Earnings Per Share
Basic and diluted earnings per share are computed by dividing Net income attributable to common stockholders by the weighted-average common shares outstanding in the period. Diluted earnings per share is computed by giving effect to all potentially dilutive securities that are outstanding.
The following table summarizes basic and diluted earnings per share (in millions, except for per share amounts):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Basic earnings per share | | | | | |
Net income attributable to stockholders | $ | 5,346 |
| | $ | 6,188 |
| | $ | 9,190 |
|
Less: cumulative dividends on preferred stock and charge related to purchase of preferred stock(a) | (1,576 | ) | | (859 | ) | | (859 | ) |
Less: undistributed earnings allocated to Series B Preferred Stock participating security | — |
| | (470 | ) | | (746 | ) |
Net income attributable to common stockholders | $ | 3,770 |
| | $ | 4,859 |
| | $ | 7,585 |
|
| | | | | |
Weighted-average common shares outstanding - basic | 1,393 |
| | 1,566 |
| | 1,536 |
|
Basic earnings per common share | $ | 2.71 |
| | $ | 3.10 |
| | $ | 4.94 |
|
Diluted earnings per share | | | | | |
Net income attributable to stockholders | $ | 5,346 |
| | $ | 6,188 |
| | $ | 9,190 |
|
Add: preferred dividends to holders of Series B Preferred Stock | 218 |
| | — |
| | — |
|
Less: cumulative dividends on preferred stock and charge related to purchase of preferred stock(a) | (1,576 | ) | | (859 | ) | | (859 | ) |
Less: undistributed earnings allocated to Series B Preferred Stock participating security | — |
| | (442 | ) | | (693 | ) |
Net income attributable to common stockholders | $ | 3,988 |
| | $ | 4,887 |
| | $ | 7,638 |
|
Weighted-average common shares outstanding - diluted | | | | | |
Weighted-average common shares outstanding - basic | 1,393 |
| | 1,566 |
| | 1,536 |
|
Dilutive effect of warrants | 146 |
| | 104 |
| | 130 |
|
Dilutive effect of conversion of Series B Preferred Stock | 134 |
| | — |
| | — |
|
Dilutive effect of RSUs | 3 |
| | 5 |
| | 2 |
|
Weighted-average common shares outstanding - diluted | 1,676 |
| | 1,675 |
| | 1,668 |
|
| | | | | |
Diluted earnings per common share | $ | 2.38 |
| | $ | 2.92 |
| | $ | 4.58 |
|
__________
| |
(a) | Includes earned but undeclared dividends of $15 million, $26 million and $26 million on our Series A Preferred Stock in the years ended December 31, 2013, 2012 and 2011 and $20 million on our Series B Preferred Stock in the years ended December 31, 2012 and 2011. |
Holders of the Series B Preferred Stock had a right to participate in our undistributed earnings because a dividend, if declared, would result in a transfer of value to the holder through an adjustment to the fixed conversion ratios through various anti-dilution provisions. Based on the nature of the Series B Preferred Stock and the nature of these anti-dilution provisions, we concluded that the Series B Preferred Stock was a participating security and, as such, requires the application of the more dilutive of the two-class or if-converted method to calculate earnings per share when the applicable market value of our common stock is below or above the range of $33.00 to $39.60 per common share. For purposes of calculating earnings per share, the applicable market value is calculated as the average of the closing prices of our common stock over the 40 consecutive trading day period ending on the third trading day immediately preceding the date of our mandatory conversion in 2013 or the date of our financial statements for 2012 and 2011. The calculation of the applicable market value is applied to the full year, irrespective of the applicable market value computed during the prior quarters of the current year.
On the mandatory conversion date of our Series B Preferred Stock, December 1, 2013, the applicable market value of our common stock was within the range of $33.00 to $39.60 per common share and, as such, we applied the if-converted method for purposes of calculating diluted earnings per share in the year ended December 31, 2013. In the years ended December 31, 2012 and 2011, we were required to use the two-class method for calculating earnings per share as the applicable market value of our common stock was below $33.00 per common share. Under the two-class method for computing earnings per share, undistributed earnings are allocated to common stock and the Series B Preferred Stock according to their respective participation rights in undistributed earnings, as if all the earnings for the period had been distributed. This allocation to the Series B Preferred Stock holders reduced Net income attributable to common stockholders, resulting in a lower basic and dilutive earnings per share amount. The impact on diluted earnings per share was an increase of $0.13 in the year ended December 31, 2013 using the if-converted as compared to the two-class method. Our calculation of earnings per share varied from period to period depending on whether the two-class or if-converted method was required.
The application of the two-class method resulted in an allocation of undistributed earnings to our Series B Preferred Stock holders and, accordingly, 152 million common stock equivalents from the assumed conversion of the Series B Preferred Stock are not considered outstanding for purposes of determining the weighted-average common shares outstanding in the computation of diluted earnings per share for December 31, 2012 and 2011.
In the years ended December 31, 2013, 2012 and 2011 warrants to purchase 46 million shares were not included in the computation of diluted earnings per share because the warrants' exercise price was greater than the average market price of the common shares.
