Prudential 2005 Annual Report Download - page 133

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PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
14. EARNINGS PER SHARE (continued)
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 is as follows:
2005 2004 2003
(in millions, except per share amounts)
Income
Weighted
Average
Shares
Per
Share
Amount Income
Weighted
Average
Shares
Per
Share
Amount Income
Weighted
Average
Shares
Per
Share
Amount
Basic earnings per share
Income from continuing operations before extraordinary
gain on acquisition and cumulative effect of
accounting change attributable to the Financial
Services Businesses ........................... $3,281 $1,831 $1,082
Direct equity adjustment ......................... 82 84 60
Income from continuing operations before extraordinary
gain on acquisition and cumulative effect of
accounting change attributable to the Financial
Services Businesses available to holders of Common
Stock after direct equity adjustment ............... $3,363 511.8 $6.57 $1,915 520.6 $3.68 $1,142 544.4 $2.10
Effect of dilutive securities and compensation
programs
Stock options .................................. 5.9 4.1 1.5
Deferred and long-term compensation programs ....... 3.2 2.1 1.5
Equity security units ............................. — 4.4 1.0
Diluted earnings per share
Income from continuing operations before extraordinary
gain on acquisition and cumulative effect of
accounting change attributable to the Financial
Services Businesses available to holders of Common
Stock after direct equity adjustment ............... $3,363 520.9 $6.46 $1,915 531.2 $3.61 $1,142 548.4 $2.08
The Company’s convertible senior notes provide for the Company to issue shares of its Common Stock as a component of the
conversion of the notes. The notes will be dilutive to earnings per share if the average market price of the Common Stock for a
particular period is above $90.00. See Note 11 for additional information regarding the convertible senior notes.
For the years ended December 31, 2005, 2004 and 2003, 1.8 million, 4.5 million and 9.3 million options, respectively,
weighted for the portion of the period they were outstanding, with a weighted average exercise price of $56.02, $44.94 and $31.66
per share, respectively, were excluded from the computation of diluted earnings per share because the options, based on application
of the treasury stock method, were antidilutive.
Class B Stock
Net income per share of Class B Stock was $119.50, $249.00 and $89.50 for the years December 31, 2005, 2004 and 2003,
respectively.
Prudential Financial 2005 Annual Report 131