Prudential 2006 Annual Report Download - page 148

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
13. STOCKHOLDERS’ EQUITY (continued)
Statutory Net Income and Surplus
Prudential Financial’s U.S. insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory
accounting practices prescribed or permitted by the insurance department of the state of domicile. Statutory accounting practices primarily
differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using
different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis.
Statutory net income of Prudential Insurance amounted to $444 million, $2,170 million and $1,878 million for the years ended
December 31, 2006, 2005 and 2004, respectively. Statutory capital and surplus of Prudential Insurance amounted to $5,973 million and
$7,065 million at December 31, 2006 and 2005, respectively.
14. 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 is as follows:
2006 2005 2004
(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 ......... $3,079 $3,301 $1,820
Direct equity adjustment .............................. 68 82 84
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 ....................................... $3,147 484.2 $6.50 $3,383 511.8 $6.61 $1,904 520.6 $3.66
Effect of dilutive securities and compensation programs
Stock options ....................................... 6.6 5.9 4.1
Deferred and long-term compensation programs ........... 3.2 3.2 2.1
Equity security units ................................. — — 4.4
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 ....................................... $3,147 494.0 $6.37 $3,383 520.9 $6.49 $1,904 531.2 $3.58
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
146