Prudential 2012 Annual Report Download - page 167

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
15. EQUITY (continued)
(1) Includes cash flow hedges. See Note 21 for information on cash flow hedges. See Note 4 for additional information regarding unrealized investment
gains (losses), including the split between amounts related to fixed maturity securities on which an other-than-temporary impairment loss has been
recognized, and all other unrealized investment gains (losses).
(2) See Note 2 for additional information on changes in accounting for deferred acquisition costs and pension plans.
16. EARNINGS PER SHARE
The Company has outstanding two separate classes of common stock. The Common Stock reflects the performance of the Financial
Services Businesses and the Class B Stock reflects the performance of the Closed Block Business. Accordingly, earnings per share is
calculated separately for each of these two classes of common stock.
Net income for the Financial Services Businesses and the Closed Block Business is determined in accordance with U.S. GAAP and
includes general and administrative expenses charged to each of the respective businesses based on the Company’s methodology for the
allocation of such expenses. Cash flows between the Financial Services Businesses and the Closed Block Business related to administrative
expenses are determined by a policy servicing fee arrangement that is based upon insurance and policies in force and statutory cash
premiums. To the extent reported administrative expenses vary from these cash flow amounts, the differences are recorded, on an after tax
basis, as direct equity adjustments to the equity balances of the businesses.
The direct equity adjustments modify the earnings available to each of the classes of common stock for earnings per share purposes.
Common Stock
A reconciliation of the numerators and denominators of the basic and diluted per share computations for the years ended
December 31, is as follows:
2012 2011 2010
Income
Weighted
Average
Shares
Per
Share
Amount Income
Weighted
Average
Shares
Per
Share
Amount Income
Weighted
Average
Shares
Per
Share
Amount
(in millions, except per share amounts)
Basic earnings per share
Income from continuing operations attributable to the Financial
Services Businesses .................................... $489 $3,457 $2,485
Direct equity adjustment .................................. 20 24 36
Less: Income attributable to noncontrolling interests ............ 78 72 11
Less: Earnings allocated to participating unvested share-based
payment awards ....................................... 7 45 32
Income from continuing operations attributable to the Financial
Services Businesses available to holders of Common Stock after
direct equity adjustment ................................. $424 465.6 $0.91 $3,364 480.2 $7.01 $2,478 466.8 $5.31
Effect of dilutive securities and compensation programs
Add: Earnings allocated to participating unvested share-based payment
awards—Basic ........................................ $ 7 $ 45 $ 32
Less: Earnings allocated to participating unvested share-based
payment awards—Diluted ............................... 7 45 32
Stock options ........................................... 1.9 2.9 3.0
Deferred and long-term compensation programs ................ 0.6 0.5 0.5
Exchangeable Surplus Notes ............................... 0 0.0 17 5.1 17 5.1
Diluted earnings per share
Income from continuing operations attributable to the Financial
Services Businesses available to holders of Common Stock after
direct equity adjustment ................................. $424 468.1 $0.91 $3,381 488.7 $6.92 $2,495 475.4 $5.25
Unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and included in the
computation of earnings per share pursuant to the two-class method. Under this method, earnings of the Financial Services Businesses
attributable to Prudential Financial, Inc. are allocated between Common Stock and the participating awards, as if the awards were a second
class of stock. Undistributed earnings allocated to participating unvested share-based payment awards for the years ended December 31,
2012, 2011 and 2010 was based on 4.6 million, 6.5 million and 6.1 million of such awards, respectively, weighted for the period they were
outstanding. The computation of earnings per share of Common Stock excludes the dilutive impact of participating unvested share-based
awards based on the application of the two-class method.
For the years ended December 31, the number of options, weighted for the portion of the period they were outstanding, that were
excluded from the computation of diluted earnings per share because the options, based on application of the treasury stock method, were
antidilutive, are as follows:
2012 2011 2010
Weighted
Average
Shares
Exercise
Price Per
Share
Weighted
Average
Shares
Exercise
Price Per
Share
Weighted
Average
Shares
Exercise
Price Per
Share
(in millions, except per share amounts)
Antidilutive options .............................................. 13.3 $69.80 10.8 $73.01 10.5 $71.67
Prudential Financial, Inc. 2012 Annual Report 165