Londonrocks

Diluted EPS accounts for all "dilutive" securities in a capital structure, where a dilutive security is one that would reduce EPS if converted into common equity.

If the effect of a "potentially dilutive" security is not in fact "dilutive" (i.e. its conversion into common equity would NOT reduce EPS to a level below basic EPS) it is ignored from the calculation of diluted EPS.