Prudential 2015 Annual Report Download - page 166

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
(1) For the year ended December 31, 2013, weighted average shares for basic earnings per share is also used for calculating diluted earnings per share
because dilutive shares and dilutive earnings per share are not applicable when a loss from continuing operations is reported. As a result of the loss from
continuing operations available to holders of Common Stock after direct equity adjustment for the year ended December 31, 2013, all potential stock
options and compensation programs were considered antidilutive.
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 attributable to Prudential Financial are
allocated between Common Stock and the participating awards, as if the awards were a second class of stock. During periods of income
from continuing operations available to holders of Common Stock, after direct equity adjustment as applicable, the calculation of earnings
per share excludes the income attributable to participating securities in the numerator and the dilutive impact of these securities from the
denominator. In the event of loss from continuing operations available to holders of Common Stock, after direct equity adjustment as
applicable, undistributed earnings are not allocated to participating securities and the denominator excludes the dilutive impact of these
securities as they do not share in the losses of the Company. For 2013, undistributed earnings were not allocated to participating unvested
share-based payment awards as these awards do not participate in losses. Undistributed earnings allocated to participating unvested share-
based payment awards for the years ended December 31, 2015 and 2014 were based on 4.4 million and 4.3 million of such awards,
respectively, weighted for the period they were outstanding.
Stock options and shares related to deferred and long-term compensation programs that are considered antidilutive are excluded from
the computation of dilutive earnings per share. Stock options are considered antidilutive based on application of the treasury stock method
or in the event of loss from continuing operations available to holders of Common Stock, after direct equity adjustment as applicable.
Shares related to deferred and long-term compensation programs are considered antidilutive in the event of loss from continuing operations
available to holders of Common Stock, after direct equity adjustment as applicable. For the years ended December 31, the number of stock
options and shares related to deferred and long-term compensation programs that were considered antidilutive and were excluded from the
computation of diluted earnings per share, weighted for the portion of the period they were outstanding, are as follows:
2015 2014 2013
Shares
Exercise
Price Per
Share Shares
Exercise
Price Per
Share Shares
Exercise
Price Per
Share
(in millions, except per share amounts, based on
weighted average)
Antidilutive stock options based on application of the treasury stock method ......... 2.4 $87.97 1.9 $90.30 6.6 $73.51
Antidilutive stock options due to loss from continuing operations available to holders
of Common Stock after direct equity adjustment ............................. 0.0 0.0 12.2
Antidilutive shares due to loss from continuing operations available to holders of
Common Stock after direct equity adjustment ............................... 0.0 0.0 5.2
Total antidilutive stock options and shares ................................ 2.4 1.9 24.0
In September 2009, the Company issued $500 million of surplus notes with an interest rate of 5.36% per annum which are exchangeable at
the option of the note holders for shares of Common Stock. The initial exchange rate for the surplus notes was 10.1235 shares of Common Stock
per each $1,000 principal amount of surplus notes, which represents an initial exchange price per share of Common Stock of $98.78; however,
the exchange rate is subject to customary anti-dilution adjustments. In calculating diluted earnings per share under the if-converted method, the
potential shares that would be issued assuming a hypothetical exchange, weighted for the period the notes are outstanding, are added to the
denominator, and interest expense, net of tax, is added to the numerator, if the overall effect is dilutive.
17. SHARE-BASED PAYMENTS
Omnibus Incentive Plan
The Prudential Financial, Inc. Omnibus Incentive Plan (as subsequently amended and restated, the “Omnibus Plan”) provides stock-
based awards including stock options, stock appreciation rights, restricted stock shares, restricted stock units, stock settled performance
shares, and cash settled performance units. Dividend equivalents are generally provided on restricted stock shares and restricted stock units
outstanding as of the record date. Dividend equivalents are generally accrued on target performance shares and units outstanding as of the
record date. These dividend equivalents are paid only on the shares and units released up to a maximum of the target number of shares and
units awarded. Generally, the requisite service period is the vesting period. As of December 31, 2015, 7,947,141 authorized shares remain
available for grant under the Omnibus Plan.
Compensation Costs
Compensation cost for employee stock options is based on the fair values estimated on the grant date, using the approach and
assumptions described below. Compensation cost for restricted stock units, performance shares and performance units granted to
employees is measured by the share price of the underlying Common Stock at the date of grant.
164 Prudential Financial, Inc. 2015 Annual Report