AIG 2007 Annual Report Download - page 235

American International Group, Inc. and Subsidiaries
14. Shareholders’ Equity and Earnings Per Share
Continued
Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding, adjusted to reflect all stock
dividends and stock splits. Diluted earnings per share is based on those shares used in basic earnings per share plus shares that
would have been outstanding assuming issuance of common shares for all dilutive potential common shares outstanding, adjusted to
reflect all stock dividends and stock splits.
The computation of earnings per share for the years ended December 31, 2007, 2006 and 2005 was as follows:
Years Ended December 31,
(in millions, except per share data) 2007 2006 2005
Numerator for earnings per share:
Income before cumulative effect of an accounting change $6,200 $14,014 $10,477
Cumulative effect of an accounting change, net of tax —34 —
Net income applicable to common stock for basic EPS 6,200 14,048 10,477
Interest on contingently convertible bonds, net of tax —10 11
Net income applicable to common stock for diluted EPS 6,200 14,058 10,488
Cumulative effect of an accounting change, net of tax —(34) —
Income before cumulative effect of an accounting change applicable to common stock for diluted EPS $6,200 $14,024 $10,488
Denominator for earnings per share:
Weighted average shares outstanding used in the computation of EPS:
Common stock issued 2,751 2,751 2,751
Common stock in treasury (179) (153) (155)
Deferred shares 13 10 1
Weighted average shares outstanding — basic 2,585 2,608 2,597
Incremental shares from potential common stock:
Weighted average number of shares arising from outstanding employee stock plans (treasury stock
method)*13 721
Contingently convertible bonds —89
Weighted average shares outstanding — diluted*2,598 2,623 2,627
Earnings per share:
Basic:
Income before cumulative effect of an accounting change $ 2.40 $ 5.38 $ 4.03
Cumulative effect of an accounting change, net of tax —0.01 —
Net income $ 2.40 $ 5.39 $ 4.03
Diluted:
Income before cumulative effect of an accounting change $ 2.39 $ 5.35 $ 3.99
Cumulative effect of an accounting change, net of tax —0.01 —
Net income $ 2.39 $ 5.36 $ 3.99
* Certain shares arising from employee stock plans were not included in the computation of diluted earnings per share if the exercise price of the options
exceeded the average market price and were antidilutive. The number of shares excluded were 8 million, 13 million and 19 million for the years ended
December 31, 2007, 2006 and 2005, respectively.
AIG 2007 Form 10-K 181