Organic growth is the growth a company achieves by increasing output and enhancing sales internally. This does no include profits or growth attributable to merger and acquisitions but rather an increase in sales and expansion through the company’s own resources.

1. What is the three-year average organic revenue growth rate that PA should assume in determining the number of potentially outstanding dilutive awards for purposes of calculating diluted EPS?

2. What is the three-year average operating margin that PA should assume in determining the number of potentially outstanding dilutive awards for purposes of calculating diluted EPS?

• Assumed 3-year organic growth rate and average operating margin “x”

1st year – 10,000 + x

2nd year – 20,000 + x

3rd year – 30,000 + x

• For year ended Dec. 31, 2014, organic revenue increased 10%

1st year – 10,000 x 10% = 1,000 10,000 + 1,000 = 11,000

2nd year -20,000 x 10% = 2,000 20,000 + 2,000 = 22,000

3rd year – 30,000 x 10% = 3,000 30,000 + 3,000 = 33,000

• For year ended Dec. 31, 2014, operating margin was 40%

1st year – 10,000x x 40% = 4,000 10,000x + 4,000 = 14,000x

2nd year – 20,000x x 40% = 8,000 20,000x + 8,000 = 28,000x

3rd year – 30,000x x 40% = 12,000 30,000x + 12,000 = 42,000x

• For year ended Dec. 31, 2014, three-year average organic revenue increased 20%

1st year – 10,000 x 20% = 2,000 10,000 + 2,000 = 12,000

2nd year -20,000 x 20% = 4,000 20,000 + 4,000 = 24,000

3rd year – 30,000 x 20% = 6,000 30,000 + 6,000 = 36,000

• Fothe r year ended Dec. 31, 2014the , three-year average operating margin was 50%

1st year – 10,000x x 50% = 4,000 10,000x + 5,000 = 15,000x

2nd year – 20,000x x 50% = 8,000 20,000x + 10,000 = 20,000x

3rd year – 30,000x x 50% = 12,000 30,000x + 15,000 = 45,000x

*** EPS would not be diluted because RSU does not pay any price at the time of vesting ***