Earnings Per Share

9 Months Ended

Sep. 30, 2015

EARNINGS PER SHARE

From demutualization through December 31, 2014, the Company had two separate classes of common stock. The Common Stock reflected the performance of the Company’s former Financial Services Businesses and the Class B Stock reflected the performance of the Company’s former Closed Block Business. Earnings per share were calculated separately for each of these two classes of common stock and included a direct equity adjustment to modify the earnings available to each of the classes of common stock for the difference between the allocation of general and administrative expenses to each of the businesses and the cash flows between the businesses related to these expenses. Accordingly, earnings per share of Common Stock presented below for the three and nine months ended September 30, 2014, reflect earnings attributable to the former Financial Services Businesses.

As discussed in Note 1, on January 2, 2015, Prudential Financial repurchased and canceled all of the 2.0 million shares of the Class B Stock. Accordingly, earnings per share of Common Stock presented below for the three and nine months ended September 30, 2015, reflect the consolidated earnings of Prudential Financial. In addition, the Class B Repurchase resulted in the elimination of the separation of the former Financial Services Businesses and Closed Block Business. As a result, there was no direct equity adjustment recorded for the three and nine months ended September 30, 2015.

Earnings per share of the Class B Stock for the three and nine months ended September 30, 2014, is not presented herein as it is not meaningful due to the Class B Repurchase.

A reconciliation of the numerators and denominators of the basic and diluted per share computations of Common Stock based on the consolidated earnings of Prudential Financial for the three and nine months ended September 30, 2015, is as follows:



	September 30, 2015
	Three Months Ended					Nine Months Ended
	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 (loss) from continuing operations	$	1,467				$	4,972
Less: Income (loss) attributable to noncontrolling interests	2					65
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards	14					48
Income (loss) from continuing operations attributable to Prudential Financial available to holders of Common Stock	$	1,451	451.0	$	3.22	$	4,859	452.6	$	10.74
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic	$	14				$	48
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted	15					48
Stock options			2.3					2.4
Deferred and long-term compensation programs			0.9					0.9
Exchangeable Surplus Notes	4		5.5			13		5.5
Diluted earnings per share
Income (loss) from continuing operations attributable to Prudential Financial available to holders of Common Stock	$	1,454	459.7	$	3.16	$	4,872	461.4	$	10.56

A reconciliation of the numerators and denominators of the basic and diluted per share computations of Common Stock based on earnings attributable to the former Financial Services Businesses for the three and nine months ended September 30, 2014, is as follows:



	September 30, 2014
	Three Months Ended						Nine Months Ended
	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 (loss) from continuing operations attributable to the Financial Services Businesses	$	476					$	2,776
Direct equity adjustment	(3		)				(8		)
Less: Income (loss) attributable to noncontrolling interests	11						45
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards	4						25
Income (loss) from continuing operations attributable to the Financial Services Businesses available to holders of Common Stock after direct equity adjustment	$	458		458.0	$	1.00	$	2,698		459.4	$	5.87
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic	$	4					$	25
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted	4						25
Stock options				3.0						3.1
Deferred and long-term compensation programs				0.8						0.7
Exchangeable Surplus Notes	4			5.4			13			5.4
Diluted earnings per share
Income (loss) from continuing operations attributable to the Financial Services Businesses available to holders of Common Stock after direct equity adjustment	$	462		467.2	$	0.99	$	2,711		468.6	$	5.79

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. Undistributed earnings allocated to participating unvested share-based payment awards for the three months ended September 30, 2015 and 2014, as applicable, were based on 4.4 million and 4.3 million of such awards, respectively, and for the nine months ended September 30, 2015 and 2014, were based on 4.5 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 three and nine months ended September 30, 2015 and 2014, 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:



	Three Months Ended September 30,
	2015			2014
	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	2.5	$	88.00	1.8	$	90.85
Antidilutive stock options due to loss from continuing operations available to holders of Common Stock after direct equity adjustment	0.0			0.0
Antidilutive shares due to loss from continuing operations available to holders of Common Stock after direct equity adjustment	0.0			0.0
Total antidilutive stock options and shares	2.5			1.8



	Nine Months Ended September 30,
	2015			2014
	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	$	87.95	2.0	$	90.16
Antidilutive stock options due to loss from continuing operations available to holders of Common Stock after direct equity adjustment	0.0			0.0
Antidilutive shares due to loss from continuing operations available to holders of Common Stock after direct equity adjustment	0.0			0.0
Total antidilutive stock options and shares	2.4			2.0

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.