMO CMO See: Collateralized mortgage obligation CMO See collateralized mortgage obligation (CMO). ) today reported net income of $14,779,000, or $0.63 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. common share, for the quarter ended September September: see month. 30, 2003, compared to $22,751,000, or $1.15 per diluted common share, for the third quarter of 2002. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , a non-GAAP financial measure calculated to exclude depreciation on real estate, gains on asset sales and redemptions of collateralized mortgage obligations Collateralized mortgage obligation (CMO) A security backed by a pool of pass-through rates , structured so that there are several classes of bondholders with varying maturities, called tranches. ("CMOs"), and the dilutive effects Dilutive effect Result of a transaction that decreases earnings per common share (EPS). of the Series B preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. , was $0.65 per common share for the third quarter of 2003, compared to $0.68 for the second quarter of 2003 and $1.19 for the third quarter of 2002. A table reconciling operating income per common share to net income per diluted common share (calculated in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ")) is included in this release. Third Quarter Results and Related Discussion Operating income declined less during the third quarter than in prior quarters primarily because of lower borrowing rates and the impact of additions made to the Company's portfolio of mortgage securities and similar investments. This portfolio currently consists largely of adjustable-rate mortgage Adjustable-rate mortgage (ARM) A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or ("ARM") Fannie Mae Fannie Mae: see Federal National Mortgage Association. , Freddie Mac Freddie Mac: see Federal Home Loan Mortgage Corporation. and Ginnie Mae Ginnie Mae: see Federal National Mortgage Association. securities ("Agency Securities"). Financing spreads (the difference between the yields earned on these investments and the rates charged on related borrowings) declined seven basis points during the third quarter to 2.69% because of lower portfolio yields, as discussed below, offset by lower borrowing rates, which benefited from the action taken by the Federal Reserve on June June: see month. 25, 2003 to reduce the Federal Funds Rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. by 25 basis points. During the third quarter, the Company acquired $163 million of ARM Agency Securities. In addition, Capstead retained $121 million of fixed-rate collateral collateral (kəlăt`ərəl), something of value given or pledged as security for payment of a loan. Collateral consists usually of financial instruments, such as stocks, bonds, and negotiable paper, rather than physical goods, although released from financed CMOs that the Company expects will earn improved financing spreads than when previously financed by CMO bonds. Together, these additions more than offset $210 million of runoff Runoff The procedure of printing the end-of-day prices for every stock on an exchange onto ticker tape. Notes: If the "tape is late" then it can take a long time to print off all the closing prices. caused primarily by mortgage prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. during the third quarter. The overall yield earned on the portfolio averaged 3.82% during the third quarter of 2003, a decline of 24 basis points from an average yield of 4.06% earned during the previous quarter. Yields on ARM securities fluctuate as coupon A certificate evidencing the obligation to pay an installment of interest or a dividend that must be cut and presented to its issuer for payment when it is due. Coupons are usually attached to a document, such as a promissory note, bond, share of stock, or a bearer interest rates on the underlying mortgage loans reset to reflect current interest rates and are expected to continue to decline in the coming quarters. For example, if interest rates stabilize stabilize See peg. at current rates, the average yield on the portfolio could decline approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 38 basis points by the third quarter of 2004. Actual yields will depend on portfolio composition as well as fluctuations in, and market expectations for fluctuations in, interest rates and levels of mortgage prepayments. Average rates on related borrowings were 1.13% during the third quarter of 2003, a decline of 17 basis points from the second quarter. The Company's borrowing rates depend on actions by the Federal Reserve to change short-term interest rates Short-term interest rates Interest rates on loan contracts-or debt instruments such as Treasury bills, bank certificates of deposit or commerical paper-having maturities of less than one year. Often called money market rates. , market expectations of future changes in short-term interest rates and the extent of changes in financial market liquidity. Commenting on Capstead's operations, Andrew F. Jacobs, President and Chief Executive Officer, said, "Sharp increases in medium and long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. interest rates in July July: see month. and August provided us the opportunity to acquire a significant amount of mortgage assets during the third quarter at attractive prices. Interest rates declined again in September and although we believe there may continue to be opportunities to acquire additional mortgage assets at attractive prices in the near future, such acquisitions may not be sufficient to replace runoff of our existing portfolio. That being said, portfolio runoff Portfolio Runoff A decrease in the value and size of portfolios investing in mortgages and mortgage-backed securities. Notes: This decrease occurs because of homeowners capitalizing on lowering interest rates through refinancing. is expected to begin moderating in the fourth quarter as a higher interest rate environment has reduced, if not eliminated, the opportunity for homeowners to refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. their ARM loans into lower rate fixed-rate loans Fixed-rate loan A loan whose rate is fixed for the life of the loan. . Additionally, we will continue to see declines in average yields due to the reset to lower interest rates on mortgages underlying our ARM securities portfolio. The third quarter common dividend included the distribution of gains of $0.10 per share from the redemption The liberation of an estate in real property from a mortgage. Redemption is the process by which land that has been mortgaged or pledged is bought back or reclaimed. It is accomplished through a payment of the debt owed or a fulfillment of the other conditions. of remaining CMO bonds on securitizations previously issued by the Company. We do not anticipate realizing significant additional gains from CMO redemptions in the coming quarters." Commenting on the Company's investment strategy, Mr. Jacobs added, "We are currently in the process of reevaluating our investment strategy. While we fully expect to continue our current strategy of investing in assets that can provide attractive risk-adjusted returns Risk-Adjusted Return A measure of how much risk a fund or portfolio takes on to earn its returns, usually expressed as a number or a rating. Notes: This is often represented by the Sharpe Ratio. The more return per unit of risk, the better. over the long term with less sensitivity to changes in interest rates than investments in fixed-rate and medium-term Agency Securities, we are also examining other real estate-related opportunities to invest available capital." In conclusion, Mr. Jacobs cautioned, "We expect Capstead's operating income will continue to benefit from excellent financing spreads for the immediate future; however, opportunities to reinvest re·in·vest tr.v. re·in·vest·ed, re·in·vest·ing, re·in·vests To invest (capital or earnings) again, especially to invest (income from securities or funds) in additional shares. capital made available by maturing investments over the near term may likely not be of the size or have the return profile capable of generating sufficient returns to offset declining earnings from our existing portfolios. As a result, quarterly operating income and common dividends may continue trending lower from current levels." Book Value per Common Share Book Value Per Common Share A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: As of September 30, 2003, the Company's book value per common share was $7.05, a decline of $0.78 during the current quarter and $1.18 since December December: see month. 31, 2002. Book value declined since year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. because of dividend payments in excess of quarterly net income (approximately $0.16 per share) and, more significantly, a reduction in the aggregate unrealized gain Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. on the Company's investments (most of which are debt securities carried at fair value with changes in fair value reflected in stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. ) as a result of recent increases in interest rates and runoff caused by mortgage prepayments. This unrealized gain can be expected to continue to decline with runoff and to fluctuate with changes in interest rates and market liquidity, and such changes will largely be reflected in book value per common share. Book value will also be affected by other factors, including the level of dividend distributions and depreciation charges on net-leased real estate; however, temporary changes in fair values of investments not held in the form of debt or equity securities generally will not affect book value. Capstead Mortgage Corporation, a real estate investment trust ("REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). "), earns income from investing in real estate-related assets and other investment strategies. This document contains "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " (within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995) that inherently involve risks and uncertainties. The Company's actual results and liquidity can differ materially from those anticipated in these forward-looking statements because of changes in the level and composition of the Company's investments and unforeseen factors. As discussed in the Company's filings with the Securities and Exchange Commission, these factors may include, but are not limited to, changes in general economic conditions, the availability of suitable investments, fluctuations in, and market expectations for fluctuations in, interest rates and levels of mortgage prepayments, deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. in credit quality and ratings, the effectiveness of risk management strategies, the impact of leverage, liquidity of secondary markets and credit markets, increases in costs and other general competitive factors. Relative to direct investments in real estate, these factors may include, but are not limited to, lessee One who rents real property or Personal Property from another. A lessee of land is a tenant. Cross-references Landlord and Tenant. lessee n. the person renting property under a written lease from the owner (lessor). performance under lease agreements, changes in general as well as local economic conditions and real estate markets, increases in competition and inflationary in·fla·tion·ar·y adj. Of, associated with, or tending to cause inflation: inflationary prices; inflationary policies. Adj. 1. pressures, changes in the tax and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. environment including zoning and environmental laws, uninsured losses or losses in excess of insurance limits and the availability of adequate insurance coverage at reasonable costs.
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
September December
30, 2003 31, 2002
----------- -----------
(unaudited)
Assets
Mortgage securities and similar investments
($2.0 billion pledged under repurchase
arrangements) $2,120,974 $2,431,519
CMO collateral and investments 240,528 1,083,421
----------- -----------
2,361,502 3,514,940
Real estate held for lease, net of
accumulated depreciation 134,341 137,122
Receivables and other assets 58,474 55,863
Cash and cash equivalents 98,025 59,003
----------- -----------
$2,652,342 $3,766,928
=========== ===========
Liabilities
Repurchase arrangements and similar
borrowings $1,994,389 $2,145,656
Collateralized mortgage obligations ("CMOs") 239,565 1,074,779
Borrowings secured by real estate 120,253 120,400
Incentive fee payable to former affiliate -- 4,982
Common stock dividend payable 10,513 116,585
Accounts payable and accrued expenses 5,281 5,948
----------- -----------
2,370,001 3,468,350
----------- -----------
Stockholders' equity
Preferred stock - $0.10 par value; 100,000
shares authorized:
$1.60 Cumulative Preferred Stock, Series
A, 211 and 219 shares issued and
outstanding at September 30, 2003 and
December 31, 2002, respectively ($3,468
aggregate liquidation preference) 2,956 3,058
$1.26 Cumulative Convertible Preferred
Stock, Series B, 15,819 and 15,820
shares issued and outstanding at
September 30, 2003 and December 31,
2002, respectively ($180,025 aggregate
liquidation preference) 176,707 176,708
Common stock - $0.01 par value; 100,000
shares authorized; 14,017 and 13,962 shares
issued and outstanding at September 30, 2003
and December 31, 2002, respectively 140 140
Paid-in capital 456,981 458,919
Accumulated deficit (387,718) (387,718)
Accumulated other comprehensive income 33,275 47,471
----------- -----------
282,341 298,578
----------- -----------
$2,652,342 $3,766,928
=========== ===========
Book value per common share $7.05 $8.23
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended Nine Months Ended
September 30 September 30
----------------- ------------------
2003 2002 2003 2002
-------- -------- -------- ---------
Interest income:
Mortgage securities and similar
investments $19,599 $34,866 $66,384 $120,701
CMO collateral and investments 5,971 26,316 31,061 94,446
-------- -------- -------- ---------
Total interest income 25,570 61,182 97,445 215,147
-------- -------- -------- ---------
Interest and related expense:
Repurchase arrangements and
similar borrowings 5,377 11,886 19,050 38,897
CMO borrowings 5,803 26,594 31,152 95,559
Mortgage insurance and other 93 144 301 468
-------- -------- -------- ---------
Total interest and related
expense 11,273 38,624 50,503 134,924
-------- -------- -------- ---------
Net margin on financial
assets 14,297 22,558 46,942 80,223
-------- -------- -------- ---------
Real estate lease income 2,468 3,219 7,564 5,406
-------- -------- -------- ---------
Real estate-related expense:
Interest 1,046 1,918 3,271 3,214
Depreciation 927 962 2,781 1,604
-------- -------- -------- ---------
Total real estate-related
expense 1,973 2,880 6,052 4,818
-------- -------- -------- ---------
Net margin on real estate
held for lease 495 339 1,512 588
-------- -------- -------- ---------
Other revenue (expense):
Gain on asset sales and CMO
redemptions 1,411 1,901 4,551 1,901
CMO administration and other 459 914 860 2,114
Incentive fee payable to former
affiliate -- (1,351) (500) (4,034)
Other operating expense (1,883) (1,610) (5,802) (5,080)
-------- -------- -------- ---------
Total other revenue
(expense) (13) (146) (891) (5,099)
-------- -------- -------- ---------
Net income $14,779 $22,751 $47,563 $75,712
======== ======== ======== =========
Net income $14,779 $22,751 $47,563 $75,712
Less cash dividends paid on
preferred stock (5,068) (5,097) (15,204) (15,296)
-------- -------- -------- ---------
Net income available to common
stockholders $9,711 $17,654 $32,359 $60,416
======== ======== ======== =========
Net income per common share:
Basic $0.69 $1.27 $2.32 $4.36
Diluted 0.63 1.15 2.04 3.82
Cash dividends declared per
share:
Common $0.750 $1.320 $2.470 $4.400
Series A Preferred 0.400 0.400 1.200 1.200
Series B Preferred 0.315 0.315 0.945 0.945
CAPSTEAD MORTGAGE CORPORATION
MARKET VALUE ANALYSIS
(In thousands)
(Unaudited)
September 30, 2003
----------------------------------
Principal Premium
Balance (Discount) Basis
----------- ---------- -----------
Debt securities held available-
for-sale: (a)
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate $1,019 $4 $1,023
ARMs:
LIBOR/CMT 937,543 13,416 950,959
COFI 99,528 (2,878) 96,650
Ginnie Mae ARMs 706,595 7,639 714,234
----------- ---------- -----------
1,744,685 18,181 1,762,866
----------- ---------- -----------
Non-agency securities:
Fixed-rate 2,369 -- 2,369
ARMs 63,742 581 64,323
----------- ---------- -----------
66,111 581 66,692
CMBS - adjustable rate 72,587 (20) 72,567
CMO collateral and investments 17,590 416 18,006
----------- ---------- -----------
$1,900,973 $19,158 $1,920,131
=========== ========== ===========
Debt securities held-to-maturity:
(b)
Released CMO collateral:
Agency Securities:
Fixed-rate $1,331 $10 $1,341
Non-agency securities:
Fixed-rate 120,025 429 120,454
ARMs 28,286 957 29,243
----------- ---------- -----------
149,642 1,396 151,038
CMO collateral 220,609 1,328 221,937
----------- ---------- -----------
$370,251 $2,724 $372,975
=========== ========== ===========
December
September 30, 2003 31, 2002
---------------------- -----------
Unrealized Unrealized
Market Gains Gains
Value (Losses) (Losses)
----------- ---------- -----------
Debt securities held available-
for-sale: (a)
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate $1,118 $95 $139
ARMs:
LIBOR/CMT 970,609 19,650 25,679
COFI 100,576 3,926 5,774
Ginnie Mae ARMs 721,676 7,442 12,792
----------- ---------- -----------
1,793,979 31,113 44,384
----------- ---------- -----------
Non-agency securities:
Fixed-rate 2,454 85 --
ARMs 65,426 1,103 1,504
----------- ---------- -----------
67,880 1,188 1,504
CMBS - adjustable rate 72,587 20 82
CMO collateral and investments 18,591 585 871
----------- ---------- -----------
$1,953,037 $32,906 $46,841
=========== ========== ===========
Debt securities held-to-maturity:
(b)
Released CMO collateral:
Agency Securities:
Fixed-rate $1,462 $121 $192
Non-agency securities:
Fixed-rate 124,203 3,749 52
ARMs 28,950 (293) --
----------- ---------- -----------
154,615 3,577 244
CMO collateral 222,187 250 (3,844)
----------- ---------- -----------
$376,802 $3,827 $(3,600)
=========== ========== ===========
(a) Unrealized gains and losses on investments in debt securities
classified as available-for-sale are recorded in stockholders'
equity as a component of "Accumulated other comprehensive income."
Gains or losses are recognized in operating results only if sold.
Investments in a commercial loan syndication and real estate held
for lease are not classified as debt securities. Consequently,
these assets are not subject to mark-to-market accounting and
therefore have been excluded from this analysis.
(b) Investments in debt securities classified as held-to-maturity are
carried on the balance sheet at amortized cost.
CAPSTEAD MORTGAGE CORPORATION
MORTGAGE SECURITIES AND SIMILAR INVESTMENTS
YIELD/COST ANALYSIS
(Dollars in thousands)
(Unaudited)
As of September 30,
3rd Quarter Average (a) 2003
---------------------------- ----------------------
Actual Actual Premiums
Basis Yield/Cost Runoff (Discounts) Basis (a)
---------- ---------- ------ ----------- ----------
Agency Securities:
Fannie Mae/Freddie
Mac:
Fixed-rate $2,566 9.41% 39% $14 $2,364
ARMs:
LIBOR/CMT 945,915 3.43 29 13,416 950,959
COFI 102,189 4.83 30 (2,878) 96,650
Ginnie Mae ARMs 685,978 3.85 43 7,639 714,234
---------- ----------- ----------
1,736,648 3.69 35 18,191 1,764,207
Non-agency
securities:
Fixed-rate 97,189 6.47 30 429 122,823
ARMs 103,099 3.00 50 1,538 93,566
---------- ----------- ----------
200,288 4.68 41 1,967 216,389
CMBS and other
commercial loans 108,273 4.27 2 1 108,057
---------- ----------- ----------
2,045,209 3.82 35 $20,159 2,088,653
===========
Borrowings 1,865,726 1.13 1,994,389
---------- ----------
Capital employed/
financing spread $179,483 2.69 $94,264
========== ==========
Return on assets
(c) 2.77
Projected Lifetime
4th Quarter Prepayment
Yield/Cost (b) Assumptions
---------------- ------------
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate 9.50% 30%
ARMs:
LIBOR/CMT 3.18 25
COFI 4.64 25
Ginnie Mae ARMs 3.64 26
3.45 25
Non-agency securities:
Fixed-rate 6.22 32
ARMs 3.37 40
5.10 35
CMBS and other
commercial loans 4.28 --
3.67 25
Borrowings 1.15
Capital employed/
financing spread 2.52
Return on assets (c) 2.60
(a) Basis represents the Company's investment before unrealized gains
and losses. Actual asset yields, runoff rates, borrowing rates and
resulting financing spread are presented on an annualized basis.
(b) Projected annualized yields for the fourth quarter 2003 reflect
ARM coupon resets and lifetime prepayment assumptions as adjusted
for expected prepayments over the next three months, as of the
date of this press release. Actual yields realized in future
periods will largely depend upon (i) changes in portfolio
composition, (ii) ARM coupon resets, (iii) actual prepayments and
(iv) any changes in lifetime prepayment assumptions.
(c) The Company generally uses its liquidity to pay down borrowings.
Return on assets is calculated on an annualized basis assuming the
use of this liquidity to reduce borrowing costs.
CAPSTEAD MORTGAGE CORPORATION
COMPARISON OF OPERATING INCOME (a)
AND DILUTED INCOME PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended
------------------------------------------
September 30, 2003 June 30, 2003
-------------------- ---------------------
Operating Diluted Operating Diluted
---------- --------- ----------- ---------
Net income $14,779 $14,779 $15,241 $15,241
Adjustments for:
Depreciation on real estate 927 -- 927 --
Gain on asset sales and CMO
redemptions (1,411) -- (1,393) --
Series B preferred dividends (4,982) -- (4,982) --
---------- --------- ----------- ---------
$9,313 $14,779 $9,793 $15,241
========== ========= =========== =========
Weighted average common
shares outstanding 13,995 13,995 13,978 13,978
Net effect of dilutive
securities:
Preferred B shares -- 8,987 -- 8,943
Stock options and other
preferred shares 353 353 349 349
---------- --------- ----------- ---------
14,348 23,335 14,327 23,270
========== ========= =========== =========
$0.65 $0.63 $0.68 $0.65
========== ========= =========== =========
Quarter Ended
------------------------------------------
September 30, 2002
------------------------------------------
Operating Diluted
-------------------- ---------------------
Net income $22,751 $22,751
Adjustments for:
Depreciation on real estate 962 --
Gain on asset sales and CMO
redemptions (1,901) --
Series B preferred dividends (4,990) --
-------------------- ---------------------
$16,822 $22,751
==================== =====================
Weighted average common
shares outstanding 13,871 13,871
Net effect of dilutive
securities:
Preferred B shares -- 5,638
Stock options and other
preferred shares 310 310
-------------------- ---------------------
14,181 19,819
==================== =====================
$1.19 $1.15
==================== =====================
(a) Capstead reports operating income per common share (a non-GAAP
financial measure calculated excluding depreciation on real
estate, gain on asset sales and CMO redemptions, and the dilutive
effects of the Series B preferred share) under the belief it
provides investors with a useful supplemental measure of the
Company's operating performance. Operating income represents a
measure of the amount of funds generated by operations, which may,
at the discretion of Capstead's Board of Directors, be used for
reinvestment or distributed to common stockholders as dividends.
Depreciation on real estate, although an expense deductible for
federal income tax purposes and therefore an item that reduces
Capstead's REIT distribution requirements, is added back to arrive
at operating income because it is a noncash expense. Gains are
excluded because they are considered non-operating in nature and
the amount and timing of any such gains are dependent upon future
market conditions. Operating income per common share excludes the
dilutive effects of the Series B preferred shares because it is
not economically advantageous to convert these shares at the
current market prices of both the common shares and Series B
preferred shares. Consequently, few, if any, actual Series B
conversions are expected. The Series B preferred shares are
considered dilutive, for diluted net income per common share
purposes only, whenever annualized basic net income per common
share exceeds $2.21 (the Series B preferred share annualized
dividend of $1.26 divided by the current conversion rate of
0.5708).
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